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SMEs under attack: Will Santa Claus bring cheer


The recent price hikes have sent small businessmen reeling under losses. Their financial statements are no longer healthy. Kuza Biashara brings you this special report with inputs from its correspondents across Kenya.

Finance in kenyaWith the festive season round the corner one would expect to see smiles on the faces of both businessmen & customers. But the recent onslaught of price hikes, frequent power & water cuts coupled with a steep increase in their rates seems to have spared none. There are no two words that inflation is pinching customers badly leading to a fall in demand. The price hikes have mauled manufacturers & businessmen alike because the customer flow has trickled down.

“You expect a smile on my face,?” asks Dickson, a kiosk owner indignantly. “Tell me how do you expect me to run my business if the price of petrol increases like this? I need to get all my stuff from about 20 Kms. I can neither afford the hike nor can I turn away loyal customers,” he laments.

Dickson like many other small business people is aggrieved by the fuel costs that have hit an all time high of Ksh 120 a pump.

The tours and travel sector seems to be the worst hit by the rise in cost of fuel. “We are headed for disaster should this situation continue,” laments Jefferson Kisovi, owner of Adventure Tours & Safaris, Mombasa. Jefferson booked air tickets early October for his customers for the forthcoming festive season. But with the hike in airfares have left him high & dry. He has only two options: Pass on the costs to the customers or pay out of pocket. The former is not feasible since increasing the cost of air tickets after a contract has been signed can result in a lawsuit. Jefferson is worried that his Christmas won’t be all that cheerful what with him paying the airlines through his nose.

Powerless SMES

Amidst this the news that Kenya Power & Lighting Company (KPLC) is set to double the electricity bills has shocked both domesticPower cuts & commercial users. As KPLC struggles to power the country, electricity from expensive independent suppliers coupled with drought has seen the price rapidly rise. Add this to the rise in the fuel charges and the weak shilling.

Bernard Rono who runs Benosir Medicare says that the last couple of months have been a nightmare. “Some expensive medicines & vaccines require refrigeration. The medicines go waste thanks to the power cuts”.

Bernard is a classic example of SMEs who can’t afford generator sets to stand in for power cuts. Cyber-cafes, salons, bakeries, and welding services-you name it-the demonic power cuts have spared none.

“Unannounced power cuts are the biggest pain,” complains Teddy Njuguna a graphic designer in Kiambu. “I can’t meet deadlines & the client thinks I’m incompetent. I’m losing my customers,” he says on the verge of breaking down.

Eric Njuguna, hotelier from Kiambu is also feeling the pinch. “Clients refuse cold food. These power cuts are lowering my daily income and in turn affecting my family life,” he laments.

As if to add salt to injury, the recent announcement by KPLC has only added to the woes of the consumers. They will soon be paying an extra Ksh153 million in December’s bills.

“We’re being forced to increase our prices in order to stay in business,” says Habib Parkar of Wonder Feeds, Nakuru. “But I’ve seen a fall in demand & this is eating into our profits,” he says.

The weak shilling

The depreciation of the Kenyan shilling has hit oil dealers like never before. Duke Mwaniki of Karano Suppliers in Kisii wants to push the rising costs onto the customer. But there’s also the fear that he might soon be out of competition. “Customers get angry when I send them new quotations. The Kenya Tea Development Authority, for example, rejected the new quotations I issued to them. What do I do now?”

Can no longer bank on loans

The steep rise in input costs has seen SMEs running to financial institutions for loans. With banks increasing their lending rates several SMEs are at sea.

Mwahiki from Kiambu wanted to take a loan earlier this year to purchase a tipper. He submitted a quotation to the bank for Ksh 8 million. “The cost of the tipper has gone up to Ksh 10 million now. I can no longer afford it”. Mwahiki very well realises that taking a loan will prove much more expensive for him in the long run. A confused Mwahiki has nobody to approach to solve his problem.

Parkar of Wonder Feeds puts it succinctly when he says, “I don’t understand this at all. While the interest rate on deposits continues to remain at a paltry five per cent, interest on loans has steadily increased to 20%! This is a rip-off!” Wonder Feeds is not yet contemplating downsizing but “that might be an active option to consider if the situation continues.” If a majority of SMEs consider downsizing to continue to be in business, what it will do to unemployment is not hard to imagine.

Co-operative alternatives

Co-operative alternativesWith banks getting out of reach, several small businesses are looking towards Saccos as alternative sources of funding. “The demand for loans from our Sacco has gone up,” says Ogeto of Egerton Sacco, Nakuru. “You see, borrowing rates from Saccos has not changed given that the adjustments in lending rates do not affect them directly. Given that Saccos provide loans from savings from their members, they are prone to give loans at lower interest rates”. The interest rates on loans being issued by Saccos hover around 14-17% while the banks charge anywhere between 20-25%!

“Since a large number of potential loanees are flocking to Saccos, the latter are looking out for other sources of funds,” says Ogeto. But their major source of loans, Co-operative Bank of Kenya too has increased its interest rates. Therefore, it won’t be long before Saccos too increase theirs.

Given this bleak scenario, one wouldn’t blame small kiosk-owners like Dickson for getting angry when suggested that Christmas would bring a smile on his face.

The economic storm is now in full force. But if financial analysts are to be believed, the Kenyan shilling is set to improve beginning December. The Kenyan SMEs hope that Santa Claus will bring them hope for 2012.

But one question that keeps resonating in the sub-conscious among SMEs is: Where’s the government in all this?

(With inputs from: Florence Mbatia in Kiambu, Thika, Moses Ndura in Mombasa, Kamau Mugure in Nakuru & Kisii, Diana Wangui in Nairobi)

Image courtesy: FreeDigitalPhotos.net

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