Otiato Guguyu
“Ushawahi uzia Ceo Smoky,”
Kenyan comedian, Vincent Mutua- Chipukeezy asked a vendor of popular East African ready- to- eat smoked sausage by Farmers Choice, when Safaricom’s Ceo Peter Ndegwa was called on stage to show support for President William Ruto’s Hustler Fund.
Perhaps it was first to market disadvantage, but when Mr Ndegwa was made to go first and enact support for the Hustlers, by purchasing a 40 gram stuffed sausage wrapped in a brown paper of unknown origin, he used the opportunity to show the capabilities of his company’s mobile money service MPesa, by sending the vendor, Sh100 for the smoky and a Sh100 tip.
Mr Ndegwa might have misread the room, he would soon realize the product you bought, or your company’s capabilities were of little significance. This was an auction. Political bidding for the President’s amusement is akin to the days of President Moi’s Harambees.
From the deputy President who came after Mr Ndegwa, vendors sold their merchandise for 50 times the value prompting the Safaricom boss to boost his smoky price five hundred times to Sh100,000.
Paid dues
The President began his rule by implementing the popular policy of reducing credit to the Hustlers. First by compelling Safaricom, KCB, and NCBA to bring down the cost of Fuliza’s overdraft facility; then creating a market intervention of his own.
The State-backed financial inclusion fund, known as Hustler Fund, would offer cheap rates, free for all, with a savings component, and above all, be implemented by the private sector which ran similar ventures.
During its launch, the President invited corporates who came dressed down, appealing to the informal sector to the occasion and were supposed to celebrate.
The President sat there and market experts who knew his project had no chance at addressing a gap of failure of credit access to the poor, played along. Just as they had watched Youth Fund fail, Uwezo Fund fail and knew Hustler Fund was predictably headed for default. Global rates were also surging and even the government would not be so lucky to get the single digit rates they were promising to the riskiest borrowers.
But political expediency has always ranked highly for business here. Most companies support Presidential hopefuls and the politicians pay back in kind during the time of their regimes.
This time around, a lot of the corporates had supported the failed bid by Raila Odinga and strained relations with the new Kenya Kwanza government. From the onset of President Ruto’s election, the ‘auction’ to curry favor was fervent as companies fell over each other to donate to the drought response and get a photo opportunity.
But the President seemed unimpressed, or too keen to remind them they had bet on the wrong horse, unleashing arbitrary policies and tax measures that have turned local business into a nightmare.
However, in reality, more policies gave companies huge tax cuts over the years, lending proof that Kenya’s corporates are heavily reliant on the state’s protective policies and lucrative tenders for their successes.
International Monetary Fund (IMF) analysts say that while the KAM has been complaining about unfair and unpredictable tax regimes, in reality, 60 percent of Kenya’s policies have been introduced to give corporate tax cuts.
“During 1988–2022, policymakers in Kenya were significantly more active than in other countries, announcing 594 tax policy and administrative changes, equivalent to an average of about 18 changes in a year,” IMF said.
“Kenya was the only country in the sample where base-narrowing measures were announced more frequently than measures to strengthen administrative practices (31 versus 26 percent of total tax measures announced in the country). Kenya was also the only country in the sample where the frequency of tax policy changes (either tax rate or tax base measures) introducing a reduction in taxpayers’ liabilities (e.g., rate cuts, increase in exemptions) exceeded 60 percent of total tax policy changes,” IMF said.
Loss of global competitiveness
Kenya’s companies have lost global competitiveness and instead turned to secluding a small home market from competition and lobbying for policy changes in taxation, tariffs, incentives and licenses.
According to the Fund, Kenya’s private sector had not been growing and competing globally. IMF said the Kenya Association of Manufacturers (KAM)—the representative business association for manufacturing value-added industries in Kenya—pointed out that export growth has been driven primarily by existing products in existing markets with little new product or market discovery.
Instead, they have relied on the revolving door of lobbying for friendly state tax policies to survive.
Since 2021 the International Monetary Fund (IMF) told President Uhuru Kenyatta that Kenya’s focus on industrialization stands against a backdrop of a manufacturing sector that has been struggling to maintain its place in the economy.
To restructure its private sector, the IMF needed Kenya to cull its loss making state corporations that dominated business in the country making it difficult for private capital to thrive.
The government was also being pushed to remove price controls in air transport, road freight transport, retail distribution, telecommunication, electricity, gas, water, professional services, and non-tariff barriers.
Kenya also needed to stimulate dynamism in the export sector, allowing for the entry of more productive firms and exit of less productive ones while leveraging its access to a market of 1.2 billion people via the African Continental Free Trade Area.
Uhuru’s kid-gloves give way to Ruto’s boxing ones
President Uhuru Kenyatta had been adamant about going after the private sector openly. Launching instead a multiagency task force to crack down on tax evasion rather than raising levies and cutting off subsidies as proposed by the IMF.
But his successor President William Ruto was not beholden to this private sector; and seen as a political outsider, he gave the IMF the most realistic opportunity to change Kenya’s economy.
The new President unleashed ambitious tax measures through the Finance Act, while aggressively raising the cost of doing business through new deductions and levies.
The new regime disrupted coffee export trade, imported edible oils to undercut manufacturers and placed a ban on sugar crushing ruffling feathers all over.
His former trade minister, Moses Kuria openly said Kenyan manufacturers had had it too good for too long and the government wanted to dismantle the hold of the few individuals that controlled the sector.
The Kenya Association of Manufacturers say they are no cartel an in fact, offer government a platform to engage with the private sector through Business Member Organizations (BMOs) to avoid sub-optimal policy decisions that can harm not only the manufacturers but also the economy as a whole.
The manufacturers said that the new regime has inherited the IMF induced tax policy and is implementing them with zeal at a huge cost to the country’s economy.
KAM said while the National Tax Policy was not an invention of Kenya Kwanza government, the new regime had taken mandate to implement it. And as manufacturers they held concerns regarding the unpredictable and inconsistent nature of certain policies which was also a major issue in the previous administration.
The manufacturers say in private government officials admit that the policies are harmful. KAM has had two engagements with President Ruto, in October 2022 and June 2023 where they engaged him on the Manufacturing 2030 Strategy through which Kenya seeks to increase manufacturing sector’s contribution to GDP to 20 percent by 2030.
KAM said in such engagements, majority of government MDAs have demonstrated a willingness to listen and engage, to address member concerns promptly. Notably, the Ministry of Industrialization, Trade, and Investment (MITI) National Treasury, Kenya Revenue Authority (KRA), Kenya Bureau of Standards (KEBS), National Environment Management Authority (NEMA) among many more.
“Some members perceive that the government tends to adopt a one-size-fits-all approach, overlooking the specific needs of various sub-sectors within the manufacturing industry. There is a growing sentiment that policy alternatives are often limited,” KAM said in an emailed response.
“To address this, there is a pressing need for all stakeholders to engage openly, fostering an inclusive and collaborative approach to policymaking. By incorporating diverse perspectives and acknowledging the unique requirements of different sectors, more effective and tailored policies can be developed to support the overall growth and sustainability of the manufacturing industry,” the manufacturers said.
Forced into a corner, the manufacturers have resorted to litigation on various policy advocacy issues, such as the minimum tax and the Export and Investment Promotion Levy (EIPL). The move has further isolated the parties and entrenched positions with government refusing to negotiate.
“The government has been reluctant to discuss matters in a court of law, arguing that we should await the final verdict of the courts. Nonetheless, KAM has shared data with the government demonstrating the negative impact of some policy decisions, such as the EIPL, on selected products in the steel, paper, and cement sectors,” KAM said.
“As KAM, we are cognizant that building relationships with the government is critical for fostering avenues for constructive dialogue. We continue to prioritize driving this effort forward,” the manufacturers said.
