Delayed Payments In Kenya Are Killing The SME Ecosystem: A Remedy Is Needed

In the ecosystem of Kenyan economics, delayed payments have taken center stage, captivating audiences nationwide. It’s a performance where businesses deliver stellar acts, only to wait endlessly for their applause—in the form of payments. This tragicomedy unfolds daily, leaving enterprises, especially the small and medium-sized ones, in a perpetual state of suspense.

Consider the plight of Kenyan SMEs, the supposed backbone of our economy. A 2023 report by the Kenya Association of Manufacturers (KAM) revealed that over 60% of these businesses grapple with severe cash flow issues due to delayed payments.  It’s as if they’ve been cast in a play where the script promises prosperity, but the director—our esteemed government—keeps forgetting to pay them for their performance.

The plot thickens when we delve into the average waiting time for payments. Back in 2018, businesses could expect to wait around 30 days. Fast forward to 2024, and that wait has tripled to nearly 90 days.  One might wonder if this is an avant-garde attempt to teach patience as a virtue, though it’s more likely just a masterclass in financial mismanagement.

Enter the Public Procurement and Asset Disposal Act, a legislative masterpiece designed to regulate procurement processes.  This act, in theory, should ensure timely payments. However, in practice, it seems to serve more as a decorative piece, much like a fire extinguisher that’s never been tested.

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The government’s commitment to this art form is commendable. By December 2024, penalties for late payments to suppliers and contractors had ballooned to a staggering Sh24.8 billion, up from Sh21.5 billion just six months prior.  It’s a generous way of redistributing wealth—accumulating debt on one hand and doling out penalties with the other.

But let’s not forget the supporting cast: the road authorities and research institutions flagged for accumulating billions in unpaid dues.  Their contribution to this narrative adds depth and complexity, ensuring that no sector is left untouched by the magic of delayed payments.

The impact on infrastructural projects is particularly noteworthy. Take the Sondu-Miriu hydropower project, for example, which experienced a five-year delay, partly due to delayed payments to contractors.  It’s a testament to how time can stand still when the flow of money does the same.

In response to this ongoing saga, the Prompt Payment Bills of 2020, 2021, and 2022 were introduced, aiming to set a framework for interest on late payments by government entities.  These bills suggest invoices must be paid on the agreed date or within 90 days if no written contract exists. A noble effort, though one might question its effectiveness given the current state of affairs.

The Kenya Association of Manufacturers has voiced concerns, stating that delayed payments impede effective circulation of money in the local economy, adding excessive strain to businesses already burdened by other market factors.  It’s a polite way of saying that the government’s tardiness is choking the life out of the economy.

For those seeking legal recourse, the Government Contracts Act validates contracts entered into for public service.  However, navigating this legal labyrinth often feels like auditioning for a role in an endless drama, with no guarantee of a satisfying conclusion.

The Public Procurement and Asset Disposal Regulations further outline requirements for tender documents, including plans for technology transfer and local employment.  Admirable on paper, yet these regulations often gather dust while businesses gather debt.

Academic investigations into the causes of payment delays in public construction projects funded by county governments have highlighted deliberate delay tactics.  It’s almost as if there’s an unspoken competition to see who can stretch a shilling the furthest—by not spending it at all.

Public procurement processes in Kenya are time-bound, with timelines cast in stone.  However, it appears that these stones are often used to build walls, obstructing the path to timely payments.

The effects of delayed payments ripple through the economy, causing project delays, stifling growth, and eroding trust. It’s a cycle that turns potential success stories into cautionary tales, with businesses left to navigate the murky waters of financial uncertainty.

In this narrative, the government’s role oscillates between protagonist and antagonist, championing development while simultaneously hindering it through fiscal negligence. It’s a performance that leaves the audience—Kenyan businesses and citizens—both captivated and exasperated.

As the curtain falls on this ongoing drama, one can’t help but wonder: will the next act bring resolution, or are we doomed to repeat the same scenes of delay and despair? Only time will tell, but for the sake of our economy, let’s hope for a plot twist that favors timely payments and financial accountability.

Read Also: The Silent Killer: How Delayed Payments Cripple SMEs While Big Brands And Governments Thrive On Their Pain