Tough Times as 232 Kenyan Companies Shut Down in 2021

An iMac on a desk inside an office
  • When Lami Majanga’s friend launched his own advertising company, Magic Touch, in Nairobi in January 2019, everything looked rosy for himself and for those around him.

    Majanga, a trained journalist, secured a job at the company and was making a decent five-figure salary bordering six figures.

    A few months after its inception, the company, which had a staff of 20, including a management team of 5, cemented itself among upcoming firms to watch and was raking in as much as Ksh3.2 million profits a month.

    “It was a company that a friend started. I was employed there. Before Covid-19, the company was doing good and making money. In a month, the company would make up to Ksh3.2 million in profit,†Majanga told kenyagist.com.

    An iMac on a desk inside an office
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    Eight months since inception, however, the company lost its magic touch largely due to Covid-19 pandemic and everything seemed to spiral downwards from there.

    Losses began piling and in May 2021, the management had no any other choice but to pull a plug and so the company was auctioned at a loss, leaving the founder wallowing in debt.

    Majanga, who was beginning to stabilise his young family, was forced to send them to the village and return to the harsh world of freelance in what he described as “an attempt to find a way back.â€

    “There was business and no money. This year march, it was worse in April. In May, the company was auction. (when the company closed down) the first thing to send my family home to strategise,†he added.

    In July 2021 alone, some 232 companies have been featured in the Gazette Notice as having dissolved operations or intending to dissolve. 153 of the 232 companies, were featured in a single Gazette Notice issue signaling that the economy was still headed for a slump period.

    Speaking to kenyagist.com, economist Sam Okumu, however, clarified that while 153 companies announcing dissolution is a huge number, it does not necessarily a cause for alarm since many factors may push the board or owners of a company to shut down their operations.

    According to the economist, the constant auction notices that are published in local dailies should worry businesses explaining that the recently presented Ksh3.6 trillion budget for the 2021/2022 financial year may not protect Kenya’s small businesses.

    “There is a difference between a company that has been dissolved and one that has been liquidated. Liquidating is one of the ways of dissolving a company. A company can be dissolved voluntarily or by a court order.

    “A good indicator that companies are suffering is the publishing of auction notice,†he explain.

    In one of the March issues of Nation, auction notices property auction notices filled nine pages and each issues carries at least five pages of auction ever since. This comes despite World Bank’s estimation that Kenyan economy is poised to expand by 4 per cent in 2021.

    The June 2021 budget unveilled by Treasury CS Ukur Yattani has been classified as a deficit budget in which the state may borrow money locally hence shrinking loan facilities for local companies.

    “What is making the situation worse, when you look at this year’s budget, it is a deficit budget. The government is still going to borrow but the different thing is that the government will now borrow locally as opposed to foreign loans.

    “What that means is that all the banks will now deny the ordinary businesses money because for them, it is much easier to lend to the government because you are assured. It is also much cheaper to lend to the government. Automatically, businesses will be starved for money,†added Okumu.

    He projected that with the new development, the 2021 economy was likely to suffer considering that most of the people who lost businesses in 2020 are unlikely to rebound while more are expected to run into headwinds as banks tighten their wallets over a spike in bad debts.

    Okumu, however, notes that there might be light at the end of the tunnel since President Uhuru Kenyatta relaxed Covid-19 rules giving more room for Kenyans to do business. He observes that 60 per cent of the remaining businesses were likely to spring back.

    “There are enough indicators that the Covid-19 restrictions may be lifted once and for all. The reason the economy will bounce back first is because the period prior to the elections, Kenyans are usually very skeptical about the environment after the elections.

    “What they always want to do is really do a lot of businesses to stock up their resources for post elections,†he explained.

    Over 5.1 million lost their jobs between March and August 2020 after the pandemic hit the country according to the Federation of Kenya Employers (FKE).

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    Treasury CS Ukur Yatani (right) poses for a photo at Treasury Headquarters, Nairobi on Thursday, June 11, 2020, ahead of Budget 2020/21 presentation
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  • Source: KENYAGIST.COM