Lack of credit to private sector hurting economy
Close observers of Kenya’s economy must have by now concluded that this year has been a difficult one for all cadre of businesses. From the Small and Medium Enterprise (SMES) to the blue chips, the operating environment has only produced one challenge after the other – culminating to huge earnings drops, slowdown in growth or complete fall into loss-making.
So far, 23 companies listed on the Nairobi Securities Exchange (NSE) have shed Sh14. 75 billion in provisional and final financial results. SMES continue to face severe credit constraints spawned by the refusal of banks to lend to them after the capping of interest rates.
It is interesting that banks seem to be comfortably shielded from all these economic headwinds to rake in Sh87.8 billion so far this year. Looking at the scope of losses at the NSE and the huge profits by the lenders, there is clearly something amiss with the prevailing economic structure.
Lack of credit, which is the lifeline of businesses and ultimately of the overall economy, is at the heart of these economic setbacks. Banks seem to have abandoned the private sector and sought sanctuary in government papers. The risk-averse lenders are apparently of the opinion that they do not need private companies to survive and have, therefore, shifted a disproportionate share of their credit to government.
While in the short term the banks can smile all the way to their own vaults lending to the government, this certainly is not sustainable in the long term.
This is because when businesses are starved of credit, the economy is bound to immeasurably suffer, and the adverse consequences of such an eventuality will not spare the banks.
Already, signs that the economy is facing tough challenges are all over. A number of companies are shedding jobs, some gone into statutory management, while others are warning that their profits are below expectations. SMES, which are the engine of the Kenyan economy, have borne the brunt of the credit crunch. Yet they churn out the most jobs and provide livelihoods to millions.
The paradox is that these set of challenges are occurring in a year that the economy is projected to grow by six percent, a figure which is by no means dismal. What this implies is that only a few are benefiting from these impressive figures.