The closures or scaling down have mainly been driven by an unfriendly tax environment, the high cost of doing business and increased competition from cheaper imports.
Increased illicit trade which apart from denying the government revenues, has slowly pushed out genuine players from the market, according to manufacturers in the country.
MPs now concur with the private sector that the high cost of electricity, coupled with rising taxes, is to blame for the high number of multinationals fleeing the country.
According to the National Assembly Committee on Trade and Industry, the move by companies to relocate to neighbouring countries poses a major threat to the economy and job security.
In past one year, several companies have either shut down and relocated, or scaled down operations due to high taxes and operating costs that have hit cashflows.
According to the committee chairman James Gakuya, the number of companies relocating from Kenya was worrying with hundreds of people losing their jobs.
The MP noted that due to the high cost of production, some companies were opting to import from China which is cheaper, or re-locating to Tanzania and Ethiopia.
“The high cost of power and lack of incentives had led to the current crisis and we are asking the President to intervene before more people lose their jobs,” he said.
The Embakasi North legislator was addressing the press in Naivasha after a meeting wit top Ministry of Trade officials.
“The situation has been worsened by low funding to these critical departments that support industrialisation and this has impacted negatively on the country’s economic growth,” he said.
Industrialisation PS Juma Mukhwana said counterfeiting remains one of the biggest challenges in the country with alcohol and medicines the most affected.
At least 30 companies have shut down production plants in Kenya in the last decade, with major multinationals opting to import products produced cheaply at other jurisdictions such as Egypt.
These include Procter & Gamble, Reckitt & Benckiser, Colgate Palmolive, Cadbury, Johnson & Johnson, Eveready and GlaxoSmithKline (GSK).
The latest to join the bandwagon is German pharmaceutical and biotechnology company –Bayer, which in January this year announced plans to outsource its distribution and customer support operations for pharmaceutical products.
“We shall be leveraging the expertise and networks of a third-party distributor to ensure sustained availability and access of our products and solutions,” Cluster Lead for the Pharmaceuticals Division in South East and West Central Africa, Jorge Levinson, said in a statement.
Manufacturers say on average, they pay about $0.17 (Sh22.53) per kilowatt-hour, compared to markets such as Egypt and Ethiopia where electricity costs average $0.03 (Sh3.97) and South Africa’s $0.07(Sh 9.28.
Last year, Builders, a subsidiary of South Africa's retail giant Massmart, also announced the shutting down of its business at the Waterfront Karen Nairobi in less than three years of operation.
E-commerce company, Jumia Technologies, also shut down its food delivery operations in a cost-cutting measure, a move that affected jobs.
“Following a strategic review of Jumia Food, the company determined that its food delivery business is not suitable to the current operating environment and macroeconomic conditions and will close its operations in all markets by the end of December 2023,” it had said in a statement.
Security printer De La Rue closed its Nairobi unit due to low currency and cheque printing business, with the firm laying off its staff.
The firm announced its exit from Kenya after the Central Bank of Kenya (CBK) confirmed that there would be no offers for printing bank notes for at least the next 12 months.
According to CBK, the private sector plans to retrench at least 15 per cent of their workforce this year, blamed on “the high cost of doing business, high taxes, a weak shilling and reduction in customers.”
The Federation of Kenya Employers (FKE) says more than 70,000 jobs in the formal private sector have been lost between October and early this year, with more on the line.
According to FKE, about 40 per cent of employers have reported that they are planning to further reduce the number of employees to meet the increasing costs of operating in Kenya.
FKE president Habil Olaka said the cost of doing business has become “unsustainable” since the enactment and implementation of the Finance Act 2023.
The employers’ view is that the changes have had an overall negative impact on cash flows and the financial positions of enterprises in various ways.
These include direct impact on the payroll, impact on demand for general wages review and risk of business closure and increased laying off employees.
“Every day we receive notifications from employers on their intent to declare redundancy,” Olaka said during the briefing at Waajiri House.
The key taxes that need to be reviewed, according to FKE, are the VAT on petrol, PAYE and corporate tax.
There was also the introduction of income tax on repatriated income and digital asset tax (DAT) payable by persons who derive income from the transfer or exchange of digital assets.
The federation proposes that VAT on petrol revert to eight per cent (8%) as it was before the enactment of the Finance Act 2023, noting the increase to 16 per cent has a regressive effect on the economy.
Employers also want corporation tax reverted to 25 to help attract investment and allow corporates to have money to plough back into their business, and create more employment.
This tax is payable by both resident companies at the rate of 30 per cent and non-resident companies at the rate of 37.5 per cent.
They are also calling for the removal of the minimum turnover tax.
“This tax is going to exacerbate informality and destroy micro businesses that employ 84 per cent of wage employees in Kenya,” Olaka said.
Employers have also been hit by the housing levy where they are required to match the 1.5 per cent deduced on employees' earnings.
The government is also targeting 2.75 per cent of the gross salary of the employed to the Social Health Insurance Fund (SHIF).
A KAM research shows manufacturers lose about 40 per cent of their market share to counterfeits.
It said over-taxation will also lead to evasions with consumers forced to go for cheaper alternatives, including counterfeits which will fuel illicit trade.
A recent National Baseline Survey on Counterfeit and Other Forms of Illicit Trade in Kenya by the Anti-Counterfeit Authority (ACA) shows the total value of illicit trade is more than Sh826 billion towards the Sh1 trillion mark.
