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CAK should be empowered to rein in rogue businesses

By Gathu Kaara
Monday, June 22nd, 2020
Tuskys supermarket. Photo/Courtesy

The move by the Competition Authority of Kenya (CAK) to sanction Tuskys Supermarkets over its delayed payments to suppliers, is one of the most important developments that have ever taken place in the country.

To force Tuskys to clear delayed payments to suppliers, CAK has banned it from paying fees and bonuses to its directors, or undertaking any further expansion without its written approval, until it regularises the debt.

Tuskys reportedly owes its suppliers over Sh1.2 billion beyond the stipulated 90 days.

CAK’s move is a huge relief to suffering suppliers. For too long, companies with buying power in Kenya have operated with complete impunity when it comes to paying suppliers, who expend huge resources in time and money pursuing payments, instead of concentrating on growing their businesses. 

Most businesses have little recourse because the legal system is arduous, expensive and time consuming.

This has clearly come to an end, and all companies playing games with suppliers are now on notice.

One can be sure that many such companies are now scurrying around trying to quickly regularise delayed payments to suppliers before CAK’s eye swivels around.

Delayed payments is one of the most insidious things that can happen to a business.

It chokes’ cashflows, forcing suppliers to stall business growth, look for expensive bridging debt, or close altogether.

The problem has become a bad culture in Kenya, because there has hitherto been zero consequences for such bad business practices.

In the worst case scenario, the offending company goes down with billions of irrecoverable suppliers money, as did Nakumatt and Uchumi supermarkets, which went down owing Sh18.5 billion and Sh3.9 billion, respectively.

As a consequence, many small and medium businesses went under, with many auctioned and lives destroyed.

CAK must keep an unerring eye on supermarkets, which are a critical platform of the economic ecosystem, as they provide a shop window for the entire economy, from farmers, manufacturers, furniture makers, importers, fishermen, name it.

That is why it is good news that of the 25 major retail supermarkets across the country that CAK reviewed, only four were found to be facing challenges of making supplier payments in time, and only Tuskys ended up being distressed.

So what next for CAK? First, the government needs to strengthen the agency to do its job.

It needs investigators, forensic auditors, business analysts, researchers and other professionals to tackle business dynamics and complexities, especially the concealing of supplier debt. 

The institution must be financially strengthened, given autonomy, and a rigorous governance structure to bring it at par with its more illustrious peers like Central Bank of Kenya and Capital Markets Authority.

It must develop capacity to keep the whole country’s business environment under the radar.

Secondly, CAK must establish a reporting mechanism and parameters that would trigger an investigation either at the sectoral or company levels to enable it intervene in time. 

Thirdly, CAK must be given powers to intervene equally in government ministries, agencies, parastatals and counties. This is where many businesses have found their graveyards. 

Fourth, CAK must develop a blacklist of companies and government agencies that are bad payers, much as the credit reference bureaux do for borrowers.

This should have both positive and negative information to enable suppliers make informed decisions on whom to supply to.

Good payers will be able to negotiate good supply terms, while bad payers will find themselves in great difficulty getting suppliers. My guess is that with such a list, delayed payments will quickly disappear. 

CAK should also develop a debt distress barometer, in which it undertakes and publishes a regular review of supplier payments in the economy that are non-performing (beyond 90 days) as a percentage of the whole business debt portfolio.

This will be critical information when policy makers in the Central Bank of Kenya and the Treasury meet to consider monetary policy to support economic activity.

CAK director general Wang’ombe Kariuki has shown he can bite. He needs to keep his teeth pretty busy. There’s a lot of cleaning up to do! [email protected]

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