Statement on Planned Duty-Free Importation of Finished Edible Oils

Kenya Association of Manufacturers (KAM) appreciates and applauds the government’s efforts to reduce the cost of living at a time when Kenyans are struggling to make ends meet. The increasing rising prices of necessities such as food, housing and healthcare are making it difficult for Kenyans to earn a decent living. As such we will continue to work together with the government undertake crucial actions and policies aimed at addressing the root causes of high living costs and alleviate the heavy financial burden on mwananchi.

While we continue engaging the government, we are concerned by the plan to import duty-free products including 125,000MT of finished and refined edible fats/oils through the Kenya National Trading Corporation (KNTC) for a period of one year to ostensibly create a price stabilizer for essential household commodities and alleviate the current drought situation in Kenya.

As a responsible Business Membership Organization with over 1200 members in the manufacturing sector, KAM wrote to the Ministry of Trade, Investments, and Industry (MITI) on 23rd January 2023, seeking clarification on the duty-free importation of finished and refined manufactured goods. As KAM we continue to seek engagements with the ministry to find a solution to this.

For clarity, the local edible oil manufacturing capacity is adequate to supply local market requirements and is currently operating at 60% of the installed capacity. From our perspective, this move will therefore promote unfair competition to local industries and the government stands to lose revenue to the tune of over Kes 3.5 billion and put over 40,000 jobs on the line. On behalf of our members, KAM calls on the government to reconsider the plan and engage our members to find a long-lasting amicable solution.

Further, KAM is also aware of the misinformation as published in the local dailies alleging that the 13 manufacturers of edible fats/oil in Kenya import finished products and that all they do locally is to repackage and push to the retail stores. From the onset this is false and all our members in this sub-sector have been open for verification of these claims.

Kenya’s edible oil processing industry is vibrant with Kes. 100 billion investments, strong. Currently, the sector has a combined installed capacity of 7,160MT. The industry generates over Kes 52 billion in revenue for the government annually through taxes. In addition, the sector directly employs 10,000 employees and over 30,000 indirectly across the value chain.

The increased cost of edible oils has been due to internal and external factors that make the cost of producing finished edible oils in the country extremely high. Kenya mainly imports Crude Palm Oil (CPO) from Malaysia and Indonesia. This makes the raw material volatile to external factors, such as global freight cost; global supply chain disruption due to Russia – Ukraine conflict and drought effect in Argentina’s soya growing belt; palm oil export ban by Indonesia; and the introduction of Malaysian export levy on palm oil, which has an impact on Cost, Insurance and Freight.

Locally, the sector is taxed 2% nut and oil crop (NOCD) levy by Agriculture and Food Authority; I.5% IDF and RDL, respectively; 16% VAT; 10% excise on locally produced packaging materials (Finance Act 2022); depreciation of KES against USD (by 19.5%); and Port charges.

It is critical to note the net effect such a move will have on other sectorial linkages. Some of the products that depend on local processing of crude palm oil that will be affected by this move include; soap and silicate that utilizes over 20,000 MT per month to make soap products employing over 5,000 people and with a Kes 30 billion investment; Bread and baked products industry that depend on palm stearin as a by-product of crude palm oil refining – the sector employs over 20,000 people; the packaging industry that employees over 2,000 people and the transport and logistics sector that move over 80,000 MT of goods and employing over 5,000
people.

The proposal and conversation around backward integration to start from growing palm oil trees locally to secure the source of palm oil is a welcome move that we are happy to support. However, this is a long-term initiative as palm oil trees take at least six (6) years to mature besides the necessary policies framework and studies that need to take place to support this initiative. KAM has been advocating for consideration of other oil seeds such as sunflower that are grown locally as an alternative source to palm oil. We believe this will go a long way to boost and empower our farmers income by growing alternate crops that our local industry will require to bring the cost of edible oil down. This links to our pillar around industrializing agriculture to enhance manufacturing sector growth.

In a country that has adopted an export-led growth strategy to grow the economy, we must protect local industries and empower them to grow as we seek to increase the manufacturing sector’s contribution to GDP from 7.2% to 20% by 2030. KAM calls on the government to reconsider such drastic policy interventions in the marketplace that have far-reaching unintended consequences that will lead to market failure. We call upon the government to continue protecting local investments and jobs created by the local manufacturing sector.

We emphasize our zeal to work with the government together on ways to bring the cost of goods down while continuing our solemn duty of growing our economy. Further to make edible oil products affordable in the wake of the increased cost of living for Wanjiku, we urge the National Treasury to waive the 2% nut and oil levy, remove IDF and RDL, review port charges and reduce the cost of electricity. This will not only make the sector morecompetitive but also lower the cost of finished edible oils.

Rajan Shah

KAM Chairman