Pressure on firms as State raises dividend projection
The government has revised upwards the projected income from its investment in various State-affiliated companies in the current 2023/24 fiscal year, piling pressure on financially depressed corporations.
Latest data by the National Treasury indicates the investment incomes, earned mainly through dividend payouts by State firms, are expected to rise by 15 per cent (Sh5 billion) to Sh38.1 billion by the end of June 2024. Initial budget estimates placed investment income at Sh33.1 billion.
However, the new investment revenue still falls below the Sh41.3 billion the government earned in the form of dividends, surplus funds, directors’ fees, and loan interest receipts in the last fiscal year that ended in June 2023. In the 2023 budget review and outlook paper, the Treasury has not explained why it now expects more from the firms, the majority of which are either loss-making or facing profit dips.
However, this surprise revision could be linked to the good performance of the investment income in the first quarter of the year ending September 2023.
“All ordinary revenue categories recorded below target performance during the period under review except investment income and other revenue which surpassed their targets by Sh10.4 billion and Sh3.6 billion respectively,” Treasury says in the quarterly economic and budgetary review.
The revised investment income is expected to pile more pressure on State corporations to implement structural reforms necessary to uplift them back to profitability and pay dividends and other statutory deductions like taxes.
This will also save the exchequer from spending on corporations through constant bailouts. There are over 263 State firms in Kenya, though only a handful are currently profitable, denying the National Treasury returns on investment.
Kenya Pipeline Company (KPC), Kenya Electricity Generating Company (KenGen), Safaricom, and KCB Bank are among the few profitable State-affiliated firms, while others, like Kenya Power, are struggling but with a strong asset base.
The National Treasury is also a shareholder in Kenya Airways, Consolidated Bank, Kenya Railways Corporation (KRC), Kenya Reinsurance Corporation (Kenya Re), Stanbic Bank, and National Bank of Kenya, among others.
Safaricom, in which the State owns a 35 per cent stake, is the single largest contributor to the government’s income. In its financial year ending March 2023, the telco paid an interim dividend of Sh0.58 per share, translating to a Sh8.1 billion payout to the government.
By the end of September 2023, Safaricom Group had realized a net profit dip to Sh27.2 billion, owed to a huge investment in the Ethiopia subsidiary. Treasury also holds a 70 per cent stake in KenGen, which paid in June Sh1.38 billion dividends as part of the profit earned in the 2020/21 year.