Home ECONOMY Kenya’s Cost of Doing Business Becoming Unbearable

Kenya’s Cost of Doing Business Becoming Unbearable

by biasharadigest

We are living
in tough economic times.

Businesses
are struggling to stay afloat and the job market shrinks every day.
Entrepreneurship and starting up businesses, in this difficult environment, is
becoming a pipe dream for a lot of young people.

The government needs to wake up to these realities and start implementing urgent measures to salvage the situation.

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In January,
Stanbic Bank East Africa discussed their Purchasing Managers’ Index (PMI) on
Manufacturing, citing that a lot of manufacturers are opting to leave the
country for better alternatives offered by other countries in the region.

Unplanned Taxation

Their main
challenge being an unpredictable environment and increasingly unplanned taxation.
The high debt situation in which we find ourselves as a country is binding us
into a cycle where we inevitably have to come up with new taxes to get revenue,
which is becoming untenable for many businesses.

It is
difficult for meaningful economic gains to be realized when the cost of doing
business keeps increasing and by far, outweighs the measures being employed to
make them productive. Those investing in the manufacturing sector right now are
doing so against all odds to ensure that they increase their economic
contribution to nation-building and job creation.

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This is to
echo once again, another set of findings by Stanbic Bank which indicate that
the growth in the economy is superficial as it is not able to generate jobs and
bring us out of this economic downturn.

Most of the
sectors within Manufacturing need to bring in raw material from outside the
country in order to come up with the end product for both the local market and
exports.

In recent
years, the cost of bringing in these raw materials continues to rise,
increasing the manufacturing cost and related production costs, resulting in an
end product that is expensive for both local, regional and global markets.

This is what
is resulting in the current situation where Kenya is at a 13% cost disadvantage
compared to our neighbouring countries within the EAC. Not forgetting that we
aim to compete globally with countries that have better tax models that enable
them to produce at lower costs.

The Finance
Act assented by the President on 7th of November 2019 took measures to reduce
the cost of raw material imports by providing lower rates of Import Declaration
Fee (IDF) and Railway Development Levy (RDL) at 1.5%.

Coordination in Public Service
Delivery

The major
benefit that was to be realized through these new adjustments was to
effectively lower the cost of bringing in raw material, making local goods more
competitive against imported finished goods and counterfeits as well as
increasing local products’ competitiveness regionally and globally.

But despite these changes being made in the budget, they have not been effected by the relevant institutions and manufacturers continue to pay high costs for their inputs. It seems that the process is stuck somewhere between different government agencies, therefore, making it difficult to implement the directives.

To add to
these fees, KenTrade has now introduced a new service fee to all its users
which was unplanned for and increases the cost of doing business.

There is a need to fix the issue of coordination in public service delivery by government agencies because a lack of synergy ends up becoming a very costly affair for citizens. When important processes for business such as these stall, it appears as though these departments and agencies are not reading from the same page and are working at cross purposes.

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Taxes are by
far the biggest absorber of wealth in this country for businesses and
individuals. Taxation should be a tool for progress, but in our situation, it
seems to be aggravating the prevailing slow-down of the economy.

Goods that
are expensive to produce, will be expensive on the retail end. The customer
will be forced to pay more, and eventually, they will decrease the quantities
they purchase. This will make it harder for producers to move these goods off
the shelf and businesses will suffer.

The intention
behind the lower rates of IDF and RDL was a progressive one and was done in the
spirit of revitalizing the sector’s productivity towards increasing job
creation and boosting exports.

But good
policies are only ‘good’ when executed effectively and the ultimate goal
achieved. Otherwise, they remain nicely written papers in government archives.

The budget
for the next fiscal year is going to be read in the next few months, and it
will be disappointing if by then, recommendations made from the past budget
have not been actualized.

The government needs to urgently remedy this situation to enable businesses to help turn around the trajectory of our economy.

The writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya. She can be reached at [email protected].

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