The ongoing conflict in Ukraine has slowed the recovery of the manufacturing sector by further disrupting global supply chains that were already reeling from the impact of Covid-19.
This has sent prices of key commodities skyrocketing. Manufacturers now face the dilemma of either passing on the higher cost to consumers or cutting back on production.
A case in point is palm oil, the most used edible oil in the world. Earlier this year, the world’s largest producer banned palm oil exports, leading to a global shortage and hence higher prices of the commodity.
Then to make matters worse, the Agriculture and Food Authority (AFA) in July slapped a 2.0 per cent levy on all imported palm oil.
This move resulted in the shelf prices of cooking oil climbing, thus hurting households that were already struggling with the high price of maize flour and other basic foodstuffs.
As a matter of priority, the new government should scrap this levy as part of the measures to reduce the cost of living for Kenyans.
Such ad hoc levies also negate efforts to build a stable, resilient and thriving manufacturing sector capable of powering the country’s quest to be an industrial economy.
One can understand that events like the war in Ukraine are beyond the government’s control, but abrupt increases in taxes and levies are not.
Already, the surging cost of production has left manufacturers struggling to keep operations afloat.
Imposing additional levies only serves to push industries into a precarious financial position at a time they were starting to recover from the pandemic.
Essentially, ad hoc levies raise the levels of business uncertainty thus discouraging investments in new and additional capacity.
Indeed, one of the main challenges facing manufacturers in Kenya is the unpredictable business environment, especially in the counties, which are notorious for imposing levies and other fees without regard to the cost implications for businesses.
Such levies are a form of taxation and one would expect the relevant authority imposing the tax to take into account the compliance costs borne by the impacted firms.