Kenya’s manufacturing sector has found it difficult to offer commensurate pricing to consumers but is always up in arms whenever cheaper priced commodities flock the market, claims a consumer lobby.
Speaking to People Daily after it emerged that Dangote Cement was selling imported cement at less than Sh400 compared to Sh650 for the lowest-priced local commodity, Consumer Federation of Kenya (Cofek) chief executive Stephen Mutoro said the move is all about policy and pricing.
“We welcome the Dangote move and hope that cartels don’t blackmail the efforts. People should not be afraid,” he said. Some of the manufacturers People Daily spoke to were concerned about the pricing, saying it will likely shift them out to destinations offering better incentives.
On the spot Athi River Mining Cement managing director Pradeep Paunrana says the biggest loser would be the government if cheaper cement imports started coming in. “We are paying cess and up to Sh150 per tonne to National government, but what are the importers paying?
If we all start importing, where is the government going to get cash for operations?” he posed. Coming soon after Sameer Africa Limited announced the closure of its local tyre manufacturing plant for offshore production in China, the cement issue puts the local business climate on the spot.
Sameer said market share for its locally-produced Yana tyres brand dipped from a high of 62 per cent in 2005 to 25 per cent on account of an influx of cheaper imports. Reduction in customs duties under the EAC Common External Tariff since 2005, coupled with the high cost of electricity and underutilisation of factory capacity, were part of the adverse effects that informed the closure, according to Sameer.
Indications are that there was an absolute improvement in value addition and employment within the manufacturing sector in the last three years, which can improve if costs related to electricity, credit and competition improves.
The good fortunes should also trickle down to consumers, says a recent Kenya Institute of Public Policy Research and Analysis (Kippra) report. The report further says there is need to reduce dependence on imported inputs, accounting for 50 per cent of costs of raw materials.
Kippra’s Kenya Economic Report 2016 notes that despite significant investments and developments that saw cost of electricity and energy ease, the benefits of pass-through of reduced crude oil prices were not proportionate to reduction in crude oil prices.
Usually, the reverse is the case, whenever the cost of electricity and energy goes up, manufacturers are quick to immediately increase prices. This was the case when the US benchmark crude fell to a new low in 2015, at $45.250 a barrel (Sh4,072)—which was its lowest in six years— compared to prices last seen in April 2009.
This reflected a 57 per cent drop in crude oil prices that was selling at $106 per barrel (Sh9,540) in June 2014. While this drop pushed down landed cost of petrol by 39.5 per cent, diesel by 36.7 per cent and kerosene by 33 per cent, upon incorporation of taxes and levies, distribution costs and supplier margins, local market prices dropped by 20.3 per cent for petrol, diesel 22.2 per cent and kerosene 22.9 per cent.
There was no corresponding dip in the cost of prices of goods and services several months later. Even transporters maintained prices as Kenya Association of Manufacturers urged consumers to wait for at least two months before the benefit of cheaper fuel were passed on. Costs never went down.
The government’s significant investment in energy has also seen the cost of energy reduce significantly as the country plans to spread connectivity. Kenya Power now estimates that since 2014, the cost of the fuel charge reduced from Sh7.22 which constituted 40 per cent of electricity bills to Sh2.31—more than 60 per cent in actual tariff reduction. The cost of crude oil is still below $50 (Sh5,000) per barrel and most of the prices of goods and services have not felt the impact.