High cost of production slowing affordable housing project
Milliam Murigi @millymur1
Industry players in the real estate sector have decried heavy taxation and high cost of enegy as major challenges slowing down their effort to support the government’s agenda of providing affordable housing.
The manufacturers who are meant to supply materials for the project say locally manufactured goods are more expensive compared to imported goods due to the high cost of production in the country.
Kenya Association of Manufacturers (KAM) chief executivePhyllis Wakiaga told Boma that building, mining and construction sector uses approximately 50 per cent of the country’s total energy from the national grid.
An increase in the cost of electricity, she says has resulted in finished products being less competitive than imports, due to their high price.
“Since duty charged on some imported products is quite low, traders are now opting to import most of the construction materials at a lower price rather than producing them locally since imported products give them a competitive advantage over locally manufactured products,” she says.
High taxation
Apart from the cost of energy being high, Phyllis says that high taxations on inputs also makes the final product costly because majority of inputs to manufacture products in the sector fall under 10 per cent or above in the East Africa Community Common External Tariff (CET).
“Developing clear procedures and guidelines for smooth implementation of Buy Kenya Build Kenya under the Big 4 Agenda, will facilitate better operations.
Additionally, it would be beneficial to further elaborate procedures on local content in the implementation and construction of large-scale infrastructure projects,” she said.
Photo/PD/MILLIAM MURIGI
She reveals that though manufacturing is a key pillar of the Big Four Agenda, supporting the other three pillars particularly by providing the material that is essential for effective implementation of the Agenda, overreliance on imported products, the upsurge of illicit trade, dumping and substandard imports from local traders continues to generate unfair competition thus causing a decrease of the market share for local manufacturers.
“The market relies heavily on imported products since they are perceived to be cheaper.
Additionally, illegal trade exposes local manufacturers to unhealthy competition, thus further exacerbating over-reliance on imports,” she pointed out.
Illegal trade
The exemption granted by the government on its projects has also been allowing international contractors to import all housing components, leaving local manufacturers with little or nothing to supply.
“In the timber sector, we continue to advocate against increased taxes slapped on timber, paper and paperboard.
These taxes are slowing down the growth of the struggling sector and preventing it from generating the projected 800,000 jobs in four years,” she adds.
And since Kenya has no iron ore deposits, the country’s metal sector relies on imports of the raw material, which due to its heavyweight comes through sea transport.
Expensive port charges and unnecessary delays in clearance at the port continue to cost the industry a huge amount of money in terms of demurrage and storage charges.
Additionally, there have been delays in the recovery of VAT refunds and processing of payment by the government.
This has created a strain on working capital for many businesses over the years, but more during this difficult economic times brought about by the pandemic.
Mucai Kunyiha, former Kenya Property Developers Association Chairman said the manufacturing sector has the required capacity to help the country achieve its dream of affordable housing.
However, the high cost of production impedes the sector and if nothing is done the country will continue to experience more imports.
No incentives yet
“The affordable housing programme was meant to benefit the local manufacturing industry.
The government even put aside some incentives, however the industry is yet to enjoy such incentives since they are yet to be implemented,” said Muchai.
The government, he says, needs to first of all review the cost of electricity for all manufacturers since currently, manufacturers are back to paying the full cost of their electricity bills unlike before when they were having tax reliefs on certain conditions.
