State suppliers go unpaid as corruption depletes state coffers

President Uhuru Kenyatta arrives to attend The Queen's Dinner during The Commonwealth Heads of Government Meeting (CHOGM), at Buckingham Palace in London on April 19, 2018. [File, Reuters]

Kenya's government is failing to pay many of its contractors on time, as corruption drains funds for legitimate projects from state coffers, suppliers and officials say.

The late payments are in turn hitting the financial sector, where non-performing loans have jumped this year to their highest level in more than a decade.

The alleged link between corruption and non-payment of government invoices was made explicit in May, when dozens of officials and business people were charged with involvement in the theft of nearly Sh10billion ($100 million) of public funds.

They are accused of using doctored invoices to bill fake suppliers.

Asked about the difficulties that contractors were facing, Finance Minister Henry Rotich admitted that late payments by the state were an issue.

"This is a problem which we are obviously addressing. It is important that we ensure there is prompt payment both at national government and at the county government," he told Reuters.

The government had drawn up new regulations requiring payments be made within 60 days of goods or services being supplied, he said.

President Uhuru Kenyatta pledged to stamp out graft when he was first elected in 2013, but critics say he has been slow to pursue top officials and ministers.

Former anti-graft chief Philip Kinisu told Reuters in 2016 that Kenya was losing a third of its state budget to corruption every year. The government denied the figure.

Too much trouble?

Many Kenyan small and medium-sized businesses bid for government contracts because the state is the biggest spender in the country.

But some have decided that the financial pain that comes with years-late payments on everything from PR campaigns to supplies of construction materials is too much to bear.

Five business people who have contracts with the government say they and others have ended up blacklisted by credit reference bureaux after falling behind on loan repayments or defaulting.

"No bank wants to finance you any more especially if you have a contract from the government," said one small business owner who spoke on condition of anonymity.

A second supplier said: "You get disrupted in the middle of (the contract) ...either because you are not speaking to the right people, making commitments to the right people, or your payments may just be delayed."

George Muiruri, managing director of Leakey's auctioneers, says repossessions among government suppliers had increased. "They are financially stuck," he said, adding he was dealing with at least one such case every day.

Central bank governor Patrick Njoroge said in late May that delayed payments to suppliers, the bulk contracted by the government, made up 10 per cent of the total volume of bad loans.

Such loans stood at 12.4 per cent of the total in April, the highest level in more than a decade.

The central bank's monetary policy committee cut its benchmark lending rate by 50 basis points in March, saying economic growth was well below its potential.