Over 100,000 Kenyans could lose their jobs over duty-free cooking oil

An estimated over 100,000 Kenyans in the edible oil manufacturing sub-sector, including nuts and oil crops farmers, now stand to lose their jobs, the Kenya Association of Manufacturers (KAM) has warned in a memorandum to the government.

KAM has expressed fears that the sustained duty-free importation of edible oils could equally signal the closure of decades-old key industries and a Ksh.52 billion loss in taxes annually, following a long protracted standoff between the government and edible oil manufactures over taxes.

In a 13-page memorandum to Industry Principal Secretary Dr. Juma Mukhwana, the lobby group sought the government’s intervention to lower the cost of the commodity, even as the Kenya Kwanza administration stands in the eye of a storm from the opposition to lower the cost of living.

The cost of edible oils shot up during the COVID-19 pandemic, and has since been spiralled by global shocks including the Russia-Ukraine war and the decline in the value of the Kenya Shilling against the dollar, which traded at a high of Ksh.136 on Tuesday.

The government’s heavy tax burden, the manufacturers lobby argues, could see exporters prefer Kenya’s competitors including the DRC, Somalia, Djibouti, Ethiopia, Zambia, and South Sudan, whose production costs are considerably low.

The new memorandum comes on the heels of yet another condemnation by KAM after the State allowed importation of cooking fat and oil duty-free for one year.

This was despite the existence of the East African Community-Common External Tariff (EAC-CET) trade regime, which puts imported finished goods such as edible oil in a tax band that attracts a 35 per cent import duty to encourage and promote local producers.

The memorandum has also questioned the rationale in the implementation of the duty-free imports for edible oil products, a move that is likely to culminate in other Kenyan products being denied entry into the common market.

“The adherence to the procedures cannot be gainsaid specially to avert any repercussions on all Kenyan products being denied entry into that market as has been experienced in the past,” KAM said in the memorandum.

“In addition, the conditions for the importation remain unclear in the absence of the legal notice such as the quantities to be imported, their distribution and traceability in the market being duty free to avert any uncompetitive distortions in the market.”

Data from the industry shows that 31 per cent of the products cost is attributed to direct taxes (domestic and import) making the product less competitive in the region.

Meanwhile, Kenya’s 13 edible oil manufacturing firms which heavily depend on palm oils imports from South - East Asian countries slumped to an average 700,000 metric tonnes of crude oil last year, from a high of over a million metric tonnes per year.

Last month, Bidco Group Director Chris Diaz told reporters in Thika that the industry is experiencing operational difficulties resulting from high costs of production and taxes.

Mr. Diaz hinted that over the past year, production capacity at the Thika-based manufacturer has reduced drastically due to the various constraints bedevilling the manufacturing sector, a move that could see jobs losses.

He blamed it on the high cost of power, huge inflation, high taxation and dollar shortage which he said has threatened operations.

In the prevailing circumstances, the hope of lowered costs of edible oils remains faded, as the cost of importing raw materials is on a spiral rise.

The cost of producing 20 litres of edible oils without VAT stood at Ksh.3,498 locally, with duty-free 20 litres of the same product retailing at Ksh.3,646, upsetting the market trends.

The addition of a myriad of taxes, including the nuts and oils development levy of 2 per cent, a Railways Development Levy (RDL) of Ksh.39 per ton, pushing the prices up to Ksh.4,469 per 20 litre jerry can made locally, compared to Ksh.4,229 for the imports.

Meanwhile, to cushion Kenyans from the prevailing high costs, KAM has implored the government to scrap the RDL, the Import Declaration Fee (IDF) as well as the newly- introduced two per cent import fee levied on raw materials imposed under the Crops (Nuts and Oil Crops) Regulations of 2020.