NAIROBI, Kenya, March 2 – The Kenya Association of Manufactures has warned of dire economic strain on consumers if the government increases tariffs on paper products by 10 percent in a bid to rescue Pan African Paper Mills.
The association said the proposed 10 percent tariff increase on imported paper from the current 25 per cent would push up consumer prices and further erode their competitiveness in the sector.
“At a time when consumers are hard hit by high inflation and economic recession, this is clearly a wrong move at the wrong time,” the statement read in part.
“Protectionism is not the way forward as the sector has many other industries who would be negatively affected such as paper converters who are equally important and must not be hurt inadvertently in efforts to save a fellow member,” said Kenya Association of Manufactures (KAM) chief executive Betty Maina.
KAM noted that a tariff increase would have adverse implications for the paper conversion sub sector as it would either result in the scaling down or shutting down of operations by paper converters.
“The sector employs over 13,000 Kenyans and makes an annual contribution of about Sh20 billion in government revenue. The sector has already lost 7,000 direct jobs over the last few years as a result of the 25 percent duty under the EAC Common External Tariff.”
While emphasising the importance of Panpaper to the economy, she said that it was ironic that even for industrial grade paper that cannot be produced locally such as label and art paper attracts a 25 percent duty.
“A move that has already subjected Kenyan paper converters to an unlevel playing field in the market part and the reason why the Association is cautioning against a tariff increase as an option in the Panpaper bailout plan,” she said
The KAM’s statement noted that since inception of the EAC Customs Union in 2005, local paper converters have argued for the reduction of import duty on paper grades produced locally and regionally as well as zero-rating of import duty on paper grades not locally or regionally produced.
“Within a domestic market, tariffs should not in any way be used to protect one industry against others. If an enabling environment on a level playing field is provided, paper converters can further expand their regional market and increase employment rates,” Ms Maina said.
The business lobby group further stated that Kenyan paper converters are currently operating in an unlevel playing field in which Tanzanian businesses are importing paper at zero rate duty from South Africa while Uganda levies zero percent on all their industrial raw materials including paper.
“In reality, Kenya is the only country within the EAC/COMESA regions where paper attracts a 25 percent import duty. All the other COMESA countries are already importing paper at a maximum of 10 percent duty while inter COMESA and inter-EAC trade is at zero per cent. Therefore, a further increase in Kenya’s import duty by 10 per cent will be totally unfair and have disastrous consequences,” KAM noted.
The government has proposed a Sh2 billion rescue plan for the mills which is crippling under debt.
The Cabinet has so far approved Sh900 million for the project while hoping that other share holders of the company would contribute in raising the remaining Sh1.1 billion.
The government has a 38 percent shareholding in the Webuye-based paper mill.