Why new taxes failed to safeguard local traders

Imports of iron and steel whose duty had been cranked up to 35 per cent from 25 per cent have since dropped

President Uhuru Kenyatta’s policies to protect local manufacturing industries and enhance job creation have failed to yield the desired results according to the latest data.

While imports of iron and steel and vegetable oils have dropped in the three months to September 2018, since the increase in import duty on the items, importers of paper and paper products, cheap clothes and footwear have defiantly brought in more of the products despite the punitive levies.

National Treasury Cabinet Secretary Henry Rotich in June last year introduced hefty taxes to stem the inflow of goods that the Government believes stand in the way of revamping agricultural and manufacturing sectors.

In his Budget Speech, Mr Rotich told legislators that he and his East African Community (EAC) counterparts had agreed on these customs duties to promote industrialisation, encourage local investments, and create incentives in the agricultural and manufacturing sectors.

“The measures are also intended to make our products more competitive, while at the same time protecting local industries from unfair competition,” said Rotich.

However, after three months of implementation, most of the products continue to be imported, bringing into question the credibility of the changes.

In the third quarter of 2018, imported paper and paper boards during this period increased by 14 per cent to 98,398 tonnes, up from 86,084 tonnes in the third quarter of 2017.

While it is not clear why this product continued to come in despite being slapped with an increased duty of 35 per cent, from 25 per cent, there is an assumption that a ban on plastic bags might have necessitated their use in the economy.

Also, quantities of footwear brought into the country almost doubled to 6.3 million pairs in the three months from 4.2 million in a similar period in 2017.

This is despite a harsher tariff of 35 per cent that was introduced on the item June 2018.

Importation of cheap new clothes also rose despite being hit by a higher tariff of 35 per cent.

Clothes brought into the country during this period increased to 7,557 tonnes during the period under review up from 7,114 tonnes.

But imports of animal and vegetable oils dropped by 34 per cent to 176,731 tonnes compared to 238,170 tonnes in the same period in 2017.

The Government introduced a specific rate of Sh50,000 ($500) per tonne or 35 per cent, whichever is higher, to protect local manufacturers who Rotich said “have adequate capacity to manufacture vegetable oils to meet regional demand.”

Rotich’s protectionism policy may have worked for these two items that has seen drop in imports.

Also, imports of iron and steel whose duty had been cranked up to 35 per cent from 25 per cent, have since dropped to 314,874 tonnes in the period between July and September 2018 - from 315,647 tonnes in the same period in 2017, according to data by the Kenya National Bureau of Statistics.

 “Mr Speaker, our iron and steel industry is facing stiff competition from imported cheap and subsidised iron and steel products,” said Rotich in his budget statement to Parliament on June 14.

The 35 per cent import duty, he noted, would apply to a “wide range of steel and iron products which are available in the region.”