Place Uchumi under management contract

Let’s face it, our government does not have the capacity when it comes to rescuing insolvent companies in which the State has an interest. A few years ago, we witnessed the mess that became of management of the insolvency that hit Webuye-based Pan African Paper Mills.

The current predicament in which Uchumi Supermarkets #ticker:UCHUM finds itself is yet another good example of how our government is clueless when it comes to dealing with institutions in distress.

In a period of hardly one year, the National Treasury has pumped a whopping Sh 1.2 billion into Uchumi in the name of supporting a turnaround plan. All indications are that the experiment is not working.

The much-touted turnaround plans have turned out to be exercises at closing branches and selling furniture. All indications are that the billions of taxpayer shillings that the government has pumped into rescuing Uchumi Supermarkets will go down the drain.

The messy manner in which the Ministry of Trade and Industry and the National Treasury have handled the Uchumi Supermarkets came to light the other day when the State-owned Kenya National Trading Company (KNTC) closed the headquarters of Uchumi Supermarkets in Nairobi’s Industrial Area over rent arrears.

For a whole week, Uchumi was not able to operate because of the action by KNTC which it owes some Sh43 million in rent arrears.

Yet as we all know, KNTC and Uchumi Supermarkets are both State-owned. And, they are both parastatals under the Ministry of Trade and Industry under the charge of Trade secretary Peter Munya and principal secretary Chris Kiptoo. It was a perfect example of the right hand not knowing- or even caring about- what the left hand is doing.

Are we still to believe that the administration of President Uhuru Kenyatta is committed to rescuing Uchumi Supermarkets? Is it still important for us to recover billions in shareholder loans that the government pumped into the company last year.

I found myself reflecting about the history of government investment in commercial undertakings especially in the wholesale and trading business in general, but more particularly in KNTC itself.

There was a time in the history of this country when KNTC was king, the biggest importer and distributor of consumer goods, and owning a network of depots and godowns in most of the big towns in the republic.

These were the times when we were deep in the period of the ancient regime of price controls, powerful commodity marketing boards, import licensing controls, and an exchange control regime that required you to queue at a window at the Central Bank of Kenya for an allocation to allow you to purchase an air ticket. The tiff at Uchumi over rent arrears made me come to terms with the fact that some of these old parastatals of the command –and- control regime did not die even after we transited to a liberalised economy. So, I read from KNTC’s website that it is still involved in distribution of a variety of goods the most absurd of which include-, barbed wire, wheelbarrows, chicken wire, chain links and pipe fittings.

The corporation also leases godowns and canteens to the private sector. To which I ask: why should the government be involved in distributing wheelbarrows? KNTC should have been privatised and its assets sold to the private sector many years ago.

I have digressed. The main point I wanted to make is that our government always does a poor job at rescuing financially-distressed companies. On the deathbed is a national brand that used to be a selling outlet for more than 80 percent of locally manufactured goods.

It’s impending implosion is bound to inflict widespread financial distress to many other companies especially within SME sector.

But is anybody making a serious effort at addressing Uchumi’s woes?

If the government is, indeed, serious about saving Uchumi, it must go by the well-known playbook applied by other governments in a similar situation and that runs as follows:

First, kick in equity to allow you to acquire majority control. Throw out the management and board and bring in an international chain to run the firm under a management contract. To ease liquidity for the company, do a bond that you can then on-lend to the supermarket chain and make it possible for the company to borrow at a risk-free rate.