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50pc of firms hit by Covid target full recovery in June

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Doug Hunter, head of customer and ecosystem enablement for Syspro Africa during the launch of a business report in Nairobi. PHOTO | FAUSTINE NGILA | NMG

More than 50 percent of businesses that were hit hard by the ravages of the pandemic expect to fully recover by June next year.

This is according to a new survey which also indicates that 4 percent of Kenyan manufacturing companies have not been affected by the Covid-19 setbacks in any way in the past 18 months.

The report, Manufacturing CFO 4.0 2021 Survey, by global enterprise resource planning (ERP) software provider, Syspro and the Institute of Certified Public Accountants of Kenya (ICPAK) also shows that by next month, 8 percent of Kenyan businesses will have recovered.

“23 percent of Chief Financial Officers (CFOs) expect their businesses to recover by March 2022 while 20 percent see June 2022 as the time they will bounce back to profitability,” says the research.

The study, conducted across over 100 manufacturers and distributors between September and November 2021, indicates that Kenya still has some way to go to achieve full recovery, a road that must be navigated by future-focused financial leaders ready to cast their eyes towards tomorrow’s best practices.

Companies interviewed include those that operate in food and beverage, industrial machinery, packaging, medical supplies, chemicals and fertilisers, metals, automotive accessories, plastics and furniture.

Optimism remains high with 50 percent of companies saying they are “managing well” while only one percent acknowledged to have “thriving” conditions.

“Crisis breeds innovation, and there is no better proof of that than 2020. A changing combination of global supply chain sources, innovation and digitalisation has forever changed the classic set of responsibilities of CFOs in manufacturing and distribution companies,” says Mark Wilson, chief executive officer, Syspro EMEA region.

Despite their size, few have been able to transition into a newer, more agile trading paradigm, the report says.

While it has been noted that the government has provided several key policy adaptations – including fiscal interventions – to assist Kenyan businesses with managing their margins, the actual stimulus was less of a feature.

“As of the results of this survey, 51 percent of Kenyan businesses in manufacturing and distribution received none, 38 percent received tax deductions, and only 13 percent noted the reception of a comprehensive stimulus package,” the survey says.

Internationally, the packages have been invaluable in bolstering companies’ ability to adapt to the new challenges of Covid-19. Moreover, they have been fundamental in expediting moves towards greater diversification.

“We see, as a consequence, that Kenya has had to fund their diversification out-of-pocket, greatly influencing a more hesitant uptake,” the report says.

Permain Narikae, director-general of the Kenya Industrial Estate (KIE) said the agency has trained over 4,000 SMEs country-wide and provided funding of up to Sh20 million for the MSMEs operating in the value-addition sector.

“The sector was among the six priority sectors that promised to raise the growth rate to 10 percent by 2030. Over the past decade, the sector’s contribution to revenue has grown to about 18 percent and its contribution to the Gross Domestic Product (GDP) has on average been 8 percent in nominal terms,” he said.

Risk management

Those interviewed listed accurate insights into risk management as the main skill needed for future CFOs in Kenya at 76 percent, with a comprehensive understanding of finance and strategic business knowledge trailing just behind - 72 percent and 71 percent respectively.

The survey findings also showed while global financial leaders have pushed for expansion through continued expenditure, Kenya has elected to place its faith in older stock.

Kenyan manufacturing companies, according to the report, have continued utilising traditional cost-cutting measures as their main contingency measure, with the curbing of discretionary expenditure being most prominent at 70 percent, followed by debt collection at 40 percent.

The expansion of revenue models only ranks a low third on the cost-cutting strategies list at 32.56 percent.

Some 51 percent of the CFOs surveyed said managing cash flow remains the biggest business priority for 2022 while 40 percent felt investing in research and development and new products and services are not far behind.

Chief executive of ICPAK, Edwin Makori said the pandemic has prompted the need for diversification and novelty in recalibrating global market policies to help businesses adapt to the ‘new normal’ of the digitised world.

“To grow the manufacturing sector, the level of automation must be increased, and appropriate technical skills must be developed in this time of innovation and adaption,” he notes.

Kenya’s biggest disruption has been the delayed procurement of raw goods, at 77 percent. And while it is clear that Kenya primarily operates in the food and beverages sector, shortages of raw materials have certainly been a factor for other industries in the region too.

For most manufacturing businesses, there has been some degree of disruption to supply chains over the past 18 months, and asked where they’ve seen the most disruption, 28 percent mentioned securing talent and skills.

“22 percent said transitioning onshore to securing raw goods was the main disruptor, 17 percent mentioned sourcing manufacturing equipment while 11 percent had challenging sourcing technology.”

In terms of bottlenecks, Kenya, like the rest of the world, ranks 'processes' as its number one disruptor. Ranking at 44 percent, it continues to edge out 'people' and 'products' at 30 percent and 26 percent respectively.

The research concludes that it now falls onto Kenya’s financial leaders to keep up the momentum, while balancing the drive with the current regional policies, challenges and nuances.

“Fortunately, it would seem that Kenya’s financial leaders see this the same way. There may still be work to do, but the future is looking remarkably promising.”

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