KAM’s plan to reboot manufacturing sector

The Kenya Association of Manufacturers (KAM) has identified several pressing issues affecting the economic landscape of Kenya, ranging from delayed payments to manufacturers, high import tariffs, escalating electricity costs, and the proliferation of illicit trade.

In response to these challenges, KAM has put forward a series of recommendations aimed at alleviating financial burdens on manufacturers, fostering a conducive business environment, and enhancing government revenue collection.

KAM has proposed the enactment of the Prompt Payment Bill 2021, which seeks to penalize entities failing to pay suppliers promptly. This Bill aims to address the issue of delayed payments, which has been a significant challenge for both national and county governments. By imposing fines and penalties on defaulting entities, the Bill aims to create a legal framework conducive to prompt payment for goods and services procured by government entities.

According to the provisions of the Bill, any accounting officer found guilty of failing to pay suppliers within the designated time frame without a valid justification will be subject to penalties. These penalties may include a fine of Kes5 million, a five-year prison sentence, or both, as stipulated by the legislation.

Spearheaded by Nairobi Governor Johnson Sakaja (then Senator) and nominated senator Farhiya Haji, the Bill mandates that all procuring entities must pay an interest, calculated based on the rates set by the Central Bank of Kenya. This provision is designed to incentivize timely payments and ensure accountability within government procurement processes.

Additionally, KAM advocates for the establishment of a Tax Refund Fund to expedite the process of refunding suppliers and clearing pending bills.

Read also: Ruto’s financial incentives for manufacturers and farmers

Cost of industrial inputs

To reduce the cost of imported industrial inputs, KAM recommends reducing the Import Declaration Fee (IDF) from 2.5 percent to 1.5 percent. The association argues that this reduction would alleviate financial burdens on manufacturers, making imported raw materials and machinery more affordable.

Furthermore, KAM calls for the removal of excise duty and Export and Investment Promotion Levy on raw materials and intermediate inputs, aligning with the philosophy of the East African Community (EAC) Common External Tariff (CET) structure.

In July 2023, the government reduced the aforementioned fee from 3.5 percent to its current rate of 1.5 percent. However, concurrently, it introduced the Export and Investment Promotion Levy, which is levied on specified goods imported into the country. This levy is set at either 17.5 percent or 10 percent, depending on the particular item being imported.

Importers are required by law to complete an import declaration form to verify that they have accurately declared the value of the goods being imported before they depart from the country of origin.

KAM highlighted in its report that while this fee is imposed solely in Kenya, neighboring countries such as Uganda, Tanzania, Rwanda, and Burundi have opted not to implement such a fee.

KAM highlights the significant increase in electricity costs, posing challenges for manufacturers. To mitigate this issue, KAM proposes reducing the electricity tariff to Ksh10 per kWh, which would result in substantial cost savings for manufacturers.

Additionally, KAM recommends focusing on the generation of green energy, particularly geothermal energy, which offers a more cost-effective alternative. Moreover, restructuring Time of Use (ToU) tariffs to incentivize off-peak-hour operations could further reduce electricity costs for industries.

KAM’s Manufacturing Priority Agenda (MPA) report for 2024

In its Manufacturing Priority Agenda (MPA) report for 2024, the employers noted that the cost of electricity had increased significantly within the last year. According to the report, the cost of electricity had increased by approximately 58 percent.

The association noted that the rate used to be Kes15.8 per kWh in January 2021, however, that increased to Kes25.1 per kWh in 2024.

Illicit trade also poses serious threats to the economy, including revenue loss, unfair competition, and risks to consumer health and safety. KAM suggests several measures to address this issue.

KAM’s recommendations offer a comprehensive framework for addressing key economic challenges facing Kenya.

“KAM recommends bolstering compliance with Intellectual Property Rights (IPR) through concerted enforcement efforts alongside relevant government agencies. This approach not only aids in broadening the tax revenue base but also fosters consumer health and safety, ensures food security, and encourages innovation and value addition,” advised KAM.

Moreover, the government was urged to adopt comprehensive reporting of interagency findings concerning illicit trade and to implement Standard Operating Procedures (SOPs) for a multiagency team.

IPR Recordation Regulations

In 2020, KAM proposed SOPs for inspecting, verifying, and clearing imports at Kenyan ports or other entry points, which could be reviewed and adopted by the government.

Another crucial step for the government is to enforce the IPR Recordation Regulations, effective from January 1, 2023. These regulations permit the importation of unrecorded or unregistered goods unless they are counterfeit.

KAM also suggests that the government should strengthen interagency collaboration, coordination, accountability, and transparency in combating illicit trade.

Manufacturers emphasized that the Kenya Revenue Authority (KRA), the Anti-Counterfeit Authority (ACA), and the Kenya Bureau of Standards (KEBS) should collaborate to identify counterfeit products and address tax evasion. Collaboration with other governments is also essential in this fight against illicit trade.

“The government may consider establishing a high-level office, preferably within the Executive branch, to oversee all enforcement agencies under the multi-agency framework, enhancing effectiveness in combating various forms of illicit trade in Kenya,” stated a section of the report.

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