Alarm as 388 Kenyan firms dissolved in 6 months

Hundreds of private companies have been dissolved in the last six months painting a grim picture of the tough economic conditions currently facing enterprises in Kenya.

According to data compiled from the Registrar of Companies, 388 companies have been dissolved between March and August this year with dozens of others scheduled to be struck off the companies register by this years’ end.

The dissolved companies vary across all sectors and range from single proprietor businesses, family-owned firms and local subsidiaries of international firms.

This month alone, the Registrar of Companies has dissolved 95 companies while 100 were dissolved in July and 90 in May. March saw 103 firms struck off the register, marking the highest attrition of private firms in a single month so far this year.

While reasons for dissolution are varied and range from companies ceasing operations to those relocating or reorganising their shareholding, the high attrition rate over the past six months is remarkable.

The statistics have raised concern over massive job losses in Kenya’s private sector and mirrors the performance of many large companies in the country that have announced job cuts this year.

Last month, East African Portland Cement Company (EAPCC), Stanbic Bank and East African Breweries Limited announced massive layoffs that will affect more than 1,000 workers.

According to data from the Kenya National Bureau of Statistics (KNBS), the rate of job creation fell sharply from 910,000 to 841,000 between 2017 and 2018 with over 90 per cent of these in the informal sector.  

The data is also in line with the poor performance of the Nairobi Securities Exchange (NSE) where close to a dozen listed companies reported profit warnings over the past year.

The high number of companies closing down has also raised concern that the country’s tax revenue will remain depressed making it difficult for the Government to pay the mounting public debt, expected to hit Sh6 trillion by the end of the year.

Data from Treasury indicates that revenue collection as a percentage of GDP has fallen from 18.2 per cent in the 2013/2014 financial year to 15.7 per cent in the 2018/2019 financial year.

With more companies closing down the number of formal sector tax pool will shrink further, putting the taxman hard-pressed to meet revenue collection targets.

Julius Muia, PS Treasury last week said poor performance in other income tax (corporate income tax, withholding tax, rental income) that resulted in a deviation of Sh46.9 billion from the target. “Subdued growth in earnings per employee in 2018/19 contributed to the shortfall in PAYE as well as non-remittances of PAYE from some state corporations,” Muia said.

In the last financial year, the taxman missed collection targets by Sh100 billion with the largest deviation in Income Tax, Value Added Tax and Pay as You Earn (PAYE).  

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