Manufacturers are worried about East African Community partner states’ frequent applications of stay of the EAC Common External Tariff on goods and foodstuff, saying it will lead to price distortion.
The EAC allows CET on certain products to enable the partner states to apply higher or lower import duty rates to protect local industries from competition arising from cheap imports or reduce the cost of inputs required by certain industries.
But the application of stay by the partner states on a wide range of products has raised concerns among industrialists.
“When you apply for stay of CET on products that are readily available within the EAC, you are either creating a trade distortion, or protecting an inefficient producer vis-a-vis the region’s producers,” said John Kalisa, CEO of the East African Business Council.
“For a stay of application to be justified you must demonstrate that there is a shortage of those products within the region.”
Mr Kalisa said due diligence has to be carried out to determine whether the product a country wants to protect is insufficient for consumption, whether it is of the right price and whether it is scarce.
“Where you have sufficient evidence that these products cannot be got within the region, or they are in short supply, then you have a reason to apply for stay because you need to supply your people,” he said.
Kenya’s Treasury Cabinet Secretary Prof Njuguna Ndung’u said the stay Nairobi has applied for one year is for rice, imported iron and steel products, vegetable products (sic), baby diapers, leather and footwear products, paper and paper products, all which attract a 35 percent CET.
“It will also apply on articles of timber (plywood and particleboard $120/metric tonnes – $200/ metric tonnes), furniture (45 percent), articles of plastic and rubber (35 percent), smartphones (25 percent), and billets (10 percent),” said Prof Ndung’u.
Kenya has been experiencing a shortage of edible oil, but the duty waiver on the oil has scantily impacted prices.
The importation of edible oil at zero tax by the government, for instance, has failed to achieve the goal advanced by the EAC on such stay of applications.
Nairobi this year mandated the Kenya National Trading Corporation (KNTC) to import 125,000 tonnes of refined cooking oil duty-free saying the move would bring down prices.
Local manufacturers cried foul, saying the move would drive them out of business.
Billow Kerrow, former Mandera senator and a player in the edible oil industry, told The EastAfrican that the application of stay on edible oil is just for making money at the KNTC.
“We are importing palm oil from Malaysia and Indonesia. There are 15 manufacturers and there is no reason for getting KNTC involved,” he said.
Global prices of palm oil have declined over 20 percent so far. Since the end of 2022, the soya-to-palm oil price premium has fallen from $462 per tonne to $286 per tonne as of May 17, 2023.
“Global prices are on the decline, so I don’t think KNTC has had any impact.
This has put manufacturers out of business. Already four factories are on the verge of closure because of the actions of the government to dump these products here,” said Mr Kerrow.
Tanzania has reverted to EAC CET rate of 0 percent instead of 25 percent on crude palm oil.
“This measure is intended to protect consumer welfare against skyrocketing prices, enhance economic growth, employment creation and value addition,” said Dr Mwigulu Nchemba, Finance and Planning Minister.
“Stay of application of EAC CET of 0 percent and apply a duty rate of 10 percent for one year on crude vegetable oils of soyabeans, groundnuts, coconut, mustard and linseed to align with sunflower, cotton and other crude oils, which attract 10 percent so as to promote domestic production of vegetable oils,” Dr Nchemba said.
Tanzania has also applied for a stay of application of EAC CET rate of 25 percent and duty rate of 35 percent for one year on baby diapers.
The different applications on the same commodities do not only distort the market price of the items in the region but also promote corruption in certain instances.
Kenyan steel manufacturer Devki Steel Mills Ltd says the government should have imposed more duty on imported steel and iron products.
Devki Group chairman Narendra Raval said the government should protect local manufacturers to create more jobs and improve the economy.
Mr Raval said through Kenya Association of Manufacturers, they have been engaging the government to make importation of steel and iron more expensive.
“Several iron and steel mills have closed while some are operating at 50 percent because of the imported steel products.
‘‘I am for the idea to impose a 50 percent duty on imported products to protect our industries,” said Mr Raval.
Kenya has proposed 35 percent duty on imported iron and steel products for one year.
According to data from the Kenyan Ministry of Investment, Trade and Industry, in the past five years, 16 steel mills in the country have been closed due to stiff competition from imports.
Mr Raval said companies that have adopted new technologies to save on power, invested on marketing and use of locally available raw materials have survived in the industry.
He said Devki Steel Mills will start operating at 100 percent in the next three months to cater for high demand of steel in the country and other East African states.
He said the company has been receiving increased orders from Kenyan companies and new orders from Tanzania and Uganda.
“Since we opened our doors in November last year, we have been receiving orders within the country due to our cheaper steel products. Since then, we have been operating at 60 percent but, with new orders from Tanzania and Uganda, we have to operate at 100 percent by October this year,” said Mr Raval.
Imports of iron and steel have risen steadily in the past five years, with a compounded annual growth rate of 10.9 percent from 1.63 million metric tonnes in 2017 to 2.47 million in 2021, according to data from Kenya Ports Authority.
In 2021, Kenya imported iron and steel worth Ksh341.6 billion from China alone, which is attributed to the massive infrastructure developments being undertaken by Chinese contractors in the country.
Titus Mukora, a partner at PwC, noted that one of the reasons for the introduction of a four-band EAC CET (version 2022) was to minimise the request for stays by partner states, “but it seems this trend persists.”
Ugandan Finance Minister Matia Kasaija said that to make local industries more competitive, attract investments, and remove the remaining barriers to trade among African countries, “we agreed as EAC partner states to change the taxes paid on goods coming from outside the EAC as follows: 0 percent duty on imports of raw materials and capital goods; 10 percent duty on imports of intermediate goods; Twenty five percent duty on imports of finished goods not readily available in the region; a maximum rate of 35 percent duty on imports of finished goods readily available in the region; and small adjustments to promote import substitution and value addition of our local industries.”