Firms wobble as economy grows

There has been a marked contrast this year between the performance of the economy, going by headline growth numbers, and that of local companies, which have continued to report lower profits across the board.

At least 23 listed firms, which are by law obliged to publish their financials periodically, have reported a fall in profits or a loss in provisional results this year.

Most have cited a challenging business environment, blaming the lack of bank credit which has hurt their capacity to grow and sometimes sustain operations.

The firms have cut thousands of jobs as a result, further hitting the economy by reducing consumer spending.

In contrast, the headline growth of the economy has gone up compared to last year.

Latest economic data released by the Kenya National Bureau of Statistics and central bank shows that in the first half of the year, the economy grew by six percent, up from 4.7 percent in the same period of 2017.

Experts say while the growth is driven by some sectors such as agriculture and services, which were last year adversely hit by poor weather and political uncertainty, government spending is still a key driver, largely in the big-ticket projects such as the standard gauge railway.

“Robust agricultural production coupled with improved public spending should power the economy to a stronger close in 2018,” said Commercial Bank of Africa in their December 2018 economic report.

“While forecasts remain generally bullish, the outcome is still dependent on vagaries of weather, developments in credit markets.”

For private sector firms, however, the risk is that they will be left behind in this growth, largely because of a lack of capital.

Private sector credit growth has remained below five percent throughout the year, and while banks have continued to make profits –their net earnings for the nine months to September grew by 13.5 percent to Sh87.8 billion—it has only been due to lending to government.

Of concern is the rise in bad loans, an indicator of an economy struggling to generate income. In the one year to September, non-performing loans rose by Sh66 billion to Sh326 billion.

Government revenue has also continued to underperform in spite of the official numbers showing that the economy is growing.

In the first three months of the fiscal year, (July to September), the Kenya Revenue Authority missed collection target by Sh60.46 billion, largely blamed on a slowdown in economic activity and delayed implementation of some new tax measures.

Tax revenue stood at Sh320.311 billion against the target of Sh380.76 billion set by the Treasury.