UPBEAT

Manufacturing sector among biggest winners in 2019

The sector saw a number of tax initiatives, reforms and business agreements reached.

In Summary

• A key pillar of the Big Four Agenda, it is expected to contribute 15 per cent of the GDP by 2022.

• The government has been keen to protect local industries with a number of tax measures put in place this year to encourage investments and reduce cheap imports.

KAM CEO Phyllis Wakiaga
KAM CEO Phyllis Wakiaga
Image: COURTESY

Manufacturing is among the biggest winners in the country as the year closes, despite a number of challenges faced by industries which are key components of the private sector.

The Manufacturing Purchasing Managers Index has averaged 52.49 for the last six years(from 2014 until 2019), reaching an all-time high of 57.70 in December of 2014 and a record low of 34.40 in October of 2017. Any reading above 50 points is considered positive.

The Kenya Association of Manufacturers (KAM) has however indicated 2019 has been a good year on overall industry performance, as the government moved to support key reforms in the sector , a key pillar of the Big Four Agenda.

 

It is expected to contribute 15 per cent of the GDP by 2022.

“2019 has been a good year for the manufacturing sector, despite a few hiccups, we have ended the year on a strong note. As the representative of value-add industries in the country, we continue to spearhead policy reforms in the interest of the sector,” KAM chief executive Phyllis Wakiaga told the Star.

Achievements

Among achievements in the sector this year include the fight against illicit trade, according to KAM, which was supported by the National Action Plan and Implementation Framework to Combat Illicit Trade launched in June.

“Strategy against illicit trade is one of the signs that the government is committed to sustain the fight against illicit trade in Kenya. This is in tandem with the aspirations of the multi-agency enforcement team against illicit trade formed last year,” Wakiaga said.

This year, KAM actively participated in bilateral and regional meetings on Non- Tariff Barriers where 75 per cent of the issues raised were resolved. However,there is a slow uptake by member states in adopting some resolutions.

Another win for the sector is the Finance Act, assented by the President in November 2019, introducing policy and taxation measures for revenue generation in the financial year

 

2010/2020 for government’s expenditure as well as to support the Big Four Agenda.

The main tax and policy changes introduced include reduction of withholding VAT rate which was reduced to two per cent(2%)from six per cent (6%).

The Railway Development Levy on the other hand increased from 1.5 per cent to two per cent all imported goods except raw materials and intermediate goods, which cushions local industries.

Import Declaration Fees for raw materials and intermediate products imported by approved manufacturers was on the other hand reduced from two per cent to 1.5 per cent.

To promote plastic recycling, corporation tax for investors operating plastic

recycling plants will now enjoy a reduced 15 per cent corporation tax for the first five years.

Manufacturers also saw the exemption of VAT on services offered to plastic recycling plants and supply of machinery and equipment used in the construction of the plants.

At the beginning of the year, key players in the plastic value chain initiated a new platform, the Kenya Plastics Action Plan.

The plan is a private sector - led policy and action plan aimed at enabling a circular economy for environmentally sustainable use and recycling of plastics in Kenya.

It is a year that inputs for manufacturers of motherboards and the supply of locally manufactured motherboards were exempted from VAT, in current financial year running till June 30, next year. These were previously vatable at 16 per cent .

Meanwhile, the EAC partner states unanimously adopted a four band structure of 0 per cent (raw materials and capital goods), 10 per cent (intermediate input,products not available in the EAC region), 25 per cent (intermediate inputs, products available in the EAC Region) and either 30 per cent or 35 per cent (finished products).

“However, the CET rate for the highest band, criteria and list of products above 25 per cent are yet to be agreed upon,” KAM notes.

The year also saw the development of a 'Women in Manufacturing Program'.

“We partnered with the International Center for Research on Women to conduct the first ever research tudy on women in manufacturing in Kenya,” Wakiaga said.

The sssociation established its Women in Manufacturing Program in 2017 to bridge the gap between existing opportunities in manufacturing and the skills required to increase the participation of women in manufacturing.

The study aims to inform the advocacy strategy to mainstream equality and inclusion in the manufacturing sector. A report is set to be launched in March 2020.

The manufacturing SME Hub was also launched in July 2019 to prepare, nurture and grow manufacturing SMEs in the country,” said Wakiaga.

Challenges

The Hub seeks to address the challenges affecting SMEs in the country including unfriendly policies and regulatory regime, tedious and lengthy process in quality standards and certifications key challenges facing the manufacturing sector in 2019.

The sector also continues to be plagued with numerous regulations and over taxation.

“Poorly designed regulation and ineffective implementation of regulation can stifle innovation, growth, job creation and investments,” she said.

“Our economy has been in dire need of a massive boost and this can come through an enabling business environment which increases productivity, jobs and wages, and equal distribution of resources through growth and investments,” Wakiaga added.

Other challenges remain high cost of power,delayed payments especially by government,preference of imported goods over local goods (cheap imports) and skills gaps.

The association however predicted a better 2019.

“2020 promises to be a strong year for the sector, specifically if predictable and stable business environment can be guaranteed in policy formulation and implementation,” KAM said in an industry update report.

The association is expecting more industries to take up technology, especially e-commerce. This is a large but untapped market that gives more market access at minimal costs.

According to KAM, it will enable businesses, particularly SMEs, to lower costs, stay competitive and at the same time, go global by harnessing the power of the internet and scale.

Going into 2020, local manufacturers have indicated their quest to tap on the Africa Continental Trade Area Agreement AfCFTA which opens up export opportunities in a 1.2 billion population market with over $ 3 trillion(Sh30.6 trillion) in GDP.