Lack of credit to pri­vate sec­tor hurt­ing econ­omy

Business Daily (Kenya) - - IDEAS & DEBATE - There is clearly some­thing amiss with the pre­vail­ing eco­nomic struc­ture

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.

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