“Alarm as 388 Kenyan firms dissolved in 6 months” was the heading of an article in the Standard Newspaper on Saturday, 21^st September 2019. The article went into great details of the month on month dissolution by the Registrar of Companies in 2019. “This month alone, the Registrar of Companies has dissolved 95 companies while 100 were dissolved in July and 90 in May. March saw 103 firms struck off the register, marking the highest attrition of private firms in a single month so far this year. While reasons for dissolution are varied and range from companies ceasing operations to those relocating or reorganizing their shareholding, the high attrition rate over the past six months is remarkable.”

Well, the heading worked as the article circulated via Whatsapp groups, raising alarm about the “deteriorating economic state” of the country. So I thought I’d help the writer square that alarmist circle for a standard minute. In the government financial year starting in July 2017 and ending in June 2018 (FY2018), there were a total of 557 applications for dissolution of companies. These applications come from the companies (shareholders) and are completely voluntary. In the financial year ending June 2019 (FY2019), there were a total of 508 applications. The article was spot on in saying that “the reasons range from companies ceasing operations to those relocating or reorganizing their shareholding”. It is simply, the ordinary course of business. Should that be a cause for alarm? Actually, this should be read in the same vein as the number of companies that were registered during the same period. In FY2018, the Registrar of Companies registered 46,364 companies. Using basic arithmetic as well as very simplistic thinking, the net number of companies that came into existence then would be 45,807 if you deduct those that were registered from those that were dissolved. I call it simplistic thinking because there is no data available at the Companies Registry that can determine whether the potential economic impact of the newly registered companies more than makes up for the loss of the dissolved ones.

What is manifestly clear though is that 46,364 potential economic vehicles were created during that period. Closer home, in FY2019 there were 41,094 companies registered. Again, using the same formula, it can be argued that the net companies that came into existence were 40,586 if you deduct the 508 dissolved companies.

The truth of the matter is that the Registrar of Companies registers on average about 700 limited liability companies a week. There also appears to be some discerning amount of external faith in the Kenyan economy that warrant foreign registrations locally. The number of foreign companies that were registered in the two financial years in question were 191 and 190 respectively. How about companies limited by guarantee? This is a vehicle often used by non-profit organizations that seek a legal personality outside of the typical NGO registration. These companies don’t have share capital or shareholders, rather they have members who act as guarantors. In FY2018 there were 352 such registrations, while in FY2019 there were 387 companies limited by guarantee that were granted registration.

The more interesting statistic is the registrations of sole proprietorships which come under the Registration of Business Names (RBN) Act. In FY2018, there were 65,712 sole proprietorship businesses registered. In FY2019, there were 60,554. Registration under the RBN Act is one of the quickest ways of setting up a business for the ordinary Kenyan citizen wishing to start trading and doesn’t require as much legal documentation to incorporate as a company does. It is the registration of choice for many of the small scale businesses such as barber shops, bars, restaurants, kiosks, traders, shop owners and the hundreds of small and medium sized enterprises that oil the economic engine of this country. They are the suppliers to county and central governments, the ones whose goods line local supermarket shelves and the ones who run the vibandas in the urban markets where white collar workers like to eat their lunch.

There is no doubt that there are companies in this country that are undergoing difficulties as we read about the numerous retrenchments of staff and corporate bankruptcies in the media. But that data, which is difficult to get consolidated from any one source, is reported specifically as and when it comes into the public domain. Assuming that companies that voluntarily apply for dissolution are red flags waving in the streets of death and despondency would be as fatuous as assuming that all people dying from fever like symptoms are plagued by Ebola. There are two sides to every story and, based on the numbers above, perhaps the heading should have been “SME growth is alarmingly healthy as there are 81 times more companies registered than are being dissolved!”

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Twitter: @carolmusyoka