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Decisions that saved Kenyan firms from Covid-19 collapse

ENTERPRISE
By Frankline Sunday and Peter Theuri | September 22nd 2021
[Courtesy]

March 2020 marked the beginning of the worst year for Kenyan enterprises.

The Covid-19 pandemic landed on our shores to find businesses that were already reeling from a difficult operating environment.

Looking back, it’s a mixed bag of fortunes for enterprises with the main priority being survival amid an uncertain business environment.

Now, business owners have to lay out plans for post-pandemic success and business growth.

Enterprise spoke with business owners and reviewed 2020 economic data to understand the pandemic’s impact on businesses. 

Cost-cutting 

Peter Kuguru, an industrialist who owns the Kuguru Food Complex Limited, says that the business environment has been tough during the pandemic. It remains bleak more than a year and a half since Kenya reported its first case of Covid-19, with no end in sight.

His company, he says, made sure to prioritise the health of the workers by insisting on mask-wearing and also by manufacturing sanitisers internally. Not even that prevented some of the members from contracting the virus, including Kuguru himself, and not even his best efforts could save some of his employees’ jobs.

“We had to let some go. Others worked on shifts, which is still happening. We negotiated reduced wages with some employees, which was better than laying them off,” he says.

Overhead costs skyrocketed. People’s purchasing powers plummeted. Companies reduced the prices of products even as devastated customers sought cheaper alternatives. Kuguru followed suit and took the losses in his stride. The sales were consistently low. The goal was to survive, not to make profits.

“The market was behaving in a way that money was not actively changing hands. You could take goods to the market but people had no money,” he says.

Diversification 

Kuguru, who has also ventured into real estate, also decries idle capacity in the year as some tenants were unable to pay rent.

And yet, the recovery is not in sight.

“The situation is still bad. We are still struggling and the whole market is not yet stimulated to recovery,” he said.

Manufacturers have had to contend with high costs of raw materials, with some diversifying and using alternatives to produce.

“The hostile climate has meant that we have had to (diversify).  When you can’t get the raw materials you are used to having, then you have to get alternatives. We used soya milk, which is no longer available, and so we have had to use sunflower cake to fill the gap for the time being.”

Kuguru feels that the property market will pick up faster than the commodity market. Being a global problem, he says that it is hard to predict the future, with raw materials that used to come from other countries in the region now barely docking.

?Export market 

In a recent interview with Enterprise, Kenafric Industries chief executive Mikul Shah noted how tough the pandemic was on their business.

The firm is one of the largest manufacturers of confectionery, biscuits and beverages in the region employing over 2,500 directly and over 10,000 indirectly.

“This was a very hard time for us, a lot of our products are sold by hawkers and people were commuting less owing to the Covid-19 restrictions. Retail shops closed and our products target school-going kids and those in tertiary institutions,” he said.

The firm had also shut its stationery business for some months owing to schools’ closure.

“What helped one was we had a good export market regionally. The marketing team also did a good job of spurring demand for home consumers. We had to shift our focus from selling products in commute to home consumption as more kids were at home.”

Official data indicates that Small and Medium Enterprises, SMEs in the country posted mixed performance in the wake of depressed demand and a credit crunch as lenders gave the sector a wide berth.  

For the majority of small businesses, the lockdowns and social distancing measures announced by the government to help contain the spread of the pandemic introduced new barriers to doing business with some enterprises opting to shut their doors indefinitely.

Rethinking supply chains 

Last year, there was a string of global lockdowns as countries moved to contain the spread of Covid-19. 

Kenya is a net importer economy that relies heavily on logistics to access global markets in sourcing raw materials and key inputs for their plants.

“When there is a disruption or inefficiencies in cargo movement through our ports, the population bears the costs of these inconveniences through higher cost of goods or shortages of essential items,” said Managing Director Siginon Group Meshack Kipturgo in a separate interview. 

With lock-downs in China, prices of goods went higher and businesses search for alternative source markets such as Brazil, the Netherlands and some African countries amid a stock-out.

China accounts for about 21 per cent of Kenya’s imports, meaning $3.66 billion (Sh366 billion) worth of products may need to be sourced elsewhere or substituted by local production due to the Covid-19 disruptions.

Financing headache 

The biggest crisis for most firms has been a cash crunch. Owing to the uncertainty banks and other financiers had to freeze lenders. They also had to restructure existing loans. 

A report released in July this year by the Central Bank of Kenya, CBK, Financial Sector Deepening, FSD Kenya and the Kenya National Bureau of Statistics (KNBS) indicated that a large portion of businesses depleted their savings during the COVID-19 lockdown period.    

“By March 2021, only 37 per cent of businesses reported to have some savings compared to 60 per cent during the pre-COVID-19 period implying increased risks to business resilience,” stated the report. 

According to the report, most business owners received support from friends and family members, followed by SACCOs with seven out of ten of those surveyed reporting to have received no government support. 

This has been attributed to the small size and informal nature of majority of the businesses that lost out on programmes such as the Sh3 billion Credit Guarantee Scheme launched by the National Treasury last year.

Taking advantage of state loans?

According to the 2021 Economic Survey by the KNBS, the value of loans disbursed by the state Women Enterprise Fund fell 10 per cent from Sh3 billion recorded in the 2018/2019 financial year to Sh2.7 billion in 2019/2020. 

The kitty also disbursed Sh28million each to enterprises in the manufacturing, building and construction sectors respectively, while Sh1.3 billion was given to those in other service sectors including retail trade, cyber cafe, event management, catering hairdressing and equipment for hire.

The Uwezo Fund on the other hand registered a spike in the amount of funds disbursed to women, youth groups and persons living with disability. 

Covid 19 Time Series

 

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