Rivatex East Africa Ltd, a state-owned textile manufacturer once hailed as a cornerstone of Kenya’s industrial revival, is facing mounting financial strain amid serious revenue integrity concerns and rising losses, according to a new report by the Auditor General.
- •At the center of the firm’s troubles is a broken retail sales system that auditors say lacks the ability to confirm company-wide revenues.
- •Rivatex operates eight outlets across the country using the PESA FLOW system, but the platform cannot generate centralized sales or inventory data.
- •As a result, sales data is manually compiled from each shop’s emails and spreadsheets, an error-prone exercise that significantly heightens the risk of revenue leakage.
“The sales schedule provided for the audit could not be confirmed from the system, nor was it supported by centralized data. The system could not generate unified stock levels or unit sales per commodity, posing a high-risk gap that may be leading to revenue leakages,” the Audit report stated.
The inability to verify the company’s declared sales figure of KSh 332.2 million for the year ended June last year has raised concerns over the reliability of Rivatex’s reported earnings. Auditors warn that this undermines financial transparency and makes it difficult to monitor inventory, detect stockouts, and erodes customer confidence and cash flow.
The system failures are compounded by a deepening financial crisis as Rivatex recorded a net loss of KSh 367.1 million, nearly matching the previous year’s shortfall. Accumulated losses now total KSh 3.4 billion, casting doubt on the company’s ability to continue as a going concern. Management attributes the persistent losses to high input costs, chronic raw material shortages, and inefficient production cycles.
Operating costs have surged, from labor to lubricants, spares, and general administration, without a corresponding rise in revenues. Sales in key segments like garments and yarn declined sharply year-on-year, reflecting volatile demand and production bottlenecks.
“During the year under review, the gross loss reduced marginally to Kshs.278,576,759 from Kshs.293,074,506 in the previous year. However, the total operating expenses increased to Kshs.185,426,569 from Kshs.156,741,562 in the previous year,” the audit stated.
Despite its limited revenue base, the company overshot its expenditure by 56%, spending KSh 1.07 billion against actual receipts of KSh 698 million. The overspending was not approved, raising questions about internal budget controls.
As a textile producer with immense state backing and export capacity, the company is among the Kenyan firms eligible for preferential access to the U.S. market under the African Growth and Opportunity Act (AGOA). Yet despite the decade-long advantage, Rivatex failed to establish itself as a consistent exporter under the program.
With AGOA set to expire later this year and no guarantees of renewal, the company’s inability to scale its production or meet international order standards suggests that Kenya may exit the preferential trade deal with little to show from one of its most strategic state-owned manufacturers.
The Challenges Persist…
The company also faces a deteriorating liquidity position, with long-outstanding trade receivables amounting to KSh 99.8 million, nearly 30% of which have remained unpaid for more than a year.
Among these is a KSh 18.5 million debt owed by Moi University, Rivatex’s parent institution, including KSh 10.9 million in unremitted staff deductions. The university itself reported a deficit of KSh 837.8 million and is unlikely to provide financial support to the struggling manufacturer.
The firm has failed to remit employee deductions totaling KSh 89.9 million to pension and savings schemes, a violation of both retirement benefits and cooperative societies laws. Some of the debts, including supplier payments of more than KSh 5.1 million, have remained unsettled for over a year.
Meanwhile, the construction of a godown in Nyando, slated for completion in August 2023, remains unfinished 15 months after the extended contract deadline. Although KSh 44.5 million has already been paid to the contractor, no progress or performance reports were submitted, and the company has not taken action to recover damages for the delay.
Inventory worth over KSh 516 million is tracked through spreadsheets, with no inventory management policy or real-time stock visibility. The company’s ERP system, purchased in 2016 for KSh 4.4 million, remains unused. The ICT environment lacks basic safeguards, such as a business continuity plan, biometric server room access, and adequate power backup systems.
Internally, the company has failed to observe ethnic diversity requirements in its workforce. Seventy-nine percent of its 770 employees hail from a single ethnic community, breaching national cohesion laws that cap such representation at one-third.
