Why doing business with state is a risky venture

Doing business with national and county government agencies has continued to be a risky enterprise as the entities perennially fail to pay their contractors and suppliers.

The latest report says the two levels of government have accumulated Sh706.20 billion in pending bills as of December 31 last year.

This implies that traders and businesspeople who supplied the entities with commodities and did works such as construction of roads and bridges, are in agony.

It emerged that some of the suppliers are unable to clear their bank loans, with reports indicating some of them have been auctioned for defaulting on their loans.

“Defaults are high because LSO should be a respected document. A lot of businesses rely on loans, so once we are unable to pay on time because our LSOs have not been respected, defaults rise,” Association of Public Sector Suppliers secretary general Simon Gichuki said in January.

The latest expenditure reports of the National and county governments, by Controller of Budget Margaret Nyakang’o, reveal a shocking scenario.

The report, covering the first half of the current fiscal year, reveals that the national government — ministries, departments and agencies — has accumulated pending bills amounting to Sh524.04 billion as at December 31, 2024.

The counties owe Sh182.13 billion.

Nyakang’o said the consequences of not paying these pending bills, as reported by suppliers from various counties to the Controller of Budget, are severe.

They include financial distress for individual suppliers and the closure of businesses, all of which contribute to reduced economic activity.

“County governments should strive to avoid accumulating pending bills, regardless of their challenges. They can achieve this by entering into agreements or contracts based on their cash flow availability and budget allocations,” the report states.

The debt has accumulated over a long period as the entities pile up more bills.

This is despite the law and various directives by the presidency as well as Cabinet and other budget watchdogs to the agencies to clear their bills.

According to the reports, some of the state agencies and department with huge pending bills include the State Department of Public Service – the National Youth Service which owes Sh14.27 billion.

The executive of the President (debt accumulated by defunct Nairobi Metropolitan Services) owes Sh13.57 billion, the Ministry of Defense owes Sh10.27 billion and the State Department of Agriculture owes Sh7.90 billion.

Others are State Department of Transport (Sh6.12 billion), State Department of Medical Services (Sh5.56 billion) and Department of Correctional Services (Sh5.06 billion).