This archive report was first published on 20 May 2020.
Published on May 20, 2020, by Jaidi Kisero, a renowned corporate historian, warned that the COVID-19 pandemic would reveal the resilience of companies in Kenya.
East Africa Breweries Ltd, a blue-chip company on the Nairobi Securities Exchange, has issued a profit warning, expecting a 25 per cent decline in profit after tax for the year.
The pandemic has disrupted manufacturing, broken supply chains, and led to a decline in sales and demand for alcoholics beverages.
As the pandemic continues to affect consumer behavior and business sentiment, Kisero predicted that more companies would announce reductions in capital spending and effect layoffs, pay-cuts, and furloughs.
He attributed the mindset of boardrooms, which prioritize shipping cash out in dividends to shareholders instead of building reserves, to history.
According to Kisero, in the old days of exchange controls and restrictions on repatriation of dividends, paying out dividends to overseas-based shareholders was a crucial job description for local directors.
He noted that big companies often take out expensive overdrafts to pay dividends, even borrowing to fund working capital and small expansion projects.
As the recession hits strong and weak companies alike, Kisero suggested that the government present an opportunity to roll out a 'Marshall Plan' for dealing with declining profitability levels in private companies.
He highlighted the dire state of declining profitability of companies, citing widespread distress across large department stores and supermarkets, a drop in the flow of credit to the private sector, and a rise in redundancies by even profitable companies.
