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Millions of dollars going to waste in state-run firms

Saturday September 24 2016
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Mumias Sugar Company is among state-owned corporations in dire need of a government bailout.. PHOTO | FILE

Kenya is sinking millions of dollars into troubled state-run corporations that have plundered public resources, even as recommendations from a team of experts to abolish or merge moribund organisations continue to gather dust on the shelves.

The EastAfrican has learnt that whereas President Uhuru Kenyatta endorsed recommendations to reform public enterprises three years ago, efforts to implement them are being resisted within government circles.

Insiders told The EastAfrican that reforming parastatals could prove a tall order, as these institutions are used to reward political loyalty.

Samuel Nyandemo, a senior lecturer at the University of Nairobi’s School of Economics, said that state-owned corporations have become avenues of siphoning out public money.

“The government appears to be in no hurry to implement reforms even after the studies were done and recommendations adopted,” said Dr Nyandemo.

The National Taxpayers Association (NTA), a civil society organisation, said the manner in which bailouts of state-corporations are conducted in Kenya is uneconomical and a burden to the taxpayers, with about one-third of the budget supporting ailing enterprises.

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“Most of these parastatals depend on parent ministries and hence there is a need to harmonise and consolidate their operations. It makes no sense to bail them out,” said Michael Otieno, a governance advisor at NTA.

Stephen Maina, an economist with the Sembast Development and Policy Institute said that the government needs to hasten divestiture from commercial enterprises because the longer it stays in them, the more the levels of financial injections that the National Treasury must dish out.

“While it is normal for corporates to face rough financial patches, the consistency with which companies with a government principal shareholding are going under is a cause for worry,” said Mr Maina. “It is perhaps time Kenyans went back to the drawing board on issues related to the performance of such corporate entities. With the troubled enterprises being listed companies, the first proposal for cash injections has always been a rights issue.”

Taskforce report

In October 2013, the Presidential Task Force on Parastatal Reforms chaired by presidential advisor Abdulkadir Mohammed, recommended the dissolution and merger of 75  state corporations reducing their number to 187 from 262.

President Kenyatta directed that the taskforce’s recommendations be implemented in three months.

According to the taskforce report only 51 state corporations were self-sustaining and did not rely on budgetary support.

State-owned corporations currently in dire need of a government bailout include Mumias Sugar Company — Ksh2 billion ($19.41 million), Kenya Airways — Ksh60 billion ($582.73 million); Uchumi (Ksh1.2 billion, $11.65 million) and Consolidated Bank (Ksh1.8 billion, $17.47 million).

National Treasury Cabinet Secretary Henry Rotich however  refused to comment on the delayed implementation of the parastatal reforms, instead claiming  that the funds advanced to struggling state-owned corporations by the government are merely shareholder loans.

“KQ and Mumias are being supported via shareholder loans. In the case of NBK and Consolidated bank merger/consolidation options are being reviewed,” said Mr Rotich.

READ: Mumias Sugar changes tack on plan to raise capital

ALSO READ: Treasury retreats on plan to sell shares in Mumias, National Bank

Eric Munywoki head of research at Sterling Capital, said NBK’s financial woes could be eased through a strategic investor, a proposal that has been overruled by NSSF.

NBK is looking for a Ksh2.9 billion ($28.16 million) loan from the state-owned pension scheme, National Social Security Fund, and a further Ksh1.3 billion ($12.62 million) from the National Treasury.

“I think the only thing that NBK should be looking at is to get a strategic investor to pump in more money but before that they have to clean up the operational inefficiencies that have led to increased levels of bad debts,” said Mr Munywoki.

Mumias Sugar Company’s chairman Dan Ameyo said a financial package from the government would help the miller buy spare parts, pay farmers for cane delivered and carry out a staff rationalisation exercise.

In his 2016/2017 budget reading, Mr Rotich said parastatal reforms are being delayed by the enactment  of the  Government-Owned Enterprises (Bill) claiming it has already  received Cabinet approval but parliament is yet to discuss it.

Kenya established a large number of parastatals after independence in 1963, driven by a national desire to accelerate economic development, redress regional economic imbalances, increase citizen’s participation in the economy and promote domestic entrepreneurship as well as foreign investments through joint ventures.

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