Imports data reveals skin-deep nature of beauty and care sub-sector

One of the media’s biggest business stories of 2013 was the acquisition of the cosmetics arm of InterConsumer Products Ltd, by global beauty products giant L’Oreal, in a deal estimated to be worth over Sh1.5 billion. The awe was not brought about so much by the fat check but more by the fact that the cosmetics sub-sector, with little known domestic manufacturing capability, could nourish a small Kenyan enterprise into a fortune.

Having started off small, hawking home-made shampoo in salons, Mr Paul Kinuthia strived to manufacture his products locally someday as the business grew so as to create more opportunities for employment. But when his business expanded beyond his capacity to produce at home, he contracted manufacturers in China, who offered a much better deal than he could find locally.

Effectively, his business, though a Kenyan enterprise, contributed to the already growing numbers of imported cosmetics and beauty products, hence limiting the sector’s capacity to create employment.

The country has imported more cosmetics products every year in close to one decade, according to Kenya Revenue Authority data obtained by NationNewsplex.

As he finally realised his dream in a different sub-sector by investing a part of the proceeds from the historic sale in a manufacturing plant for sanitary products, his experience in the local beauty and care sector shines some light on the production component of the industry, often overshadowed by the more visible and vibrant supply and service provision aspects.

Though it is not easy to establish the share of beauty products (goods) in the Kenyan market that are manufactured locally, a cursory tour of supermarkets in Nairobi’s central business district shows that there are many imported beauty brands on the shelves. Even some companies with production plants locally, such as Unilever and Nivea, manufacture some of their products elsewhere, mostly in the US, China, Europe and South Africa, and then ship into the country.

This implies that the local manufacturing sector is not responding appropriately to the increasing demand for cosmetics products at a time when manufacturing is a priority item in President Uhuru Kenyatta’s Big Four agenda, promising to grow the sector’s contribution to the gross domestic product from nine percent to 15 percent and create one million new jobs in the sector, among other milestones, by 2022.

Coincidentally, the President introduced his agenda in 2017, when the growth of manufacturing had slowed down and its share of GDP slumped to eight percent from nine percent in 2016. Additionally, formal employment in the manufacturing sector had grown by a slower rate of 0.8 percent compared with 1.8 percent in the previous year. The government linked the dipping fortunes to uncertainties related to the 2017 general elections, high cost of inputs and stiff competition from cheap imports.

But two years later, the local manufacturing sector is still hurting from cheap imports.

''At present, Kenya is at a cost disadvantage of nearly 12 percent of most of the goods it manufactures, compared to competitor countries,'' says Ms Phyllis Wakiaga, the Kenya Association of Manufacturers CEO.

This means that, for many products, it is cheaper to import than produce locally. ''For manufacturers to operate effectively and efficiently, they require a business environment that enhances competitiveness, including low cost of power, reduced transport and logistics costs, enhanced cash flow for manufacturers, lower costs of imported industrial inputs, access to long-term financing and markets.''

The money makers

With a share of the manufacturing component of the cosmetics industry’s value chain seized by foreign economies, the industry’s potential to create jobs at home is significantly diminished and left largely to product distribution and service provision. The flourishing of cosmetics retail stores, salons and beauty parlours in the country’s urban areas has given a cosmetic impression that the sector is doing well.

But that is not to say that retail and service have little to offer. In 2014, Euromonitor International, a global market research agency, pegged the Kenyan colour cosmetics market as worth Sh5.4 billion, with projected growth of Sh6.6 billion by 2018. Colour cosmetics refers to a broad category of beauty products used on the skin, eyes, cheeks and lips.

The fast growth of the retail market has seen many established international brands move into the Kenyan retail market, including Sleek, Flormar, Revlon, Maybelline, SuzieBeauty Cosmetics, House of Tara, Lancôme and Black Opal.

Even with all the attention from abroad, the market’s potential has not gone unnoticed locally. Television personality Betty Kyalo and socialites Huddah Monroe and Vera Sidika, who recently separately started businesses in the beauty and care sub-sector, are just but the public face of many Kenyans seeing business opportunities in cosmetics. According to Mr Boniface Nyaga, a digital strategist and CEO of Mawaitha Consultancy, it was a smart move by the celebrities to convert their huge media presence into a business. ''People generally respond to messages from those they look up to and brands leverage on that to push sales,'' he says.

Some 3,736 cosmetics shops, salons and barber shops were licensed to operate in Nairobi County in 2018, according to the county government. The number grew consistently from 3,117 in 2010 to peak at 5,156 in 2015 (a two-thirds jump) then declined steadily. The county government attributes the lower numbers partly to higher licence fees and the high and ever-growing cost of renting space in the city.

Mombasa County, on the other hand, saw the number of cosmetics businesses grow almost in half (44 percent) from 1,257 in 2017 to 1,814 this year, county government data shows.

Kenya currently ranks 61 in ease of doing business, up from position 80 last year, according to the Doing Business 2019 report by the World Bank. However, the report, which sampled Nairobi only in Kenya’s case, indicates that the ease of starting a business in the country, which includes securing a trade licence, has not improved since last year’s report.

The 28 percent drop in the number of cosmetics businesses in Nairobi since 2015 has seen a corresponding one-third drop in licence revenue from Sh31 million in the same year to Sh23.6 million last year.

Niche market

As the county continues to lose revenue, a new trend is shaping up in the city. Suppliers and service providers connect with customers via the phone or the Internet and transact business without putting up a physical shop for which they would have to pay rent and a licence fee. One proprietor running such an enterprise is Ms Beatrice Chege, who owns a boutique in town but is always a call away with manicure, pedicure and facials services. ''People with these skills and talent have realised that you do not need space to make money, especially if it comes at an extra cost. I have hired people to run the boutique while I remain on the move'' she says. She takes her services to clients’ homes and offices and on many occasions spends her day at weddings or photo shoots and video recordings.

Making between Sh5,000 and Sh35,000 a day, the revenue from the cosmetics business, which she started as an afterthought, supports her boutique.

The same approach has been embraced by small-scale enterprises offering home-made organic beauty products.

Harmful products

In the scramble for a share of the Kenyan cosmetics market, there are risks that the consumer may be exposed to harm. The Kenya Bureau of Standards (Kebs) has listed on its website, as of March 28, 144 brands as harmful and therefore not allowed in the market. They include 64 skin lightening creams containing hydroquinone, 52 skin lightening creams containing mercury and its compounds, 14 skin lightening lotion brands containing hydroquinone, 11 soap brands containing mercury or its compounds and three skin lightening gels.

The standards and quality watchdog also highlights seven products registered by the Pharmacy and Poisons Board to be used as human medicines for various skin conditions and therefore not for use as beauty products. These are: Betnovate, Mediven, Diprosone, Nerisone, Hydrocortisone, Oxy 5 and Oxy 10.

However, consumers may still end up buying and using these harmful products, some of which Newsplex confirmed are still in the market despite the ban. Apart from the warning on Kebs' website, few public awareness campaigns have been conducted on the banned products. Ms Chege, for instance, confirms that she only knows about the harmful effects of products with mercury but not aware of any banned brands. She says she trusts her supplier, whom she considers to be reputable in the industry.