Kenyan enterprises defy economic storm to post strong growth

This year’s event has taken place in the middle of immense economic challenges that affect businesses or individual consumers.  Inflation is up and the shilling has plummeted to a level not seen before.
This year’s event has taken place in the middle of immense economic challenges that affect businesses or individual consumers. Inflation is up and the shilling has plummeted to a level not seen before. 

The Top 100 annual survey is an initiative of the Business Daily (a Nation Media Group publication) and KPMG Kenya.

The survey which is in its fourth year seeks to identify and recognise Kenya’s fastest growing medium-sized companies, and to showcase business excellence and successful entrepreneurship stories within this important business segment.

A Top 100 company is one that has succeeded in progressively growing its market position, translating the growth into a fairly sound financial position and good returns for its shareholders, employees and the community over time.

The Top 100 2011 Survey builds on the Year 2010 Survey theme, “One Market, More Opportunities” and reflects the immense opportunities available to mid-sized companies within the East African Community (EAC) Common Market.

From the survey, it was clear that a number of businesses are doing brisk business and even beyond, but more needs to be done to encourage businesses to venture into the region.

A total of 246 companies participated in the 2011 Survey. Over 70 per cent of these companies had a turnover of Sh70 million to Sh399 million, had been in business for over 10 years and were locally owned. During the year, 4 companies graduated to Club 101, an elite grouping of Top 100 companies that have crossed the Sh1 billion turnover mark.

Employment outlook

Overall, the participants showed robust growth in staff numbers with the number growing at an average of 12 per cent since 2008. However, between 2009 and 2010 growth slowed to seven per cent.

This year, 75 per cent of participating companies indicated that they are likely to hire more employees in the next twelve months as a result of expansion, need for specialist staff and new projects.

About 75 per cent of the survey entrants had over 26 staff with the number of companies with over 50 staff increasing by four per cent to 50 per cent of the participants.

Positive employment outlook

The positive outlook and the growth in staff numbers should encourage policy makers to give more incentives to these companies to help tackle the unemployment problems facing the country.

Source of set-up and expansion capital

The founder’s savings was the most common source of start-up capital for 71 per cent of the companies with loans from banks and family in second and third position at 26 per cent and 18 per cent respectively.

For expansion capital, 72 per cent of the companies relied on bank loans, 20 per cent on savings with seven per cent of the companies taking on new equity partner.

The reliance on the founder’s savings for start-up capital points to reluctance by financial institutions to lend to companies that do not have a credit history. Once the companies have established themselves, the banks are more willing to provide them with expansion capital.

Working capital challenges

About 43 per cent of the Top 100 participants experienced working capital challenges in 2011 due to delays collecting payments from their customers and stringent credit terms imposed by their suppliers.

While the number of companies citing delays in collections from customers has remained stable over the years, the proportion of companies citing stringent credit terms by suppliers rose significantly from 38 per cent in 2010 to 63 per cent in 2011.

Cash flow will continue to come under pressure into the foreseeable future due to rising inflation and interest rates and the fall in value of the Kenya shilling against major world currencies.

Growing confidence amid changing

business challenges

The challenges that the mid-sized companies are facing have evolved significantly since 2010, reflecting the changing business environment facing the companies. In 2010, the main challenges were poor infrastructure, corruption, lack of financing, and personnel related matters.

Most of these challenges did not feature significantly in 2011, with most of the companies citing high energy costs, inflation, delays in payment, increased production costs, declining national economic prospects and the exchange rates as the new hurdles.

Despite the challenges facing the companies, business confidence increased by eight per cent to 76 per cent compared to the previous.

Business innovation

More than two thirds of participants adopted new technology/ innovations in 2010, 45 per cent adopted new machinery, 22 per cent installed electronic online systems, 14 per cent had new automated systems and 10 per cent had new or upgraded software solutions.

However, the companies continue to lag behind in adopting international standards and certifications which are crucial to attracting investments and business internationally. Only 17 per cent of the survey participants obtained international certification in 2011.

Support for EA integration

The EAC continues to feature significantly in the strategic plans of the survey participants with over 74 per cent supporting of regional integration.

Many of these companies export to the EAC countries with over 59 per cent of the participants planning to expand or enter into strategic partnerships in other East African countries in the next 12 months, with Uganda and Tanzania featuring as the favourite destinations.

To support these efforts, many of the companies expressed a need for more information on business opportunities and market potential in the East Africa region (47 per cent), general information and policies on integration (20 per cent) and information on taxation (17 per cent) and labour laws (10 per cent).

This is a challenge for the EAC Secretariat to step up and encourage trade and investment in the region.

The Top 100 medium-sized companies represent a very important cog in the country’s economic engine and are important to ensuring that the country meets its growth objectives. As policy makers look for solutions to spur economic growth to realise the Vision 2030 objectives, harnessing and unleashing the collective potential of these companies will be key.

KPMG and Nation Media congratulate and celebrate the 2011 Top 100 companies and will continue to spotlight the successes of this important sector.

The graduation of four companies into the Club 101 is also an important milestone, showing that these companies have the potential to grow and become tomorrow’s global multinationals.

The challenge for policy makers going forward will be to work closely with the medium size companies to create the critical mass necessary to generate the 10 per cent annual economic growth required to achieve medium income country status by 2030.

Download the full report here