Why the cost of doing business has become unbearable

Most of the sectors within manufacturing need to bring in raw material from outside the country. FILE PHOTO | NMG 

By PHYLIS WAKIAGA
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Summary

• Businesses are struggling to stay afloat and the job market shrinks every day.
• The government needs to wake up to these realities and start implementing urgent measures to salvage the situation.

We are living in tough economic times. Businesses are struggling to stay afloat and the job market shrinks every day. Entrepreneurship and starting up businesses, in this difficult environment, is becoming a pipe dream for a lot of young people.

The government needs to wake up to these realities and start implementing urgent measures to salvage the situation.

Last week, Stanbic Bank East Africa discussed their Purchasing Managers' Index (PMI) on Manufacturing, citing that a lot of manufacturers are opting to leave the country for better alternatives offered by other countries in the region.

Their main challenge being an unpredictable environment and increasingly unplanned taxation. The high debt situation in which we find ourselves as a country is binding us into a cycle where we inevitably have to come up with new taxes to get revenue, which is becoming untenable for many businesses. It is difficult for meaningful economic gains to be realized when the cost of doing business keeps increasing and by far, outweighs the measures being employed to make them productive.

Those investing in the manufacturing sector right now are doing so against all odds to ensure that they increase their economic contribution to nation-building and job creation. This is to echo once again, another set of findings by Stanbic Bank which indicate that the growth in the economy is superficial as it is not able to generate jobs and bring us out of this economic downturn.

Most of the sectors within manufacturing need to bring in raw material from outside the country in order to come up with the end product for both the local market and exports.

In recent years, the cost of bringing in these raw materials continues to rise, increasing the manufacturing cost and related production costs, resulting in an end product that is expensive for both local, regional and global markets.

This is what is resulting in the current situation where Kenya is at a 13perceent cost disadvantage compared to our neighbouring countries within the EAC. Not forgetting that we aim to compete globally with countries that have better tax models that enable them to produce at lower costs.

The Finance Act assented by the President on 7th November 2019 took measures to reduce the cost of raw material imports by providing lower rates of Import Declaration Fee (IDF) and Railway Development Levy (RDL) at 1.5 percent.

The major benefit that was to be realized through these new adjustments was to effectively lower the cost of bringing in raw material, making local goods more competitive against imported finished goods and counterfeits as well as increasing local products’ competitiveness regionally and globally.

But despite these changes being made in the budget, they have not been effected by the relevant institutions and manufacturers continue to pay high costs for their inputs. It seems that the process is stuck somewhere between different government agencies therefore making it difficult to implement the directives.