Industrial sector tops bad loans growth list

GRAPHIC | STANSLAUS MANTHI | NMG

The manufacturing sector last year had the highest increase in defaulted loans, underlining the troubles in Kenya’s shrinking industrial segment that has witnessed exits in recent years.

Central Bank of Kenya (CBK) data show that the industrial sector’s bad loans jumped 53.5 percent to Sh87.5 billion.

The 53.7 percent growth is more than double the banking sector’s average rise of defaulted loans at 14 percent.

The sector is battling increased raw material expenses, weakening of the shilling against the dollar and reduced demand for goods in the wake of sky-high inflation and reduced cash flow in Kenya’s soft economy.

This has made it difficult for manufacturers to generate adequate revenues to cover their costs, triggering defaults.

Technology firms

While Kenya has struggled to retain and attract multinational manufacturers, it has recently become a magnet for technology firms and financial service companies seeking a hub for a larger share of the African market.

Global tech giants, including Microsoft, Alphabet Inc and Facebook, have been increasing investment in Kenya in recent years to take advantage of growing economies with rising access rates to the Internet by a youthful population.

But industrialists, especially multinationals, are constantly on the hunt for bargain production locations much like they do in tax havens.

The manufacturing sector’s share of GDP shrank to 7.2 percent last year from 10.7 percent a decade ago.

The energy and water sector had the second-highest jump in bad loans at 51.6 percent to Sh24.1 billion.

Agriculture, the biggest employer and contributor to Kenya’s GDP was third, with its bad loans rising 44.3 percent to 27.7 billion.

On the flip slide, tourism, which was hardest hit by the Covid-19 economic hardships and travel curbs, saw its bad loans fall by the biggest proportion across all sectors.

Hotels and lodges cut their stock of bad loans by almost a quarter from Sh15.9 billion to Sh12.3 billion in December last year.

This reflected swift recovery for a sector that shed thousands of jobs and experienced business closures at the peak of Covid-19 in 2020.

Bad loans in the banking sector hit a record high of Sh514.4 billion in June but eased slightly to close the year at Sh487.7 billion on repayments and recoveries.

The trade sector accounts for the largest share of bad loans, with Sh105.8 billion in defaulted credit.

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