By Robert Komu

The world marked the International Day of Cooperatives on the 6th of July this year. In Kenya, the day was not marked with any fanfare or celebration in the sector unlike other parts of the world. This is a sad state of affairs bearing in mind the integral role cooperatives play in the economy. The day was set to remind the public that cooperatives across the world continue to help preserve employment and promote decent work in all sectors of the economy.

Cooperatives have been around for now 200 years, since the proposed "villages of co-operation" in the United Kingdom as a response to the economic crisis in 1815. The idea spread was adapted, and went global, with around 1 billion members of cooperatives worldwide today. In Kenya, the first cooperative Society was established in 1908 with the government formally getting involved in 1931. Since then there has been several developments and legislations in the sector which have led to exponential growth, a lot more still needs to be done.

Kenya is estimated to have over 14 million people in cooperatives; with about three-quarters of the population which nears 30 million depending on the activities of cooperatives and Saccos either directly or indirectly for a living. The cooperative sector has played a key role in directly employing over 500,000 people. Sacco’s today account for 80% of the total accumulated savings while Kenya’s sub-sector is the largest in Africa.

In recent decades, co-operatives have made tremendous contributions to millennium development goals, through the generation of income for their members and also offering a range of benefits which has led to their inclusion in the development conversation. Their role was recognised within the development community when the UN declared 2012 as the International Year of Co-operatives. Consequently, this has had far-reaching effects; a good example of this is the UN's Food and Agricultural Organisation noting that cooperatives have been and are key to feeding the world.

Cooperatives worldwide offer a dynamic and flexible business model that bridges market values and human values. Due to this, they have a very integral role to play in the frameworks for inclusive growth; however, they are faced with a myriad of challenges that prevents them to thrive and offer better value. For instance, in the 1960 and 70’s due to high expectations and being seen as integral and major players to development, there was a lot of government interference which led many to fail and were, as a result, written off by most development agencies. Government interference is still rife in the sector.

This interference by government today is through over-control and regulation. Cooperatives are often subject to burdensome regulations with high cost and time burdens associated with setting up a cooperative. A robust legal environment with prudential regulation needs to protect democratic member control, autonomy and independence, and voluntary membership.

At the same instance, many agencies working with cooperatives do not recognise or understand their specific governance and legislations, thus the challenge of fighting back laws that do not support the growth of cooperatives. In 2018, Kenyan co-operatives lobby groups opposed the proposed changes to the Co-operative and Sacco Act, which intended to give members with enormous resources powers to moot and control investment plans and returns from their investments; this would have been detrimental to the principle of one man, one vote and equitable distribution of returns in Sacco’s and co-operative societies.

The Industry, Investment and Trade ministry also opposed the proposals contained in the Statute Law (Miscellaneous Amendments) Bill 2018 saying they risked creating a parallel class of investors within Kenya’s co-operative movement.

This said the delays in concluding the cooperative policy-making process are now impeding the growth and management of cooperatives in the country. This kind of confusion prevents the growth of a sector that has a great experience in building sustainable and resilient societies, For example, agricultural cooperatives have been at the heart of ensuring the longevity of the land where they grow crops through sustainable farming practices. Consumer cooperatives increasingly support sustainable sourcing for their products and educate consumers about responsible consumption. Housing cooperatives help ensure safe and affordable dwellings, while Worker and social cooperatives across diverse sectors i.e. health, communications, tourism, aim to provide goods and services in an efficient way while creating long-term, sustainable jobs.

It is therefore important to give the utmost support to the  cooperatives sector, the core principles and values of voluntary and open membership, democratic member control, economic participation by members, autonomy and independence, education, training and concern for the community that guide the sector is pivotal to member and economic development of the country .

The writer is a communication consultant and a supporter of the cooperatives movement.

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Posted On Wednesday, 31 July 2019 14:47

By Oscar Amadi Lusiola

Many governments, especially in Africa, lack resources to sufficiently provide security needs for all, prompting the establishment of private security firms to complement the government exertions in protecting the citizenry. Private security companies make a vital contribution to state security efforts. They are equally a significant employer.

QUESTIONS

With increased criminality and terror threats, this not only makes security big business but has also prompted the Kenya Security Industry Association (KSIA), a federation of private security companies, to warn investors against fake firms.

The criticality of security to humans cannot be overemphasised; modern society depends on a security system that is available and accessible. Private security guards are the first line of security; they access control for most facilities in Kenya. Their major roles include not only guiding visitors but also searching and frisking them for any item that may cause harm or threaten life. Most use bare hands, other metal detectors.

Questions are being asked about the viability or criticality of the guards’ roles, especially when searching for visitors. A recent survey by a local television station revealed how an armed intruder can go through searching zones undetected, even after the “search”. It is about time we asked some pertinent and fundamental questions.

Is it time the guards were retrained, particularly on emerging threats? Do we do away with manual searching or frisking, for “walk-through” metal detection machines? How many organisations will afford it? How do the guards' store firearms retrieved from visitors who are licensed gun holders? Do they know how to “make safe” when receiving or issuing arms? What if they found a visitor with an illegal gun?

Apart from CCTV, what other mechanisms are in place to ensure an all-round “Onion Layer” security arrangement that deters, denies, delays and detects threats? What of the response plan — and time?

Adam Curtis, a British documentary filmmaker, said: “Nobody trusts anyone in authority today.”

Wherever you look, there are lying politicians, crooked bankers, corrupt police officers, cheating journalists and double-dealing media barons, sinister children’s entertainers, greedy energy companies and out-of-control security services.”

This, then, implies that there is a general feeling by a section of Kenyans on the likelihood of the private guards being “out-of-control” if issued with firearms.

The National Security Advisory Committee is set to approve or reject a proposal to give guards guns. The Private Security Regulatory Authority came up with regulations on whom to grant a gun permit and the criteria for recruitment, training, follow-up, deployment and discipline of armed guards.

Though this has been received positively by the private security sector, most Kenyans are sceptical of the viability of the arrangement amid fears of gun misuse by the guards.

It’s prudent that private security management agencies be duty-bound to liaise with government agencies for thorough physical security and access control training of guards with a focus on emerging threats. For now, arming them should not be the priority.

Mr Lusiola, a security consultant, is a PhD student. This email address is being protected from spambots. You need JavaScript enabled to view it.

Posted On Wednesday, 31 July 2019 10:50

By Richard Ngatia

In a competitive global market, at a time of dwindling trade barriers and border restrictions occasioned by ubiquitous nature of technology, economic diplomacy has become an all-important tool to secure investment opportunities through bilateral and multilateral trade co-operation.

Economic diplomacy deals with the nexus between power and wealth in international affairs. It not only promotes the State’s prosperity but also, as the occasion demands, and opportunity permits manipulate its foreign commercial and financial relations in support of its foreign policy.

Accordingly, economic diplomacy is a major theme of the external relations of virtually all countries. At home, economic ministries, trade and investment promotion bodies, chambers of commerce and, of course, foreign ministries are all participants in economic work.

COLLABORATION

Current trends include increasing collaboration between State and non-official agencies, and increased importance given to WTO issues, the negotiation of free trade and preferential trade agreements, and accords covering investments, double taxation avoidance, financial services and the like. Abroad, embassies, consulates, and trade offices handle economic diplomacy.

The main focus is on promotion, to attract foreign business, investments, technology and tourists. Economic diplomacy connects closely with political, public and other segments of diplomatic work.

Diplomatic relations through state visits, export promotion and development co-operation are relevant in minimising potential risks that businesses encounter in their foreign operations, especially in Foreign Direct Investments (FDIs). They provide an avenue to mitigate risks such as political, legal and credit that may discourage potential exporters from entering foreign markets through negotiated trade agreements.

At the same time, the role of diplomatic relations in facilitating trade between and among states taking the forms of state visits, opening trade missions, consulates and embassies cannot be gainsaid as critical determinants of bilateral and multilateral trade relations.

Last week’s Common Market for Eastern and Southern Africa’s (Comesa) Source 21 International Trade Fair and High-Level Business Summit brought together 21 Comesa member countries.

REGIONAL BLOCS

Officially opened by President Uhuru Kenyatta at the Kenyatta International Convention Centre (KICC), it was a clear manifestation of the importance of regional blocs and the positioning of Nairobi as a regional economic hub and preferred conferencing destination.

Nairobi has in the past hosted international conferences and President Kenyatta played host to Heads of States and government, which have yielded trade agreements through fruitful negotiations for export of Kenya’s agricultural produce to the international market.

The ‘Big Four Agenda’ outlined by the President on food security, affordable housing, manufacturing, and universal health coverage presents unlimited opportunities for the local business community and also foreign investors. That will open avenues to investments, create jobs and facilitate skills transfer for our people on the new competitive technologies.

The Kenya National Chamber of Commerce and Industry (KNCCI) has embarked on an aggressive push to expand trade opportunities in international markets through its extensive network, however cognisant of the need to adhere to global standards. During the Kenya Trade Week 2019, KNCCI presented an agenda to upgrade its Certificate of Origin (CoO) systems to accept the issuance of all preferential certificates of origin issued by the Kenyan government.

MOBILITY

Automation of the issuance of Ordinary Certificates of Origin will enhance the efficiency and security of the process. Since the automation in late 2015, fee collection has increased from Sh1.6 million to Sh4.5 million per month. Additionally, the system shall hold a database on all pertinent export information which shall be used for targeting new markets and improving existing ones.

Effectively, Kenyan traders will enjoy an expanded market for their goods and services as KNCCI seeks to achieve the Integrated National Export Development and Promotion Strategy (INEPDS) by embracing sustainability, connectivity and mobility.

Effective day-to-day economic diplomacy by the foreign service officers will ensure that Kenya statecraft achieves the best for our country.

Mr Ngatia is the president of the Kenya National Chamber of Commerce and Industry (KNCCI). This email address is being protected from spambots. You need JavaScript enabled to view it.

Posted On Wednesday, 31 July 2019 10:23

By Donatus Njoroge

Once again, Kenya finds itself in a Catch-22 situation. A food crisis script that has become an annual ritual is slowly unfolding. Plans by the Ministry of Agriculture to import 12.5 million 90-kilogramme bags of maize casts doubts on the government’s commitment to one of the Big Four Agenda: Food security. Many are now wondering what went wrong and whether there could be lessons from neighbouring countries like Uganda and Tanzania.

FARM TO FORK

Researchers from Tegemeo Institute estimated an average production of 40 million bags of maize against an estimated annual demand of 45—50 million bags per year.

Even as we import to cover the deficit, statistics from the Ministry of Agriculture indicate that post-harvest loss in maize is close to 30 per cent.

Kenya imports maize in excess of Sh42 billion in foreign currency, but ironically in 2017, for example, farmers lost close to Sh29.6 billion to post-harvest losses, mainly due to spillage during handling, transportation, processing, marketing, rotting, aflatoxin and weevil attacks.

These losses are greater than the entire 2017 harvest for the annual short rain season. How much money can we save as a country if we manage post-harvest losses?

Where are we as a country four years after the 2014 Malabo Declaration on Africa Enhanced Agricultural Growth and Transformation? According to the 2018 Economic Survey, Kenya continues to experience losses as a result of poor storage, handling and rejection.

As the country prepares to mark the 2019 World Food Day, we need not lose sight of the government agenda of attaining a food waste target of 15 per cent by 2022.

What this means is that food security efforts by the government may remain a pipe dream unless adequate measures are instituted to manage food loss and waste that occurs at various points from farm to fork.

To achieve this, there is need of an integral approach from the country’s scientists, scholars, farmers, policymakers and investors to adopt innovative ways to reduce the food wastage and losses in the value chain for long term consumption and food production.

EMERGING ECONOMIES

As the world grapples with climatic problems, any amount of food harvested from the farm, sold at supermarkets and bought in households is of value and should be protected to avoid spoilage as its presence contributes to improved food security and can save a life.

Ms Immaculate Wanjiku, a maize farmer in Rift Valley, pointed out that her 10 bags of 90 kilos were destroyed by weevils last season as she waited for better prices.

“I just sold all my stock at a throwaway price to a broker, only for prices to improve a month later,” Peter Mwangi, another farmer in Kitale said.

This is only a pinch of the many tribulations facing grain farmers in the country.

Introduction of the Grain Warehouse Receipting (WHR) System could be one piece of the puzzle to bring order into the sector.

Post-harvest credit, in the form of warehouse receipting finance, has proven to be a critical component for agricultural sector growth in emerging economies.

The system creates a buffer against uncertainties in supply and demand, and takes advantage of economies of scale, and lower purchasing and transportation costs.

It improves the post-harvest operations in the grain sector to increase smallholder farmers’ capacity to get additional finance to invest in all the necessary inputs because the receipts issued are acceptable to banks as collateral for loans.

CHAOTIC MARKET

It’s no new concept, agricultural commodity exchanges have been practised for centuries with immense success.

In 1848, a group of businessmen who wanted to bring order to the Midwest’s chaotic grain market came together to form The Chicago Board of Trade. It’s now one of the busiest commodities exchanges in the world.

The government should speed up adoption and implementation of the Warehouse Receipts System Bill if the country wants to achieve its goals on food security.

Finally, food loss and wastage is a global challenge and the country needs a collective tracking mechanism to identify areas prone to losses and adopt technologies and other approaches to curb this challenge, otherwise we will end up spending too many resources to produce foods that end up as trash while millions of people go hungry every day.

If food security goes wrong, nothing else will have a chance to go right in the country.

Mr Njoroge is the Global Innovation through Science and Technology 2019 First Prize winner. This email address is being protected from spambots. You need JavaScript enabled to view it.

Posted On Wednesday, 24 July 2019 16:22

By Michael Arum

Kenya’s sugar industry has many natural advantages, almost all of which have been undermined by policy and public mismanagement that has seen its productivity slump. As a result, when import protection ends, supposedly next year, the industry will be immediately undercut by far cheaper imported sugar with huge costs to the country.

A quarter of a million farmers grow sugarcane. Up to six million Kenyans draw a livelihood from Kenyan sugar.

IMPORT COSTS

The nation saves Sh40-55 billion a year in import costs by using locally produced sugar — which matters more as our trade deficit continues to grow and place downward pressure on the value of the shilling.

Yet, in its bid to remedy the decline in the industry, the government has drawn up regulations that appear unjustified and inexplicable.

The Common Market for Eastern and Southern Africa (Comesa) has warned that there will be no further extensions in protecting domestic sugar production from imports, yet Kenyan sugar costs $870 (Sh87,000) a tonne to produce compared to $350 in Malawi and $400 in Egypt. There is, therefore, no possibility of Kenyan sugar competing against imports without the cost of production falling dramatically. That makes it a top priority for the new regulations to reduce production costs.

LOW YIELD SEEDS

Yet, the proposed controls comprise a peculiarly old-fashioned model of expensive (for taxpayers) state intervention that will further load costs and actively prevent the key corrections that can reduce our production costs.

The starting point for Kenya’s excessive costs is seeds. Farmers still use old-fashioned, low-yield seeds, meaning that Kenya produces far less sugar per hectare than any competitor.

A clear jump-start would have come from regulations that encouraged entrepreneurs to produce any of the 14 new high-yield seeds developed by the Sugar Research Institute (SRI) and already released for commercial production. Likewise, delivering on the Crops Act’s commitment to extension services to get farmers switch to better seeds would even double yields.

DEAD HAND

Instead, the regulations take sugarcane seed production away from the Kenya Plant Health Inspectorate Service (Kephis), which handles all of the country’s seed licensing, and puts it under the Sugar Directorate.

Setting up a department in the directorate with the requisite technical capacity, expertise and infrastructure will be costly and time consuming and promises delays and disruptions.

The next ‘dead hand’ is the mismanagement and inefficiency of our sugar mills. We produce around 5.3 million tonnes of sugarcane a year for 16 mills while Egypt produces only half as much, at 2.8 million tonnes, but has 14 factories.

Egypt produces nearly five times the sugar that we do — 2.3 million tonnes, compared to Kenya’s 0.5 million tonnes. Its mills are larger and newer and crush better-quality sugarcane more efficiently. However, the regulations add a framework that is proven to deter farmers and create disincentives to millers.

ZONING

They introduce zoning — meaning a farmer is assigned just one mill to sell to. In other countries, it drove farmers out of production. It ruined a once-thriving industry in Australia; when it was abandoned, raw sugar production doubled in five years. Countries such as Pakistan, India, and South Africa have all suffered from it.

The new rules also require investors to have high-powered management teams up to two years before getting licences or going into operation and build sugar mills ahead of licensing.

And they are illegal. Besides breaching the Constitution and other laws, they did not undergo the required impact assessment. The Parliamentary Committee on Delegated Legislation is due to review this decision to ‘forget’ to carry out a cost-benefit analysis or comparative assessment of other policies.

The six million Kenyans hope for a more serious attempt at cutting sugar production costs.

Mr Arum is the co-ordinator, Sugar Campaign for Kenyan cane growers (Sucam). This email address is being protected from spambots. You need JavaScript enabled to view it.

Posted On Monday, 22 July 2019 16:18

By Washington Ndegea

In 2018 June, Treasury Secretary, Henry Rotich strode to parliament carrying the characteristic briefcase with the Kenyan Coat of Arms on the side to read the 2018-2019 budget. That was in the month of June.

Expectations were high, that the prices of various basic commodities would reduce, and that the insurance industry would get much-needed relief creating an enabling environment for business.

Concerns on the prices of the basic commodities were met, but the insurance sector was left reeling by the recommendations proposed in the Insurance Act in form of Insurance (Amendment) Bill 2018, that would criminalise the handling of insurance premiums if passed.

Players in the sector quickly instituted an emergency meeting to examine what could have prompted the Treasury Department to come up with such proposals, even while noting that Section 156 of the Insurance Act catered for that.

It was agreed that the insurance intermediaries, to whom this was addressed, were to quickly come up with a counterproposal to be presented to Parliament when the issue would come up for debate after the Second reading of the House.

We got busy and borrowed our counter proposals from the same document Insurance Regulatory Authority – IRA- had borrowed from in their advice to Treasury, that is, the International Association of Insurance Supervisors (IAIS) which adopts Insurance Core Principals (ICP’s) that provide a globally accepted framework for the supervision of the insurance sector.

The proposals in the budget aimed at deleting the whole of Section 156 of the Insurance Act instead of repealing certain subsections and which we felt would provide a soberer approach to the issue of premiums handling by the intermediaries.

We felt that the proposals as fronted by Treasury would negatively affect insurance penetration in this country. We also noted that there was no stakeholder involvement in this proposal and it caught everyone by surprise.

We would have preferred that a penalty be introduced in Section 156 to address the issue of any embezzlement of premiums.

We were happy when our proposals were accepted by Parliament which saw the bigger picture and that the issue of insurance penetration was tantamount in any decision that Treasury was to look at.

That was until the matter came up to the President for his assent to our recommendations and which he refused to assent. What that means is that premiums handling is going to be a criminal offence. Not embezzlement as would have been expected, but the mere touching of a client’s cheque will be a criminal offence.

That is responding to a mosquito bite with a hammer. The only reason the President gave for refusing to assent to our proposals was that by allowing for the handling of premiums by intermediaries, which they have always done anyway, it will negate the principal of Cash and Carry which will, in turn, affect the ability of companies to pay claims since most of the premiums will be with the intermediaries.

At this point, it would be good to point out that over ten insurance companies in Kenya are not paying claims, whether by default or otherwise.

There’s no single company that has complained of delayed premiums or in effect named any of those that could be delaying their premiums. They are simply not paying claims because they have mismanaged their finances. The Insurance Act is very strict on the non-payment of premiums by intermediaries’ and their licenses are at stake should one fail to pay.

It is also important to point out that since the entry of banks into the insurance field a lot of bad blood has been created, mainly caused by the banks encroaching on and forcing our clients to take up insurance with them.

Our cries to IRA have gone unheeded even when we point out that they are doing insurance business in an unorthodox manner. But then banks cannot let go of insurance broking at all because it has given them free money to trade within the form of premiums.

Banks never remit insurance premiums to insurance companies unless they are forced to do so. Any insurance company doing business with a bank can attest to this. They simply do not follow the insurance rules as stipulated.

Why they are never penalized or chastised is anyone’s guess. The only gainers of this action by the President are the banks because insurance will only be done by them and from experience, they will not follow the rules laid down by IRA.

It is acknowledged that the owners of banks in this country are politically connected and ride roughshod over everyone. The President’s refusal to assent to the Insurance (Amendment) Bill 2018 has several grave implications.

At the top is stalling the growth of insurance in this country. Insurance in Kenya is sold and not bought. We all know that the growth of insurance since independence and even before independence has been largely effected by insurance agents and who have always been in their thousands.

There’s practically no one in this country who doesn’t know of an insurance agent and over ninety per cent of the insureds have interacted with an agent at a point in time. By criminalizing premiums handling, it will become impossible to do insurance business as it is akin to selling your wares while you have closed the door. The many thousands of intermediaries will have to look elsewhere for a job.

Why is the government creating unemployment and going against their Vision 2030 objectives?

Another culprit is insurance broking. Insurance brokers play a very big role in the growth of insurance and are mainly owners of corporate business.

They canvass for the insurance business, advice their clients and even settle small claims on behalf of their principal. It is a rule that brokers receive monies on behalf of their clients and later remit to the principal. Insurance broking has effectively been killed by this bill.

The higher the growth of insurance in this country, the higher the country will earn the much-needed revenue, but this government seems to have shot itself in the foot with this bill.

Why kill the goose that lays the golden egg?

Washington Ndegea is the Chairman - Bima Intermediaries Association of Kenya (BIAK).

Posted On Tuesday, 25 June 2019 11:29

By Nadida Rowlands

Two major seizures of ethanol smuggled into Kenya this year brought to the fore one of the more difficult aspects of the war on illicit trade.

The first was marked by drama: Detectives had seized a truck believed to be loaded with 20,000 litres of ethanol smuggled in through the Namanga border post.

LONG-TERM DAMAGE

Media reports said the truck had been stopped by traffic police at Kitengela and there was a six-hour stand-off as the officers insisted that it could not leave the roadblock.

Eventually, higher authorities in the police deployed officers from the Flying Squad and, after a brief confrontation, the consignment proceeded to the Directorate of Criminal Investigations (DCI) headquarters. Later, workers peeled off a layer of animal feeds from inside the container to reveal up to 80 drums of ethanol worth an estimated Sh1.6 million.

In the other incident, the authorities tracked smuggled ethanol to a manufacturing plant and would eventually discover a whole host of other alleged illegalities that had been taking place there.

Both incidents, and many more intelligence-led operations against manufacturers and importers involved in illicit trade, are proof that the multi-agency task force set up by the government is working.

As the World Anti-Counterfeiting Day was marked Thursday (21st June 2019), more needs to be done if the fight against the dangerous trade, especially in alcohol, is to succeed. This was evident at a recent Summit on Illicit Trade organised by the Kenya Association of Manufacturers (KAM).

This is doubly important for Kenya. Illicit trade threatens not only lives — as unverified and possibly unsafe goods enter the market and can cause long-term damage to consumers — but also robs the country of much-needed revenue.

With manufacturing a top priority for the government, smuggling gives illegitimate players an undue advantage and undermines all the government’s efforts to increase the contribution of this sector to the gross domestic product (GDP).

TAX ON ALCOHOL

On ethanol, government officials who attended the summit said neighbouring countries have friendlier policies, which offers a temptation to unscrupulous manufacturers to import it. The policies result in loss of large volumes of alcohol in border areas as smugglers bring in and sell cheap alcohol, hurting legitimate players and denying the government revenue.

The policy gap is likely to grow over the next few days if MPs approve the proposal by the National Treasury Cabinet Secretary to increase excise duty on wines and spirits.

With Uganda and Tanzania not effecting any increase in tax on alcohol, Kenya will have the highest tax rates in the region. But this proposal is dangerously counterproductive: Kenya, the most economically advanced country in the region, also becomes the more lucrative destination for smuggled goods for which duty has not been paid.

In the region, Kenya has the lowest consumption of alcohol per person in a year — 3.4 litres, compared to 9.4 litres in Tanzania and 9.5 litres in Uganda, according to the World Health Organisation (WHO).

More worryingly for Kenya, nearly half, or 1.5 litres, of the alcohol consumed per person in the country in a year is unrecorded and potentially illicit, with the attendant health risk.

Past increases in tax rates have proven disastrous to price-sensitive consumers, those to whom any increase in the price of their favourite drink means they resort to illicit alcohol, with a deleterious effect on society.

INFLATION-ADJUSTED

On a second level, the proposal by the National Treasury brings back a certain measure of uncertainty regarding taxation. There has been a sense of predictability on taxation of alcoholic beverages since the enactment of the Excise Duty Act 2015.

This law introduced inflationary adjustment, where data from the Kenya National Bureau of Statistics would be used to calculate the average inflation for the past year, and that would inform the adjustment of Excise Duty annually.

With the CS’s proposal to increase tax on spirits by 15 per cent, it looked and sounded like the old days, when the price of goods was bound to increase with the reading of the Budget. All this while a premeditated, inflation-adjusted excise tax is expected to kick in for a wider range of alcoholic beverages come July 1.

There is, of course, some time before the Finance Bill 2019 is concluded in Parliament. But, as we continue in the fight against illicit trade to boost the manufacturing sector, it is important for that to be supported by the right policies and for there to be certainty and predictability from policymakers.

Mr Rowlands is the Legal Director at East African Breweries Limited. This email address is being protected from spambots. You need JavaScript enabled to view it..

This piece appeared in the Daily Nation on Friday 21st June 2019 and in The Standard on Thursday 20th June, World Anti-counterfeit Day.

Posted On Tuesday, 25 June 2019 10:22

By Lola Adekanye

Ending corruption should be a major priority to ensure that aid and development finance contributes to improved development outcomes. This requires greater levels of transparency in public financial management, as well as finding new ways of engaging citizens, particularly in the business community, that have for too long been ignored as key stakeholders in efforts to reduce corruption.

Corruption undermines political, social, and economic development, which is a growing concern in fragile economies in parts of Africa. The distorted system created by corrupt interests stifle inclusive economic growth, aggravating problems of economic inequality and injustice, which fuels frustration and violent instability.

African countries are among those hit hardest, as local entrepreneurs/micro, small and mid-sized businesses (MSMEs) account for nearly 70% of all businesses and employ more than half of the continent’s labor force. Yet, MSMEs are not only the most vulnerable to retail corruption, MSME

development programs are the least scrutinized in most countries and as a result are most prone to mismanagement and graft. According to the World Bank Enterprise Survey on Corruption MSMEs consistently spend a higher percentage of their budget on bribes, compared to large and international companies (retail corruption). While, according to a research paper published by the Carnegie Endowment for Peace and International Studies, Africa’s most populous country, Nigeria has lost over $1 billion to corruption in the administration of MSME development programs between 2014 and 2018.

Regional development financing institutions like the African Development Bank (AfDB) and Africa Export Import Bank (AFREXIM) provide significant development assistance channeled towards MSME development but they have not recognized their unique capacity to address the problem of corruption through private sector led initiatives. Such initiatives could take the form of promoting business integrity, transparency, accountability, and boost competition in African economies. These institutions are best positioned to reinforce and advance a culture of corporate governance, business ethics and integrity across the continent through existing initiatives or by finding new ways to work with private sector development organizations.

Following precedents of development institutions that are making efforts to address corruption in financing, the AfDB has a Debarment and Sanctions procedure that debars companies involved in unethical practices involving AfDB finance. This includes debarment of companies financed by other development banks that are part of a cross debarment agreement. This is laudable, but a sanction strategy alone is never enough or effective in addressing systemic corruption problems. Rather, initiatives that emphasizes changes in corporate behavior, employing a combination of education, empowerment, incentives, and consequences aligned with market driven objectives, would have more sustainable impact.

By incorporating business focused anti-corruption efforts in their development strategies, financing institutions can empower small businesses to implement best practice measure to mitigate corruption, while at the same time aligning market forces with these efforts will increase the attractiveness of local businesses for integration into global value chains, boost competition and shrink the inequality gap.

Committing to instill a culture of business ethics and compliance with anti-corruption laws will have a lasting positive impact, It will help enhance public integrity in order to achieve the sustainable development goals of the countries within the region. Both institutions can start by educating and empowering the business community at conferences, championing collective action initiatives that reduce the corruption risk for small businesses, and incorporate strategies that align anti-corruption efforts of businesses with social and market incentives encouraging greater transparency and integrity. Local businesses are not only the engine of African economies, they are the largest employers of labor but also have the lowest trust in the government services despite being the most dependent on those services.

Therefore, it is essential that regional development finance institutions that bring a unique perspective to addressing development problems on the continent recognize, acknowledge and create opportunities for the local private sectors in Africa to lead on business integrity by holding themselves accountable, and doing the same for public sector.

At the Center for International Private Enterprise (CIPE), we believe democracy should deliver for all, and that local business communities play an essential role in creating inclusive and prosperous economies and societies. CIPE is a non-governmental organization focused on harnessing business- led solutions to combat corruption, strengthen corporate governance, and foster entrepreneurship and public advocacy.

CIPE is helping business communities in middle-income economies to improve integrity standards, increase transparency, and strengthen adherence to best practices through collective action.

Through CIPE’s network of compliance professionals in over 12 countries across Africa, CIPE is increasing access to compliance and risk mitigation solutions that alleviate the prevailing challenges connected to the regulatory risks of cross-border trade.

We call on the Regional institutions in Africa to engage local business communities as key stakeholders in strengthening public integrity and eradicating corruption.

About Author: Lola Adekanye, CIPE Africa Program Officer. This article was initially published on bizafricadaily.com on May 5th 2019.

Posted On Tuesday, 18 June 2019 14:50

By Jurgen Murungi

The East African Community (EAC) is a regional economic bloc comprising Burundi, Kenya, Rwanda Tanzania and Uganda. Its aim is widening and deepening the economic co-operation between the partner states. The community was created by the EAC treaty of 1999 that set into motion a series of activities aimed at establishing a fully-fledged community with an economic union, monetary union and eventually a political union.

In the EAC treaty, Article 83(2) (e) obliges the states to “harmonise their tax policies with a view to removing tax distortions in order to bring about a more efficient allocation of resources within the community.” In line with this provision a Customs Union was established in 2005. To further this agenda, a common market protocol was implemented from July 1, 2010.

Partner states are obliged to undertake progressive harmonisation of their tax policies and laws on domestic taxes with a view to removing tax distortions in order to facilitate the free movement of goods, services, and capital and the promotion of investments within the community.

Five years since the common market protocol was implemented, not much tangible progress has been achieved in harmonisation of domestic taxes. A case in point would be excise duty. The five partner states in the EAC have quite divergent laws on excise duty. For instance, while Tanzania, Kenya, Uganda and Rwanda have an Excise Act, Burundi uses a ministerial directive to enforce excise duty.

Duty harmonisation

The second example is the disparity of excise tax structure with different partner states adopting a mixture of ad-valorem, specific and hybrid structures interchangeably. The third example is the excise duty remission schemes.

Some partner states have implemented remission schemes that deliberately favour certain excisable products made from local raw materials. The latest entrant in this scheme being Kenya which recently granted 90 per cent excise duty remission on beer made from local raw materials.

While excise duty remission may not be entirely a bad thing, the manner in which the various partner states have gone about implementing their remission schemes has been discriminative, hence not helpful to the course of excise duty harmonisation. Take for example beer manufactured in Uganda using Ugandan raw materials and then imported into Kenya. The product will be subject to the full range of excise duty in Kenya upon importation.

A similar product manufactured in Kenya using local raw materials will be entitled to 90 per cent remission. Given the fact that excise duty forms a significant portion of the price of alcohol products, the Ugandan product therefore becomes exorbitantly expensive and hence unable to compete in the local market. While someone may argue that this promotes local agriculture, it is important to remember that the spirit of the common market protocol is to identify the local market to mean the EAC.

Another example is the discriminatory structure of excise in Uganda with a four-tier specific excise structure that discriminates against imported cigarettes. Cigarettes manufactured in Kenya and exported to Uganda end up attracting as high as 36 per cent more excise duty.

Poultry products

This specific excise duty structure introduced in Uganda in the 2017 budget saw British American Tobacco (BAT) file a case at the East African Court of Justice (EACJ) seeking orders for Uganda to revise the Act on the basis that it was in violation of the EAC treaty and protocol.

The court granted an injunction in January 2018 stopping Uganda Revenue Authority (URA) from collecting the higher rates of excise on imported cigarettes. The case is still ongoing at the EACJ. In May 2019, the EACJ ruled that the actions by Uganda were in violation of the EAC treaty and protocol.

In 2017 Kenya had banned the importation of poultry due to an outbreak of Avian Influenza Virus. Uganda retaliated by banning importation of Kenyan poultry products. Upon the resolution of the outbreak, the countries agreed to allow the resumption in the trade of poultry products. Uganda however has sustained the ban on Kenyan poultry products insisting that they are protecting the local industry. It’s estimated that over 35 tonnes of Uganda poultry are imported into Kenya every week. Given the porous nature of our borders, this figure could be as high as 50 tonnes per week.

Tanzania has also imposed stringent requirements for compliance from the Tanzania Food and Drug Authority (TFDA) which many players in the poultry sector have seen as deliberate efforts to bar them from accessing the market. The most recent impact of such actions by Tanzania culminated in the 2018 burning of chicks imported from Kenya for being deemed non-compliant to the local poultry guidelines at a great loss to the importer. We therefore cannot over emphasise the vulnerability of the Kenyan poultry industry from the regional attacks.

Players in policy formulation in the various countries are most likely resistant to full harmonisation due to, among others, specific considerations around tax sovereignty, failure to agree on a common excise policy, fear of losing revenue, and the reluctance by the partner states to agree on the gradual convergence of excise rates due to differences in Gross Domestic Product (GDP). For full harmonisation to work, partner states will be required to cede principles of tax sovereignty in relation to excise tax.

This will require a regional holistic perspective rather than a nationalistic one in order for the region to succeed. Given the direction in which the various partner states have been moving, the harmonisation of excise duty will remain a mirage for the foreseeable future. Mutual and reciprocal recognition of the standards bodies need to be embraced across the community if the benefits of the EAC treaty and common market protocol are to be enjoyed.

Mr Murungi is a tax and policy advocacy expert. This email address is being protected from spambots. You need JavaScript enabled to view it. This opinion piece appeared in The Standard on 18th June 2019.

Posted On Tuesday, 18 June 2019 11:46

By Samuel Kabara

Countries are beginning to consider decriminalising and legalising cannabis, fuelled by its medicinal and industrial benefits.

In June 2016, the Malawian Parliament adopted a motion to legalise the non-psychoactive industrial hemp, but with emphasis on regulatory measures before the country could cultivate, process and export the hemp variety of cannabis. In its third year of trial cultivation, the crop has shown immense potential with no reported negative incidents.

RELIEVES PAIN

Last year, US President Donald Trump signed the “Farm Bill”, effectively exempting hemp from Schedule I drugs (drugs with high abuse potential with no medical use). American farmers can now produce industrial hemp legally and states can research hemp and set up cultivation programmes.

In April, the South African Health Products Regulatory Authority awarded the first batch of licences for cultivation of medicinal cannabis to local companies, allowing the country to compete globally.

Uganda recently licensed an Israeli company, Together Pharma, to set up a marijuana oil extraction plant in Kampala. It plans to initially invest $5 million (Sh500 million).

All human beings have an endocannabinoid system, which naturally produces cannabis-like compounds, the main ones being anandamide and 2-arachidonoylglycerol (2-AG) that bind to their receptors to produce beneficial effects.

Cannabis has been shown to be beneficial in managing diseases ranging from cancer to epileptic seizures. Hemp, the non-psychoactive breed of cannabis, is the most versatile crop known to humans with thousands of uses in industry. Cannabis oil relieves chronic pain in debilitating illnesses such as cancer in both children and adults. A careful balance of the two main components of cannabis — tetrahydrocannabinol (THC) and cannabidiol (CBD) — has been demonstrated to kill cancer cells in mice.

KILIMANJARO SATIVA

The plant has also been shown to be effective in managing conditions including tumour reduction, epilepsy, Dravet’s syndrome, arthritis, Alzheimer’s disease, glaucoma, multiple sclerosis and anxiety.

Despite foreign cannabis-based medicines in the local market, medical knowledge on cannabis in Kenya is scanty. But a group of Kenyan medical practitioners may undergo a fellowship programme on medicinal cannabis by a US-based medical association.

In 10 years, the global medical cannabis industry is expected to be worth $50 billion (Sh5 trillion). In Colorado, regulated medical cannabis sales topped $6 billion (Sh600 billion) since the 2014 legalisation.

Industrial hemp has had numerous uses — including production of medicines, food, paper products, textiles, body care products, construction materials, livestock feeds, fuel, nutritional supplements, essential oils and, recently, the biodegradable plastic critical in the fight against pollution.

A well-regulated medicinal and industrial cannabis industry can generate numerous opportunities. In his book, The Cannabis Story, lawyer John Ochola observes that 12 seeds of Kilimanjaro Sativa, a strain of cannabis, retail at 75 euros (Sh8,700). One plant can produce 100-1,000 seeds (Sh72,000) on the lowest yield.

MEDCINAL RESEARCH

The Narcotic Drugs and Psychotropic Substances (Control) Act of 1994, which binds Kenya to several international treaties, lists cannabis as a prohibited plant. Engagement with cannabis is only allowed to persons licensed by the board. However, in the 25 years of the Act, this board has never been constituted, hampering any medicinal or industrial research on cannabis.

Kenyan researcher Sammy Gwada Ogot’s recent attempt to have the Senate decriminalise cannabis failed. The MP for Kibra, Ken Okoth, has tabled a Marijuana Control Bill.

Kenyan cancer patients, who are undergoing stressful and expensive medical procedures, can hardly wait to be granted access to medical cannabis — and it is getting too late. Parliament must urgently review the law with regard to cannabis.

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Dr Kabara is a pharmacist, health economist, principal lecturer at Kenya Medical Training College (KMTC) and cannabis researcher. This email address is being protected from spambots. You need JavaScript enabled to view it.. This piece appeared in the Daily Nation on June 3rd, 2019.

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The Pharmaceutical Society of Kenya (PSK) is currently undertaking research on the proposed Marijuana Control Bill. You can read more here.

 

   

Posted On Tuesday, 18 June 2019 08:55

By Nickson Onyango 

It is a common feature to see signage of plots for sale along our highways and roads with a cache that there are only a few remaining. Almost all morning radio shows have dedicated some minutes to advertising the new kid on the block with good plot offerings.

HIGH PRICES

Not long ago, individuals were cheated into buying plots alleged to have installed greenhouses and promised high returns from growing tomatoes and capsicum. But why would these well-established companies with high financial capabilities not undertake such ventures on their own?

It should not escape the attention of agriculture sector stakeholders that this approach was well received by urbanites as much as the outcome was not good. Initially, the messaging was a preserve of major towns, but the proliferation has been extended to the smaller ones in well-known rural areas.

In some counties, cultural practices on inheritance have reduced land ownership to less than a quarter of an acre, which cannot be economically viable from an agricultural point of view. Consequently, the urge by every adult Kenyan to have a title deed has seen large family land subdivided into small parcels that are snapped up on a promise of value appreciation.

The right to own land in Kenya is constitutional and neither is it a crime to aspire to increase your portfolio as long as it is acquired by just means. Anecdotes abound of brokers who have become instant millionaires out of buying large parcels of land and subdividing them into plots for resale at exorbitantly high prices.

The legality of their trade is never in question because it’s dictated by forces of supply and demand. Save for a few rogue ones, the land sector is just operating on the realms and needs of the current generation.

It’s as if nothing can suppress the sheer will to own plots. For instance, Kiambu County’s landscape has been changing from coffee farms to apartments in recent years because of a burgeoning urban population that needs housing.

 

KITCHEN GARDENS

But there needs to be a rethink of how to embrace urbanisation with agriculture in mind. We should ask ourselves why a land owner is getting a high return on investment from real estate in comparison to farming. Why are our policies and approaches to farming failing, making our farmers abandon this sector in droves?

Most of our productive population is moving towards urban areas and we cannot keep on relying on our ageing parents in the rural countryside to produce 80 per cent of food that is consumed in towns.

In urban areas, most buildings are storeyed but, perhaps, we should be introspecting why they cannot be developed with subsistence household farming in mind. For instance, it will be prudent for landlords to design their units with spaces for a kitchen garden, which will allow tenants to grow vegetables in gunny bags and reduce expenditure on groceries.

Besides, with erosion of cultural inclinations, it’s high time we embraced clustered settlements in the wave of increasing population.

NET IMPORTER

By subdividing agricultural land into small pieces for food production, farmers cannot boast of a strong commercial motive because they remain uninfluenced by changes in market forces. In the long run, they have difficulties in using improved practices and technology, hence low marketable surplus as their production is only sufficient to meet domestic needs.

It’s worrying that seed firms in Kenya have started moving to Tanzania and South Africa because of entrenched land subdivision. The Seed Trade Association of Kenya has raised the alarm over the negative impact of this on production of planting materials, and, ultimately, food output.

Agriculture and land sector stakeholders should come up with initiatives to address this problem and avoid beautiful failure. We risk becoming a net food importer of produce that we could have grown with ease.

Based on prevailing realities, players in the sector should make small-scale farmers adapt good farming practices instead of focusing on relatively unaffected regions. After all, we have success stories of farmers who have established dairy farms with a herd of 100 cows on half an acre of land.

Mr Onyango is an agricultural economist. This email address is being protected from spambots. You need JavaScript enabled to view it.. This opinion piece appeared in the Daily Nation on 10th June 2019.

You can view advocacy issues around agriculture at the link here – agriculture advocacy issues.

Posted On Monday, 17 June 2019 11:56
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