Factories on survival mode as corona cuts sales, hits operations

Thousands of manufacturing jobs are on the line as makers of goods switch to survival mode to wade through disruptions brought about by the Covid-19 pandemic.

The industries, according to a Kenya Association of Manufacturers (KAM) and audit firm KPMG report released Wednesday, have switched to reducing costs and cutting down production to cope with depressed demands and low sales.

Already, 40 percent of those surveyed have sacked their casual labourers and sent more on unpaid leave. Some 27 percent have reduced permanent staff while another 69 percent are struggling to pay their staff with the small and medium enterprises hardest hit, according to the report.

“The top three priorities for the majority of businesses before Covid-19 were to increase profitability, increase revenue and domestic market share.

“These strategies have now been pushed down the agenda and are overtaken by reducing costs, retaining jobs, and improving cash flow. However, when faced with the dilemma of reducing costs or retaining jobs, the former usually takes precedent and downsizing considerations seem more of a reality,” stated the KAM report.

The pandemic-driven trade disruptions have seen sales drop drastically with 93 percent reporting a fall in turnover ranging between 30 to 100 percent. Reduced demand has been worst in the textile and apparel as well as timber, wood and furniture sectors followed by the leather and footwear as consumers switch preference to essential commodities.

Restricted movements and operation hours have also seen the manufactures cut production with 42 percent now said to be operating at less than half their capacity, while the average utilised capacity for micro, small and medium enterprises ranges between 42-37 percent.

The curfew and lockdowns in major counties have also affected logistics with 76 percent saying they have difficulties in locally sourcing or importing raw materials and 67 percent found access to market challenging.

The businesses also face a cash flow crisis with close to 80 percent constrained by delayed payments from the government and other customers a move that will see more than half struggle to meet operations costs and tax obligations.

The manufacturers have been waiting for the Treasury to release close to Sh23 billion in value-added tax refunds and pending bills, which was expected to hit accounts last week but has since delayed according to KAM chief executive Phyllis Wakiaga.

“We have an indication that the money has been released to the Kenya Revenue Authority for refunds to the businesses and this is an issue we will continue to follow up on since the cash flow deficiency is now a really big problem in the sector,” Ms Wakiaga said.