Kenya Association of Manufacturers




Opinion

How does the price of bread go up with VAT?

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By Betty Maina

 

Consumers have been grappling with the increased cost of basic commodities following the introduction of the VAT Act. it is true that products such as bread and milk are exempt from VAT however the reason why the price will go up is not because the manufacturer has increased the prices however it is because if you look at the inputs that result in the total package such as the cover of packaging those do attract VAT and will result in an increase in the cost of the final product.

Other inputs such as the cost of electricity have also gone up as a result of the introduction of the VAT law. Electricity cost used to attract a tax of 12 percent and because of VAT the tax has gone up to 16 percent this therefore entails that the price of the final product may go up.

Therefore the price increases that may be experienced in some sectors are just a once off measure to cushion suppliers against the increases as a result of the implementation of the new law.

 Manufacturers are however upbeat that in as much as there may be a shakeup in the price of basic commodities temporarily there will soon be a reduction in prices if all the grand plans by government to reduce the cost of doing business are implemented.

What both consumers and business alike should understand is that the country has good development plans and for these to be realized there is need to collect revenue inland without incurring huge debts and all citizens have to play a role in the development of the country.

There are plans to build more power plants which will greatly reduce the cost of electricity to about USD 0.09 from the current exorbitant US0.18, which will result in a massive reduction of prices.  For the development journey to be successful money has to come from somewhere and VAT is one noble avenue of collecting revenue.

Economists argue that there is merit in subsidizing production as opposed to subsidising consumption. VAT for manufacturers makes the collection of revenue much easier and removes bottlenecks in the revenue collection system.

It is a no brainer that there are no policies that are a one-size fits all. There are obviously cases that will have to be considered in isolation like the case for pharmaceutical sector which has been negatively affected by the implementation of the new law.  

Medicines are exempt from paying VAT however the inputs that go into making the products are subject to VAT which increases the prices of medicaments. The downside of this is that the local pharmaceutical manufacturing sector becomes uncompetitive both on the local and international scene.  

Kenya’s pharmaceutical sector is the largest in the Common Market for East and Southern African (COMESA) region  and as the country intensifies its market penetration into the African market it is important to address the concerns of this sector.

 

The local pharmaceutical sector manufactures generics medicines and medications that are priced very competitively and are used by 400 million people in the COMESA market.

 

The generic market excels in high volumes and very low margins hence local pharmaceutical manufacturers are very sensitive to any cost increases and face a market where they cannot increase prices.

 

Previously, pharmaceuticals manufacturers were on the zero rated category of goods and were able to claim back their VAT paid on input. This put them on parity with imported generics from India or China.

 

However, in the new VAT Act  pharmaceutical manufacturers are now on the exempt list where they cannot claim this input VAT. The implication of this new change is very grave as VAT will now apply for their inputs and they will be forced to increase their final price. Unfortunately, this increased price will be higher than the imported finished good. It is important to note that the imported pharmaceuticals especially from India and China are already subsidised in their respective countries. The cost of production in these countries is also much lower than that of Kenya.

The bright side of this VAT Act for the country is that there has been a shift from subsidizing consumption to subsidizing production which is good in promoting global competitiveness of locally manufactured goods.

In as much as outstanding VAT refunds stand at over Ksh 20 billion, there is a concerted effort by the revenue authorities to address the situation. There were challenges in the previous system but industry is confident of the measures put in place to speed up the refund process. Manufacturers hold the view that the VAT refund bucket will no longer balloon as in the past as VAT refunds will be fewer.

 

The Revenue Authority had promised and we look forward to the introduction of the green, orange, and red channel that would help expedite payment of VAT refunds.

 

As the payment modalities are being implemented it is important for government to ensure that companies operating in Kenya are provided with an enabling environment in order to be globally competitive. There is need to maintain liquidity within companies so it is pleasing to note that there is a commitment from the Revenue Authority to expedite payment.


ENDS

 

The writer is the chief executive of Kenya Association of Manufacturers and can be reached on  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Westgate’s aftermath will affect investment in this country

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By Betty Maina


The harrowing events at Westgate played out across our screens like scenes from a terrible horror movie, touching our collective psyche as a country. This act of terrorism did not just affect the families of the victims and the wounded, but each one of us. And as much as we may want to forget it, they continue to haunt us as more details about the last moments of our loved ones and our fellow Kenyans emerge.

The trauma inflicted on us was not just of the psychological kind. It is also had financial and economic aspects. A number of optimistic analyses have been done that predict a quick comeback for the Kenyan economy.

If the performance of the Nairobi Stock Exchange (NSE) is anything to go by in the past one week, then these predictions are right. The stock market has been bullish and this augurs well for investor confidence and the government is still going ahead with its $1.5 billion eurobond as scheduled.

But think of the enormous sums of money that insurance firms will have to pay out. Or of the tourism sector which appears to be the one that will bear the brunt of this attack. The sectors contributes 12% to our GDP and is likely to affect our foreign exchange flows since it brings in 21% of all our foreign currency earnings though the resilience of this industry is very impressive given the comeback experienced after August 1998 and other later sporadic attacks. India’s Tourism sector bounced back quite fast after the 2008 Mumbai attacks and no long term economic setbacks were experienced.

But there are other imperceptible implications that must now be thought of. For those in business, company goodwill is of the utmost importance and a business takes years to build this up. If Kenya continues to be a soft target for these attacks, we just might start getting a reputation for being Al Shabaab’s and Al Qaeda’s punch bag. This is not good for our credibility as an investment location, If prospective investors begin to get the idea that we are a Bermudas Triangle for investments.

Security is a big factor of production and ranks high among factors that investors consider before investing in a country. Security is paramount and very basic and no incentive including tax breaks or free land will convince an investor to bring their money here if security is not assured. And as heroic as our security forces were, especially those soldiers who died in the line of duty, we have to face up to the harsh reality that our best may not have been good enough.  

We may not be able to reverse the attacks, but certain aspects of its outcomes still remain under our control at this juncture. Of importance is the government’s response to the attacks and its ability to contain the situation once it begun. We have to get our act together and set up a terrorism response unit capable of detecting attacks way before they happen and of responding promptly and efficiently if push comes to shove. This will be a sign that we have learned from this incidence and we are doing all we can to ensure that there will be no repeat of the same. Investors are going to be very demanding on this issue and especially big investors who are eyeing the manufacturing industry.

The security forces alone are not to blame. Corruption at our borders is the hand that let loose a Pandora’s box of evils on us. How else did the terrorists get in through our borders undetected and set up shop at the mall? That being said, we have  probably sang this lullaby until it has lulled us to sleep. Westgate was the wakeup call of the dire need to curb this menace.

One way will be through the government’s response to the looting of businesses in the Mall. No one is coming forth with the names of the looters as of now.  What we need to keep in mind is that people made serious investments in Westgate, which were lost not only due to terrorism but due to thieves. These individuals should be identified and dealt with a heavy hand. If the government does nothing to get hold of them, then we will be sending out the wrong signals to the business community and the industrial sector that do not bode well for future investments and for us as a nation.

Another way is through the fight against counterfeit goods. Links to trade in counterfeit goods are slowly being established and for some time now it has been a known fact, that organised crime, at least, is funded through the sale of fakes.

In Kenya, Kshs 70 billion is lost annually to counterfeits. Firms are estimated to lose up to 40% of their market share, 50% of revenue and 10% of company reputation. The society at large loses 56% in revenue and 32% of jobs and income go down the drain due to this problem. The economic impact of this last figures does not bear thinking about.

Clamping down on corruption and counterfeits are long term solutions. Working on our preparedness to future terrorist attacks are short term solutions, but all this will depend on our memory. Let us not forget the events at Westgate, the horror, the loss so that we can learn from it so that we can be better prepared to fight back should another similar attack come. God forbid.

 

 

The writer is the chief executive of Kenya Association of Manufacturers and can be reached on  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Kenyan manufacturers looking to deepen their presence in African markets

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Kenyan manufacturers looking to deepen their presence in African markets


By Betty Maina


As a high level delegation of industry captains leaves for Ethiopia today under the auspices of the Kenya Association of Manufacturers (KAM) and headed by the Cabinet Secretary for East African Community Affairs, Commerce and Tourism, Mrs Phyllis Kandie, it is pleasing to note the strides that Kenyan manufacturers and the business community in general are making in expand presence and take opportunities in African markets.


KAM was highly instrumental in lobbying government to have the Ethiopian market opened which saw the signing of the Special Status Agreement between Kenya and Ethiopia late last year and this opened doors for immense opportunities for local manufacturers to expand by investing in Ethiopia . The current Government is clear about focusing on opening more trade opportunities in Africa. Currently Kenya exports 45% of its total world exports to Africa and these only account for 15% of the trade in Africa and there is an opportunity to increase the market share in Africa to 40%. While noble, the  strategy to extend Kenyan products’ footprint to more African markets will however need to be supported by a deliberate move by local companies to expand into those markets.


Africa is an emerging global market and it would be foolhardy for the business community in Kenya to rest on laurels expecting anyone from outer space to come and give them markets on a silver platter. Penetrating new markets requires a high level of aggression and due diligence on the feasibility of the venture.


Africa’s combined gross domestic product stands at just over USD 1.6 trillion and is expected  will rise to USD 2.6 trillion in 2020 with a spending power of USD 1.4 trillion.  The continent’s  combined working age population in 2040 of 1.1billion people will be greater than China and India combined. Kenya is poised to have the largest working population by 2040 and there is need to create job opportunities in for the working populace on the continent.


Africa is bursting with opportunity and there is need for concerted efforts towards accessing markets and removing any hurdles in the way to the realization of the African promise.


To maximize on the opportunities available on the continent there is need for commitment, competence and support of foreign missions in the various markets. Kenya needs to strengthen the missions where the country trades so that the country may maximize on the available opportunities.


As businesses are moving their feet and penetrating new markets there is need for Government support in signing and concluding pertinent trade agreements in order for local companies to have access to some markets even as Kenya works on improving its business operating environment. Some Kenyan investors shy away from penetrating into some African countries because of restrictions imposed on trade of some commodities and for some countries there are still protectionist measures in place which frustrate trade.


The Jubilee Government clearly stated its quest to develop markets in Africa and this will be largely supported by the manufacturing sector. Africa is awash with opportunities and it is time for Kenyan companies to take advantage of those opportunities. There is need for more incentives and support for the sector in order to achieve the two digit economic growth rate that the country is aiming for.


Kenya Association of Manufacturers has been leading delegations to countries in Africa as part of ongoing efforts to tap into the emerging markets. A trip by industry giants was held two years ago to Nigeria and Ghana. The last mission was to Zimbabwe which presented a lot of opportunities for Kenyan investors.


The mission to Ethiopia will undoubtedly open doors for more opportunities and lessons as Kenyan investors claim a larger market share in Africa.

Kenya and Ethiopia combined today are home to 14% of Africa’s population. However, the two contribute less than 5% of Africa’s GDP.  There is need to work in concerted ways to increase the slice of this GDP which is expected to increase by 62% in 8 years.


The writer is the Chief Executive of Kenya Association of Manufacturers and can be reached on This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Industrial growth within the post 2015 Development Agenda framework

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By Betty Maina

Over the last 9 months, I have had the privilege of being a member of a high level panel put together by the UN secretary general, Ban Ki Moon, to develop ideas and proposals for the post 2015 Development Agenda. The panel was made up of a group of 27 people chosen to advise the Secretary General on issues that should inform this agenda and we met periodically over the 9 month period.  On Thursday, 30th May, we finished our work and handed in a report to the Secretary General. Our input will now go into a report that he will present to the General Assembly this September and our view is that the panels report should also inform the work of the open working groups and other intergovernmental ongoing processes that are going to develop the post 2015 development plan for the world.

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Power cut hurt Industry

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By Betty Maina

Last month, on May 28th, there was a country wide power blackout lasting for 7 hours. Perhaps Kenya Power needs anecdotal evidence to realise what that failure did to this country.

One of our manufacturers had molten aluminum solidify in that short period the power was out. To melt it again took another 7 hours with a 10% loss of the metal and added fuel costs all totaling to Sh 250,000, a figure that doesn’t include overhead costs. A pharmaceutical company estimates it lost about 4 million. They too were in the critical process of mixing and coating pharmaceutical drugs. They are now being forced to buy a heavy duty generator costing 10 million. If you are going to lose Sh 4 million with every power blackout that Kenya Power subjects you to, then the generator option  begins to look cheap. A third company had to shut down their plant for 9 hours. It takes 2 hours to get their machinery operating again at optimal level. They estimate a loss of 700,000/-. As If that was not enough damage, there were electrical surges after the power came back. So a fourth company had to replace equipment worth about half a million shillings because the surges caused their change over system to burn out. They also lost sales worth Sh 1.6 million.

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Rules of engagement with devolved governments

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By Betty Maina

As counties try to find their feet in these early stages of devolution, there is need for the businesses to establish ways to engage county officials to solve issues that affect the business environment, productivity and competitiveness. So far, very few county governments have had meetings with representatives of the private sector with the exception of a few governors, while in some counties, the county cabinets are not in place.

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Private sector applauds Special Status Agreement signing

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By Betty Maina

Kenya’s Business Community has expressed their appreciation and welcome the signing of the Special Status Agreement by His Excellency, Haile Mariam Desalegn, Prime Minister of Federal Democratic Republic of Ethiopia and His Excellency President Mwai Kibaki of the Republic of Kenya. We wish to congratulate

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Duty remission scheme poses threat to motor vehicle assembly sector

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By Betty Maina

 The motor vehicle assembling sector in Kenya which employs over 3,000 people is threatened with closure if the decision by the East African Community (EAC) Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI)’s directive to collapse tariff lines for the unassembled motor vehicles under Chapter 87 of the EAC Common External Tariff goes unchanged.

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Railway & RVR – our Logistics Bottleneck in East Africa

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By Polycarp Igathe

It was delightful to visit the port of Mombasa on Wednesday September 19, 2012 in the company of board members of  Kenya Association of Manufacturers (KAM) and the Kenya Shippers Council (KSC). 

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KAM hosts consultative forum on International Tobacco Regulation

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September 28, 2012, NAIROBI: 

The Kenya Association of Manufacturers (KAM) today convened a meeting to gauge public sectors commitment to multi-lateral trade engagements.

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