Reform loss-making State-owned firms


Kenya Airways Embraer 190 airplane at Seychelles International Airport (SEZ) in the Seychelles. FILE PHOTO | POOL

Investors have recorded a wealth erosion of Sh164.1 billion in the last five years from seven companies where the government has a controlling stake or influence, bringing the impact of prolonged poor performance of State-run enterprises back into sharp focus.

The paper losses, most of which are likely to be permanent given the financial condition of the firms such as Kenya Airways, Kenya Power, Uchumi Supermarkets and Mumias Sugar Company, also underline the risk of investing in government firms even as the State plans to sell a number of parastatals to the investing public in coming months.

The entities, including East African Portland Cement Company (EAPCC), KenGen and Kenya Re, had a combined market capitalisation of Sh214.4 billion at the end of 2017.

This had whittled down to Sh50.3 billion as of Tuesday last week, reflecting the impact of multi-year losses, insolvency and dividend cuts or suspension.

Kenya Airways leads with the largest market capitalisation shrinkage of Sh98.6 billion to stand at Sh21.7 billion –capturing its valuation on July 6, 2020, when it last traded.

These losses should be a wake-up call for the government to move with speed to privatise the entities, starting with those that can easily be turned profitable in the hands of the private sector.

Since not every entity can be fully privatised, the sustainable solution will be to reform the agencies by putting in place experienced teams that can run the entities efficiently and profitably, to spare the taxpayer from having to bail them out every few years.