Late payments, high taxes and a credit freeze: A perfect storm for Kenyan firms

Late payments, high taxes and a credit freeze: A perfect storm for Kenyan firms

Businesses in Kenya are going through a rough patch. A number of listed companies have missed the financial reporting deadlines and some have gone into administration for a number of reasons, some internal, but for the most part, external.

This has sent mixed signals to investors, coming after the World Bank released its Ease of Doing Business Index ranking Kenya ahead of its regional peers.

In recent months, companies in Kenya retrenched about 10,000 employees in efforts to ease the pressure on their bottom lines.

Banks have blamed the introduction of interest rate capping, coupled with a slowdown in economic growth in recent years and competition from mobile-based lenders, leaving them with little choice but to cut staff to maintain profitability.

A majority of private firms are also struggling to remain in business, with most recently, Telkom Kenya announcing it will be letting go of some 500 employees.

Fuel and energy costs

Kenya is trailing its East African peers in attracting foreign direct investment, an indication that foreign investors no longer consider the country the best investment destination.

The companies that have slid into loss-making blame last year’s prolonged electioneering, the interest rate capping in 2016, credit squeeze, an increase in taxes, rising operating costs due to high fuel and energy costs, unfavourable government policies and unfair competition due to an influx of cheap imports for their woes.

Worse still, the failure by the government to pay private sector suppliers and contractors’ bills amounting to over $270 million has impacted cash flow and profitability, leaving many of them heavily-indebted, having borrowed to execute government contracts.

The effect has been a spike in bad loans, which have remained above 10 per cent in recent times, and a credit freeze by lenders.

But, even as these companies blame a tough business environment, internal administrative flaws have also played a part in this state of affairs.Fashion retailer Deacons has joined a growing list of Nairobi Securities Exchange-listed companies that have gone into administration due to financial difficulties, according to Muchiri Wahome, its CEO.“The board of directors has resolved that it is in the best interests of the company and its creditors to place the company in administration,” Mr Wahome said in a statement.The company’s shares were suspended from trading on the Nairobi Securities Exchange as the board appointed Peter Kahi and Atul Shah of PKF Consulting as joint administrators.Deacons is the second listed company after ARM Cement to invoke the […]

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