Small businesses in ‘survival mode’

By Steve UMIDHA

There are growing fears among executives and business owners that the next three months of the year could see a wave of small businesses struggle to stay above the water, as the cost of sustaining their operations unceasingly increases.

It is a crisis most of them concede, has not been seen in decades.

And if you are thinking of starting your own start-up lately, you are being advised to feasibly reassess your options or better yet, hire a business advisor for your target venture.

“One will have to make a significant business pivot in order to survive in the current business environment as an entrepreneur or would- be business owner, because it is tougher now than before,” offers Peter Macharia – an independent economist.

With the current economic uncertainty, Macharia who also runs a microlending firm Jijenge Credit limited says, business owners might throw a wrench in their plans (of starting a business or sustaining already existing but struggling ventures).

Small to medium sized enterprises (SMEs) have found themselves sitting on a powder keg – having to put up with unusual economic instability that has been provoked by recent fiscal measures by the State aimed at raising more money through taxes, fluctuating currency exchange rates as well as the high cost of fuel.

Many businesses are also repaying loans they were forced to take out, first during the Coronavirus pandemic and the periods that follow, when the country went into a political ‘wait-and-see’ mood and the European conflict that has been a major blow to the global economy and one that continue to hurt growth and has raised commodity prices.

Food and energy prices significantly pushed up inflation further, in turn eroding the value of incomes and weighing on demand globally.

In fact, the only time local businesses showed slight improvement was last month, according to August Purchasing Managers’ Index (PMI) reading by Stanbic bank, at 50.6 during the month, up from 45.5 in July.

The headline PMI signaled an expansion in business conditions for the first time since January. However, the index was only slightly above the 50.0 mark, indicating that the expansion was only marginal.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

This cocktail of challenges has already proved lethal to some.

“Tough business conditions and inflation pressures remain a pressing concern for Kenyan businesses, as input prices and staffing costs were seen rising due to a weaker exchange rate as well as higher taxes related to the recently enacted tax measures in the Finance Act,” offered Christopher Legilisho, an economist at Standard Bank.

What’s worse, some small businesses are also faced with the looming demands for higher wages and salaries with their net earnings having been squeezed with the introduction of enhanced national insurance contributions on National Hospital Insurance Fund (NHIF) and National Social Security Fund (NSSF) as well as the affordable housing levy at 1.5 percent of the gross monthly salary.

The higher cost of fuel for instance and other basic commodity items means a growing divide between the wealthy and the middle or working class, with the latter facing significant financial headwinds owing to a brittle economic outlook.

While inflation – a measure of the cost of living over a 12-month period, has eased to 6.7 percent, which is within the official target of between 2.5 and 7.5 percent, most Kenyan households will end the year on a low.

Kenya’s new tax package for instance, a host of which were back-dated to July 1, have loosen the local labor market, with employers in many sectors like auto and manufacturing industry confronting a truly tight equilibrium for the first time in decades and face the prospect of salaried employees’ ability to spend on luxury condensed by tough economic times.

“This year is gone,” decried the CEO of Simba Corp Dinesh Kotecha, on the mounting worry in the form of pending bills and high interest rates as some of the most pressing and lingering holdups likely to see the industry perform dismally this year.

The sector (for new vehicles) dipped by 15 percent in seven months to July according to figures by the industry lobbyist Kenya Motor Industry Association (KMIA).

These executives however, hold the opinion that a handful of key sectors like tourism and hospitality, transport and logistics and the financial markets could be the only sectors likely to perform well in the next three months as the country veers towards merry- making season – a period that is synonymous with free – spending during festivities.