Competitiveness matters now more than ever

Wednesday, July 22nd, 2020 00:00 | By

Every crisis provides a turning point for societies in every aspect; be it social, economic or cultural.

It provides a moment of clarity to assess whether the existing structures are strong to sustain us and carry us into a favourable future.

When we get to it, the reopening of economies will have a trickle down effect on global supply chains.

What mechanisms have we put in place to raise our competitive advantage regionally and globally?

The latest Competitive Industrial Performance report by the United Nations Industrial Development Organisation ranks Kenya’s manufacturing sector at position 115 out of 152 economies in global manufacturing.

During this critical time, Kenya has demonstrated its capability to manufacture critical items for the local and export markets, which have previously been imported.

Competing in export markets is key to insulating our economy against swings in global commodity prices.

Even with the demonstrated capacity to manufacture goods for the export market, Kenya has failed to achieve success in growing exports despite enormous preferential market access opportunities in the region and the globe.

For instance, under the Comesa trade regime, Kenya faces stiff competition from imports from partner states.

The AFCTA was also set to kick-off this month but had to be pushed for the continent to fighting the  Covid-19 pandemic.

But had everything gone as planned, would we have been ready to take advantage of the huge market? Or will we have set ourselves up to drown?

We have it within us to actually turn things around and take advantage of the largest global market.

First, by ensuring certainty and predictability of tax policies which promote good governance and encourage investments.

While the government is keen on cushioning Kenyans on the adverse effects of the pandemic as demonstrated by the enactment of the Tax Law Amendment Act of 2020, some provisions will negatively impact the competitiveness of our manufacturing sector.

A good example is the introduction of investment deductions under income tax for industrial buildings and machinery, which reduced Investment Allowance from 100 per cent to 50 per cent in the first year and 25 per cent onwards.

There is also the removal of key essential goods such as medicines and agricultural inputs from the value-added tax exemption.

These policy changes are likely to lead to the stalling of ongoing investments and capital projects, increase VAT claims owed to businesses and ultimately drive up the cost of production and increase cash flow and liquidity constraints.

Secondly, reduction of transport and logistics costs across the country. These costs impact competitiveness, industrial productivity and manufactured goods prices.

While the government has undertaken measures to reduce these costs, manufacturers continue to face a myriad of challenges ranging from a delay of cargo from Mombasa to the Inland Container Depot, Nairobi, lengthy clearance at the depot, and poor system interlink.

We need a review of SGR freight tariff rates and last-mile costs to make local products competitive.

A framework for pre-arrival clearance for bona fide manufacturers should be developed and implemented.

Having said this, however, the move making the use of SGR for cargo transportation from Mombasa to Nairobi optional is a welcome relief.

Third, adapting to changes brought about by the pandemic. With Covid-19, we have had to adapt to the ‘new normal’ in every aspect of our lives.

Businesses have had to evaluate their operations with many reviewing their cost structures to remain competitive.

It is time the government joined the private sector in this exercise. In the ‘90s, the government implemented a structural adjustment programme that saw the overall size of the civil service reduced, rendering the service more efficient.

Implementation of such a programme will see improvement on investment efficiency.

— The writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Kenya Chapter Board chair—[email protected]

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