Troubled Kenyan retail sector could hurt entire economy
By Soko Directory Team / July 13, 2017
I am not certain that we, as a nation, have fully grasped the extent to which a declining retail sector can negatively impact our entire economy. Let us imagine a scenario that well illustrates the gravity of the matter. If the retail sector is unable to absorb the goods that are being produced locally due to cash flow restraints, it then spells doom to an already shrinking local industry (2016’s data puts manufacturing contribution to the GDP at 9.2 per cent). Once local industry is hit, unemployment rates skyrocket, supply chains weaken causing small and micro businesses to shut down, there is an increased inflow of imports and exports are curtailed because businesses will be operating at diminished capacity, the economy will continue on a downward trajectory and the overall quality of life for many Kenyans will be affected. It is time to pay attention. Retailers’ cash flow constraints results in late payment for suppliers. But it doesn’t end there. For suppliers, they will be unable to procure raw materials fast enough to produce more goods for their customers and for other retail stores.
Furthermore, the reduced cash flow means that suppliers will not be able to pay the businesses in their supply chain – most of which are small and medium enterprises – that enable them to create the end products. This compromises the quality of delivery for all involved owing to the strain of working with reduced resources including forced employee cut-backs.
The culture of late payments is not unique to Kenya. It has threatened to cripple many economies world-wide but some have had success in how to deal with it. In a report tabled in the UK Parliament in 2013 by then MP Debbie Abrah of the All Party, SMEs were owed over 36.4 billion pounds in 2012 and 124,000 of them almost ceased trading owing to late payments.
However, an intervention by the UK government saw the institution of the Prompt Payment Code that committed relevant parties to paying on time as well as the EU payments directive that sought to penalise late payments through introduction of interests. In our case, however, we need to figure out how to get the sector out of the current murky waters into a more stable place which enables us to institute the above international best practice successfully.
The current situation needs concerted efforts from all stakeholders to band together for the sake of the economy. If the micro and small businesses shut down, the supply chain is compromised.
At the moment even general stores, who trade wholesale are beginning to feel the impact of the failing retail sector because the circulation of money is constrained and therefore even they are having a more difficult time moving their goods and paying their suppliers in time. It is a vicious cycle.
The retail sector is marked as a trade engine for economic growth in our Vision 2030. But this doesn’t seem to be materialising because, according to the Economic Survey 2016 and 2017, the sector’s growth declined from 8.3 per cent in 2011 to 3.8 per cent in 2016.
This is alarming for a sector that plays a vital role in ensuring the circulation of money in the market. Money is the bloodline of any economy. It must circulate in order for business environment to thrive and to enhance the purchasing power of consumers.
This is, therefore, a critical moment for us, as a country, to train our efforts and come together to work towards “stopping the bleeding”. Once this is done, we can then institute strict measures to protect businesses, especially SMEs, from ever having to go through the same problems again.
By Flora Mutahi chair of the Kenya Association of Manufacturers and vice chairperson of the Comesa Business Council
About Soko Directory Team
Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.
Find us on Facebook: facebook.com/SokoDirectory
and on Twitter: twitter.com/SokoDirectory