Countries across the world are taking steps to bounce back from COVID-19, and they recognize that manufacturing and increased value-addition play a central role. They are putting in place systems to rebound using policies to invigorate their economies after the slump witnessed over the last 2 years.
Organization for Economic Co-operation and Development (OECD) projects that South Africa’s economy is expected to rebound by 2.5 % in 2022, driven by domestic demand and commodity exports, increased household consumption and strengthened private investment. New Zealand also developed strategies to aid economic growth, through robust private consumption and increased infrastructural investment.
Locally, it is worth noting that government announced measures to cushion the economy from the effects of COVID-19, some of which were rolled back at the beginning of this year. Government also put in place initiatives to boost recovery and one outstanding focus area is manufacturing. Unfortunately, the fiscal and regulatory policies developed over the last 2 years have been contrary to the country’s recovery ambitions.
For instance, beginning early this month, Kenya Revenue Authority (KRA) 4.97% has implemented the 4.97% inflation adjustment on specific rates of excise duty, for the financial year 2020/21. With the new rates, it means that excise duty on excisable goods such as alcoholic and non-alcoholic beverages, chocolates and cigarettes shall increase, and consequently, drive up their final cost.
This is set to exacerbate an already grim situation, as Kenyans struggle to make ends meet. Manufacturers, on the other hand, shall grapple with reduced demand for their products. It shall also create room for illicit trade to thrive, as consumers opt to purchase cheaper goods from her regional counterparts, whose excise duty is 5 times less than that of Kenya.
In light of this, we call 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.
Kenya’s regulatory regime also undermines all efforts towards resilient and sustainable economic growth. This not only discourages industry from scaling up, but also drives potential investors to seek more suitable, predictable and secure markets to venture into.
For instance, 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/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. An unfortunate outcome of this, is that locally manufactured goods shall be beyond the reach of many citizens.
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. As a country, it is critical that the government and its agencies do away with arduous regulations and the unfriendly tax regime, to drive our competitiveness and productivity as a country.
Policy decisions made today, have an impact on our economy, and aspirations to become an industrialized nation as envisioned in various development blueprints. It is paramount that we have a favourable regulatory environment for businesses to operate in, for sustained economic growth.
The writer is the CEO of Kenya Association of Manufacturers and the Global Compact Network Kenya Board Chair. She can be reached at ceo@kam.co.ke.