In early December, I received a call from a large Eastleigh-based trader and wholesaler dealing mainly in imported fast-moving consumer products who requested a meeting with me.
He said he had some news to share. When we met, the man said he had heard from his trading partners and links in Malaysia and Indonesia that several Dubai-based traders and import businesses had recently visited Djakarta and Kuala Lumpur to buy massive quantities of cooking oil which they intended to export, duty-free, to Kenya.
He had learnt that some of the Dubai businesses were about to close deals to supply hundreds of thousands of tonnes of cooking oil to the State-owned Kenya National Trading Corporation (KNTC).
Then he asked me: with the scarce foreign exchange situation we are experiencing right now, where is KNTC going to get the dollars to pay for these huge imports?
Or, is somebody thinking about introducing special allocations of forex by the Central Bank of Kenya? He insisted that the information was not a wild rumour because some of his fellow large distributors and wholesalers had responded to the news by suspending orders to local manufacturers.
They had been assured by well-placed allies that the duty-free imports had been approved and were on the way.
Sensational stuff. All along, I did not believe the story by this chap, especially after Finance Cabinet Secretary, Prof Njuguna Ndungu, put out a gazette notice on December 23, 2022, declaring duty-free imports of sugar, maize and rice.
Since I did not see cooking oil on that list, I was inclined to treat my Eastleigh contact as a rumour monger.
If anything, President Ruto’s administration had publicly stated that it did not believe in consumption subsidies and was keen to support local producers.
I was to learn later that the Dubai narrative by the Eastleigh-based wholesaler had become so widespread and had caused so much uncertainty with the local cooking oil supply chain to the extent that the CEO of the Kenya Association of Manufacturers, Anthony Mwangi, was forced to formally write to the Trade and Industry Ministry, Moses Kuria, to demand a clarification.
Dated January 23, 2023, the letter was titled: ‘Request for clarification on the alleged importation of finished edible oils into Kenya at a preferential rate on EAC and domestic taxes’.
When you read the letter, you see a genuine cry by an industry leader seeking a roadmap on the direction of policy on behalf of 13 local producers.
These companies have a combined installed capacity of 1.5 million metric tonnes of cooking oil. Currently, the estimate is that they are operating at about 60 per cent capacity.
The information I have is that the Ministry of Trade and Industry simply ignored Mr Mwangi’s letter.
I asked myself: If the government indeed wants to import duty-free cooking oil, why not do it transparently by declaring it in a gazette notice as it has done with maize, sugar, and rice?
On Wednesday, a very reliable source from the National Treasury sent me correspondence that confirmed beyond doubt that the government had indeed approved duty-free imports of cooking oil into the country.
In a letter addressed to the Commissioner General, Githii Mburu, the Treasury CS said the government had approved duty-free imports of a total of 125,000 tonnes of cooking oil – about 8 percent of local capacity.
The letter also revealed that the imports will be done by KNTC and that the Cabinet had introduced a new framework where KNTC was to be positioned as the anchor of State initiatives to stabilise prices of essential household commodities.
If that is the case, why can’t KNTC do the transparent thing of floating a competitive tender? Why can’t it invite local manufacturers of cooking oil to participate?
In 2017 when imports of duty-free sugar were allowed, all local millers were allowed to participate. Why are duty-free imports of cooking oil being treated differently?
This saga reminded me of what I read in a paper by Transparency International titled: ‘How duty and tax exemptions get captured by greedy elites’.
Clearly, the manner in which these duty-free imports are planned is open to major corruption risks.
We forget that State capture is one of the most pervasive forms of corruption. It allows greedy elites to shape a nation’s policies and regulations to benefit their own private interests.
The government should drop that mad cap idea of importing 125,000 tonnes of cooking oil because we will end up with lost jobs, idle capacity, and further erosion of the tax base.
My parting shot: that Eastleigh-based chap had his ears to the ground. At play is a poignant study on undue influence on tax incentives- and how duty exemptions get captured.