CEO Kenya Association of Manufacturers, Anthony Mwangi at a past event. FILE PHOTO | BILLY OGADA | NMG
Local firms have resorted to borrowing to acquire key business supplies to remain open in a high inflationary environment.
Borrowing for input purchases over the past year has subsequently sustained the demand for credit from the private sector which has remained in double digits despite cost concerns in light of higher interest rates.
According to the Central Bank of Kenya (CBK), working capital needs have fuelled the demand for credit over the past year with most of the loans going to raw material purchases.
“Credit to the private sector remained resilient in the second half of 2023, growing by 13.9 percent in 12 months to December 2023 compared to 12.2 percent in the year to June 2023. This partly reflected credit demand for short-term working capital requirements arising from increased input costs,” the CBK noted.
Input costs have over the past 12 months risen above many companies' cash flows from a variety of factors, including the depreciation of the shilling, higher fuel costs and the introduction of new taxes such as the 17.5 percent export and investment promotion levy on clinker imports.
The Kenya Association of Manufacturers says borrowing to buy inputs has kept businesses afloat amid depressed consumer purchasing power and falling productivity. “It’s one of the sunk costs that you can’t really do anything about. For you to keep your lights on, you have to resort to borrowing. Alternatively, businesses would have to take the extreme action of closing shops,” KAM CEO Anthony Mwangi said on Monday.
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