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Taxman eyes share of Gikomba designer brands

FINANCIAL STANDARD
By Dominic Omondi | June 15th 2021

Nairobi Regional Commissioner James Kianda (right) samples some of the mitumba clothing sold in Gikomba market.[Samson Wire,Standard]

Every day, shoppers from different parts of Nairobi throng to the Kamukunji Market, which adjoins the city’s bustling Central Business District.

Mostly low and middle-income consumers, they are lured by an assortment of cheap imported products sold here.

Many of them can’t afford to splurge in the starry shopping malls and exhibitions in the upmarket.

Next to Kamukunji is Gikomba Market, which also deals in cheap products. At the latter market, you can get branded mitumba ( second-hand) sneakers; clothes, including underwear, jeans and football jerseys; and toys from North America and Europe.

For those who are put off by mitumba’s mildew odour, they can get the same brand new items from Kamukunji Market at the same price.

However, these products, virtually all of them imports from China, will be of low quality. You can get a bootleg Gucci with the “U” spelt upside down.

But recently, the taxman has been poking his nose in these marketplaces, hitting most of the products sold here with higher tariffs in what is aimed at making them costly. But not much has changed.

“China continues to dominate the market,” said James Kariuki, a trader and also the chairperson of the China-Dubai Traders Group.

He explained that most of the products produced in some of Nairobi’s cottage industries are of low quality and can’t be sold in Kamukunji Market.

That is why despite the additional taxes and weakening of the shilling, he said, imports sold at the market continue to be cheaper.  

“The budget does not make any difference,” said Mr Kariuki.  

Last week, National Treasury Cabinet Secretary Ukur Yatani piled pressure on imports flowing into these markets by extending punitive tax measures that were started by his predecessor Henry Rotich in 2018.

In his budget speech on Thursday, Yatani noted that during the East African Community Pre-Budget meeting, the ministers were concerned with the “proliferation of cheap imports into the region.”

Thus, he added, the ministers agreed on measures to protect locally manufactured products from unfair competition.

These imports included products made of iron and steel, such as the spoons, forks and knives sold at Kamukunji Market. For the third fiscal year, these products will attract an import duty of 25 per cent.

And there is a high chance, that a mattress bought from Kamukunji comes from China, according to data from the Observatory of Economic Complexity (OEC), a data visualisation site for international trade created by MIT Media Lab.

In 2019, Kenya imported mattresses worth Sh684 million, most of them from China.

China is also the source of all the vacuum flasks that are ubiquitous in most Kenyan homes and offices, with Kenyans spending close Sh1.5 billion to import them annually.

Brooms from China can also be found here. Two years ago, Kenya paid Sh1.1 billion to import brooms - perhaps including vacuum cleaners - into the country. 

Kenya also imports furniture, which was a target of Yatani’s punitive tax measures.  The CS extended an import duty on furniture at the rate of 35 per cent for a further one year.

In 2019, Kenya imported seats valued at Sh4.4 billion, most of them from China. There were also light fixtures - also from China - worth Sh8.2 billion, according to data from the OEC. 

Now the government wants to stem the inflow of these products. It has devised a double-pronged strategy of discouraging the inflow of imports with higher tariffs and spurting local production with tax incentives such as the one the CS gave to producers of diapers (see separate story on page 8).

Inputs used for the manufacture of diapers locally will not attract any import duty.

However, finished iron, steel, motorbikes, potatoes, peas, textile and footwear have been slapped with higher tariffs.

This is part of one of the four pillars of the Big Four agenda of boosting manufacturing.  

Thus, if the government is not threatening to ban second-hand clothes at Gikomba Market, it is jacking up the import duty on items being sold in such markets as Kamukunji.

Some economists argue that this protectionism is only hurting consumers as they are denied the right to choose cheaper products, for example, sugar.

But local manufacturers insist these measures, aimed at creating jobs, have started bearing fruits.  

“When we lobby in regards to a competitive level playing field, the reason we are doing that is to make the locally produced products affordable,” said Tobias Orlando, the head of membership and governance at the Kenya Association of Manufacturers (KAM).

He insisted that imported items do not create jobs.

On realising that an imported product has become more expensive than a locally produced item, said Orlando, KAM lobbies the government to ensure that the locally produced item is also made affordable through such measures as increasing tariffs as they did in the current Budget.  

Orlando said that some of the imported items are cheaper because they were subsidised in their countries. “Why shouldn’t Kenya do that?” he posed.

Dr Samuel Nyandemo, an Economics lecturer at the University of Nairobi, said too much protectionism has been hurting consumers, adding that instead of making the country’s fledgling industries to be competitive, they have become inefficient.

“The government should just allow competition to take place,” said Dr Nyandemo.

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