Economy

Manufacturers hit lenders with Sh21bn defaults in months

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KAM policy research and advocacy head Job Wanjohi at the briefing in Nairobi on January 28, 2019. PHOTO | SALATON NJAU

The manufacturing sector accounted for nearly half of loan defaults in the first quarter of the year on the back of high input costs, according to the Central Bank of Kenya.

The sector’s non-performing loans climbed to Sh77.8 billion by March from Sh57 billion three months earlier, the highest quarterly growth in value on record.

The Sh20.8 billion jump came at a time the sector complained of the high cost of shipping and challenges in accessing adequate stocks of dollars to pay suppliers on time amid increased competition for raw materials in the global markets.

The sector’s NPLs were equivalent to 44.3 percent of the Sh46.9 billion new loan defaults across the sectors in the three-month period. That marked a sharp U-turn from Sh8.5 billion drop in NPLs for the sector the prior quarter.

The Kenya Association of Manufacturers blames the default in servicing loans on high cost of doing business as a result of “global increase in commodity prices and the weakening of the Kenyan shilling”.

“All importers of raw materials for production have been affected by these challenges from global economic crisis which have greatly disrupted global supply chains for imported goods,” KAM’s head of policy and research Job Wanjohi said on Thursday.

“However, the impact has been greater on products such as crude palm oil, wheat and raw materials for the steel and paper industries.”

The KAM said earlier that factories have been facing challenges in accessing adequate dollars “from January this year, putting a strain on supplier relations and the ability to negotiate favourable prices in spot markets”.

The sector lobby insisted the dollar supply crunch strained relations with suppliers at a time competition for raw materials intensified globally due to the rising demand amid lingering supply chain constraints.

KAM reckoned the dollar shortage and high cost of raw materials had raised cost of doing business for the sector whose contribution to the gross domestic product has been falling for the last five years at least.

The sector’s share of the GDP fell to 7.2 percent last year from 7.6 percent previously, less than half the 15 percent target under the Integrated National Exports Development and Promotion Strategy of 2018.

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