One of the factors economists use to determine the performance of an economy is corporate profit, especially profits made by companies listed in stock markets. In Kenya, there are 65 listed companies and since January 2015 to yesterday, 37 of them (56%) have either reported losses in billions and millions of shillings, or have issued profit warnings. Leading in the loss making spree have been Kenya Airways that reported a loss of shs 25.7 billion followed by Mumias that made a loss of shs 4.6 billion, then there is Uchumi Supermarkets that made shs 3.2 billion loss and recently Britam that reported a shs 1.2 billion loss. These profit warnings and huge losses are strong indicators that the economy of Kenya is in a bad shape, a very bad shape.
Some of the companies including those not listed in the Nairobi Securities Exchange that have gone into the loss making spree are banks; and banks that readily come to mind when thinking of losses are National Bank of Kenya and the recently closed Chase Bank. The reason banks are reporting either diminishing profits or net losses has been given as bad performing loans. “When businesses fail to pay their loans, that is also another sign that they are struggling and this translates to our revenue performance”, explained KRA Commissioner General Mr. John Njiraini when issuing a statement on the failure by KRA to meet its Revenue Collection Target three months to the end of 2015/2016 financial year.
The failure by KRA to meet its Revenue Collection Target in the first nine months to March 2016 is another strong indicator that the Economy of Kenya is in a very serious bad shape. Although KRA reported a 11.7% revenue growth when compared to a similar period the previous financial year, KRA was able to register a 37.5% increase in the number of registered taxpayers from 1.6 million to 2.2 million, and if all factors were held constant, the taxman ought to have registered an increased revenue collection close to the 37.5% figure. Treasury had projected that revenue collection would increase by 20.9% by the end of 2015/2016 financial year compared to 2014/2015 financial year.
KRA was unable to meet its revenue collection target due to three economic factors: 1. diminished corporate profits hence less corporate income tax, 2. insignificant growth in PAYE tax as the badly performing businesses either laid off workers or failed to increase their workforce, and 3. decreased spending in luxury goods like cars.
Another economic indicator that is closely related to corporate profits is the performance of the stock market itself. For example, Britam attributed its shs 1.2 billion loss to the underperformance of NSE. Since the beginning of 2015, Nairobi Securities Exchange has been on a downward trend that saw it reach a four year low in August 2015 then another new low in October 2015, trends that strongly suggest that the economy of Kenya is failing.
As was reported by Daily-sun.com in August 2015, “Trading at Nairobi bourse hit four-year low this week as the market continued with its downward trend. Key indices of the Nairobi Securities Exchange (NSE) declined significantly, plunging to a level last seen in 2012 as investors continued to count losses. Market data indicated that the NSE 20 Share Index closed the week at 4,101.67, down from 4,405.29. Similarly, the Nairobi All Share Index (NASI) ended the week at 140.18, a drop from 149.66 the previous week.” In October 2015, Business Daily again reported that “The Nairobi Securities Exchange’s (NSE) main index fell to a new four-year low of 3868 points”.
Just as a demonstration on how important the performance of a stock market is, allow me to quote an article by published in the Economicshelp.org that his this to say, “Movements in the stock market can have a profound economic impact on the economy and everyday people. A collapse in share prices has the potential to cause widespread economic disruption. Most famously, the stock market crash of 1929 was a key factor in causing the great depression of the 1930s”.
It is clear that NSE is performing very poorly at the levels of a four year (almost five year) low and the companies listed in the stock market reported losses in billions of shillings. These, as has been well explained by Mr. John Njiraini, the Commissioner General of KRA, have had impacts on other businesses including the Small and Medium Sized businesses. The question that we should ask at this point is this, what is causing the economy to take a downward spiral?
A few obvious factors can be pointed out. From 2013 to early 2015 there were several insecurity issues that affected security dependent industries like tourism, direct foreign investment and general movement of goods and services. Over the same period, numerous corruption allegations have also surfaced and the failure by the government to act on those allegations in a timely manner has also contributed to a no-show foreign investment environment. Both corruption and insecurity have generally created a non-conducive business environment for both foreign and local businesses.
Judging by the reasons given by the General Assurers (UAP, Britam, Pan Africa Insurance, etc) that increased medical and motor accidents claims have largely contributed to their recent losses, it is clear that the Kenyans themselves are not doing well psychologically and medically. According to a friend who frequents Nairobi Hospital, the hospital recorded a 50% increase in the number of outpatients from January to March 2016 compared to the three previous months; and, going by recent media reports, a number of government hospitals are unable to cope up with increased number of patients.
On the accidents side, going by the data available at NTSA website, there have been an increase in the number of accidents, fatalities and serious injury cases between January to 18th April 2016 compared to the same period last year. Although drunk driving is one of the leading causes of accidents in Kenya, general distraction that is due to drunk driving, stress, text-driving, anxiety, and depression contribute to over 70% of road accidents in Kenya. Drunkard-ness in itself is a sign of a stressed up person – and one of the leading causes of stress is brokenness/bankruptcy .
Lastly, Jubilee Government has gone into a borrowing spree since it took over Government in 2013, making the country’s public debt to reach an all time high of shs 3.2 trillion. With the gloomy picture of below target revenue collection by KRA, this debt is expected to increase as the Government is already targeting to raise another Eurobond loan to the tune of shs 100 billion. Without certainty that the government can collect enough revenue to fund both wages and recurrent expenditure, repayment of the loans will work only to strain the economy even further. As the previous shs 3.2 trillion loans mature amid diminished revenue collection and continued repayment of interests on new loans, the future does not look any brighter for the economy of Kenya than it looks today.