Kenyan Companies Experiencing Cash Flow Constraints Amid COVID-19

RUIRU, KENYA – JULY 18: Coffee is roasted at Dormans Coffee on July 18, 2019 in Ruiru, Kenya. Dormans became Kenya’s first coffee roaster in 1950, and is one of the biggest exporters of coffee in the country. Despite a large domestic tea-drinking market, coffee culture in Kenya is on the rise, with a large rise in consumption in the past ten years. The country produces only one percent of the world’s coffee, but is better known in the industry for the exportation to specialty markets around the world. (Photo by Andrew Renneisen/Getty Images)

Kenyan manufacturers have cited reducing costs and maintaining jobs as top priorities amid the COVID-19 pandemic, says a report released in Nairobi on Wednesday.

The report by the Kenya Association of Manufacturers (KAM) and global auditing firm KPMG says despite fears of the impact of the pandemic on local industry, 81 percent 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 percent for manufacturing small and medium enterprises (SMEs).

KAM Chair Sachen Gudka noted that while it is imperative to have measures in place to curb the spread of the virus, the regulations coupled with uncertainty are likely to lead to a prolonged recession that will affect business continuity.


“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,” Gudka said during the launch of the report in Nairobi.

The report says 42 percent of manufacturers are operating at less than half of their operating capacity, whereas 37 percent of SMEs have scaled-down production.

On the other hand, 79 percent of surveyed companies are experiencing cash flow constraints, with 86 percent of SMEs facing the same challenge, leading to difficulties in facing their financial obligations such as salaries and operational costs.

“To resolve cash flow challenges, manufacturers have negotiated payment plans with their suppliers, customers, banks and sought additional financial support from other individuals and institutions,” says the report.

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

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

To help businesses navigate the pandemic, the survey proposes tax relief, establishing an emergency rescue fund and developing a comprehensive rebound strategy, among others.

The reduction of Corporate Tax from 30 percent to 25 percent was positively received by 60 percent of the surveyed manufacturers.

According to the report, 52 percent of manufacturers, to whom turnover tax is applicable, found its reduction from 3 percent to 1 percent very helpful or helpful while 50 percent of manufacturers indicated that VAT refunds are helpful.


Written by PH

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