Kenyan manufacturers wrongly paying duty for paper raw materials

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BY BETTY MAINA

Nowadays, when local manufacturers in the paper sector meet, they speak longingly of 3D printing. If adopted, the technology, like elsewhere in the world will change the sector landscape from mass production to mass customisation and our manufacturers would be able to extend their frontiers interminably – making anything from shoes to jewellery.

But the ghost of Pan Paper Mills will not let them dream. A government protectionist attitude towards the now defunct company refuses to die with the paper maker and anomalies in the Common External Tariff (CET) are now legion. The government wrongly applies import duty tariffs for the sector, charging 25 percent duty for intermediate and raw materials.

In the whole of COMESA, Kenyan manufacturers are the only ones wrongly paying duty for paper raw materials making the sector uncompetitive. The current tariff application was justified when Pan Paper Mills was able to supply local paper converters but since the company stopped operations, they are now forced to import paper. This is something the government seems not to have caught on to.

After the East African Community (EAC) adopted the Customs Union, the plan to follow the World Trade Organisation (WTO) three band tariff structure soon went asymmetrical and special lists cropped up. Rwanda and Uganda to date still insist that they have infant printing industries and charge 0pc duty, while Burundi is now bringing in paper from outside the EAC duty free.

Kenya is also unable to compete with Tanzanian paper manufacturers such as Mufindi and paper converters there, who import paper at 0pc due to Tanzania’s membership in the South African Development Community (SADC). Yet an independent study done two and a half years ago on the paper sector in the EAC justified the reduction of the paper duty rate from 25pc to 10pc because there was no sufficient supply of paper.

A position that was not adopted because the Tanzanians said they had not read the report. We are still waiting for them to read it.

To the Government’s credit, they managed to wrangle a year long stay of application published in the July 2013 EAC gazette on 40 tariff lines. The stay of application came after 10 years of periodic jaunts to Government offices to resolve this issue. In that period, the most lucrative customers of local paper converters and manufacturers stopped buying local packaging.

Toothpaste packaging for brands like Colgate and Close Up, East African Breweries Limited (EABL) labels and packaging for Elida Ponds products were all once made locally. Today, Colgate is shipped duty free into the country from Zimbabwe, packaging and all, Tanzania prints the EABL labels while other companies have relocated to green pastures elsewhere. It is needless to ask where political parties printed their manifestos from during the election period.

There are many other products that are consumed in Kenya that come duty free into the country already packaged. For example, detergents. A locally manufactured detergent, whose packaging makes up 65pc of the manufacturing cost, cannot hope to compete with a detergent which is imported duty free from Egypt and comes already packaged. The same applies to text books from India and China. Local industry cannot hope to compete if the tariffs are wrongly applied. If all this seems exaggerated, we have the example of photocopying paper which is imported at 0pc duty both from Dubai and Egypt making things very difficult for converters.

In other words, we are exporting our jobs. The paper sector is a Sh50 billion industry that employs 13,000 people directly and thousands more indirectly. But the huge capacity of the sector is underutilised with cutthroat pricing and limited work leading to poor profits. This in spite of the fact that the sector has the same level of technology with that in developed nations. A level playing field needs to be created to grow the sector.

One would think that local manufacturers are able to meet local demand for paper in the country and therefore the need for stringent measures to protect local industry. But they are usually forced to ration paper for converters. Local demand is estimated at 25,000 to 35,000 tonnes of paper and the supply is currently only 20pc of this figure.

The irony is that the government would seal revenue leakage holes, if CET was correctly applied in this sector. Fewer manufacturers would apply for duty remission resulting in more government revenue and more jobs would be created due to the growth of the sector. The government needs to therefore extend the stay of application and look into the proper assignment of tariffs to get this sector operating at its optimal level.

(The writer is the Chief Executive of Kenya Association of Manufacturers and can be reached on [email protected])

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