Kenya Association of Manufacturers




KAM Urges Government to Save Pan Paper Mills

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KAM WELCOMES Government initiatives to save the ailing Pan African Paper Mills but argues against the use of tariff protection on graded paper imports as this would lead to increase of prices of consumer goods by between 5 – 7 per cent.

Should the government consider tariff increase as an option in its bailout plan for the country’s largest paper manufacturer, the prices of goods packed in paper bags and corrugated cartons such as maize meal, sugar, cooking fats and oils, soaps, detergents, and cement among others will definitely go up.

The recent closure of Panpaper Mills has come in the midst of consultations among stakeholders on a rescue plan for the important investor. However one of the proposals in the public domain is causing intense discomfort among paper converters: the proposal to increase tariffs of paper products by 10%.

Paper converters argue that a 10 per cent tariff increase on imported paper up from the current 25 per cent is an unfair and biased measure that will push up consumer
prices and further erode their competitiveness. At a time when consumers are hard hit by high inflation and economic recession, this is clearly a wrong move at the
wrong time.

“Protectionism is not the way forward as the sector has many other industries who would be negatively affected such as paper converters who are equally important and must not be hurt inadvertently in efforts to save a fellow member,” asserts KAM chief executive Betty Maina.

A tariff increase would have adverse implications for the Paper Conversion sub sector: it will result in either the scaling down or shutting down of operations by paper converters – a sector that employs over 13,000 Kenyans and makes an annual contribution of about Ksh 20 billion in government revenue. The sector has already lost 7,000 direct jobs over the last few years as a result of the 25 per cent duty under the EAC Common External Tariff.

Ms. Maina underscores the importance of Panpaper to the country as many paper converters in the local industry have relied on this factory for their raw materials
over the years.

KAM supports all initiatives to revive PPM whose closure has affected more than 1000 direct employees and has great implications for other businesses that indirectly relied on it. However, the Association would strongly argue against tariff protection as a component of the bailout plan.

KAM is concerned that the reported request to increased import duty by 10 per cent on packaging and industrial grade paper at a time of great distress to consumers who
rely on goods packaged with such paper.

It is particularly ironic that even for industrial grade paper that cannot be produced locally and must be imported, such as label and art paper, duty rates are at 25%.

This has already subjected Kenyan paper converters to an unlevel playing field in the market, the reason why the Association is cautioning against a tariff increase as an option in the Panpaper bailout plan. In fact, since the inception of the EAC Customs Union in 2005, Kenyan paper converters have argued for the reduction of import duty on paper grades produced

locally and regionally as well as zero-rating of import duty on paper grades not locally or regionally produced. Within a domestic market, tariffs should not in any way be used to protect one industry against others.

If an enabling environment on a level playing field is provided, paper converters can further expand their regional market and increase employment rates.

While it is a well known fact that the company is going through difficult times and in dire need of help, it would be unwise and inconsiderate to raise import duty on
packaging and industrial grades of paper.

Kenyan paper converters are currently operating in an unlevel playing field in which Tanzanian businesses are importing paper at zero per cent duty from South Africa
while Uganda levies zero per cent on all their industrial raw materials including paper.

In reality, Kenya is the only country within the EAC/COMESA regions where paper attracts a 25 per cent import duty. All the other COMESA countries are already importing paper at a maximum of 10 per cent duty while inter COMESA and inter-EAC trade is at zero per cent.

Therefore, a further increase in Kenya’s import duty by 10 per cent will be totally unfair and have disastrous consequences.

Generally, what industry is saying is that increasing duty on paper alone without effecting changes in tariffs on finished packaging and finished consumer products will be disastrous for the wananchi and the manufacturing sector as a whole.

For further comment contact:
Mohan Krishnaswami
Chairman – KAM Paper & Paper Board Sector
Industrial Promotion Services (K) Ltd.
Nairobi, KENYA
Tel: +254 (20) 2228026/8, Fax: +254 (20) 2214563

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