Kenyan Manufacturers Warn Investors May Exit Market as Operation Costs Rise: "Firms May Shut Down"

 

Speaking to TUKO.co.ke, the Kenya Association of Manufacturers (KAM) stated that due to the current economic environment in Kenya, some manufacturers have expressed intentions to relocate their manufacturing operations to other countries, particularly within the EAC. "Some local manufacturers have expressed their intent to relocate to other countries, particularly the EAC Partner States. They have indicated that they are being offered better incentives, including fiscal incentives and land," Job Wanjohi, the Head of Policy, Research and Advocacy at the KAM told TUKO.co.ke. Why are they considering relocation? Manufacturers and investors require favourable conditions and recent developments in tax policies have increased operational costs for businesses in the country and KAM warned that if the country persists in this state, Kenya could lose various manufacturers to other EAC partners. "A favourable tax regime plays a critical role in driving the global competitiveness of locally produced goods and services, which, in turn, boosts economic growth. Unfortunately, Kenya has been enacting tax laws that disincentivize manufacturing despite the low capital investment in the country," said Wanjohi. The current taxes have forced manufacturers to increase the prices of their commodities to cover the increased operational costs and Wanjohi informed TUKO.co.ke that if the country persists with its current tax regime in the long term, Manufacturers will be unable to compete with goods produced in the EAC region and globally. "Consequently, this shall lead to the firms shutting down, and Kenya will in the process lose its main source of tax revenue. This will also worsen the already high unemployment rate in the country," KAM's Head of Policy, Research and Advocacy added. How will the relocation of manufacturers affect workers? Relocation of manufacturing operations from Kenya means that jobs will be lost and according to KAM, the government will also lose its sources of revenue in the form of corporate tax, Pay As You Earn (PAYE), Value-added tax (VAT), and other forms of taxes. "This implies that the jobs that were created in Kenya, will be transferred to these countries, further denying Kenya taxes in the form of corporate tax, PAYE and VAT, among others. However, such companies will continue transferring goods and services from the EAC region to Kenya worsening the FOREX," explained Wanjohi. These concerns by KAM have been raised in the backdrop of previous reports by TUKO.co.ke on businesses planning to downsize due to the increased operational costs. Several companies, including Posta and the Standard group plan mass layoffs to reduce operational costs. Brookside also fired half its workers in July after it failed to get an export permit. "For us to continue running the factory, we have no choice but to scale down all our operations across the entire value chain to match our current level of business which is a paltry 25% of our normal operational volumes," Mugabi, Brookside's human resources manager said.

BY Elijah Ntongai