CEOs cautiously optimistic as they carry unfinished business into 2020

NCBA Group managing director John Gachora. FILE PHOTO | NMG 

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By PATRICK ALUSHULA
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Summary

• The chief executives of the nation’s biggest companies are cautiously optimistic about 2020, with 2019 having left their trays with unmet targets.
• From banking to insurance and logistics to investment and aviation, the captains of the industry say 2019 produced challenges that rocked their business ships.
• But they look forward to an improved 2020 hinged on recovery in private sector, clearance of pending bills by government and muted political noise amid the calls for a referendum.

The chief executives of the nation’s biggest companies are cautiously optimistic about 2020, with 2019 having left their trays with unmet targets.

From banking to insurance and logistics to investment and aviation, the captains of the industry say 2019 produced challenges that rocked their business ships.

But they look forward to an improved 2020 hinged on recovery in private sector, clearance of pending bills by government and muted political noise amid the calls for a referendum.

NCBA Group managing director John Gachora says 2019 was a tough economic cycle for the country and for the region at large.

“We have all seen auction pages in newspapers getting longer and longer. It has not been easy,” said Mr Gachora in an interview.

But for NCBA, it was the year it wrapped up the merger of NIC group and Commercial Bank of Africa, giving it a new outfit to toast to. However, Mr Gachora says this meant concentrating on just retaining the business momentum to accommodate the legal and regulatory requirements as opposed to pursuing growth.

“We maintained same level of productivity and trends as in the previous year telling us that the merger process has not affected people’s productivity and the company’s output,” he said.

Despite the removal of interest rate caps, Mr Gachora does not expect a quick shift in lending owing to other problems in the economy.

“I think it is going to take a couple of years before we can say the bottom cycle has been reached and that we are starting to climb up,” said Mr Gachora.

Post-rate cap, banks could also face another legislation setback if President Uhuru Kenyatta assents to the Law of Contract (Amendment) Bill 2019 which was approved by Parliament in September 2018.

The Bill seeks to insulate guarantors by compelling banks to first exhaust all avenues of enforcing their security rights against a defaulter before turning to the guarantor to recover their money.

In the insurance sector, players are looking forward to a recovery after another tumultuous year that almost mirrored 2018 when the sector’s earnings dipped to their lowest level in 12 years.

Jubilee Insurance CEO Julius Kipngetich says 2019 was unexpectedly a tough year, made difficult especially on issues of government spending which hit small and medium- sized enterprises (SMEs).

“This saw SMEs non-performing loans shoot up even as they struggled to pay their insurance on time. Some of them downgraded from comprehensive insurance to save costs. We had not foreseen this,” said Mr Kipngetich.

He hopes that pending bills will be cleared and government starts paying on time. There are concerns around possibility of a referendum on power structure in government but Mr Kipngetich hopes there will be less disruption on economy.

“We hope government will start paying promptly to boost recovery momentum in 2020. Even if a referendum is held, we expect there to be a pre-consensus and make the process less noisy,” said Mr Kipngetich.

The industry will also see the implementation of risk-based capital laws which may see the regulator get tough on insurers with weak capital structures to enforce more discipline in a sector that is grappling with fraud and over-ceding of premiums.

In addition, the insures are still in court, with brokers over the cash and carry laws, with insurers favouring direct collection of premiums from customers as opposed to having it pass through brokers.

On the stock market, it has been a year of mixed reactions. Some firms have gained shares prices at the Nairobi Securities Exchange while many lost.

It was also the year stocks like Mumias Sugar got suspended while Kenolkobil was sold and delisted. ARM Cement and Deacons also remained suspended.

NSE chief executive Geoffrey Odundo says the performance of the bourse in 2019 was largely bearish on account of both global and local factors which dampened performance.

“Locally, we experienced low investment activity precipitated by a slowdown in credit growth; partly contributing to reduced disposable income available for investments,” said Mr Odundo on 2019 performance.

He said the tightening of global liquidity, increased trade wars between China and the US and uncertainty regarding Brexit reduced inflow of capital from global frontier market investors.

However, the market has witnessed recovery in the last quarter of 2019 which gives Mr Odundo optimism going into New Year.

“We expect this to continue well into 2020 on the back of the expected GDP growth, favourable weather conditions and improved business confidence both locally and globally,” he says.

In the aviation sector, growth of the airline industry in Kenya was somewhat sluggish even though low-cost carriers such as Jambojet made flying more accessible and affordable.

JamboJet CEO Allan Kilavuka who doubles as Kenya Airways acting CEO says the budget airline hopes to build on the 2019 promotions where some air tickets were priced as low as Sh50 to mark five years so as to boost usage.

“We expect flying to continue to become accessible in 2020 as airlines introduce more innovative products. We are looking to offer more competitive prices, convenience, reliability and safety to ensure our customers keep coming back,” said Mr Kilavuka.

Jambojet became the only low-cost carrier in Kenya and the second airline after KQ to be awarded the coveted International Air Transport Association operational safety audit (IOSA) registration in 2019.

Away from the skies, logistics services providers had a tough 2019 with government at one point trying to force importers to use Standard Gauge Railway (SGR) to transport goods as opposed to trucks.

Group Managing Director of Siginon Group Meshack Kipturgo says the year was quite tough, made worse by the impact of the SGR on the industry.

The directive that all containers should be transported using SGR was a surprise since logistics firms had expected government to make it optional for importers to choose their mode of transport. This was however suspended after strike and complains.

“If this remains suspended and dropped completely, then the impact will be much lower in 2020 on the logistics firms,” said Mr Kipturgo. The year also proved difficult with eight percent value added tax on fuel that set in at the tail end of 2018 remaining in place. This meant higher costs of fuel.

However, with reduced use of thermal energy and more attention to green energy sources such as wind and geothermal, Mr Kipturgo expects more relief in fuel costs supported by falling crude prices.

This will encourage manufactures to make more goods, promoting transport business. “We also expect that the tithing problems the Integrated Customs Management System (iCMS) has been in 2019 during cargo clearance will now be fixed and make clearing process much faster in 2020,” said Mr Kipturgo.

Eyes of all industry players will be on the regulatory environment which has proved to be an area of concern, catching businesses unawares.

Pending regulations and court rulings may also be of immense impact on the direction the economy takes in 2020.

“The biggest issues we have today is that of legislation. Legislators are increasingly getting into business they shouldn’t just as was with rate cap. They are fixing one problem by creating multiple others,” says NCBA’s Mr Gachora.