Manufacturers, retailers, and suppliers have voluntarily signed up to the Code of Practice to guide Prompt Payment making it difficult for Kenya’s retail sector to engage in unfair trading practices.
This is a relief for the suppliers who in the past have had to content from payment delays and defaults.
The rules, proposed by the Ministry of Industry and Trade in collaboration with stakeholders, cut the average payment period in the retail sector to 30 days from the current 180 to 240.
Majority of the stakeholders include the Association of Suppliers of Kenya, the Kenya Association of Manufacturers (KAM) and the Retail Trade Association of Kenya (Retrak).
Stellah Onyancha, Director Competition and Consumer Protection, Competition Authority of Kenya says, “The regulations of the Retail Sector and the Joint Code of Practice are being operationalised at a time when the retail sector has come under pressure, necessitating a proactive intervention by all concerned parties, including the Ministry of Industry, Trade and Cooperatives.”
Onyancha also underscored the importance of the retail sector to the country’s economy besides offering employment it ‘also supports one of the pillars of the Government’s Big 4 Agenda -Manufacturing’.
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“The CAK exists to ensure that commercial enterprises engage in fair trade practices among themselves, with stakeholders such as suppliers, all to the ultimate benefit of the consumer,” Onyancha emphasised during the signing of the Regulations of the Retail Sector and the Joint Code of Practice on Thursday.
The purpose is to encourage self-regulation and harmonise the retailers and suppliers ways of engagement and in so doing also apply international best practice applicable to the Kenyan situation.
She emphasises that “Developing guidelines is one thing. Adhering to them is another. The onus of executing theses guiding principles majorly lies with the retailers and suppliers.”
Association of Kenya Supplier’schairman Kimani Rugendo, said the success of the Prompt Payment Code will depend on “good faith among all players. The code will be a primary level of addresssing retail issues.”
Gudka Sachen, the KAM Chairman said the signing of the code was a great step towards securing of the Kenyan economy. “It is also a positive indicator that the private secrtor is embracing international best practice.”
“Paying promptly ensures the necessesary cash flows are available for businesses to operate,” added Sachen.
In November 2018, Wang’ombe Kariuki, Director General Competition Authority of Kenya had noted that amendments to the Competition Act No.12 of 2010 created a Buyer Power Department within the authority to investigate such abuse, with the punishment for infringing the law being imprisonment for a term not exceeding 5 years, a maximum of Ksh 10 million or both for criminal prosecutions.
“The Authority may also impose an administrative penalty of up to 10% of the preceding year’s turnover of the undertaking (s) in question or issue cease and desist orders to remedy infringement,” said Wang’ombe.
The guidelines were made after the Association of Suppliers of Kenya (ASK) said a majority of retailers had been operating on credit.
The study revealed that by December 31, 2016, five supermarkets accounted for 92% of the total debt owed for more than 60 days.
Late payment was cited by the Suppliers association as a key factor to closure of businesses, uncompetitive products due to high finance costs associated with borrowing as they await to be paid, loss of goodwill with other players in the supply chain who the Suppliers are not able to be due to cash flow constraints associated with later payments.
According to a study termed ‘Kenya Retail Sector Prompt payment’ by the State Department of Trade, Retailers tend not to abide by the agreed terms of payment with suppliers, some taking as a long as over a year whereas the agreed period was 90 or 120 days.
Initially, the draft regulations within the existing legal framework to add sanity in retail sector faced opposition with claims that it was a contractual issue between parties and not be a matter for legislation.