By NJIRAINI MUCHIRA

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Supermarket chains in Kenya will be required to pay suppliers within an agreed timeframe after the signing of an industry code of practice.

In efforts to return the retail sector to prosperity after the fall of leading chains Nakumatt and Uchumi, stakeholders have moved to address the problem of late payments, which is partly blamed for the collapse of several enterprises and has seen pending bills soar to a staggering $400 million.

The two retail chains lead the pack in money owed to suppliers, at 41 per cent and 32 per cent respectively.

The signing of the code came at a time that the government has put in place tough measures to rein in buyers, including retailers, who make late payments for goods delivered.

The setting up of a Buyer Power Department within the Competition Authority of Kenya is intended to contain the abuse of buyer power that manifests itself in late payments, unilateral termination of commercial agreements, breach of contractual terms, transfer of costs and demands for preferential terms.

When CAK investigates and establishes abuse of buyer power, the punishment is imprisonment for a term not exceeding five years or a maximum fine of $100,000, or both.

After more than five years of negotiations, which was marred by disagreements and suspicions between retailers and suppliers, the industry has finally agreed on a code of practice whose main aim is to ensure that suppliers are paid promptly and that retailers stop dictating policy on like marketing, promotions, damages, positioning of goods.

In so doing, the industry is hoping to instil fair trade practice principles, and ensure compliance with all applicable laws, rules and legal regulations for businesses within the supply chain.

“The purpose of the code of practice is to encourage self-regulation and harmonise retailers’ and suppliers’ ways of engagement and in so doing, also apply international best practice applicable to the Kenyan situation,” said Trade Principal Secretary Chris Kiptoo.

He added that the code will help the wholesale and retail sector reclaim its position as a key driver of economic growth after its contribution to the gross domestic product plunged from a high of 11.2 per cent in 2012 to 7.6 per cent in 2017.

First of its kind

The signing of the code, the first of its kind in East Africa, is a major win for suppliers, particularly local suppliers who have been operating at the mercy of retailers.

Suppliers says that the code will not only ensure they are promptly paid but it will also save them from foreign supermarket chains that enter the Kenyan market with conditions that many consider unfair.

A case in point was the entry of French retailer Carrefour, which had set tough conditions for local suppliers when it entered the Kenyan market in 2015. The conditions included paying a non-refundable fee of $15,000 to do business with it.

The code, signed by the Retail Traders Association of Kenya, the Association of Kenya Suppliers, the Kenya Association of Manufacturers and the Ministry of Trade, stipulates that a retailer must pay a supplier for goods delivered in accordance with the relevant joint business plan.

The code also established a Retail Trade Dispute Settlement Committee whose mandate will be to settle disputes arising as a result of delayed payments.

“The problem of late payments is one we need to fixed because prompt payment is essential for the performance of any business, particularly small and medium enterprises,” said Sachen Gudka, KAM chairman.

Other costs

Apart from ensuring prompt payment, the code also bars retailers from forcing suppliers to contribute to marketing costs, pay for shrinkage (losses that occur after goods are delivered to a retailer’s premises) and pay for damages.

It also bars retailers from forcing suppliers to make any payment as a condition of stocking or listing goods, make payments in order to secure better position or increase in the allocation of shelf space and must not force a supplier to make payments in support of a promotion.

More critically, a retailer may only de-list a supplier for genuine commercial reasons after providing reasonable notice.

According to Kiptoo, although the code is expected to bring some sense of sanity in the sector, the government is pushing ahead with plans to enact a comprehensive regulatory framework to govern the sector.

Already the State Department of Trade has developed regulations that will serve as a fallback mechanism in case of failure for self-regulation.

The regulations will be anchored on the Trade Development Act whose process of enactment is at an advanced stage.