Loss-making firms need restructuring
Challenges facing Kenya’s economy are huge, but some may be self-inflicted, and the State must put its house in order. Last week, after the country got a loan boost from the International Monetary Fund (IMF) worth Sh28 billion, the vulnerabilities facing the nation were obvious.
The IMF said that much as it had approved the loan, many risks abound — some of which are self-inflicted. Granted, the economy is facing a lot of local and international pressure hence the IMF pushed for an increase in interest rates and taxes.
Kenyans do not like it. But the other elephant in the room is the role State corporations play in eroding resources from the Exchequer. A report by the National Treasury released recently warned that most State corporations were either unprofitable, loss-making or operating below cost recovery.
Considering that Kenya has 260 State corporations, this was a major indictment to calls to streamline the sector, since they have become a huge hole through which taxpayers’ money gets drained. Unprofitable corporations pose a huge financial risk to the Government because of the high debts they owe Treasury, the associated risks and the unsustainable pending bills they generate.
Most State-owned enterprises (SOEs) do not even pay dividends and taxes regularly, yet they are supposed to earn revenue. With all these facts, a lot of time has already been wasted playing politics with the SOEs, and the next government must make informed decisions on the viability of some of these corporations. Most are highly indebted and hold large liabilities. They have acute liquidity challenges. Others have not only lost market share but have also generated large tax and social security arrears, ending up either insolvent or loss-making.
While it can be understood why the Government would continue supporting social service providers, even when they are found to be operating below the cost of recovery, it doesn’t make economic sense to even attempt apologising for using taxpayer’s money to revive some firms. Calls by experts on the need to have these entities restructured must come to fruition. This is because the impact of some of these corporations is no longer proportional to the social and economic benefits they were established for.
The next government must quickly find a solution for these black holes and start holding people accountable. Heads must start rolling because most leaders are becoming morticians, turning otherwise vibrant firms into cash cows that rely on public finances, grants and subsidies to survive.
