Has Kenya learnt anything from Nakumatt debacle?

Sunday, December 22nd, 2019 18:03 |
Nakumatt supermarket. Photo/Courtesy

Nakumatt Supermarkets has reportedly finally thrown in the towel.  Apparently, a feeble, halfhearted attempt at reviving it through mouth to mouth resuscitation by one of the now leading supermarket chains, Tuskys, came a cropper. 

There are major lessons from Nakumatt’s debacle for Kenya’s businesses, many of which are run on very much the same business models and mindsets as Nakumatt - an insular, closed in financial empire, where the chief executive holds unchecked power in the company, and makes multimillion-shilling spending decisions on personal whims.

Such businesses are not run on any known business strategies or strategic planning, but what the CEO “feels” is the right direction to move into at any specific time.

One, Nakumatt’s attempted revival was ill-fated from the start, and ill-informed.

A company with such huge negative cashflow can only have a realistic chance of revival by a massive injection of funds, and drastic restructuring of its operations. Neither happened in the case of Nakumatt.

Even more bizarrely is the peculiarly Kenyan practice of handing such companies in distress to be run by a “receiver manager,” or administrator, mostly a member of staff of an audit firm who has spent his or her entire life as an employee, and is completely lost in the rough and tumble of running a business, especially in sectors they are completely unfamiliar with.

Secondly, there must be reckoning for a failure as massive as Nakumatt’s. Somebody must answer the question, where did the money go to?

Nakumatt was a retailer that received cash every day for any sale it made. It is inconceivable that the money just “disappeared.” 

But it did. That is why suppliers have not been paid over Sh40 billion, among other creditors such as employees, banks and Kenya Revenue Authority.

Can you imagine how many small and medium enterprises countrywide Nakumatt has taken down with it?

The administrator should have been charged with the responsibility of carrying out a forensic audit to answer this question.

If it is found that the directors diverted money, they must be prosecuted. This is the only way other directors of other “Nakumatts” will change their ways.

Thirdly, not all that glitters is gold. Nakumatt, at its peak, was probably Kenya’s most visible brand, making extravagant promises to Kenyans.

It was even mulling a floatation on the stock exchange, which would likely have been fully subscribed like other duds such as Uchumi, Mumias Sugar and Eveready that collapsed after fooling Kenyans into buying shares.

 The big question is, how many of the big, glittering brands making extravagant promises to Kenyans are just another “Nakumatt” waiting for its stress factors to kick in?

You see, Nakumatt, and its peers in the economy, is not just another company. It is a big, economy wide entity that touches the entire country’s supply chain, and has wide linkages to the economy.

The collapse of such a company has devastating effects on the economy, especially livelihoods of millions of people.

And fourthly, has Kenya learnt anything from this debacle? It is strange that for all those years, Nakumatt’s financial advisors e.g accountants, auditors, did not see that things were heading south.

More likely, they were part of a conspiracy that enabled whatever happened. It is important that the Ministry of Trade and with other government agencies, undertake a study of the key issues that led to the unraveling of Nakumatt from a financial, social, market, financing and corporate governance standpoint.

 From these lessons, the concerned agencies can put in place laws and procedures that provide early warning signs of companies of this size that are becoming financially distressed. The Central Bank of Kenya does this for banks.

Such a regulatory framework should include measures to limit damage to its business partners, especially suppliers, many of whom operate on bank credit to supply contracts of this nature.

If the law enforcing payment of suppliers within a certain period had been in place years ago, it would probably have saved Nakumatt from itself, because it would have forced it to run on sound business principles. [email protected]

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