High production costs, taxes worry manufacturers

Say factors making local industries uncompetitive.

In Summary

•KAM has called for a solution to regulatory inefficiencies, high cost of production, logistics, cashflow and liquidity challenges in its Manufacturing Priority Agenda 2021.

•Also want uptake of local content increased ,sentiments which have been well received by Industrialization CS Betty Maina who has called for action. 

Pwani Oil staff at the Jomvu plant explains to journalists the process of making edible oil. Photo/CHARLES MGHENYI
Pwani Oil Pwani Oil staff at the Jomvu plant explains to journalists the process of making edible oil. Photo/CHARLES MGHENYI

Unpredictable regulatory environment, high electricity costs and logistic challenges remain a major concern for local manufacturers, as they execute their post-Covid recovery plans..

The Kenya Association of Manufacturers (KAM) which yesterday launched an action plan, to accelerate the recovery of Kenya's manufacturing, said high taxation is making local products uncompetitive.

This, as the country continues to witness an influx of cheap imports.

Regulatory inefficiencies, high cost of production, logistics, cashflow and liquidity challenges must be urgently addressed to increase competitiveness of manufacturing sector
 KAM chief executive Phyllis Wakiaga

Cashflow and liquidity challenges also need to be addressed, KAM said, as industries struggle to recover from the impact of the pandemic which last year saw the sector's growth decline by about four per cent( in quarter two), amid reduced production in key sub-sectors.

Manufacturing sector had the lowest GDP contribution (7.2% in financial year 2019/20) but highly taxed with the highest contribution to tax revenue (17.5 per cent), compared to key sectors of wholesale and retail trade which had a lower revenue contribution of 5.9 per cent and agriculture (2.3 per cent).

“Regulatory inefficiencies, high cost of production, logistics, cash-flow and liquidity challenges must be urgently addressed to increase competitiveness of manufacturing sector,” KAM chief executive Phyllis Wakiaga said yesterday during the launch of the Manufacturing Priority Agenda (MPA) 2021

The action plan is pegged on five pillars namely; competitiveness and level playing field, enhanced market access, pro-industry policy and institutional framework, SMEs development, and industrial sustainability and resilience, all targeted at a stronger post-Covid recovery.

Industries barely enjoyed the government power rebate incentive introduced in the Finance Act 2018, that gave manufacturers a 30 per cent refund on power as it was removed a year later.

KAM chairman Mucai Kunyiha called for long-term tax and electricity tariff policies, of between four and five years, for industries to benefit.

“This way, people can be able to plan on the costs of doing business,” he said.

Kenya has the highest power tariffs compared to neighbouring Ethiopia which has tariffs as low as $0.03(Sh3) per Kilowatt hour, with recent trends showing manufacturers have been or have considered ditching Kenya for Ethiopia.

Tariffs in Kenya range between $0.15(Sh15) and $0.21(Sh21) per kWh, making local industries uncompetitive.

In Uganda, manufacturers pay $0.10(Sh10) per kWh while in Tanzania the cost of electricity stands at $0.14 (Sh14)per kWh.

The industry players are also pushing for more support on the uptake of local content through the 'Buy Kenya Build Kenya initiative', which despite being a conversation of more than four year, it is yet to bear much fruits.

In 2020, the Industrialisation, Trade and Enterprise Development ministry published a list of 334 local manufactured goods for preferential procurement by all public agencies.

CS Betty Maina noted an increase in procurement of these goods, even as she called for further action.

There is need to review the products roster to generate more content and ensure local producers benefit,” the CS said.

She affirmed the government's support in addressing challenges facing local industries, mainly on cost of doing business, as manufacturing remains a key pillar of the Big Four Agenda, with a GDP contribution target of 15 per cent by 2022.

To improve the regulatory environment, KAM has called for the merging of permits and fees imposed by regulatory agencies with government agencies asked to create integrated platforms, to facilitate compliance and reduce costs for businesses.

It also wants transport and logistics inefficiencies at the port and the Nairobi Inland Container Depot addressed to reduce transport costs, citing delays on cargo clearance and evacuation of both raw material and finished goods.

To adress delays in paying withholding VAT, manufacturers want an amendment to the Public Finance Management (PFM) Act 2012 to establish a Tax Refund Fund.

“Increase monthly budgetary allocation for VAT and excise tax refunds to about Sh5.5 billion.

Make a one-off payment to clear all outstanding withholding VAT and Excise Tax refunds.

Refund interests accrued through pending bills and outstanding VAT refunds,” Wakiaga said when she presented the 2021 MPA.

In support of growth in market access, industry players want the Kenya Trade Remedies Agency’s resources and capacity increased to help conduct investigations, fast tracking and finalisation of an optimal EAC Common External Tariff structure review which can promote value addition and industrialisation.

This, with an enhanced monitoring and evaluation of Buy Kenya Build Kenya and finalisation and implementation of local content policy and regulations/guidelines, among other measures, will increase their market share, they say.

On policy, they have called for abolishment of the one per cent minimum tax, revision of investment deduction allowance to 100 per cent, from 150 per cent, and development and implementation of a National Taxation Policy that provides policy stability and creates a five-year cycle for reviewing of tax rates and measures.

KAM has also asked the government to ensure allocation of funds towards the SME credit guarantee scheme.

“The MSEs are the future of manufacturing, and if fully supported, they will support robust economic recovery and job creation. Manufacturers are hopeful that 2021 will be better than 2020,” Wakiaga said.