High and multiple taxation, unpredictable policy, high cost of energy and labour have hampered expansion.”
Phyllis Wakiaga, KAM in the domestic market, with Kenya for instance only managing to export 18 per cent of its manufactured goods, with the EAC market accounting for six per cent and the rest of world 12 per cent.
More critically, the structure of the sector has meant that it cannot withstand shocks ranging from increase in electricity tariffs, to high taxes, transportation costs and more significantly imports from China.
The situation of manufacturers has not been made any better by the unprecedented surge in illicit, substandard and counterfeit products in the market, a menace that has hit some manufacturers hard.
In Kenya, it is estimated that manufacturers lose up to 40 per cent of market share, 50 per cent of revenue and 10 per cent of company reputation due to the proliferation of counterfeits, with the government losing about $80 million in tax revenue annually.
In Kenya, the recent increase in electricity tariffs by 30 per cent and introduction of value added tax on petroleum products is posing real threats that could further cripple the struggling manufacturing sector.
“The business environment in Kenya is increasingly becoming cost disadvantaged. To stay afloat, business will have to make very hard and drastic decisions of whether to shoulder the extra cost or pass the tax burden onto already overburdened consumers in order to meet their overhead costs,” noted Ms Wakiaga.
While domestic challenges have been escalating, the opening of the East Africa markets to cheap imports has been the last straw on the camel’s back.
Indeed, a survey by KAM early this year showed that 63 per cent of manufacturers cited cheap imports as the biggest threat to their competitiveness.
Statistics show the value of Kenya’s imports from China stood at $3.8 billion last year with Tanzania’s imports standing at $1.5 billion and Uganda $985 million.