Rescue private sector from Corona impact

In terms of new thinking and ideas on how to rescue the private sector from the impact of the coronavirus pandemic, I must say that the government has scored very poorly.

My view is that it comes from a mindset that does not regard corporate profitability as a national priority. This week, the shareholders of the iconic Norfolk hotel announced that they were closing down the doors of the landmark hotel indefinitely and firing all its employees.

When we were coming up with measures to save companies from the impact of the coronavirus, we didn’t think about specific sector interventions. Had we even as much as debated , injected new and fresh thinking about the impact on some of the most affected sectors such as travel, hotels and tourism, Norfolk wouldn’t have suspended operations.

In March, Nairobi’s Tribe Hotel, Ole Sereni and DusitD2 stopped operations days after the government imposed travel restrictions and social distancing rules to curb the spread of the coronavirus.

Restrictions on foreigners coming into Kenya have delivered a big hit to the hotel and restaurants sectors, with occupancy rates falling to as low as 10 percent.

I must confess how I am impressed by the approach of British Chancellor Rishi Sunak’s idea of supporting private and family-owned companies whose collapse would desperately harm the economy.

If you have been following the news from Britain, you must have come across the news that the government there is thinking about establishing a $25 billion taxpayer funded sovereign wealth fund to buy out and inject long-term equity into struggling family-owned companies whose collapse would disproportionately harm the economy.

The thinking is that after 10 years, the Covid 19- sovereign wealth fund would tree sell stakes to the original owners once the business has recovered. If we had a civil service populated by men and women always willing to try new ideas, we would try some of the new ideas that have come up.

Mark you, the investment institution the Britons are contemplating is very similar to our proposed Government Investment Corporation (GIC) that the Presidential Task Force on Parastatal Reforms recommended and which was endorsed by President Uhuru Kenyatta in 2014.

I think that – as part of the post-coronavirus- recovery programme, we should go back to the idea of establishment of a public investments holding company in the image of the proposed GIC.

In the post-pandemic period, emphasis must be put on supporting and bailing out companies. We need to come up with specific sector interventions where companies in specific sectors are supported by being given long-term capital after being assessed in terms of employment, pre-Covid 19 turnover, and tax compliance.

If I were the one making decisions, I would introduce an arrangement where at the expiry of the ten year period the government exits these equity stakes through the capital markets. Opening up these private and family firms to the capital markets would precipitate mass listings of new companies.

Like they have done in the UK, we must have specific interventions for companies depending on what they do. Theirs is a graduated model that has plans for the self- employed, small businesses and big triple A companies.

I keep wondering where we lost the capacity to constantly think and experiment with new ideas. I say so because this graduated model of supporting the private sector is not new to us.

Once upon a time, we had a graduated financial model for the SMEs sector.

The first place you went when you wanted to create an SME was the District Loan Board, which advanced small business loans of up to Sh3 million. If your business grew to a level where you needed more money, the next stage was to go to the Kenya Industrial Estates (KIE) where support for small businesses included provision of sheds.

If your needs exceeded KIE and you had now graduated into a mature business that required loans of up to Sh50 million – you went to the Industrial Development Bank (IDB).

Beyond IDB, you were now considered qualified for a mix of financing involving a mix of larger and long tenor loans and equity financing, hence you headed to the Industrial Commercial Development Corporation (ICDC).