Government policies must support a flourishing local industry

By Phyllis Wakiaga.

There is a sense of pride, for a country and its citizens, in attaining self-sustenance and economic independence. Central to this is a competitive local industry, producing goods for its domestic and export markets. 

Since before independence, Kenya’s manufacturing sector has continued to produce unique, authentic and high-quality products for local, regional and global markets. It is through these products that we have made a mark in the world, and risen into a regional beacon through job and wealth creation. 

But what happens when the government introduces policies that only increase the cost of doing business for local industries? 

Let us take an example of a fashion designer running a business in the city. He makes outfits that are sort after by many across the globe, making a mark for himself and the Made in Kenya brand. The designer took the risk to go into this business knowing that although there would be elements beyond his control, certain aspects would remain steady to enable him run his business smoothly. However, regulatory and taxation structures keep changing every now and again, forcing him to make drastic adjustments each time, making his business unsustainable. Just like that, he becomes very uncompetitive as the cost of his products goes up, leading to his customers opting for other designers to source for outfits. As a result, his market shrinks and our mark in the world dwindles. 

Unfortunately, this is the current state of our manufacturing sector. The sector is faced with unpredictable fiscal and regulatory policies focused on raising revenue in the short term, undermining all efforts towards sustainable economic growth. This not only discourages industry to scale up but also leads to the investors seeking more suitable, predictable and secure markets to relocate their businesses. 

For instance, each year, the government introduces new tax measures through the Finance Act. The government introduced a raft of tax measures that were not subject to public participation in this year’s Act. These include the imposition of 10% excise tax on articles of plastics; 10% excise tax on super absorbent polymer (SAP) used in the manufacture of baby diapers; 16% VAT on the supply of liquefied petroleum gas (LPG) including propane; 16% VAT on clean and improved cookstoves; and Ksh. 200 per kg excise tax on locally produced white chocolate, among others.  

This cost will be passed down to consumers, whose spending power has been crippled by the ongoing pandemic. Additionally, it is a blow to manufacturers, who are struggling to reduce costs, in a highly uncertain business environment, which has increased the cost of doing business. According to the KAM Manufacturing Barometer for Quarter 2, 2021, 64% of surveyed manufacturers foresee a price increase of their manufactured goods, attributed to among others, imposition of taxes that will drive up the price of finished goods. 

Public participation process is a key principle in public financial management. Denying taxpayers an opportunity to interrogate such tax provisions takes away their right to provide alternative solutions to government on policy measures that impact the cost of living and doing business. 

Kenya has, for years, sought a suitable framework to encourage citizens and private and public sectors to purchase locally produced goods. Strategies such as ‘Buy Kenya – Build Kenya’ provide a road map to realize this, by inculcating in the mind of all Kenyan citizens, patriotism and preference for Kenyan goods and services as a means of supporting the domestic economy. 

Unpredictable policies threaten the Buy Kenya – Build Kenya and Made in Kenya goals as they give an upper hand to cheaper imports from other countries. Additionally, local industry continues to lose its competitiveness in both local and export markets. More so, at a time when the country is reeling from the effects of COVID-19. 

As we seek to strengthen our position in the global market as the industrial hub for Africa, it is paramount that the government adopts the “do-no-harm” principle whilst intervening in the market, especially now, as we navigate the pandemic.  

Presently, reducing costs, retaining jobs, and improving cashflow should be the main priority for all of us if we have any hope of recovery. As such, the government must develop policies with a long-term economic goal as opposed to short-term goals aimed at raising revenue without considering the impact of such policies to citizens and the economy. This will encourage the recovery of local industries to support the country’s initiative to create jobs and wealth for all. Consequently, increase citizens’ cash flow to ease their efforts in making ends meet. 

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.