The Covid-19 pandemic which hit in 2020 and the resulting curfews and lockdowns had a huge negative impact on our economy. This was because economic activities came to a standstill as people were ordered to work from home and movement was ceased across some counties.
As a matter of fact, the Kenya Economic Survey 2021, published by the Kenya National Bureau of Statistics indicated that the performance of the manufacturing sector in 2020 was adversely affected by a broadly felt slowdown of economic activities. This was largely attributed to measures instituted by the government to curb the spread of COVID-19. These measures have resulted in a reduced demand for manufactured products locally and internationally. The sector’s real value added contracted by 0.1% compared to a growth of 2.5% in 2019.
As they say, crisis breeds innovation and there is no better proof of this than in 2020. This can be seen in that fact that the manufacturing industry has adopted a move towards diversification particularly in digital transformation.
According to the World Bank, a robust, diversified and globally competitive manufacturing sector can contribute significantly to increasing the economic growth of the country. ICT adoption has been identified as a key factor that can increase the competitiveness of Kenya’s manufacturing sector within both local and export markets. It is therefore clear that, to grow the manufacturing sector, the level of automation needs to be increased. Also, appropriate technical skills must be developed in this time of innovation and adaption.
To better understand the manufacturing industry during this recovery period, SYSPRO partnered with the Institute of Certified Public Accountants of Kenya (ICPAK) and conducted a survey across manufacturing and distribution businesses in Kenya. The survey, titled “The Manufacturing CFO 4.0 2021” encompassed Chief Financial Officers across predominantly large enterprises.
According to the survey, the food and beverage sector is the most dominant at 43% followed by industrial machinery & equipment at 12%. This sector alignment was found to be fortunate as globally, Food and Beverages felt less of a financial hit than its secondary and tertiary sector peers. In fact, according to the Kenya Economic Survey 2021, the Food and Beverages category grew by 14.3%, becoming the dominant category accounting for 46.4% of the total domestic exports in 2020. The increase was on account of growth in the value of both primary and processed food and beverages – both for industry and household consumption.
The fact that Covid-19 has a huge impact on business can’t be understated which can be seen in that fact that only 7% of the businesses surveyed expressed an “already recovered” trading environment today, and 36% now seeing 2023 and beyond to be the year in which their businesses will stabilize.
During a crisis, one would expect that a government would intervene to try and remedy a situation. However, according to the survey, 51% of Kenyan businesses in Manufacturing and Distribution did not receive any stimulus package, 38% received tax deductions, and only 13% noted the reception of a comprehensive stimulus package. Internationally, these packages have been invaluable in bolstering companies’ ability to adapt to the new challenges of COVID-19. Moreover, they have been fundamental in expediting moves towards greater diversification.
When it came to the supply side of business, it was noted that Kenya’s biggest disruption, was the Delayed Procurement of Raw Goods, at 77%. While Kenya primarily operates in the Food and Beverages sector, shortages of raw materials have certainly been a factor for other industries in the region too. The other disruptions were securing talent & skills at 28%, sourcing manufacturing equipment at 17% and sourcing technology at 11%.
In such scenarios, innovation is a likely solution. However, it was noted that 60% of the businesses intended to fund their innovations by direct purchase, while those intending to use 3rd party financing at 38% while pay for use subscription was 20%. This model of financing places Kenya in a bad position from a global perspective as internationally, most companies were able to expand through the help of stimulus packages and incentives.
With the uncertainty courtesy of the pandemic, most of the businesses 63% moved towards traditional contingency measures as a means of maintaining stability. These measures included curbing of discretionary expenditure being most prominent (at 71%), followed by Debt Collection (at 41%).
According to the report, only 37% of Kenyan businesses elected to diversify as a direct result of the pandemic. Those who wanted to diversify, favored Enterprise Technologies, with 70% committing to taking on BI, ERP, ERM, and related systems. Expectedly, the re-engineering of supply chains to improve business-to-business (B2B) trading comes in at number two, with 58% earmarking its importance. This is a natural result of Kenya’s dependency on raw materials for Food & Beverage production.
The report indicates that ERP is enjoying a positive response in Kenya, with 44% of those surveyed expressing a desire to invest and migrate. Warehouse Automation trails just behind at 39%, and Business Intelligence following at 38%. This is because, ERP affords its users the ability to confidently pivot in times of crisis and streamline the efficiency of their operations. This is particularly invaluable to Kenya given the importance of raw goods and materials to a primarily Food & Beverage producing region struggling with global supply chain issues. While ERP is not able to magically resolve tumultuous trading, it does consolidate important data in real-time, thus expediting faster decision-making.
When it came to CFO’s the report indicated that accurate Insights into Risk Management as the main skill needed for future CFOs in the region (76%), with a Comprehensive Understanding of Finance and Strategic Business Knowledge trailing just behind (72% and 71% respectively).
You can find the report here.