THE ASIAN PRESENCE IN EAST AFRICA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600010042-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: October 1, 2009
• Sequence Number: 42
• Publication Date: July 1, 1968
• Content Type: IM

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Confidential
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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Asian Economic Presence in East Africa
Confidential
ER IM 68-93
July 1968
copy N!
43
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WARNING
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 19 6 8
INTELLIGENCE MEMORANDUM
The Asian. Economic Presence in East Africa
Summary
Thousands of Asians* have been leaving East
Africa during the past six months because of the
accelerated programs to replace Asians with Africans
in business and government. Thus far, there have
been only minor economic disruptions in Kenya,
Uganda, and Tanzania. Although the East African
governments will continue to pressure Asians to
leave, they are unlikely to pursue their efforts to
the point where their economies would be seriously
hurt. This would almost certainly occur if the
Asians left rapidly, because they provide most of
the skilled manpower in East Africa.
Asians have played an important role in the
economy of East Africa for the past half century.
They dominate rural and urban commerce, control a
wide range of manufacturing firms, and hold various
skilled positions in government and business. Gen-
erally, they perform the middle-level tasks between
the managerial positions held by Europeans, mostly
British, and the unskilled jobs occupied by Africans.
Although the Asian community of about 380 , 000 com-
prises slightly more than 1 percent of the population,
it earns about one-fifth of the wages. Asian per
capita wages are some five times those of the Africans
but only about one-third those of the European wage
earner.
* Throughout this memorandum, the term Asian refers
to people of the Indian subcontinent -- that is,
Indians, Pakistanis, and Goans.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence.
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After Kenya, Tanzania, and Uganda became inde-
pendent in the early 1960's, the new governments
tried to increase African participation in the
modern sectors of their economies. The impact of
these Africanization efforts was felt mostly by
the Asians who occupied the jobs most readily attain-
able by Africans. Initially, only the civil service
was successful in increasing job opportunities for
Africans. By 1967, however, pressures for jobs in
the private sector, particularly in Kenya, where
more than one-half of East Africa's Asians reside,
had grown more intense.
Stronger measures were adopted by Kenya in 1967,
including legislation to reduce Asian participation
in the economy. Asians were subjected to a system of
work permits and other requirements that caused some
of them to lose their jobs. Asian workers became
increasingly concerned about their job security in
Kenya. The plight of the Asians worsened later that
year when London decided to restrict the previous un-
limited flow to the United Kingdom of Asians holding
British passports. Under this dual pressure, some
12 , 000 Kenya Asians, or about 6 percent of the country's
Asian community, departed for the United Kingdom before
the British legislation became effective in March.
During the same period, about 1,000 Asians from Uganda
also migrated to the United Kingdom.
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The Role of the Asians in East Africa
1. The present Asian community in East Africa
consists largely of descendants of Indian laborers
and soldiers introduced into the area by the British
during the late 19th and early 20th centuries. At
the turn of the century, thousands of Indians were
imported to construct a railroad from the coast of
Kenya to Lake Victoria, and during World War I
Indian-manned British military units were moved to
East Africa to assist in capturing the German colony
of Tanganyika. In both cases, most of the Indians
stayed on because they found economic opportunities
greater than those at home. Through additional
immigration and natural growth, the number of Asians
in East Africa (now Kenya, Tanzania, and Uganda) rose
to an estimated 380,000 persons in 1967. The only
other large Asian community on the continent is in
South Africa where there are some 500,000 Asians.
2. Although accounting for slightly more than
1 percent of the population, the Asians have played
an important role in the economy of East Africa.
Basically they filled the gap between the Europeans
who owned or managed most of the area's major
commercial enterprises and the Africans who partici-
pated in the modern economy mainly as unskilled
laborers or as small-scale producers of cash crops
(see Figure 1) . Many of the early Asian settlers
became rural traders, baying African-grown produce
and selling imported consumer goods. They became
important links in the East African distribution
system and provided services that no one else was
willing or able to perform. The small turnover of
the rural trader meant the acceptance of a lower
standard of living than most Europeans were willing
to accept, while few Africans had the experience or
the desire to become involved in commercial pur-
suits. For the same reasons, Asians also filled
numerous clerical positions in government and
business. Asian involvement in East Africa's basic
productive sector, agriculture, remained minimal,
however, since the Asians disliked farming; further-
more, during the colonial period, restrictions were
placed on acquisition of land by Asians.
3. Over the years, both the Asians and the
Africans improved their economic positions. A
steadily increasing number of Africans became rural
- 3 -
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traders, while many village Asians sold their shops
to younger Asians and mop"ed to the cities where
they soon dominated urban trade. Even though about
three-quarters of the Asians now live in urban areas,
those who remained in the countryside continue to
dominate rural trade. Some Asians rose to high
positions in the government while others established
industrial enterprises. By and large, however, the
Asians still occupy the jobs between the highly skilled
Europeans and the unskilled Africans. This position
is indicated by the average annual wage received by
each of the three groups in Kenya in 1966: Europeans
$5,430; Asians $1,900; and Africans $370 (see Figure 2).
4. The present East African Asian community is
a vital element in the functioning of the cash
economy of the region. The Asians are important as
supervisors of the unskilled workers, and they pro-
vide the mechanical and artisan skills for industry
and construction. Departure of significant numbers
of Asians would cause severe economic disruptions
throughout the region, as the three countries would
be hard pressed to find immediate replacements from
among local Africans for the occupational skills
lost. Trade at all levels would drop off consider-
ably. Because Asians operate much of the transport
network, shipments would fall behind schedule if
delivered at all. Financial institutions would be
unable to maintain efficiency, and this would have
adverse repercussions throughout the business com-
munity. Loan applications, for example, would take
longer to process. Since about one-half of develop-
ment revenue is derived from local sources, a with-
drawal of Asian capital would further reduce East
Africa's already limited investment base. Moreover,
foreign companies would be less apt to invest in the
resulting stagnant economies.
Africani zation
5. Soon after the East African countries gained
their independence in the early 1960's, they attempted
to replace non.-Africans with Africans in both the
private and public sectors. The Asians were most
vulnerable to this government policy of Africaniza-
tion. As the rural traders, city retailers, and
lower level office workers, they held positions that
Africans could most easily assume.
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Figure 1
KENYA: Percent Distribution of Employment and Earnings, 1966
0 European
? Asian
AGRICULTURE
AND FORESTRY
African
PRIVATE INDUSTRY
AND COMMERCE
KENYA: Percent Distribution of Male Earnings,, 1966
up to $500
$501 to $1000
$1001 to $2500
$2501 and over
r
Excluding the Agricultural Sector
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6. Resentment against the Asians rose because
they generally remained within their own communities,
and only 30 percent associated themselves with their
new countries by taking out citizenship. In Kenya
and Uganda, only about one-sixth of the Asians ac-
cepted local citizenship. In Tanzania, however,
the proportion was about one-half because many of
the Asians in Tanzania belonged to the Ismaili Moslem
sect, led by the Aga Khan, who encouraged his fol-
lowers to become local citizens. Those East African
Asians who did not take out local citizenship re-
ceived British passports.
Africanization in Kenya
7. About half of the East African Asians live
in Kenya because of the greater economic opportuni-
ties there. The concentration of British commercial
interests in Kenya has made that country by far the
most economically advanced in East Africa, and
Nairobi has become the hub of regional financial
and trade activities.
8. Until 1967, Nairobi's efforts to find more
jobs for Africans had been generally uncoordinated.
Employers were asked to hire more Africans and to
upgrade those already working. Although many busi-
ness firms did try to comply, new positions for
Africans were restricted by the limited growth of
total employment -- only about 1 percent per year.
Moreover, there were few Africans adequately trained
to replace the Europeans and Asians in middle-level
and high-level positions in most enterprises. The
only progress made in replacing non-Africans occurred
in the bureaucracy, where most African university
graduates seek jobs.
9. In mid-1967, two complementary bills were
introduced into the National Assembly to further the
process of Africanization. The first of these, the
Immigration Act, went into effect in December 1967.
Under this legislation, the government has the power
to reduce the number of non-citizen workers in any
occupational category. The second of these bills,
the Trade Licensing Act of 8 January 1968, contains
legislation designed to speed up Africanization among
the numerous self-employed traders. They were required
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to apply for trade licenses before 1 April 1968,
and government sources indicated that licensing
officials normally would deny licenses to non-
citizens who operated shops outside the centers of
Kenya's six major towns.
10. Soon after Nairobi's intentions became known
in mid-1967, the British government began to draft
legislation to prevent any mass movement of Kenyan
Asians to the United Kingdom. Aware of both the
impending Kenyan and UK legislation, Asians in
increasing numbers began ..o migrate to the United
Kingdom. When in early 1968 Kenya began implementing
its new Africanization measures, the outflow quickened
and continued to accelerate as the Commonwealth
Immigration Act neared passage in the British Parlia-
ment. In the few weeks before the latter legislation
became effective on 2 March 1968, panic set in, and
the exodus completely overtaxed the Kenyan-UK trans-
port links. In all, the outflow during the first
two months of 1968 was about 12,000 persons, or about
6 percent of the total Kenyan Asian community.
Most of the departees came from the large Asian com-
munities of Nairobi and Mombasa rather than the rural
areas and were largely lower level office and shop
clerks. Several hundred professionals also migrated
to the United Kingdc1m.
Short-Term Impact on Kenya
11. Thus far the outflow of Asians has had only
minor adverse consequences for the i:enyan economy,
and most of these have been of a temporary nature.
Trade has slowed somewhat, and merchants who stayed
have reduced stocks. Real property values in some
predominantly Asian sections of Nairobi dropped be-
cause of a rising number of vacant homes. The loss
of skilled and professional personnel was not large
enough, however, to have a serious effect on the
economy. Although certain firms have been hard hit
by the loss of personnel, they have adjusted by in-
creasing overtime work and by permitting a decline
in efficiency.
12. Kenya's foreign exchange losses resulting
from the migration apparently were not large either,
although there could have been a loss of at least
$50 million if departure allowances of $14,000 per
family had been fully utilized. Such a drawdown
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would have almost wiped out Kenya's reserves. The
Asians who left, however, probably did not have such
large cash reserves on hand. Either they were poor,
or they had anticipated government measures and for
several years had been transferring their profits
overseas. Kenya's foreign exchange reserves at the
end of February 1968 were over $72 million, or 15 per-
cent higher than at the same time in 1967.
Asians in Uganda and Tanzania
13. The economic involvement of Asians in Uganda
is proportionately greater than in Kenya. Because
most of Uganda's agricultural output is produced by
small-scale African farmers -- the reverse of Kenya
where production of cash crops comes from large-
scale European farms -- the rural trader in Uganda
has an even more important economic role than in
Kenya. East Africa's largest industrial organiza-
tion is the Uganda-based, Asian owned and controlled
Madhvani Group, which with its diversified indus-
tries contributed about 10 percent of Uganda government
revenues. Some of its associated firms are involved
in manufacturing steel, textiles, beer, and sugar.
14. Ugandan officials, with few exceptions,
have not tried to stir up trouble for the Asians
and have been bribed to maintain a hands-off policy.
Well-publicized and timely gifts to charities have
been used by Asian businessmen to better their posi-
tions, while unrepaid loans to African officials
have served as protection money. The government,
however, has taken a positive step by establishing
a Management Training Center to assist Africans in
starting businesses and has created the state-owned
National Trading Corporation, which is increasing
its control over wholesale and retail trade. As a
result of growing uncertainties, an estimated 1,000
Asians left Uganda during the first two months of
1968 and entered the United Kingdom before the
Commonwealth Immigration Act went into effect.
15. Tanzania's Asians control many food-
processing plants and sisal plantations and dominate
both rural and city trade. The Asian community has
supported President Julius Nyerere, whose stated
policy of maintaining a multi-racial society has
somewhat brightened Asian prospects for continuing
to participate in the economy. Thousands of Asians,
however, have left the Zanzibar portion of Tanzania
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since 1964 because of the nationalization measures
adopted after the revolution. In addition, over-
zealous government officials, spurred by Nyerere's
requests for greater utilization of Africans by
Asian firms, engaged in excessive police and
immigration harassment, and about 1,000 Asians --
less than 2 percent of the total -- left the main-
land early in 1967. Since then, outflows have been
small. Tanzania's nationalization of private
businesses in 1967 eliminated some Asian as well as
British firms. Most Asians, however, who owned or
were employed by firms that were nationalized
continued to work for the state.
Prospects
16. The East African governments are likely for
political reasons to continue their programs of
replacing Asians with Africans. Pressure for
Africanization will come mainly from the increasingly
large number of persons leaving school, who will be
unable to find jobs in the urban areas. Even if the
three East African countries achieve high rates of
economic growth, many of the unemployed will remain
so because there will not be enough Africans with
the skills required to fill most of the new jobs,
at least for the foreseeable future.
17. On the other hand, it is unlikely that the
governments would permit a violent or mass expulsion
of the Asians, because of both the economic consequences
and the blot it would place on their political image
abroad. If most Asians were forced to leave pre-
cipitately, economic disruptions would be substan-
tial. Trade would break down, and artisan and
mechanical skills would be greatly reduced. The
countries might relieve some of the resulting prob-
lems by contracting for expatriate personnel, but
even this would not insure a return to normalcy for
some time.
18. Over the next several years, Africanization
programs are likely to go through cycles, varying
from an accelerated pace to periods where the laws
are hardly enforced. Complete implementation of the
1967 acts has been delayed. Asians no longer will
be able to depend on migrating to the United Kingdom,
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and with this alternative lost they will have to
seek ways of appeasing the African-run governments
through such means as bringing more Africans into
higher positions in their businesses.
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