Kenyan SMEs face total collapse as cash flows shrink

0
542
Kenyan SMEs face total collapse as cash flow shrink

Kenya’s Central Bank Governor Patrick Njoroge, has said that majority of small or medium-sized businesses simply do not have enough cash to continue or resume working after June as the Covid-19 pandemic continue to bite.

Quoting a survey carried out by research firm McKinsey and Company in April, Mr Njoroge said Kenyan SMEs  are staring at an enormous financial challenge in the wake of the Covid-19 pandemic.

“Three quarters of Kenyan SMEs are on the ropes and would be gone as they do not have any cash to keep the lights on, pay for supplies and compensate workers. The urgency to SMEs is clear to us and we understand it as we have a pulse on that part of the economy,” he said.

This could be a devastating hit for the Kenyan economy which has already seen most of its large corporations either disintegrate or on the verge of collapse.

Should these companies not receive any kind of help from the government or any outside source, the Kenyan economy as a whole is likely to face serious economic challenges given that the economy was not doing well before Covid-19. Not only will there be a serious lack of job opportunities, but a lack of entrepreneurship opportunities as well.

The issue can already be seen in finances

Even private banks themselves have no choice but to request a higher interest rate from their clients as their other sources of income have either shrank significantly or dried up completely. This is a serious implication of what is to come in the future. Should there be no SMEs capable of providing services to the population, there will be very little demand for loans in the first place, thus justifying the high-interest rates.

And, should there be high-interest rates, the possibility of starting up something new is going to be extremely hard, thus grounding the whole economy of the country to a standstill.

More profound proof can be found in the speculative markets in Kenya, especially in the Forex sector. Once known to be one of the most active countries in the speculative market, Kenya is currently massively losing its trading volume as more and more traders are poised to liquidate their assets and wait out the storm.

In fact, many Kenyan Forex brokers have already reported serious losses in terms of volume within the first quarter of 2020, and are predicting even worse numbers in the following months to come, especially considering that lockdowns and curfews could be renewed starting September.

Should there be nothing done to avoid these issues, most of the private equity in Kenya will have to be sold in order to survive the winter, and the most prominent of clients for Kenyan real estate is bound to be investors from the East, looking to gain a foothold on the continent.

What are the solutions?

The director of the CBK has mentioned that providing cash for these SMEs would not necessarily be the primary solution at this point. Even if it was, it would be a short-term one as the companies would run dry very soon after just paying their workers.

The best solution would be to create demand for these services and goods. Currently, the only demand is for necessities such as food and medicine. Non-essential businesses will have to be artificially inflated to provide their services, but the issue of a cashless cluster is also associated with consumers too.

So whether Kenya will manage to solve this issue with artificial demand is not yet known. Meanwhile, Kenyan SMEs continue to bear the brunt of Corona Virus disease whose end is not in sight.

Also read

Kenya’s property market depicts resilience as Covid-19 disrupts global economies

Power shortages will remain a big challenge in a post-COVID-19 South Africa

ADVERTISEMENT

LEAVE A REPLY

Please enter your comment!
Please enter your name here