The 2019 – 2020 budget that was recently read by the National Treasury Cabinet Secretary Henry Rotich had, as anticipated, both winners and losers, with diverse industries either getting higher allocation and tax reprieves while others will have to part with more for the Kenya Revenue Authority (KRA) to bridge its KShs 600 billion budget deficit.
Economic experts have held dissimilar opinions on whether the budgetary apportionments were well balanced for a developing country like Kenya. There is however consensus that the KShs 3.02 trillion budget has tried to reach out to all the industries geared towards the achievement of the Kenya Vision 2030 and the Big Four Agenda.
Manufacturing was one of the biggest winners. The Cabinet Secretary announced a 30% tax reduction on electricity for manufacturers to reduce the cost of production. There was also an allocation of KShs 1.7 billion to support SMEs. Electricity has been one of the most expensive elements of production, noting that the defunct Energy Regulatory Commission) (ERC), now Energy and Petroleum Regulatory Authority had last year released the harmonised electricity tariffs that raised the cost of power for manufacturers.
A company like Exotic Limited which is based at the EPZ for example was almost crippled down by the cost of electricity. It is therefore a relief for it and other small enterprises. Ideas that had previously stuck in the implementation pipeline now have the chance of being executed by tapping into the available funding alternatives. Innovators like Dash Crop in Homabay who manufactures food products from drought resistant plants now have the opportunity to rejuvenate infant industries that had been marred by high cost of operation.
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Innovators also need to consider newer technologies that are more sustainable in their enterprises and to the surroundings to be able to tap into the new opportunities the government is presenting. There was an increase in tax on imported products like vegetable oil. The aim of increasing tax on imports is to encourage consumption of local products. The government’s initiative of “Buy Kenya Build Kenya” is also an advantage to the manufacturing industry.
Other winners are the producers of acaricides and pesticides who got their taxes reduced. An innovator like the Nanyuki based Dudu Bio pesticides producer now has a better opportunity of expanding and growing the business. The power generation sector also got a big boost by promoting the use of green energy. Noting that almost 50% of the country is not connected to the national power grid with some areas having unreliable power supply, the government allocation of KShs 12.7 billion for geothermal power and KShs 4.8 billion for oil and gas exploration is set to reduce this percentage.
This is also in line with the enactment of the Energy Act 2012 which also promotes the spirit of increased access to power. CS Rotich also indicated the government will levy 100% import duty on imported stoves. With this, local producers and fabricators have received a big boost as the competition they have been receiving from imported stoves will be significantly reduced. This may have a boost to stoves and briquettes manufacturers like Acacia Innovations in Bungoma, Kings Biofuel in Murang’a among other young players in this industry.
ICT was allocated KSh 3.2 billion for Digital Literacy Programme and KSh 2.8 billion for the National Optic Fibre Backbone Phase II expansion. This will also see the expansion of innovative entrants from the universities, colleges and Technical Vocational Education and Training institutions (TVETs) as well as young innovators like Solar Trend who uses a mobile application to monitor water levels in tanks and dams.
Other winners who ought to tap into the benefits of the budget include local assemblers of computers who will not be paying tax for parts imported or purchased locally, iron and paper producers whose competitor imports were slapped with tax increase from 25% to 35% and the textile industry whose competitor imports were also slapped with $5 or 35%, whichever may be higher.
The budget is the main policy and planning document for a country. It communicates the priorities of the government which allows stakeholders to align appropriately with the priorities of the government. The Government of Kenya has had manufacturing as one of its main agendas which has been reflected in this budget. It is therefore important for players in the industry to look into the opportunities and use that as a means of growing their businesses.
This article was first written by Solomon Irungu and published on KBC Channel 1 on 25th June, 2019