Publishers bank on exports as VAT cuts book sales

Corporate News 

People buy books at a bookshop. Publishers are seeking to grow markets in Rwanda, Uganda, and Zambia. Photo/FILE 

By Victor Juma, vjuma@ke.nationmedia.com

In Summary

• Publishers say their unit sales this school term — the most important sales period — have dropped by between 13 per cent and 20 per cent as VAT raised book prices by 16 per cent.
• Publishers say the higher cost of books has also seen parents focus on buying core textbooks, cutting back on supplementary titles such as story books.
• The industry expects lower sales for the entire year, which would reduce earnings in a sector where net profit margin has traditionally averaged 10 per cent.

Publishers are looking at lower earnings in the local market this year as sales take a hit from the VAT introduced in September, forcing them to explore export markets.

They say their unit sales this school term — the most important sales period — have dropped by between 13 per cent and 20 per cent as VAT raised book prices by 16 per cent.

The biggest impact has been felt among public schools whose spending on books remained static, hurting publishers such as Moran, Mountain Top, and Longhorn.

Public schools, which receive grants from the government, account for about 60 per cent of annual book sales in the country.

Publishers say the higher cost of books has also seen parents focus on buying core textbooks, cutting back on supplementary titles such as story books.

“There has been a significant drop in volume sales across the publishing industry,” said Lawrence Njagi, the chairman of Kenya Publishers Association.

The industry, he said, expects lower sales for the entire year, which would reduce earnings in a sector where net profit margin has traditionally averaged 10 per cent.

READ: Schools, publishers hit parents with higher fees burden

Mr Njagi said major publishers are expanding their export sales to counter the reduced local demand, with several firms seeking a larger presence in regional markets such as Rwanda, Zambia, and Uganda. Longhorn Kenya, the only listed publisher, has been aggressive in the regional market and attributed its financial performance last year to improved export sales.

The company said its local sales in the four months to December were hurt by VAT, adding that its sales in Malawi, Rwanda, Tanzania, and Uganda improved to lift overall turnover.

Longhorn’s book sales rose 6.2 per cent in the year ended December to Sh558.1 million, with its net profit jumping 78.1 per cent to Sh30.1 million.

Regional exports are now seen as a major growth driver as demand in the local market contracts. Publishers say the new 16 per cent tax has effectively cut sales values by a similar rate in the mainstay public schools purchases.

This is because the government’s grants for books under the free primary education (FPE) and the subsidised secondary education has not been increased.

Each student in public primary schools receives Sh1,020 a year for books and other learning materials while those in public secondary schools get Sh3,600 per year for similar items.

This means the spend on books has remained flat, with publishers recording lower volumes on account of higher prices.