Not only are job opportunities in Kenya increasingly shrinking, but tough economic times seem to be lasting as well. An unfavorable business environment on the other hand is not making life any easier. With Eldoret town being ranked the most favorable location to do business, it’s not all glitter and shine as you may imagine, especially for entrepreneurs eyeing startups due to one aspect known as goodwill.
If you thought getting the starting capital and permits to do business in Eldoret were the problem, then you may have something else to think about; Goodwill fees. This is the fee for intangible assets such as the recognition value and the value of the name that a particular business, (and recently extended to) commercial space attracts.
Goodwill in Eldoret town is expedited by the low supply of commercial spaces against high demand
Jack, a commercial space broker for the last 5 years admits that trend of exorbitant goodwills in Eldoret town was expedited by the low supply of commercial spaces against high demand. This imbalance in the law of demand and supply saw new commercial buildings coming up with skyrocketing rates knowing well that the entrepreneurs’ options were limited.
“A case of a mall that pioneered the new phase of commercial spaces in Eldoret set up almost two years ago, their goodwill fee for entrepreneurs eyeing the premises was as high as a million shillings. Despite this, people took up the spaces at an alarming rate, quenching the low supply thirst.
Recently more spaces have opened, some of the recent ones along the busy Elijah Cheruiyot street. They still ask for goodwill, just not as high as the previous one. Supply has increasingly gone up due to more commercial spaces coming up, as well as expansion of the existing ones into multi-stories.” Said Jack.
I am not sure which is more surprising, the fact that its new buildings which are yet to build a reputation or that they are charging more than even the ones which have been in existence for a while.
Moving on, take for instance a shop measuring about 20 feet by 13 feet in Eldoret’s busy streets that attracts goodwill between Ksh. 500, 000 to 2 million depending on how strategic it is, with the front-facing ones along Uganda road attracting as high as Ksh. 4 million and a monthly rent of at least Ksh. 70,000.
How much of this is valid in business though?
“The business name in itself is what is goodwill; How it has spread among the clients and customers who are being served by that particular business. A business entity is therefore entitled to goodwill. Goodwill on tenants, however, has no legal basis. For space, it’s a landlord-tenant relationship and it doesn’t attract any goodwill.” Says Kiplagat J. Misoi of Kiplagat J. Misoi and Co. Advocates.
Without a doubt, goodwill is earned. But how is it computed? It is fair to recognize that, not only do goodwill charges give the shop the upper hand in terms of a customer base and a reputation but it also filters out the serious customers from the not-so-serious ones.
One downside, however, is that landlords are now taking advantage of it to exploit tenants.
“Most of the landlords are just using it as a way to start earning from the spaces early. You know, Real estate is still a free market, in that if you are selling a property say a piece of land at the price of 5 million, no one can oppose it since no law determines that. It’s a matter of a willing buyer and a willing seller.” Jack.
According to a recent world bank report with regard to business in Kenya, Eldoret had a favorable business score of 83% ranking first as the most favorable location. This is because of its level of growth and its ripe business environment. With that said, this could mean that the cost of doing business and consequently the cost of goodwill could still go further up.
