Coronavirus forces Kenyan firms to cut output

A majority of companies in the country are operating below their capacity as the coronavirus pandemic bites, according to a new report.

The study by Kenya Association of Manufacturers and multinational professional services firm KMPG shows 42 per cent of manufacturers are operating at less than half of their capacity, while 37 per cent of Micro, Small and Medium Enterprises have scaled-down production.

Further, 79 per cent of companies surveyed said they are experiencing cash flow constraints, with 86 per cent of SMEs facing the same challenge, leading to difficulties in fulfilling their financial obligations.

The sectors most affected are those considered to be non-essential: textile for apparel, timber and furniture, and automotive sectors where 61 per cent, 60 per cent and 47 per cent respectively have decreased their production capacity by more than 40 per cent.

In the automotive industry, there has been a huge disruption in the production chain.

“The automotive industry has lost total sales of new vehicles so all the assembly plants and everything is more or less closed,” Ashit Shah, Director, Sales, and Marketing at Mutsimoto Motors.

Despite fears of the impact of the pandemic on the local industry, 81 per cent of manufacturers say they are not likely to close down as a result of the impact of Covid-19. However, this number reduces to 76 per cent for manufacturing SMEs.

KAM is positive that the economy will stabilise soon.

“It is important to assess the impact of COVID-19 on businesses so as to work with various partners and stakeholders, including the government to develop appropriate policies that will cushion the economy from the adverse effects of COVID-19 as well as minimize job losses.

The report findings shall guide us as we engage the government in developing additional measures to further mitigate the adverse impact COVID-19 has had on businesses,” said Mr. Sachen Gudka, KAM Chair.

KPMG CEO and Senior Partner Mr. Benson Ndung’u said that there is great optimism in the manufacturing sector and its role in job and wealth creation.

“We applaud the government for their role in handling the health situation. Our focus now is saving livelihoods. We hope to have the economy start picking up again after this crisis. The report will inform the government on the impact of the stimulus package and where we can focus on to rebound the economy. The current crisis will end, and we shall come out stronger as a country.”

78 per cent of manufacturers’ top priority is reducing costs, 61 per cent are keen on job retention with 53 per cent giving precedence to improving cash flows.

40 per cent of surveyed manufacturers have reduced their casual employees whereas 17 per cent have reduced the permanent workforce. On the other hand, a whopping 91 per cent of non-essential manufacturers have seen a significant decrease in demand for their products compared to 74 per cent of essential goods manufacturers.