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Why new furniture tax will kill the sector

Henry Rotich
Treasury secretary Henry Rotich. FILE PHOTO | NMG 

Does the Cabinet sit together to review major policy changes contained in the Budget? If they do, they should by now have realised that Treasury secretary Henry Rotich’s budget last month contained a proposal that will likely kill the furniture making industry.

As the budget was being presented, Environment secretary Keriako Tobiko was extending the logging freeze in community and public forests for the next six months until December 2018.

Implementation of the ban, however, has become a nightmare. Police cannot differentiate the source of timber and as such the ban affects even those harvesting their own trees.

Effectively, you cannot transport timber without being arrested. As if this was not enough disruption in the sector, Mr Rotich imposed a 35 per cent tax on medium-density fibreboard (MDF), the most used product in the furniture industry.

With the stroke of a pen, we have given foreign companies an instant competitive advantage over local productions. Imported furniture will have a 30 per cent cost advantage over similar goods produced locally. It beats logic at a time we are hoping to deal with the problem of unemployment.

It is also against our effort to build a vibrant manufacturing sector and construct affordable housing. The changes have pushed the price of essential wood products by four times. The retail price of 4x2 cypress timber jumped from Sh25 to Sh96 per a foot within this short period.

Clearly, this is seriously undermining the manufacturing agenda. Someone should have foreseen that the logging ban being in place and hiking the taxes of other imported wood would lead to an instant shortage of raw materials in an industry that supports thousands of Micro, Small and Medium Enterprises.

These are the enterprises that require to be tweaked in order to scale and develop a formidable manufacturing sector.

Any intentional disruption is what should be least expected when the elephant in the room is unemployment. When the President gave his vision in the Big Four Agenda, especially in manufacturing, it was not a temporary intervention but an effort to build a competitive advantage for the country and in turn hand him a legacy.

Implementers of the agenda have no choice but to look into value innovation, where cost is contained while increasing value to the entrepreneurs and the customer. While such a strategy is implemented, the implementers must be cognisant of the external competitors and seek to equip local enterprises with the abilities to build a sustainable competitive advantage.

That is not happening. We cannot succeed if we do not convert political pronouncement into actionable and sustainable strategies. This is a onetime chance in a lifetime for bureaucrats to plan for manufacturing in the country for the next 50 years because legacies outlive their political creators.

In the absence of a clear strategy we miss the whole point. My concern about the furniture industry is by no means advocacy for wanton destruction of the forests in the country.

What we need is a strategic direction on the implementation of the agenda. By budget time, the ministries responsible should have known the strategy and how to execute it. They should at least understand short, medium and long-term strategies rather than waking up to issue edicts that have far reaching implications.

While trying to re-stock community and public forests, the government should have considered sources of cheap raw materials as well as putting a proper regulatory framework in place to encourage agripreneures to consider growing of commonly used wood like cypress and eucalyptus.

It is also an opportunity to innovate around manufacture of MDF out of fast growing trees like grevillea. The increased spending on TIVETs should partner with other government agencies to develop a comprehensive supply chain of the furniture production in Kenya. This is how we can contain cost and increase value. Our failure always stems from big spending that necessitates higher taxes.

A big junk of government spending today goes to recurrent expenditure. We would rather reduce the number of legislators than increasing taxes to excess legislatures.

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