Cost Management & Costing methods…Kenya 2030 Series 3

I don’t how much my last two articles have been eye open for the Indian government and for my cost accounting friends about the practices of the Costing Methods and Cost Management across the globe. Well in continuation to my previous series https://taxguru.in/chartered-accountant/costing-methodscost-management-automobileseries-2.html   today I will the story of an economy named Kenya. Well my friends might say that why I am not focusing on India. Well my key aim is to make my Cost Accountants and my students to be aware about the true potentiality of the subject/profession across the globe.  I am presenting these in short stories as I want gradual progress of the knowledge of the Cost Management profession. I am bringing out these stories to share my knowledge as well as to act as an eye opener to the Indian government as well as to the Indian industries who think that Cost Audit & Costing method is of no use.

These are all hidden gems of the Cost Management profession which needs to be brought into limelight so that the future cost accountants and also the present come to know the strength and pride of this profession.

Before I begin with Kenya I would like a short introduction of the historic economic problems of Kenya. The regional hub for trade and finance in East Africa, Kenya has been hampered by corruption, notably in the judicial system, and by reliance upon several primary goods whose prices have remained low. In 1997, the IMF suspended Kenya’s Enhanced Structural Adjustment Program due to the government’s failure to maintain reforms and curb corruption.

• A severe drought from 1999 to 2000 compounded Kenya’s problems, causing water and energy rationing and reducing agricultural output.
• As a result, GDP contracted by 0.2% in 2000. The IMF, which had resumed loans in 2000 to help Kenya through the drought, again halted lending in 2001 when the government failed to institute several anticorruption measures.
• Despite the return of strong rains in 2001, weak commodity prices, endemic corruption, and low investment limited Kenya’s economic growth to 1.2%.
• Growth lagged at 1.1% in 2002 because of erratic rains, low investor confidence, meager donor support, and political infighting up to the elections.
• In the key 27 December 2002 elections, Daniel Arap MOI’s 24-year-old reign ended, and a new opposition government took on the formidable economic problems facing the nation. In 2003, progress was made in rooting out corruption, and encouraging donor support, with GDP growth edging up to 1.7%.

After this phase the economy became heavily dependent on Cost Management tools and implemented the dame on SME segment to propel the growth of the economy. The results of the implementation are that currently in Kenya the SME sector contributes an estimated 18% of the GDP as well as creating employment for 80% of the workforce population.

Small and Medium Enterprise was the back bone of any economy whether it’s developed or developing economy. Small and Medium scale enterprises (SMEs) play a vital role in economic and social development of developing countries. Now as we all know that the SME segment is highly constrained by various forms of knowledge management capital in terms of intellectual capital, structural capital and human capital. Operating at maximum cost efficiency is vital for both survival and enhanced competitiveness since most SMEs in developing countries operate in a crowded and competitive markets. This economy belongs to the country Kenya which was aspiring to grow along with its SME channel. The economy adopted the finest tools of the Cost Management profession like target costing, Activity based costing (ABC),  Just in Time method (JIT) as well as other non conventional methods adopted intuitively as an  attempt to enhance enterprise efficiency and innovation for better planning and improved  product/service pricing.

The key tools being used to improve the product and service pricing were activity based costing, strategic management accounting, just in time, lifecycle costing and contemporary performance measurement systems such as balance score card. As a result of this new developments some researchers argue that relevant lost may be regained in the near future. This resulting gain seems to be gradually adopted by Kenyan SMEs. According to the vision of Kenya SME 2030 they have taken broader roles for adoption of Costing Methods and Cost Management in the SME business segment.

Below is an analysis showing adoption of various management accounting techniques by SMEs in Kenya by sectors with a vision for SME for 2030 are as follows:

Every company adopted different costing methods since every SME as certain influential factors that will assist management to decide on an appropriate management accounting practice, these factors can either be technological changes and the infrastructure of an organization. Since firms compete on different fronts like, quality, price, reliability on delivery, and customer service there comes the implementation of different costing methods.

Roles of management accountants have become significant given the importance of various strategic decisions, thus an increasing shift in focus from traditional to modern management accounting techniques in order to fulfill this emerging need for management accounting as an aid to strategic decisions-making. Now coming back to the same point that it’s quite surprising that the India being such an broad economy followed with a plan of GDP growth of 9% in the coming few years has dropped Cost Audit and Costing methods. I don’t know what the government of India wants to do by removing Cost Audit and Costing methods but its for sure that in the long run India will lose its competitiveness in terms of price and cost justification.

Well all my previous and upcoming articles inspiration is being provided followed with necessary inputs by Mr. Amit Apte ,Mr.Vijendra Sharma & Mr.Sanjay Bharghav.