Floriculture industry executive forum: Tax, banking & finance, trade, insurance, venture capital and climate change

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Several discussions have taken place since a major flower industry meeting in April 2009 in the midst of the global financial crisis sought avenues of sustaining the industry through a peculiar and unprecedented situation.
It is with this in mind that PKF Kenya and Kenya Flower Council organized a Floriculture Industry Executive Forum in Nairobi in August, with the understanding that although the industry is still inundated with major challenges; opportunities for growth and expansion are abundant.
The forum highlighted the emerging issues with focus in tax, banking & finance, instruments of trade, export trade insurance, venture capital and the impact of climate change.
A panel of experts gave presentations at the August meeting in Nairobi, where Julius Muia, Secretary National Social Economic Council gave the key note address. Speakers and the topics presented were as follows:
• Jane Ngige CEo, Kenya Flower Council – overview of the flower industry.
• alan dodd, Executive director, NiC bank – The floriculture industry: a lender’s perspective.
• oswald Magwenzi, investment officer, international Finance Corporation – Financing options for flower producers.
• Sam omukoko, Group Md, Metropol E.a – Role of credit rating agencies &bureaus in supporting domestic and export trade.
• Suresh Patel, CEo Kridha limited – opportunities in carbon business and water resource Management.
• Salim alibhai, audit Manager PKF – Carbon accounting.
• John thindi tax director, PKF – Tax compliance and planning in the floriculture industry. Mr. Muia highlighted that the specter of globalization and the fierce competition that it bequeaths to many businesses requires that the whole value chain be examined and optimized by the application of efficient practices in the financing, planting, growing, harvesting, transporting, marketing and selling

of products.
Participants at the Floriculture industry Executive Forum

Kenya’s floriculture industry wants the government to protect and help promote the industry and be proactively involved in maintain¬ing existing markets as well push for diversification to other markets especially those that have significant growth potential and those whose economies are not correlated with the traditional Kenyan market. The government also needs to enable growers expand their activity away from specific geographical locations due to climatic conditions and logistic considerations through development of infrastructure with respect to energy, roads, ports and drainage among many others.
To deal with this challenge the government has adopted a Cluster Strategy as a framework to drive competitiveness and following recommendations by NESC, the Ministry of Trade has commissioned KIPPRA to carry out a study on clusters in Kenya with a view to map-ping these and developing a guiding policy framework. Noting that the Flower industry is one of these clusters, Mr. Muia asked KFC to move fast to adopt the cluster strategy by employing the triple helix concept which brings together government, private sector and researchers.
The industry has unique financial
needs and is considered a high risk sector, the forum heard, whose attractiveness has been dented by the turbulence in the European markets.
Financial sector players say uncertainty in the European market and over dependence on rain fed production have raised the floriculture industry’s risk profile, making it a hard-sell to lenders.
Financiers are also worried by the industry’s unstable labour relations, seasonal demand for its products, and tropical pests and diseases that affect production.
“The industry’s traditional attractiveness may still be intact, but there are many risks that have emerged that make banks very conservative in choosing their lending priorities, ” Allan Dodd, executive director at NIC Bank said.
Although the sector is the leading foreign exchange earner, instability of the EU market is a key factor in deciding future business relations with the industry.
“By relying heavily on EU markets, the industry has also externalised its risk, meaning the ability to repay must be extended to include assessment of conditions of the EU market before loan is granted, ” said Oswald Magwenzi, an investment officer at the International Finance
Corporation (IFC)
“Other than diversification, we foresee a future where small players in the industry will be forced to merge and automate their operations to keep their costs in check in order to remain attractive to external financiers, ” said Mr Magwenzi.
Floriculture business owners need to make use of credit rating agencies and take risk insurance to have more leverage when sourcing for finances for their business. “The slow growth of our capital markets is due to the lack of rating agencies in the country leading to distortion of the funding structure as well as high cost of products as consumers ultimately bear the cost” says Sam Omukoko, Metropol Insurance.
Climate change greatly impacts the flower industry increasing the industry’s risk factor. Growers need take up adaptation measures and implement water management plans to reduce economic impacts of climate change but it has a cost.
It is also vital for growers to be more informed on tax planning in order to claim all capital expenses, monitor their losses, develop trans-fer pricing policy and avoid unnecessary penalties or interests hence become tax compliant.

PKF Kenya is part of one of the leading regional auditing, accounting and business consultancy practices in Eastern Africa. Locally and internationally, PKF is recognized and respected and is regarded as an opinion former on business issues. For over 45 years we have served a large and varied client base, ranging from very large public and private organisations to SMEs in virtually all sectors of the economy.

At PKF, we serve a large part of the businesses involved in floriculture and horticulture in Kenya. We are proud to have hosted the Floriculture Industry Executive Forum, in association with Kenya Flower Council, as part of our continuing contribution to the growth of the industry.

We offer a wide range of services including:

• Audit assurance and advisory • Internal audit and risk management

• Forensic accounting • Environmental management consultancy

• Tax consultancy • Information technology consultancy

• Corporate finance • Corporate recovery and restructuring

• Management consulting • Financial management services

• Human capital consulting • Training and development

 

Headquarters Kalamu House, Waiyaki Way, PO. Box 14077, NAIROBI 00800 Tel: (+254 20) 4446616-9, Fax: (+254 20) 4447233 E-mail: pkfnbi@ke.pkfea.com

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