If the government doesn't change tack, the economy is headed south

Some of the elderly women from Ilolo village in Illeret, North Horr, Marsabit County among hundreds of starving in the border centre. [Ali Abdi, Standard]

When there is a crisis in an organization that causes major disturbances which trigger fear and threat among employees, some entities engage in organizational misdeeds, referred to in management as skewed management values.

For instance, it may engage in crisis by deception where management purposely tampers with data, provides wrong information and makes fake promises to its customers. Others engage in the crisis of management misconduct where management indulges in deliberate acts of illegality. Governments, also, behave similarly.

In recent weeks, the Government has left many industrialists, investors, farmers and businessmen baffled when it arbitrarily embraced actions contrary to the laws and economic policies. These actions could not have come at a worse time when the government is desperate to attract investors, enhance business confidence, expand the manufacturing industry to grow jobs and consolidate revenue generation.

First, the Cabinet 'approved a framework to position the Kenya National Trading Corporation (KNTC) as the anchor of State initiatives to create a price stabilizer for essential household food items' ostensibly to address the rise in the cost of living by 'ensuring stability in the prices of core goods consumed by Kenyans'.

It then embarked on the import of maize even as farmers and leaders protested that they were in the middle of a bumper harvest.

The list was soon expanded to include duty-free imports of rice, sugar, wheat flour, beans and refined cooking oil despite protests from farmers, manufacturers and investors. The 'prolonged drought' that 'led to sky-rocketing prices' of the commodities was used as the major reason.

True, there is prolonged drought and the chances of crop failures are not farfetched. However, there is no attempt by the Government to engage industry players, farmers and other stakeholders in this decision. Nor has it made any attempt to understand the supply chain dynamics in the sectors, alternative intervention measures and /or implications of its actions. The process involved in the imports too was opaque, as there were other factors driving the state's actions in its management of the crisis.

The Treasury authorised clearance of the duty-free imports, stating that "the approval is in accordance with provisions of Section 114(2) of the East African Community Customs Management Act, 2004 and the provisions of Paragraph 20 of Part B of the Fifth Schedule to the Act". Section 114(2) referred to says "Duty shall not be charged on the goods listed in Part B of the Fifth Schedule to this Act".

And Part B, paragraph 20 then states that "relief goods imported for emergency use in specific areas where natural disaster/calamity has occurred in a Partner State".

No legal basis

It is clear that KRA can only clear the goods duty-free in law if it is imported for relief purposes, not trading.

Any import by KNTC of duty-free goods for trading purposes is illegal as it does not enjoy duty-free status at all, and any purported waiver by CS Treasury has no legal basis. Under the law applied by the Treasury for these imports, the process of granting a waiver from customs import duty requires approval of the EAC Council.

Article 210 of the Kenyan Constitution provides that no tax may be waived or varied except as provided by legislation'.

The Government can only waive domestic taxes on essential goods locally by amending the relevant laws to reduce the tax through the Finance Act, subject to public participation. Otherwise, it engages in illegal tax waivers which it accused the previous administration of in recent days.

Furthermore, KNTC is not directly importing the goods. Politically connected businessmen and fly-by-night contractors will procure the cheap goods and dump them at KNTC at a huge margin. And this is what drives these imports, in deals last seen in the Moi era which led to the collapse of KNTC.

The KNTC has signed on to huge credit finance from Afreximbank that will saddle Treasury with more debt. Worse, KRA stands to lose billions in taxes on these deals.

In order to sanitize its actions, the Government has labelled investors in the maize, fuel, edible oils and other sectors as cartels, accusing industrialists of state capture and of being imposters.

On the contrary, prices of all the duty exempted goods can be obtained 24 hours daily on international commodity markets to determine if local businesses are to blame for the high prices. Alternatively, the Government would have engaged the manufacturers and traders to understand the pricing and supply chain dynamics if it genuinely wanted to reduce the cost of living.

For instance, the local edible oil industry comprises 15 manufacturers with an installed processing capacity of 1.6 MT of crude palm oil.

The industry has vertical and horizontal integration that includes the refineries, international traders with depots at the port of Mombasa, seed oil farmers, wood fuel farmers for boilers, packaging companies, chemicals suppliers, soap manufacturers, baked goods industry, transporters, direct distributors, wholesalers and retailers, with nearly 100,000 directly employees.

In 2022, it imported about 800,000 MT of crude palm oil and contributed nearly Sh40 billion in various taxes.

The CS Trade and Investments is an industry denier; he likened our manufacturers to fraudsters, falsely accusing them of being imposters. Of course, all raw materials imported are inspected by SGS and KEBS, and subjected to examination and tax by KRA which the CS ignored. He suggested Kenya Association of Manufacturers be renamed Kenya Association of Importers.

Yet, the State dreams of attracting $10 billion in investments, and increasing manufacturing from 7 per cent to 20 per cent of GDP in 10 years. Who will play ball with such a mindset? Clearly, the economy is headed south unless the State changes course.