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How State reforms plan will tackle retail sector troubles

FIRM Trade PS Chris Kiptoo. PHOTO | DIANA NGILA | NMG
FIRM Trade PS Chris Kiptoo. PHOTO | DIANA NGILA | NMG 

Kenya’s retail sector is experiencing a turbulent period that is almost pushing some players over the cliff. Since last year two of the retailers have closed shop in Uganda and Tanzania while others are struggling with heavy debt. The risk of the distressed retailers collapsing has prompted a wide range of suggestions, including calls on the government to step in with rescue packages. But the government is taking a more guarded approach to the threat. Trade Principal Secretary Chris Kiptoo spoke to the Business Daily about the government’s plan for the retail sector. Here are the excerpts.

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What is the state of the retail sector and how did we get there?

I am sorry to say that this is one sector that remains largely unregulated. The reality is that as long as one is able to register a company and convince suppliers to give them goods, nobody is there to police what such a person is doing or how they are doing it. We have learnt a bit too late that the government should have been more practical in its handling of the sector that is now heavily indebted. Sometime last year I set up a taskforce with all stakeholders and got a consultant to help us look into the state of affairs in this sector. That is when we came to realise that the retailers are carrying a total debt of Sh48 billion, which in my estimation must be higher than that. This is money owed to suppliers some of who are struggling with the payment of loans.

Is that why you have decided to start regulating the sector?

It is the players who have invited government to the idea of regulation. We only stepped in to respond to stakeholder complaints and what has so far emerged is that we need to strengthen self-regulation in order to reduce government intervention. We want to see the sector have a joint code of practice that each party must meet at the minimum. These include details such as the duration within which a retailer must pay suppliers. Our goal is to establish a board to oversee the implementation of this plan as well as a tribunal to resolve disputes. The next level of reform will be to make rules and establish a regulator to enforce the same — just as we have for banks.

Is regulating the sector a good move in a free market economy?

We prefer lighter regulation as long as self-regulation remains strong. We will start with the Competition Authority because there is unfair practice in the market and some retailers are dictating terms so much that other players are suffocating in the space. There is room to create some market conduct. We have experienced the current challenges because apart from Uchumi which is a public-listed company, the level of disclosure in this sector is almost nil. Even suppliers would like to know the capacity of the companies they are supplying but the information is hard to come by. So we need regulation to force some levels of financial disclosure, including the opening of branches. We need to standardise buildings that host retail shops. This is a journey and it will take time to sanitise the sector. We also want to see strong business member organisations on both the supply and retail sides so that we sit in the middle.

Don’t you see these measures as coming too late in the day for some players in this sector?

Prevention is better than cure. What we are doing now is to cure a problem we should have prevented. If we had a regulator and the retailers were classified in tier one, two and three — giving us an insight into what league they play and their levels of exposure — things wouldn’t be this bad. For example, when a retail chain grows to the level of Nakumatt there should have been a proper board and higher levels of disclosure.

What timelines are we looking at to have the regulatory machinery in place?

Between now and December, we hope to gain traction, especially after the elections. We are timing to have things tied up by the end of the year. The situation is bad and you know we have Nakumatt and Uchumi struggling. It is creating a moral hazard. We have more recently had to bail out Uchumi and now Nakumatt is asking for the same. We need a special body to handle the sector. I can’t act as a regulator myself. As soon as Parliament resumes that will be the first agenda. We have some things we want to push through the Trade Development Bill, which is already before the Attorney-General.

Does it mean only Uchumi and Nakumatt are in bad shape or is it that they are the known cases?

The two have deeper challenges but clearly the others are struggling with delayed payments as well. That is why we don’t want to sit and wait for the next one to go down. Uchumi has been struggling but there is hope. The government has bailed it out twice and we are in the process of processing the remaining segment of the Sh1.8 billion bailout funds we promised. We  hope that strategic investors will come on board and that going forward, all the governance issues will be resolved. The Uchumi board has been restructured and management shaken up to weed out bad ones.

Don’t you think it is important to ensure those who brought Uchumi down face the consequences of their actions even as taxpayers bear the burden again?

I totally agree. Those who brought Uchumi down must be made to account. We have pushed the Capital Markets Authority to take action. I am aware that they have taken some action. Other arms of government, including law enforcement agencies, and the legal channels must also work for us to achieve success. It is on the understanding that tough action will be taken against those who brought Uchumi down that the government agreed to support the retail chain again.

How about Nakumatt, are you going to make a financial intervention?

For Nakumatt, I have said several times that we would like to see it survive because it has employed a number of people and many Kenyans rely on it for shopping. It is also a Kenyan brand and we want to support every effort to keep it afloat. However, there will be no financial support from government. We support interventions like banks restructuring their loans, which can only be done after full disclosure. The banks have indicated that they are willing to support the restructuring. Suppliers too have said they are willing to support Nakumatt as long as they are guaranteed of payments probably through the creation of an escrow account. The option that is available for Nakumatt is to close shop if they cannot meet their obligations. But we believe the situation is not that bad for a wind up.  

You seem to focus more on the retailers, what about the suppliers?

I have information that some suppliers are also not been paying their partners. To be fair to everyone, we will be keen to know whether the suppliers are keeping their side of the bargain. Some also engage in bad practices such as oversupply which sets them up for the delayed payment.

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