AzimaWellness Talk 16/2017
THE STATE OF OUR BUSINESS ECOSYSTEM;
Why is it difficult for entrepreneuers to make money in this economy
Today I want to be very candid and honest. Allow me to call a spade what it is not- a big spoon. The truth is we are doing badly as a people. Our economy is said to be growing at over 5% for the past 5 years but the reality on the ground shows otherwise.
According to the latest statistics from Kenya Integrated house-hold budget survey 2016 and economic survey 2017, up to two thirds of Kenyan families are borrowing money for food. This is a worrying situation. Instead of borrowing for business or even for luxury items, we are borrowing to eat. This means if the credit pipes are turned off, 40% of families will sleep hungry. Just figure this out!
What is the importance of all the development we have been told about? According to statistics, the people who are carrying the biggest burden are shop keepers and mama mboga. They find themselves in a catch 22 situation. They sell perishable commodities like vegetables, fruits and milk. If they do not sell them on time, they will perish and record 100% loss. If they give them on credit, chances of default are high.
Besides, they need money to restock. Most are finding themselves unable to buy the same quantity of stock due to default rates by their customers. Some customers accumulate the buys on credit and avoid the shop they owe because they feel guilty or for some naughty customers they choose not to pay Kenya style. There is little the shopkeeper can do to enforce collection unlike secured credit with big lenders. This is killing the poor trader slowly but surely.
How can a country that is building super highways and modernizing its railway and airports have a whole 40% of its population unable to feed itself? What is the use of these infrastructure if the people are unable to put food on the table?
Borrowing is living tomorrows’ life today. Big question is what will happen when tomorrow comes? How long can we sustain this worrying situation?
Truth is there has been a conspiracy to make things look good. I suspect this is done at the highest level of government for political reasons . Recently there was an attempt to tinker with unemployment statistics reducing it to a mere 15% from 48% as per this survey. This is laughable and a hard sell to anyone who lives in Kenya.
The truth is that our economy has been shedding more jobs than it has been creating in the last three years. Only yesterday there was a report that BAT is retrenching yet more staff. Banks and Insurance industry that are among the major employers who pay good salaries have shed off jobs in thousands. It is sad that in an economy like ours, we have only slightly above 74,000 people earning above 100,000 shillings salary per month.
This is very sad indeed. And those who earn 100, 000 are trapped in debt . They borrow money for cars, furniture, gadgets like phones (iphone X and Galaxy 9) home mortgage and even take loans for holidays. They literally live in advance. Recently, I heard they are taking loans for weddings and dowry. Instant gratification has been stretched too far in this country. This is not good for a shaky economy that is shedding jobs like ours. Something urgent need to be done. It is bad news for business. It means there is no disposable income to support enterprises.
I was invited to speak in a Sacco annual general meeting on financial wellness in February. I caused a stir when I told the audience that the problem we have as a people is we put too much premium in owning a house. Saccos have been downgraded from a saving platform for members economic development to provide money to pay school fees and buy plots for putting up a home. This was not the original goal of Saccos when they were formed.
Saccos were a perfect way to help people pool together savings so that they can borrow three times for development. Then came emergency loans for paying school fees and we lost the plot. Instead of members thinking how they can make extra income to pay school fees, they raid the money saved as seed capital and shift it to consumption. School fees is consumption not an investment.
Then came hospital bill loans and the flood gates was opened for all manner of loans for instant gratification. Nowadays, members run to Saccos and Chamas for all their money needs. Leaders of saccos have continuously created ways to facilitate easy access to loan money. They forget the money is repaid with interest. In 2016, the interest paid on loans to saccos alone was more than 28billion!!!
What is the net effect from all this? Saccos had given out loans for consumption totaling 283 billion by 2016. By now it must be close to 400 billion because in 2017 it increased by 55 billion from 228 billion to 283 bilion. Add to this the digital pesa pap loans and you can understand the hole we are digging into. How will we pay these loans ? we are in a deep hole and we need to stop digging deeper.
People are living dangerously. We have become dependent on borrowed money to meet basic needs. We are living in advance. This kind of economic system benefit the money sharks. This is why Kenya has become the home for money merchants of all shades. Microfinance, digital money platforms and all. There is very little productivity and too much borrowing for consumption.
We need to do something urgently about this problem. If not checked, things will spiral out of control. The suffering among ordinary people will eventually breed insecurity. Soon we will get to the point of can’t pay won’t pay if we are not there yet. We cannot watch things get worse than this. Our biggest undoing is lack of financial education. We are not taught how to relate with money. We are thrown into the deep end of a shark infested pool without being taught how to swim. This is dangerous for all of us. We cannot allow things to get worse than this. It will consume all of us.
Currently, our economy is unable to sustain business. If 45% of our income goes to food, what is left for other uses is not enough. If 3 out of every 4 adults earn a paltry 15,000 shillings per month, the situation is serious.
Keep it here for part two on this matter next week.
With profound regards,
Founder and CEO
Azima Wellness Consultants LTD
Conference Speaker & Corporate Trainer in Total Wellness.