Steve Umidha @UmidhaSteve

A growing number of businesses in Kenya are operating on the edge, according to the swelling number of insolvency filings in gazette notices.

Since the beginning of the year, several companies have been forced to secure ad spaces in the local dailies to highlight their financial indebtedness, a worrying trend, mostly blamed on the coronavirus pandemic.

Companies such as Pine Care Ltd, Xplico Insurance Company and Olympia Capital Holdings among other reputable firms are warning their shareholders to expect “poor” financial performance while others are giving notices of liquidation.

“Notice is hereby given that Ponangipalli Venkata Ramana Rao, has been appointed as the administrator of Pine Care Limited ‘under receivership’ effective the 16th June 2021…the powers of directors in terms of dealing with the company’s assets ceased,” reads in part a gazette notice by the company.

Another firm, Xplico Insurance Company is fighting a petition of liquidation whose outcome will be known from July 14 in a High Court case filed in Malindi on May 18.

Xplico’s financial woes come on the back of the newly introduced risk-based capital requirements by the Insurance Regulatory Authority (IRA) ,  a new law that has seen most insurers struggle to comply with. 

The company was found culpable of liability issues and customer complaints over delayed payments and disputes on the amount payable.

In light of the bleak financial reality faced by countless firms, including the above mentioned companies, questions continue to arise as to whether Kenyan businesses can withstand the storm amid concerns of a fourth wave of the pandemic and lockdowns in some parts of the country. 

Lasting effects

Financial experts now fear that the Coronavirus crisis may continue to trigger a major acceleration in business insolvencies due to the historic size of the economic shock and its expected lasting effects.

These lasting effects have been critical for most companies that were already the most fragile before the crisis and are now among industries hit the hardest by measures to contain the pandemic including transportation and tourism sectors.

“Unless proper and long-term measures including social protection policies to cushion both employees and distressed companies are put in place, I don’t see the trend changing, it is that simple,” says Sandeep Raichura, the Chief executive of Zamara Actuaries, Administrators & Consultants Ltd.

Estimates show that social and economic disruptions brought about by Covid-19 are projected to contract Kenya’s economy between 1 percent and 1.5 per cent this year. 

According to the World Bank findings, it is projected that over two million more people in the country have fallen below the poverty line and around one-third of household-run businesses have not been operating as they once were before the pandemic hit.

A study by BFA – a global research firm on Covid-19 indicates that more than 80 per cent of Kenyan respondents reported a decline in income while 67 per cent reported an increase in expenses.

Predictably, the Central Bank of Kenya warned that 75 per cent of businesses risk closure due to the lack of emergency funds and crisis in liquidity, a concern Raichura says needs to be “fixed”.

“Lack of affordable credit has been the greatest challenge to these companies under financial hardships.

It is one thing to have ‘affordable’ credit facilities and it is totally a different thing to have access to it,” argues Raichura.

His sentiments were shared by Peter Macharia – a financial expert who also blames the country’s rigid credit market for  failure to cushion the “dying” companies.