City of Kigali should have a conversation with banks

When most people start an SME, whether or not it is based at home, in a residential neighbourhood, or in a commercial premise, it is safe to say that majority do so after weighing the pros and cons of each location he considers to host the business.

When most people start an SME, whether or not it is based at home, in a residential neighbourhood, or in a commercial premise, it is safe to say that majority do so after weighing the pros and cons of each location he considers to host the business.

The final decision, one can therefore reasonably assume, depends largely on the nature of the business, its operational requirements, and cost.  

Notably, having evaluated factors for and against various locations particularly within Kigali, at the present moment, the significant number of businesses (in their thousands) operating from residential premises is only indicative of a commercial rent market that is out of touch with the reality on the ground.

The much debated $15 - $17 per square metre charged in commercial premises (still not sure why rent is quoted in US dollars and not Rwandan Francs!), doesn’t give SMEs a fighting chance – which is why many have opted for residential premises whose charges are a fraction of what commercial premises charge.

When we talk about value-for-money, this is precisely what free markets do; renting in a residential neighbourhood will cost far less than renting an equivalent space in a commercial area, which is without doubt the main motivator for operating from a residential premise. The other factors such as tranquillity come as added advantages.

However, let us not for a second assume that a scenario which puts SMEs at an advantage (presumably due to less rent fees), doesn’t come with limitations. It does. For starters, when many ordinary families are looking to rent a three or four-bedroom house to start a new family, they don’t just compete amongst themselves as residential tenants.

They also have to compete with SMEs and Non-Governmental Organisations (NGO) who are running away from the out-of-touch rent in commercial complexes.

And yet, by comparison, families can neither relocate to commercial premises due to unsuitability and high fees, and nor can they use mediocre monthly salaries to compete with SMEs’ and NGOs’ budgets.

The outcome of this scenario is that SMEs and NGOs win at the expense of ordinary families because when demand outstrips supply, prices go up, but only SMEs and NGOs can afford to pay $1000 - $3000 rent fees.

As if that wasn’t bad enough, a 2012 Housing Demand Study carried out by the City indicated that out of 223,000 housing units examined in 2011, only half were in good habitable condition.

According to the study, after taking into account the projected increase in urban population, from 18 to 35 percent by 2020, Kigali needs at least 458,265 housing units by 2022.

Second, when businesses operate from residential premises, it is only a matter of time before traffic-related challenges such as inadequate parking facilities emerge. In normal circumstances, a typical residential premise will have up to two parking spaces.

But when it is occupied by a business such as a restaurant where the dream is the more the merrier, customers begin to park on the street where security of property cannot be guaranteed by the business.

And by the way, if businesses are allowed to operate from residential properties, where is the line drawn as to which business can or cannot operate from residential premises? Imagine down the line when a small manufacturing company escaping out-of-touch commercial fees suddenly moves into your peaceful neighbourhood with machines that make a lot of noise operating 24/7, houses dangerous chemicals, and hires huge transportation trucks to transport products from their premise around the clock. It would make economic sense, but would it make common sense?

I don’t think it would be okay for anyone in a residential area to have a manufacturing SME move in as their next-door neighbour.

And, I know that manufacturing SMEs aren’t your typical neighbourhood per se, but like I said, if fairness is the name of the game and high rent fees are the benchmark for moving into residential properties, why then would you say no to a manufacturing SME moving into a residential property?

When you assess all the above-mentioned factors, it is perhaps possible, although not entirely satisfactory, to see why on the morning of January 5th, this paper reported that authorities from the City of Kigali had issued a policy directive ordering businesses and non-profit organisations operating from buildings designed for residential purposes to relocate to commercial complexes within three months from 1st January 2017.

Failure to do so would, according to this paper, result into closures.

According to City of Kigali vice mayor in charge of economic development, Partfait Busabizwa, the directive aims at “promoting efficient, secure and hygienic working environment,” with the vice mayor adding that “if living rooms are turned into offices, it is not easy to operate.”

Now, considering that high commercial rent fees are the obvious source of this entire conundrum, and that it goes without saying that commercial premises occupied to full capacity only serve to benefit the economy in general, is it not therefore reasonable to suggest that City of Kigali should have sought first to remedy this problem from its source by engaging relevant parties in order to ascertain why commercial premises are out-of-touch when it comes to rent fees rather than attempt to rigidly stick to the City’s master plan come what may?

Nonetheless, I’m still counting on one thing; I sincerely hope that behind the scenes (something that ought to be vocalised a lot more because uncertainty isn’t good for business), City officials are actively engaged in negotiations with relevant parties to try and reduce commercial rent fees because this would see commercial occupation increase - SMEs and NGOs would vacate residential premises and at last, allow ordinary families to afford rent fess which market forces would dictate would fall.

But of course, the ultimate question is; how then does City of Kigali get commercial premises to reduce rent fees to reflect the reality on the ground? There is no simple answer, but one would imagine that since the majority of commercial buildings are built using bank loans, and also giving commercial property proprietors the benefit of the doubt that only a few charge excessive fees simply to fill their pockets, the vast majority charge excessive fees to make a profit from their investment, yes, but also largely as a means to service expensive loans.

So, in the end, when the banks put pressure on proprietors, in turn, proprietors charge high rent fees with interest fees in mind rather than reality in mind. Therefore, as a suggestion, aided with relevant institutions, City of Kigali shouldn’t be asking businesses to vacate residential premises, they should be sitting down with banks for a serious conversation about excessive interest rates.

Solve that and everything else will fall into place.

junior.mutabazi@yahoo.co.uk

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