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Corruption, payment delays stifle Kenyan manufacturers

Kenyan Manufacturers are operating below capacity and their economic growth prospects are not bright.

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A recent report by the Kenya Association of Manufacturers indicates that members are largely operating below capacity and their economic growth prospects are not bright due to lack of funds, drought, and corruption. The survey, called the Manufacturing Barometer was carried in the first quarter of this year.

According to the findings, 47 percent of those surveyed operated at about half capacity, 33 percent operated at 75 percent of installed capacity and a fifth operated near full capacity. Probably why, President Uhuru Kenyatta says the sector was one of his top four priorities when he commenced his second term in 2017, due to its potential to create jobs. The government, however, has struggled to boost the sector due to high electricity tariffs and illicit imports of goods such as sugar and cigarettes.

According to Stanbic Bank Kenya’s Purchasing Managers’ Index (PMI) survey, it showed that activity in Kenya’s private sector contracted for the first time in 17 months in April, hurt by drought and strained cash flows. In 2018, the manufacturing sector grew by 4.2 percent from official data-  contributing 7.7 percent of the country’s annual economic output of about 80 billion U.S. dollar, down from a share of 8 percent in the previous year.

The sector’s contribution to Kenya’s gross domestic product (GDP) however, has dipped gradually since 2014, when it stood at 10 percent. President Kenyatta’s government says it aims to raise the contribution of manufacturing to 15 percent of GDP by 2022. But till then, the forecast for the sector this year could worsen because of the continuous dry weather, the association captured in the report.

Private sector credit growth has slumped since the government capped commercial lending rates in September 2016 to lower the cost of credit. Delays by the Kenya Revenue Authority in processing tax refunds likely to hurt manufacturers’ cash flow, the report said. Some survey respondents say delays in clearing cargoes at the Mombasa port is also leading to loss in sales and setback due to higher charges. The survey also found 76 percent of respondents planned to freeze hiring of new full-time employees, or reduce their numbers. The manufacturing sector covers a wide range of businesses, including food and beverage production, metal products fabrication, pharmaceuticals and cement production.

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Africa News & Updates

DR Congo’s government move to reform the economy as Cobalt prices dip

DR Congo is the world’s top producer of cobalt, a key component for rechargeable batteries needed for smartphones and electric cars

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The Democratic Republic of Congo’s new leadership is under mounting pressure to diversify the country’s economy from its dependence on raw materials following the plunge in the price of cobalt. Economic experts currently visiting the country have a sobering figure on which to base their work: over the past year, the price of cobalt on the London Metal Exchange has tumbled from $80,000 to $28,000.

DR Congo is the world’s top producer of cobalt, a key component for rechargeable batteries needed for smartphones and electric cars. But economic growth in Sub-Saharan Africa’s largest country is on the same roller coaster as the global cobalt price.

“GDP growth increased to 5.8 per cent from 3.7 per cent in 2017, driven by a sharp increase in cobalt prices,” the International Monetary Fund said earlier this month in a report of DR Congo’s economy. “GDP growth is projected to decelerate to 4.3 per cent in 2019 based on the assumption of a slowdown in mining activity in the context of lower cobalt prices,” it added.

In another sign of DR Congo’s heavy reliance on mining and metals exports, that deceleration comes amid growth more than doubling in the rest of the economy thanks to public investment and post-election optimism. Either way, DR Congo’s GDP is small when compared to the size of the country and its population.

At less than $40 billion for 81 million inhabitants in 2017, according to World Bank figures, that translates into less than $2 per day per person on average. The IMF mission “focused on policies that would lead to diversifying the economy and tackling high levels of poverty and unemployment in the context of a rapidly expanding population,” according to the report.

Diversification and transformation of the nation’s economy is also the theme of the sixth French Kinshasa week organised by the Franco-Congolese Chamber of Commerce and Industry. With 80 per cent of DR Congo’s export revenues generated by the mining sector, this “creates a vulnerability due to the volatility in the prices of its main raw material exports” noted the organisers.

Liberalisation amidst cobalt price dip

They said possibilities in numerous other sectors needed to be explored for growth opportunities: agriculture and food, textiles, tourism, communications, transportation services, forestry, energy, pharmaceuticals and recycling.

France is keen to promote an initiative recently unveiled by President Emmanuel Macron to provide 2.5 billion euros in financing to 100,000 African startups as well as small and medium-sized companies by 2022. But the best intentions in business development must confront the problems of doing business in a country still trying to fix its patchy tax revenue collection amidst corruption.

One economic analyst, who spoke on condition of anonymity said: “fifty per cent of the containers that enter the Matadi river port don’t pay customs duties”. The IMF urged the new president Felix Tshisekedi “to expedite the adoption of the proposed anti-corruption law” and the creation of an independent anti-corruption commission.

The IMF also expressed concern about low tax collection. Reforms in some areas are moving ahead, albeit slowly. The insurance sector has been liberalised with three operators licensed to take over from the former state monopoly Sonas. And mining multinationals will be meeting in Lubumbashi to discuss the plunge in cobalt prices and the impact last year’s reform of the mining code has had.

Mining expert Chantelle Kotze said the reform increased taxes and royalties paid on strategic minerals such as cobalt and coltan, an ore that is another crucial element for the production of electric car batteries.

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Africa News & Updates

Inside Kenya’s Sh 3.02 trillion 2019/ 20 budget

There is an estimated deficit of Sh 607.8 billion, an increase from Sh 562 billion this financial year

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Kenya's Cabinet Secretary for National Treasury Henry Rotich leaves with the budget briefcase for Parliament to read

Kenya’s 2019/20 budget will be the seventh under the country’s jubilee administration. Its National government plans to spend Sh 3.02 trillion, about 10 billion higher than the current (2018/19) budget.

There is an estimated deficit of Sh 607.8 billion, an increase from Sh 562 billion this financial year. The government is likely to borrow more in the next fiscal year to bridge the deficit as Kenya Revenue Authority (KRA) is expected to miss this year’s revenue collection target by Sh 118 billion.

Kenya's Cabinet Secretary for National Treasury Henry Rotich (C) poses with the budget briefcase before leaving for Parliament
Kenya’s Cabinet Secretary for National Treasury Henry Rotich (C) poses with the budget briefcase before leaving for Parliament to read the budget speech for 2018-2019 in Nairobi, Kenya, on June 14, 2018. (Photo by Yasuyoshi CHIBA / AFP)

Related: Kenya’s Safaricom, Equity bank seal digital banking partnership

Treasury Cabinet Secretary, Henry Rotich, has set a revenue target of Sh 2.2 trillion while KRA is expected to collect approximately Sh 1.9 trillion. Experts say the government might also heighten the tax regime to fill this budget deficit.

In the 2018/2019 financial year, the government was forced to introduce stringent tax measures to raise funds to support the budget.

This year, the government will likely raise Value Added Tax (VAT) from the current 16 per cent and Capital Gains Tax, which targets the wealthy. The betting industry will also be targeted.

Raising the VAT will contribute to a high cost of living as prices of basic goods such as food will go up. According to the Central Bank of Kenya (CBK), Kenya’s public debt stands at Sh 5.4 trillion.

In the financial year beginning July 1, 2019 Kenya will spend Sh 800 billion to repay maturing loans mostly owed to foreign lenders.

The budget as a share of Kenya’s Gross Domestic Product (GDP) is expected to decline to 28.1 per cent, from 32.4 per cent in 2018/19 financial year, a 4.2 per cent drop.

According to the Budget and Appropriation Committee, Sh 2.45 trillion will be allocated to the three arms of government, a slight increase from Sh 2.23 trillion in 2018/19 financial year.

Kenya budget: Kenya's National Treasury building is pictured in Nairobi
Kenya’s National Treasury building is pictured in Nairobi on June 14, 2018. (Photo by Yasuyoshi CHIBA / AFP)

Related: Kenyans protest bid to build East Africa’s first coal plant

The country’s judiciary remains the least funded of the three arms of government having been allocated Sh 18.88 billion. The Executive and Parliament have been allotted Sh 1.84 trillion and Sh 43.78 respectively.

In the past financial years, the Education sector has always received the lion’s share of the budget, likewise Sh 473.3 billion has been allocated to the sector; followed by Energy, Infrastructure and ICT which have been allocated a combined budget of Sh 406.7 billion.

Rotich’s budget today will crown the total Jubilee administrations ambitious spending to Sh 13 trillion over eight years against total tax collections of less than Sh 8 trillion over the same period.

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Tunisia to receive $247 million IMF loan tranche

The IMF approval will open the way for Tunisia to sell bonds worth up to $800 million this year.

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Tunisia to receive $247 million IMF loan tranche
(File photo)

The International Monetary Fund on Wednesday, approved the payment of a $247 million loan tranche to Tunisia, the sixth under its loan program with the North African country, according to Minister of Reforms, Taoufik Rajhi.

Tunisia struck a deal with the IMF in December 2016 for a loan program worth around $2.8 billion to overhaul its ailing economy. It included steps to cut chronic deficits and trim bloated public services.

Related: Court nullifies secret loans taken by Mozambique government

This will bring total disbursements to about $1.6 billion since 2016. 

The IMF approval will open the way for Tunisia to sell bonds worth up to $800 million this year.

Tunisia needs around $2.5 billion in external financing in 2019, officials said.

The country has been hailed as the Arab Spring’s only democratic success because protests toppled autocrat, Zine El Abidine Ben Ali in 2011 without triggering violent upheaval, as happened in Syria and Libya. 

Related: Kenya seeks $750 million World Bank loan for budget support

But since 2011, nine cabinets have failed to resolve Tunisia’s economic problems, which include high inflation and unemployment, and impatience is rising among lenders such as the IMF, which have kept the country afloat 

The IMF had wanted Tunisia to freeze public-sector wages – the bill for which doubled to about 16 billion dinars ($5.5 billion) in 2018 from 7.6 billion dinars in 2010. 

In order to cut the energy deficit demanded by the IMF, the government last March, raised fuel prices, the fifth hike in 12 months. 

The parliament also approved last April, a law to raise the retirement age for civil servants by two years and impose social security taxes on employees and employers, another key reform demanded by the country’s international lenders to stabilize its finances.

Related: IMF, Congo Republic provisionally agree on three-year loan deal

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