Kenyan manufacturers facing liquidity challenges due to the Covid-19 pandemic are up in arms against the government over new tax increments and the high cost of power.
They argue that new taxes, high cost of electricity, high import declaration fees among other levies only add to their woes by reducing profitability and slowing down recovery of business hit hard by Covid-19 measures.
The measures plus an influx of new taxes has led to the collapse of a number of industries including slowing down the value chain in hotel and hospitality industry among others.
This follows a report on the impact Covid-19 on the manufacturing sector conducted by Kenya Association of Manufacturers and KPMG between May 2020 and June 2021.
The survey was conducted a few months after the measures to mitigate the spread of the virus were first announced.
“On 20th May 2020, KAM and KPMG launched a report on the impact Covid-19 on the manufacturing sector,” said Mucai Kunyiha, chairman KAM.
Higher cost of business
“The pandemic has had adverse effects on manufacturers on business operations with many manufacturers experiencing: reduced demand, depressed production capacity, cash flow constraints, logistics challenges and in some cases, downsized workforce.”
The survey titled, Impact of Covid-19 on the manufacturing sector in Kenya: One year on, reveals that on liquidity, company responses to relieve cash flow challenges has been lesser compared to 2020.
The liquidity challenge faced by businesses is due to delays in payment of tax refunds due to businesses by the Kenya Revenue Authority (KRA), depreciation of the Kenya shilling against the US dollar that has driven up the import bill, and requests for extension of credit period by wholesalers and distributors.
While 66 percent of surveyed firms negotiated payment plans with their suppliers in 2020, only 27 percent of the surveyed firms have done so in 2021.
Similarly, the number of firms that reached out to commercial banks to restructure their loans more than halved in 2021.
“In comparison to 2020, enterprises are currently operating without the economic reliefs that cushioned them last year against the adverse effects the pandemic visited on businesses,” Kunyiha explained.
“While the factors increasing costs of manufacturing are largely external, the Government can alleviate the pain by reducing the cost of electricity to Ksh9/KwH for manufacturers.”
“Further, the Government should avoid any new tax or increase in existing taxes as this would increase costs and reduced profitability and has the potential to slow recovery of businesses, and even lead to their collapse.”
KAM wants the government to instead address demand and liquidity challenges facing businesses.
“Other challenges facing the manufacturing sector, one year on, are the weakening Kenyan shilling which has driven up the cost of importation, raised cost of doing business because of logistics and the high cost of raw materials and intermediate products,” said Mr Kunyiha.
“We call for zero-rate Import Declaration Fee and Railway Development Levy for raw materials and intermediate inputs for processing, including for industrial machinery and spare parts.”
Even as KAM appealed to the government to issues measures to cushion manufacturers due to the pandemic, MPs increased excise duty on airtime and data from 15 percent to 20 percent.
President Uhuru Kenyatta last week assented to the Bill introducing new taxes on airtime and betting, allowing KRA to start collecting the duties from July 1.
This will see the Treasury raise at least Ksh8 billion from Safaricom, Airtel and Telkom Kenya.
“Manufacturing value chains are highly vulnerable to global supply-chain disruptions and external shocks. The economy and businesses cannot recover until the pandemic is contained,” said Kunyiha.
Julius Kirima, Director for Industries at the Ministry of Industrialisation, Trade and Enterprise Development, while representing the Principal Secretary for Industrialisation, Peter Kaberia, defended the government’s decision noting that the state recognises that Covid-19 is still affecting the local manufacturing sector.
“As businesses record reduced sales, government is also facing reduced revenues, putting pressure to slow down or even halt development projects,” said Kirima.
“This calls for the development of innovative ways to bring our economy back on track.”
Kirima who lauded KAM for their commitment to working with government, ‘to achieve our shared vision for an industrialised Kenya’, remained optimistic that the economy will improve.
“We remain cognizant of the continued impact of the pandemic, one year down the line. Therefore, we are working to rebuild our economy,” said Kirima.
From the survey, 18 percent of the firms experienced a reduced sales turnover of more than 30 percent, attributed to a fall in demand for products by consumers.
Food and beverage, automotive and textile and apparel sectors experienced the greatest reduction in turnover, at 15, 12 and 12 percent respectively.
A total 27 percent of surveyed firms operated below 50 percent production capacity, in comparison to 55 percent of the surveyed firms in 2020. Automotive, and plastic and rubber sectors were the most affected.