When Nahashon Njoroge left his former employer in 2019, a debt collection company, he probably thought starting his own company would propel him into further success.
Little did he know that the challenges his employer faced are the ones he will have to deal with when he chose to go the business way.
Before he left in 2019, he was working with his employer to assist a number of counties to collect their debts. Kisumu is one of those counties.
He says they did the work diligently as they collected Sh1 billion for the County and incurred about Sh200 million by digitising some land parcels.
“Unfortunately from 2019 they have never been paid though l left the organisation,” he says.
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Now, Njoroge owns Imperial Max Limited and is battling the same challenge of unpaid bills by counties. He says Kiambu County owes him Sh300,000.
He says he had an abolition project contract of Sh3 million which the County paid 90 per cent.
“Most of the people are really crying. They say whatever we are supplying to counties we know it is not going to be paid and now the suppliers are shying away from the counties,” he says.
Tenders that end in tears
Njoroge is one of the over 4,130 business owners under the Association of Public Sector General Suppliers (APSGS) who are owed Sh134 billion by the Government and its agencies.
Even after threats on cash transfers from the exchequer and directives from President Uhuru Kenyatta, pending bills by counties and other government agencies have become a sore that never heals to the economy – particularly small businesses.
Owners of small businesses, that do supplies, are now shying away from working with the government –particularly counties.
“Business focus is on the private sector. We do not supply to the Government at all. It is better there actually. They pay,” says Nahashon Njoroge who runs Imperial Max Limited even as he noted further that the challenge on pending bills still leaks to the private sector as they also do supply to the government.
“You know government is the biggest consumer,” he says.
John (not real name) another business owner who is owed Sh2.5 million by a county in the Nyanza region after setting up an IT system says he is also shifting focus to the private sector.
“For Government, you have to deliver first before they pay you. You find that you go to an extent outsourcing for resources to finance a project with the aim of once you deliver you will get paid,” he shares. “You do your project, finish, now payment becomes another nightmare.”
He admits that the private sector seems to be a better business partner than the Government.
“Another thing with government is that for you to have a project you must know somebody and a lot of bureaucracy. There are a lot of things you need to do may be for you to get that project there. Getting that project is a problem; getting paid is another problem,” he says.
Private sector any day
He says that the private sector is profit-oriented and whenever you propose a solution like him in the ICT industry, it goes for debate within management then once approval is done and considered, the job is done and payment as well.
“As long as you give them something which will add value to their chain of production then working with the private sector is better than working with the Government,” he adds.
The County Governments Budget Implementation Review Report for the first half of the 2021/22 financial year by the Controller of Budget reports that county governments’ pending bills as of June 30, 2021, stood at Sh96 billion.
The report notes that counties were advised to develop payment plans to ensure they are settled within the current financial year.
County Governments reported outstanding pending bills of Kshs.96 billion as of 30th June 2021 and were advised to develop payment plans to ensure they are settled within the current financial year.
“This advisory was in line with Regulation 41 (2) of the Public Finance Management (County Governments) 2015, which states that “debt service payments shall be a first charge on the County Revenue Fund and the Accounting Officer shall ensure this is done to the extent possible that the county government does not default on debt obligations”,” reads the report.
During these six months, the report documents that county governments paid pending bills amounting to Sh11.2 billion out of the self-reported stock of pending bills of Sh140.14 billion.
“Outstanding pending bills were therefore valued at sh128.94 billion,” reads the report.
Nairobi City, Kiambu, Mombasa, Wajir, Machakos and Tana River are some of the counties with the highest level of pending bills at Sh84.01 billion, Sh5.12 billion, Sh4.29 billion, Sh3.82 billion, Sh2.8 billion, and Sh2.41 billion respectively.
“The Controller of Budget advises County Governments to prioritise payment of pending bills as a first charge in the budget for the FY 2021/22 before embarking on new financial commitments,” the report further reads.
Due to the perennial pending bill issue, APSGS Secretary-General Simon Gichuki revealed plans to sue the government and its entities through a class action suit.
“The reason why we are doing a class suit action is to set a precedence so that the next government coming in we want to have straightened up systems. Do not commit to something you do not have (the money),” said Gichuki.
National Treasury Cabinet Secretary Ukur Yatani in 2019 noted that the challenge with pending bills reduces the circulation of money in the economy. He even threatened counties that they will not be allowed to draw from the exchequer if they do not pay up.
“If you are a shopkeeper and you supplied this amount if your business expands there is a potential to employ more, but at the moment if you are already closing if you are shrinking your business then you are not going to create more jobs. Instead, you are going to lay off. That is a serious problem and must be avoided at all levels,” he said.
The Kenya Institute of Public Policy Research and Analysis reported in July 2020 in an analytical article titled’ notes that the private sector has been adversely affected by accumulating pending bills.
This, said Kippra, has stretched to the banking sector with an upward trend of Non-Performing Loans(NPLs) from 9.6 per cent in 2016 to 12.3 per cent in 2019 as reported then by Kenya Bankers Association.
“A plausible explanation for this could be that some firms, faced with credit constraints, borrow from banks and other financial institutions to supply goods and services to the Government,” says Kippra in an analytical article titled ‘Will the private sector survive?
It adds: “Failure on the Government to honour payment for these goods and services derails these firms from servicing loans they have borrowed from banks, ultimately increasing non-performing loans.”
Kippra notes that this buildup in pending bills in the economy over time as a result of delayed payment by the Government affects the overall liquidity of the private sector, hence the overall economic growth.