NEXUS BETWEEN WATER SECTOR REFORMS AND FINANCIAL PERFORMANCE: A CASE OF WATER AND SEWERAGE COMPANIES IN NYERI COUNTY, KENYA

Fredrick Gitahi Gichuki - PhD Candidate, Doctoral School of Entrepreneurship and Business, Faculty of Finance and Accountancy, Budapest Business School, Hungary. Part Time Lecturer, Karatina University, Kenya

ABSTRACT

The United Nations categorizes Kenya not only as a water scarce country but also as one that is unable to manage its water resources properly. This condition has led the Government of Kenya pursue water sector reforms with a view to improve the performance of water sector players and particularly water and sewerage firms. The new constitution of 2010 effectively also placed water issues and management on the devolved units of governments, cognizant of the fact that every county has their own unique challenges. Water companies however continue to make losses making it unclear whether the water sector reforms are achieving their objectives. The study examines the effect of water sector reforms on financial performance of water companies in Nyeri County. The specific objectives included the assessment of the effects of metering ratio, revenue collection strategies, non-revenue water control and water coverage area on financial performance of water and sewerage companies. Financial performance was considered for two financial years 2013/2014 and 2014/2015 informed by the fact that during this period, the devolved systems of government had taken effect and the water service provision effectively placed with the devolved units in a quest for better management. Financial performance again, was measured through profitability and efficiency indicators. The financial ratios to this regard were the Return on Assets and Operating Margin respectively. The target population comprised of 60 respondents drawn from the senior level management and included all the board members, managing directors, technical officers, human resource managers and technical officers of all the 5 water companies in Nyeri County of Kenya. The researcher employed a census study technique where all the respondents identified under the target population were considered as participants. The study exploited both primary and secondary data resources. Primary data was collected by way of questionnaires and through the ‘drop and pick later’ method. The questionnaire was tested for validity using pretesting and expert opinion. Reliability was tested using Cronbach’s Alpha reliability test. Secondary data was gathered from the financial statements of the Water and Sewerage Companies. The information was also sought from WASREB and the Auditor General’s Office with which the entities are mandated by law to file returns. The Statistical Package for Social Scientists (SPSS) was utilized to generate both descriptive and inferential statistics. A multiple linear regression was also developed by the researcher in order to demonstrate the magnitude of effect, if any, of each of the variables under water sector reforms on financial performance of the water and sewerage companies. Going by the results, as explained by R squared which is the coefficient of determination, 89.40% of the variation in the Water Service Companies’ Financial Performance (the dependent variable) is explained by variability in the independent variables i.e. Water Coverage area, Metering Ratio, Non-Revenue Water Control and Revenue Collection Strategies as indicated by R square. All the independent variables under assessment; Water Coverage area, Non-Revenue Water Control, Revenue Collection strategies and Metering ratio were found to be useful predictors of financial performance of the water companies. Results of the Pearson Correlation Analysis indicated that a significant positive relationship between all the independent variables and financial performance. The study therefore recommended that water companies invest more in water sector reforms as the benefits were found to outweigh the costs.

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