Manufacturers unlikely to close down as a result of COVID-19

KAM, KPMG launch report on the impact of COVID-19 on the manufacturing industry.

Manufactures are unlikely to close shop as a result of effects of COVID-19, a survey has noted.

The survey by the Kenya Association of Manufacturers (KAM) and audit firm KPMG found that 81 per cent of manufacturers say they are not likely to close down as a result of the impact of COVID-19. However, this number reduces to 76 per cent for manufacturing SMEs.

They cited reducing costs and maintaining jobs as top priorities during the COVID-19 pandemic.

To help businesses navigate the pandemic, the survey proposes clearing outstanding VAT refunds and pending bills, re-evaluating tax reliefs, providing moratorium on changes in the tax regime, establishing an emergency rescue fund, re-evaluating regulatory overreach, and developing a comprehensive rebound strategy among others.

Speaking during the launch of the report, KAM Chair Mr. Sachen Gudka noted that while it is important to have measures in place to curb the spread of the virus, the regulations coupled with uncertainty are likely to lead to a prolonged recession that will affect business continuity.

“The government should develop appropriate policies that will cushion the economy from the adverse effects of COVID-19 as well as minimize job losses. The report findings shall guide us as we engage the government in developing additional measures to further mitigate the adverse impact COVID-19 has had on businesses,” said Mr Gudka.

From the survey, 78 per cent of manufacturers’ top priority is reducing costs, 61 per cent are keen on job retention with 53 per cent giving precedence to improving cash flows.

On employment, 40 per cent of surveyed manufacturers have reduced their casual employees whereas 17 per cent have reduced the permanent workforce. On the other hand, 91 per cent of non-essential manufacturers have seen a significant decrease in demand for their products compared to 74 per cent of essential goods manufacturers.

Less than half of manufacturers are operating at less than half of their operating capacity, whereas a third of SMEs have scaled down production.

More than three quarters of the surveyed companies are experiencing cash flow constraints, with 86 per cent of SMEs facing the same challenge, leading to difficulties in facing their financial obligations such as salaries and operational costs.

To resolve cash flow challenges, manufacturers have negotiated payment plans with their suppliers (66 per cent), customers (62 per cent), banks (55 per cent) and sought additional financial support from other individuals and institutions (45 per cent).

KPMG CEO and Senior Partner Mr. Benson Ndung’u noted that the report has come at a critical moment because there is great optimism in the manufacturing sector and its role in job and wealth creation.

“We applaud the government for their role in handling the health situation. Our focus now is saving livelihoods. We hope to have the economy start picking up again after this crisis. The report will inform the government on the impact of the stimulus package and where we can focus on to rebound the economy. The current crisis will end, and we shall come out stronger as a country.”

The manufacturers surveyed stated that that zero tax on income less than sh24,000 was the most helpful while reducing the VAT to 14 per cent had the least benefits, when responding on economic incentive the government has undertaken.

Reduction of Corporate Tax from 30 per cent to 25 per cent was positively received by more than half of the surveyed manufacturers.

Half of manufacturers,  to whom turnover tax (ToT) is applicable found its reduction from 3 per cent to 1 per cent very helpful or helpful.

Also, half of manufacturers indicated that VAT refunds are helpful. However, the funds are yet to be disbursed to manufacturers.

The challenges faced by SMEs are access to finance, greater cash flow constraints and a bigger drop in demand and turnover.

The survey targeted manufacturers under the KAM Membership base and mainly focused on employment, business resilience, the impact of the economic stimulus package announced by H.E President Uhuru Kenyatta and proposals to further cushion the economy from the adverse effects of the pandemic.

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