In this CFO East Africa exclusive, Mitchell Cotts Freight Kenya CFO Michael Nzule takes stock of the macro-economic factors that impacted business over the past year.
In this exclusive insight article, Mitchell Cotts Freight Kenya CFO Michael Nzule takes stock of the macro-economic factors that impacted business over the past year.
The start of 2023 was full of optimism. A new government regime was settling down in Kenya. The promises were great and the execution was awaited with bated breath. At last, the economy would be free from prolonged electioneering and businesses would start recovery after resilience testing.
Indeed, there was expectation for thriving fortunes. After all, after every election cycle, the Kenyan economy is known to rebound. The economy was waiting to experience the Bottom-up Economic Transformation Agenda (Beta).
The focus of this was towards economic turnaround and inclusive growth. I think we had a good start from sheer optimism based on the legacy of positivity.
Taxes and currency devaluation
However, reality started kicking in. The number of corporates that gave profit warnings continued to surge. To earn revenue to implement the government’s manifesto, individual and corporate tax rates increased, including the implementation of the housing levy.
Employee and employers got squeezed too, from a liquidity point of view, on remission of withholding taxes and automation of KRA tax collection systems. We thankfully had a tax amnesty window, to clear outstanding issues and get waivers on any penalties as long as the principal taxes were paid or a commitment (payment plan) made, before June 2024.
The restructuring of the National Health Insurance Fund (NHIF) will surely result in more contributions from employers and employees in 2024.
It is a pain for corporates whose sales are in local currency, but critical inputs are imported and have to be settled in foreign currency. Loan repayments have become a challenge too, with interest rates increasing. CFOs have had to be creative, to work with suppliers, to keep banks close and to be open to other players who can help ease the pains.
For example, with USD scarcity, we have embarked on peer-to-peer foreign exchange trading; those who earn revenues in USD engaging those who are mismatched directly so as to address the limitations of commercial banks.
Liquidity and foreign exchange flexibility is now more than ever, a top item on our daily dashboards. We cannot blink or take our eyes off the dashboard, and we must speak the truth to the stakeholders.
Debt financing and layoffs
Certain corporate entities have left Kenya and layoffs have continued. The government has pointed out that the pains are necessary adjustments as they fill voids of previous regimes and stick to their plan.
But how does the housing levy create sustainable jobs? What investment enabling regulations will we have to attract foreign direct investments? How do we have an economy taxed into prosperity?
New stringent debt financing and refinancing plans with the Bretton Woods institutions have been penned. Conditions akin to the Structural Adjustment Plans (Saps) of the 1990s are resurrecting again in Kenya. High commercial interest rates, a free-falling Shilling coupled with scarcity and rationing of USD will be a real headache into 2024. We have been told that this is a necessary tool to correct the market. Let us wait and see.
Economic growth has been reported but does this translate to disposable incomes for households? Dare I say no. However, I am comforted in the knowledge that as a country, we are made of more, and we have the skills and ability to get ourselves unstuck. We have done it before, though I am not sure how much pain we must endure, in order to cause the collective rebound.
Nonetheless, I enter 2024 with optimism. The challenges of 2023 are opportunities waiting to be flipped. It shall be well and it shall be better.