How goodwill ‘fee’ is killing business start-ups

Recently, a shopping mall in Nairobi was in what many would call a lock-down. Press reports chronicled how tenants closed shop in protest, after the property owners demanded Sh1.8 million as "goodwill" from each of them. The figure was later trimmed to Sh1.25 million. The tenants were infuriated by this development which they termed a "rip-off."

Their frustrations manifest the litany of challenges most entrepreneurs suffer in their quest to earn a living. The so-called goodwill ideal, a beloved of landlords, is a major upfront barrier into business.

Anyone with property to let for business always attaches this amorphous charge, which in most cases is untenable for would-be first timers. While leaving a business premises, the rate is renewed at a roof-crushing tangent bordering on the absurd. This charge has also made the cost of doing business too high, thus frustrating and therefore sabotaging entrepreneurship.

The consequence is that many who would have otherwise thrived in business are rendered jobless. Those who manage to raise the levy are forced to labour excess hours, pay low wages and hike price of goods and services to recoup their initial pay in the devil called goodwill.

Such is the malaise in the property market in Kenya, and especially the city, which is bristling with fraudsters and racketeers. It is a bandit sector. Even domestic rentals are not spared this swindle. Most tenants will confess that at one point, an agent or land lord has robbed them of their so-called 'deposit.' Sadly, since the crime continues unabated, the Rent Tribunal seems helpless.

That is why the goodwill regime is going wild. In Nairobi, goodwill fee is outrageously astronomical, if not ridiculous. Take a booth for selling clothes for instance. In most cases, measuring 10 by 10 feet, agents impose about Sh2 million as goodwill. For small time business people this is simply punitive.

Yet, no doubt, goodwill is earned. It is an intangible asset constructed over time drawing from the business's reputation, prestige and support from clients, employees and market position. Goodwill should be a feel good factor on customers who admire and respect the business and would support it through consumption of products or services. It is therefore strange that a new building would demand exorbitant goodwill without first earning a reputation.

On this concept, historians always go back to Lord Eldon's take on goodwill as "the probability that the old customers will resort to the old place." Any one in charge of corporate image understands that a reputable brand name is more crucial more than the physical assets - more critical in customer loyalty and repeat purchases as Eldon observed.

This concept, for instance, drives the Coca-Cola brand. The multinational's brand equity value stood at $ 80.21 billion in 2016. This means the company could actually demand that money from would-be buyer for the brand name alone. Now, that is goodwill. The company has invested in years of innovation, marketing, quality products and massive global outreach to achieve the reputation it enjoys today.

A Coca-Cola executive views the brand and its goodwill thus: "If Coca-Cola were to lose all of its production-related assets in a disaster, the company would survive. By contrast, if all consumers were to have a sudden lapse of memory and forget everything related to Coca-Cola, the company would go out of business."

Now, our premises are not Coca-Cola and if location would be an excuse for the so-called goodwill, what are we to make of the monthly rent charged? Furthermore, who determines this goodwill? How is it computed? This is a complex exercise unfathomable by majority of landlords or agents.

In Kenya, and most developing countries, goodwill is determined mainly at the whims of the landlords or their greedy agents. This gives credence to the oft thought reality that Kenya's property market regime is messy and crying out for urgent, sound frameworks to tame raw exploitation.

It is time goodwill on premises is legislated against. Rent should be regulated by market forces and not by a cartel like mentality. Otherwise, this goodwill jinni is a bad deal. To paraphrase Niccolo Machiavelli's The Prince "This barbarian exploitation stinks in the nostrils of all of us."

Mr Wamanji is a Media & Public Relations expert [email protected]. @manjis