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Futile quest to revive State corporations

Friday April 26 2019

Uchumi Supermarkets

Uchumi Supermarkets evicted from its Karatina branch office over unpaid rent on December 15, 2017. The corporation has been unable to recover financially. PHOTO | FILE | NATION MEDIA GROUP 

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The government’s misadventures in companies that have for years depended on bailouts from taxpayers’ coffers is akin to riding a dead horse.

From State corporations to parastatals, the taxpayer has parted with billions in attempts to rescue institutions that have only dug themselves into more debt.

But the situation that Uchumi Supermarkets and Kenya Airways have found themselves in paints a unique picture of what could have been, while also placing taxpayers’ necks on the chopping board.

Uchumi opened its doors in 1975, just two years before the national carrier was born, and picked up quite fast.

The retailer’s entry and the government’s investment in it was aimed at ensuring essential goods were made available to the ordinary Kenyan, hence the name Uchumi — which translates to economy.



By 1987, Uchumi was among the biggest supermarket chains in the country and was only rivalled by Ebrahim, which recently shut down after 75 years of operation, and Gilanis.

Uchumi went on to expand and had branches in just about every major town in Kenya.

Things appeared rosy until June 1, 2006 when the retailer’s managers announced that the company was insolvent.

An over ambitious expansion plan saw Uchumi record a Sh1.2 billion loss at a time it owed suppliers and lenders over Sh3 billion.

Its assets were worth Sh1.8 billion. The retailer’s 250 suppliers were owed Sh1.8 billion.

Uchumi also owed PTA Bank Sh475 million, East and Southern Africa Trade and Development Bank Sh474 million, KCB Sh416 million and ICDC Sh24 million.


The banks placed the retailer under receivership. Then-Trade minister Mukhisa Kituyi announced a Sh657 million bailout by the government barely 22 days after the closure.

Other shareholders also raised Sh300 million and Uchumi reopened its doors, but remained under receivership until February 2010 when it cleared loans owed to KCB and PTA.

After receivership, Uchumi appeared to be back on track and there was hope that it had learnt tough lessons from the collapse.

Receiver manager Jonathan Ciano was appointed CEO, and not long afterward the retailer was growing.

By 2015, Uchumi had 40 branches in Kenya, Uganda and Tanzania. One year later, history repeated itself.

Poor management, graft and over ambition in expansion saw Uchumi back in the red.


The retailer was not paying distributors, and the few supplies firms that received their dues on time were owned by senior managers, according to an audit report by consultancy KPMG.

Suppliers filed an insolvency petition. The retailer now owed creditors Sh6.1 billion, which did not match its Sh5.8 billion assets. Suppliers were owed Sh5.4 billion of the total debt.

The suit was however withdrawn after suppliers agreed to convert Sh3.6 billion into equity and Uchumi promised to clear the Sh1.8 billion balance.

The government pumped in another Sh700 million to get the retailer back in business. Last year, suppliers went back to court after the retailer failed to pay them on time.

The retailer owes them over Sh3.6 billion. The government once again pumped in Sh800 million but Uchumi burnt it all on some suppliers’ debt, partial restocking and paying staff.

With the government now unwilling to pump in the Sh1.3 billion it initially promised, the ground is quickly shrinking beneath Uchumi’s feet.


The retailer had pegged most of its hopes on the sale of a 20-acre piece of land in Roysambu.

The retailer received Sh330 million from Jewel Complex, which is associated with Jesus Winners Ministry, as a deposit for a Sh2.8 billion purchase price.

But the deal was complicated by a Court of Appeal ruling which revived a 14-year-old case over the land pitting Uchumi against Sidhi Investments.

Sidhi paid a 10 per cent deposit on an agreed Sh118 million price for the land in 2005 before the deal collapsed.

In the winding up case Uchumi has asked the High Court to allow its Company Voluntary Arrangement (CVA), which the retailer says will see creditors forfeit Sh2.5 billion of their total debt.

CEO Mohamed Mohamed last week told the Nation that Uchumi was waiting for the court’s decision on a proposed creditors’ meeting intended to detail the retailer’s recovery plan.


The Association of Kenya Suppliers has, however, vowed to fight Uchumi’s proposal and wants a forensic audit on the supermarket chain.

Should Uchumi’s plan succeed, the retailer will become the first firm to undergo a CVA.

At Kenya Airways things are also getting thick after Parliament’s transport committee vowed to block the airline’s plan to lease the Jomo Kenyatta International Airport.

KQ has held that the takeover would boost its revenue and that of the Kenya Airports Authority.

Project Simba, the turnaround plan to rescue KQ from the doldrums, holds that the takeover and other suggested revenue earners could see the national carrier make at least Sh17 billion in profit by 2022.


KQ, which is on the brink of collapse, owes banks Sh220 billion. In 2017, the government issued a sovereign guarantee to a consortium of 11 banks that threatened to wind up KQ.

The banks agreed to convert Sh44.2 billion debt into shares, with the sovereign guarantee cushioning losses in case the airline collapses.

The move gave the banks a 38.1 per cent stake in KQ. Should KQ collapse, a scenario that now looks increasingly possible, taxpayers will have to kiss Sh75 billion goodbye.

Earlier this month, the Treasury borrowed Sh20 billion to help KQ repay a loan from African Export-Import Bank (Afrexim).

By 1988, KQ’s revenue was rising but the airline was still making losses that were cushioned by loans from the government.

Eventually, the gamble paid off and KQ became the best African airline until July 2016 when it posted the highest ever loss recorded in Kenya’s history — Sh26.2 billion.


The two above examples are a scratch on the surface of firms that have put taxpayers’ coffers at risk.

Auditor General Edward Ouko, in his annual reports for the last three financial years, revealed that at least 36 state corporations are technically insolvent and require Sh118 billion from the government as bailout if they are to have a fighting chance.

Nzoia Sugar, for instance, owes Sh38 billion in loans and the government has guaranteed the amount. Of this, the principal amount is Sh10.095 billion with the balance being interest.

Chemelil, Mumias, Muhoroni and Sony Sugar have also been highly reliant on government loans or guarantees over the years but only sink further in debt each year.