Kenya backtracking on economic recovery, KAM warns

This is mainly on increased taxes and inflation adjustment.

In Summary

•Excise duty on excisable goods such as alcoholic and non-alcoholic beverages, chocolates and cigarettes set to increase, consequently driving up their final cost. 

•Treasury, however, expects the economy to recovery this year with a growth of above five per cent from a contraction of 0.3 per cent last year.

The Kenya Association of Manufacturers-KAM-Chief Executive Officer Phyllis Wakiaga,her team and county government of Lamu officials at the Lamu port.
The Kenya Association of Manufacturers-KAM-Chief Executive Officer Phyllis Wakiaga,her team and county government of Lamu officials at the Lamu port.

Kenya’s regulatory regime undermines efforts towards post-Covid economic recovery, the Kenya Association of Manufacturers (KAM) now warns.

This is mainly on increased taxes and inflation adjustment that are posing a threat to the growth of industries.

For instance, beginning early this month, Kenya Revenue Authority (KRA) implemented the 4.97 per cent inflation adjustment on specific rates of excise duty, for the financial year 2020/21.

 With the new rates, excise duty on excisable goods such as alcoholic and non-alcoholic beverages, chocolates and cigarettes are set to increase, and consequently, driving up their final cost. 

This is set to exacerbate an already grim situation, as Kenyans struggle to make ends meet, KAM chief executive Phyllis Wakiaga notes.

There is also the implementation of the Crop (Nuts and Oil Crops) Regulations 2020, which have introduced new fees and levies as a measure to control thirteen scheduled crops.

These crops are sunflower, sesame, coconut, cashew nut, groundnut or peanut, safflower, linseed jojoba, oil seed, flax seed and bambara nuts, among others. 

The regulations affect products from farmers, and manufacturers in the edible oil sub-sector and nuts processors.

Earlier this year, supply chain disruptions caused by the pandemic led to an increase in the prices of crude palm oil and other intermediate products used in the manufacture of edible oils and its byproduct, bar soaps. 

With the implementation of these regulations, the price of essential commodities shall increase further, putting more strain on Kenyans who are already struggling to make ends meet, KAM says.

An unfortunate outcome of this is that locally manufactured goods shall be beyond the reach of many citizens, it adds.    

“A common outcome of an unfriendly tax regime, and a heavy regulatory burden is a business environment that stifles growth and hinders potential investors in various sectors, including manufacturing,” said Wakiaga. 

According to the association, manufacturers are grappling with reduced demand for their products. 

“The environment also creates room for illicit trade to thrive, as consumers opt to purchase cheaper goods from her regional counterparts, whose excise duty is five times less than that of Kenya,” said Wakiaga.

The industries lobby group has called on the government to roll back the implementation of annual inflation adjustment, to support the manufacturing sector’s rebound.

“We also urge KRA to revise the frequency of the annual inflation adjustment, to every two years,” Wakiaga said.

The government has put in place a number of measures to cushion the economy from the effects of Covid--19, some of which were rolled back at the beginning of this year.

Government has also put in place initiatives to boost recovery and one outstanding focus area is manufacturing. 

However, manufacturers feel the fiscal and regulatory policies developed over the last two years have been contrary to the country’s recovery ambitions. 

The manufacturing sector, one of the Big Four Agenda pillars and critical for the country’s economic growth and development, remains among those affected by Covid.

Last year, more than 100 apparel manufacturers temporarily closed shop sending hundreds of workers home in the wake of a squeezed export market mainly the US.

The affected entities, mostly operate under Export Processing Zones (EPZs) in Nairobi, Mombasa, Kisumu and Machakos, according to the Industrialisation, Trade and Enterprise Development ministry.

Economic recovery is however expected this year with a projected growth of above five per cent from a contraction of 0.3 per cent last year.

Government’s quarter two data shows the country's real GDP  grew 10.1 per cent. 

According to National Treasury CS Ukur Yatani, the reopening of schools and the transport sector contributed to the growth that softened in the first three months of the year.

Manufacturing at (9.6 per cent), Education (67.6 per cent), Transportation and Storage (16.9 per cent), Information and Communication (25.2 per cent) and Other Services Activities (20.2 per cent) supported overall growth in the second quarter.

The manufacturing sector’s real GDP grew by 9.6 per cent compared to a contraction of 4.7 per cent in the same period of 2020 while the food sub-sector expanded by 6.7 per cent during the review period.

Manufacture of dairy products; bakery products; tobacco products; registered substantial growth. Production of non-food products rose by 12.2 per cent.

Assembly of motor vehicles grew by 10.0 per cent while the manufacture of galvanised iron sheets and paper grew by 34.5% and 13.5 per cent respectively.