Why Kenya needs a prompt payments law

In assenting to the 2019 Competition Amendment Bill into law last week, President Uhuru Kenyatta was clearly motivated by good intentions. I say so because as I read the law, it became clear to me that this new law was introduced as a response to the predicament of suppliers of the troubled Nakumatt Supermarkets that collapsed after haemorrhaging billions of shillings from the business.

Nakumatt was a very big scandal as it was not able to pay suppliers for goods it sold for cash. Suppliers lost a whopping Sh18.5 billion in the scandal.

Which is some smart alec decided to introduce a new law to prevent a recurrence of the suffering that Nakumatt suppliers have had to endure.

Yet I still think that the law Mr Kenyatta signed off last week was an ill-conceived piece of legislation that was not properly thought out before being enacted. We probably are among the first countries in the world to have a law to control ‘buyer power’.

In the rest of the world, competition law tends to address the supplier side of the market. Indeed, the gist of all anti-monopoly laws is the desire to deal with concentration of market power.

By introducing laws to deal with buyer power, we are trail blazers. Yet as I read the text of the new law, I was left with the distinct feeling that the State is starting to meddle with a space that should be governed by private contracts.

And as we all know, respect for private contracts is the foundation of any capitalist system.

What exactly does the new law say? The main provision of the Act is in the first five lines.

It says: This law seeks to prohibit any conduct that amounts to abuse of ‘buyer power’ in a market or a substantial part of Kenya’.

And buyer power is defined in very vague terms. It says: ‘buyer power means influence exerted on an undertaking or group of undertakings in the position of purchaser or a product or service’.

When the competition authority establishes that a sector or an undertaking is experiencing or is likely to experience incidences of market power, the authority has powers to monitor the sector and to impose reporting and prudential requirements.

Prudential regulations for supermarket chains? This could very well be a first in the world.

The authority may also force industries deemed to be practising abuse of buyer power to adopt a binding code of practices on late payments to suppliers.

Under the law, and whenever there are complaints, the authority will also have powers to move into a business to study and examine contract terms with suppliers and the prices paid to suppliers.

Delays in payments of suppliers without justifiable reasons are also prohibited under the law. It is in the nature of man that a benevolent leader will always want to act in the interest of citizens.

The management of Nakumatt has been allowed to get away with murder. Yet in coming up with laws to eliminate buyer power, the government faces the risk of being accused of interfering in private contracts.

After all, who is the biggest buyer in the economy? Who is the biggest culprit when it comes to late payments and mountains of pending bills? Is it not the government?

If the government is serious about late payments let it introduce a prompt payments law that is consistent with global best practice.

In the West, there are laws and regulations that specify days when suppliers of common user services must be paid.

In the UK, voluntary codes force buyers to pay suppliers promptly.

I find it amusing indeed that- under the new law, county governments are exempted from compliance. Yet when it comes to late payments to suppliers and pending bills, they are the biggest culprits.

The new competition laws we have introduced should be thrown out and replaced by a prompt payments law.