•Manufacturing stands as the biggest losers in the current operating environment, which will worsen if the proposed taxes in the Finance Bill 2023 will be effected.
•The weak shilling has also seen traders and importers spend more to secure dollars to pay suppliers, with the costs being passed to consumers.
Image: FILE
Proposed tax increases in the Finance Bill, continued weakening of the shilling and reduced liquidity in the market could derail growth in the private sector, a survey now indicates.
These, coupled with increase in fuel prices are seen as a major contribution to the cost of doing business in the country, at a time households are struggling with reduced disposable income hence lower purchasing power.
Manufacturing stands as the biggest losers in the current operating environment, which will worsen if the proposed taxes in the Finance Bill 2023 will be effected.
The weak shilling has also seen traders and importers spend more to secure dollars to pay suppliers, with the costs being passed to consumers.
According to the Central Bank CEO’s Survey for May 2023, respondents highlighted the economic environment (high inflation and the weakening Shilling) and the business environment (cost of doing business) as domestic factors that could constrain their growth in the near term.
“Externally, firms highlighted global inflation, potential global recession and energy prices as threats to their expansion,” CBK notes in the latest survey.
The country’s overall inflation increased to eight per cent in May up from a 10-month low of 7.9 per cent recorded in the month of April, mainly driven by food and energy prices.
Removal of fuel subsidies also saw pump prices increase last month while the Kenyans shilling has remained vulnerable to the US Dollar,
The shilling has shed about 12 per cent of its value to the US dollar, the predominant global trading currency, since January when it was averaging 123.42. It has lost about 20 per cent year-to-date.
Yesterday, CBK quoted the local currency at 138.75 units to a dollar with banks selling it to importers and traders at above Sh142.
Liquidity in the money market declined marginally during the week ending May 31, as government receipts more than offset government payments.
Commercial banks’ excess reserves stood at Sh27.7 billion in relation to the 4.25 percent cash reserves requirement (CRR).
Firms expect to mitigate the constraining factors through management of costs and risks, diversification of their businesses, increased sales and marketing and digitisation of their operations,”CBK said.
However, manufacturers in the country have warned the sector will be hard hit, especially with the flooding of cheaper imports from neighbouring countries, if some proposals contained in the Finance Bill 2023 are passed.
National Treasury in its Finance Bill has proposed an increase in a number of taxes and levies that will push up the cost of various commodities in Kenya compared to regional markets.
According to the Kenya Association of Manufacturers (KAM) the food and beverage sector, metal, pharmaceutical, paper and paper board and cement sub-sectors will be most impacted.
Uganda for instance, has been a major sources of counterfeits and cheaper products mainly alcohol, juices, cigarettes and other non-alcoholic drinks.
In the last five years, the value of Kenya imports from Tanzania has increased significantly, from Sh18billion in 2018 to 54 billion in 2022, the Economic Survey 2023 shows, with Tanzania positioning itself to become the regional hub.
“If Kenya is not careful, the country will become a supermarket of the region,” KAM warned.
Products whose prices are set to increase include white chocolate, pasta, sugar confectionary, powdered juice, sugar, paper products and cement clinker on the prosed tax adjustments.
KAM has further warned that the country stands to lose up to Sh150 billion as a result of mass exodus by both foreign and local investors, should the controversial Finance Bill 2023 be passed into law.
The Kenya Private Sector Alliance on the other hand has warned that up to 100,000 jobs will be lost as a result of business closure due to high taxation.
Nevertheless, all is not lost as per the CBK survey as business optimism for company and sectoral growth indicated positive aspects, mainly on the back of improved weather conditions, which are expected to support agricultural production, easing of inflation and firm-specific growth opportunities.
Firms in the healthcare services, professional services, tourism and ICT sectors reported opportunities for growth in their respective sectors.
The Survey targets CEOs of key private sector organisations including members of the Kenya Association of Manufacturers (KAM), the Kenya National Chamber of Commerce and Industry (KNCCI) and the Kenya Private Sector Alliance (KEPSA).
It was conducted between May 2 and 15, targeted at CEOs of over 1000 private sector firms through questionnaires administered via a direct online survey.
Sectored covered included manufacturing, financial services, professional services, health and pharmaceuticals, agriculture, tourism, hotels and restaurants, ICT and telecommunications, transport and storage and wholesale and retail trade.
Others were mining and energy, education, real estate, security, building and construction, and media.
Majority of the respondents (62 percent) were privately-owned domestic firms, while the rest were privately-owned foreign businesses and publicly listed domestic companies.