Industrialists and economists have differed sharply over calls to force firms and State agencies to compensate suppliers for delayed payments.
At a pre-budget forum held in Nairobi on Wednesday, the Institute of Economic Affairs (IEA) and the Kenya Association of Manufacturers (KAM) clashed openly over a proposal to charge interest on payments released after a “legal” credit period.
The faceoff relates to the long standing campaign by the trade ministry to draft the Retail Trade Sector Prompt Payment Regulation that automatically imposes interest on payments that remain outstanding for more than 60 days.
The KAM which says its members are owed Sh400 billion says the regulations are not only being developed for Kenya but will form a regional code of payment for the East African Community.
“If the payments are not made promptly, there’s a penalty that should be introduced because somebody is withholding your cash that you should be multiplying every day,” said KAM’s head of policy and research Job Wanjohi.
“So instead of the multiplier effect that you could be having on the economic activities, you ensure that this person is paying some penalties for the delay in payments.”
IEA chief executive Kwame Owino, however, said the proposed regulations will take away freedom of people to negotiate supply agreements and payment mechanisms with each other.
“There’s efficiency that comes from payments that are prompt, but I don’t see it as a business of the government to start telling us you must pay in 60 days,” Mr Owino said.
“That’s a very dangerous move…because there are suppliers who are prepared, based on track record, to give longer credit periods.”
The law in the 28-nation European Union allows companies to negotiate for payment period, but must start paying €40 (Sh4,997) in administrative charges as soon as they fail to honour payments on the date stipulated in the contract.
The proposed regulations are being developed under the National Trade Policy launched last July which, among other measures, seeks to regulate the retail and wholesale sector.
The move to develop the regulations followed failure by retailers such as Nakumatt (under administration) and loss-making Uchumi Supermarkets #ticker:UCHM to pay suppliers for years, prompting some to stop deliveries. The government is the biggest defaulter in Kenya, with billions of unpaid bills.
“The biggest problem is at county governments. They stopped payments,” Mr Wanjohi said.
Controller of Budget Agnes Odhiambo said in her latest report for 2016-17 financial year that 43 counties had pending bills amounting to Sh35.84 billion.