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

By Sachen Gudka

The recent move by Central Bank to withdraw the Sh1,000 from circulation by October 1 has once again shone a spotlight on the grave subject of the illicit economy and the various avenues in which it thrives to support criminal activities.

Even as we debate the short-and long-term implications of this change, industry sees it as a disrupter that is likely to curtail the prevalence of the illicit economy by making it difficult for counterfeiters, producers of substandard goods, and those trading in uncustomed goods to circulate them in the local market.

Additionally, money hoarded and funnelled into funding illicit economic activities will likely be redirected into the formal banking and lending structures to finance the production of real goods and services.

In the wake of increased trading within the continent due to the African Continental Free Trade Area coming into effect, it is paramount that we take all the fundamental steps to ensure that we weaken existing illicit trade networks.

The Organisation for Economic Co-operation and Development estimates that EAC governments lose over $500 million (Sh50 billion) in tax revenue annually due to the counterfeited products and pirated goods.

Counterfeit is the most prevalent form of the illicit trade in Kenya. The other day, President Uhuru Kenyatta, during his inspection of the Inland Container Depot in Embakasi, remarked that indeed, the multi-agency task force had uncovered illicit trade schemes that have been plaguing the local markets by circulating uncustomed goods.

Illicit trade undermines national and regional security, destabilises economies, increases the cost of public health, sabotages tourism, stunts innovation, and offers a haven to organised crime and trafficking. As a matter of fact, transnational organised crime is anchored on illicit trade. This economic sabotage is felt at every level of society from start-ups to multinationals.

It is important to note that no single entity can effectively enforce anti-counterfeiting measures within and across national boundaries. It was, therefore, encouraging when the multi-agency force was set up in 2018 and since then, notable progress in this endeavour has been made.

As the umbrella organisation for manufacturers in Kenya, we are encouraged with recent amendments to the Anti-Counterfeit Act, 2008, the legislation being the bedrock on which law enforcement can launch their offensive, and aid in increasing the success rate of action taken by law enforcement authorities.

The amendments to the Act underscore the government’s commitment to fight illicit trade and promote bona fide manufacturers and intellectual property owners in line with the Big Four agenda.

In the alcohol beverage industry alone, we still have more than 50 per cent of the commodity consumed in Kenya described as illicit. Meaning that there is loss of revenue to the government in this sector in form of unpaid taxes.

These issues were discussed, and solutions suggested at the summit that KAM held where a paper on “The unintended effects of Kenya’s Alcohol Regulation Policies’ by the Institute of Economic Affairs” was unveiled.

In the long term, having the right adaptive policies in place and the collaboration of all parties in the fight against illicit goods will take the evident gains so far forward, we shall reap by having more tangible economic achievements and a healthier, and safer population.

I believe we are on the right track and it is incumbent upon us to address these challenges head-on if left to fester, illicit trade is a threat to our nationhood. 

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The writer is chairman, Kenya Association of Manufacturers This email address is being protected from spambots. You need JavaScript enabled to view it..

This piece feature in the People Daily on 12th June 2019.

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The Business Advocacy Fund has supported the Kenya Association of Manufacturers to undertake advocacy on illicit trade and counterfeits. You can view the description on the issue here. Combating illicit trade - Kenya Association of Manufacturers (KAM)

Posted On Thursday, 13 June 2019 08:52

By Rosemary Okello-Orlale

As Kenyans, through the Ministry of Finance, Planning and National Development, are preparing for the budget for the 2019-2020 Fiscal Year to be presented to the legislature for approval on 1st July 2019, the issue of heavy debt has captured the main narrative, clouding the importance of the budgeting strategy and process in Kenya.

During a recent Policy Breakfast by Strathmore University Business School and Business Advocacy Fund for Business and Finance Journalists on Public Finance and Revenue Performance in line with the 2019-2020 Fiscal Strategy, the issue on how the growth of tax revenue has fallen short of the ever-ambitious growth in public expenditure dominated the session.

Kenya’s revenue portfolio is significantly driven by tax revenue and the primary contributor to tax revenue is income tax. Elias Wakhisi, Manager, Public Policy, ICPAK, who was one of the key speakers at the Policy Breakfast noted that the current expenditure deficit is at Kshs 38 billion. Meanwhile, Kenya’s revenue portfolio is significantly driven by tax revenue and the primary contributor to tax revenue is income tax.

According to him, PAYE contributes a large proportion to overall tax revenue, with only 3 million Kenyans paying it.  This is even though around 12 million Kenyans are eligible to pay taxes.  Mr Wakhisi noted that “Direct taxes drive the tax revenue structure of a country and efforts should be made to diversify the sources of revenue and widen the tax base,”.

Currently, the external public debt stock comprises principally of loans from multilateral, bilateral and commercial creditors. These make up 25.6% of GDP and the domestic debt stock is made up of treasury bills and bonds, which constitute 24.7% of GDP. Other debts are made up of suppliers’ credit, which includes the CBK overdraft, performing guarantees and bank advance which make up 2.3% of GDP. This debt is excluded from the medium-term debt strategy (MTDS). 

For Kenya to address the challenges facing the revenue sector, the country needs a new income tax law. According to Wakhisi, the current law was enacted in 1975. “We have been doing a lot of patch work since then on the legislation."

He emphasized that modern tax law will bridge existing gaps and address ambiguities that limit revenue.

Dr Miriam Oiro Omolo, Executive Director at the African Policy Research Institute, reinforced the need of having a new tax law which can help the Country in using a multidisciplinary approach to solve economic problems. “Linking the National and County Fiscal Strategy 2019/20 is crucial especially including the financial outlook with respect to county government revenues, expenditures and borrowing”, she stated.

She added, since the County Financial strategy paper should be produced by February every year, this can help the national government to include the financial outlook with respect to county government revenues, expenditures and borrowing.

Unlike the previous budgets, the priorities for 2019/20 fall within the ‘Big Four agenda’. The national government is implementing policies and programmes in the following areas:  Universal health care, affordable housing, manufacturing and food security.  The ‘big four’ are also prioritized in the third medium term plan (MTP III) of Kenya Vision 2030.

Since the Budget is the most important economic policy tool for any government and reflects a government’s priorities on the economy, policy implementation and social development, Dr Omolo says that the  2019/20 financial expenditure can help Kenya achieve the expected outcome under the Big 4 agenda: Accelerated and sustained inclusive growth, increase of opportunities for productive jobs and reduction in poverty, and income inequality. 

However, for the impact of the outcomes to be achieved, there must be legal and institutional reforms across the big four sectors.  “Collaboration with the counties is key to achieving the Big Four agenda,” said Dr Omolo. She added, “Creating an enabling environment that can attract investments in the four priority sectors will be critical or else the ordinary person will continue to bear the burden of taxes.”

Attendees at the policy breakfast which attracted over 30 Business and Finance Journalists agreed that there is a lacuna when it comes to Kenya's taxation policies.  Therefore, there is a need for a stronger strategy to enhance revenue collection such as sealing tax loss loopholes and widening the tax base.

The country should adopt reduction in spending and support key sectors of the economy, especially the major income earners such as the services sector, agriculture, manufacturing and tourism among others. Further, there should be the implementation of budget monitoring reports. The Government should act on the Auditor General and Controller of Budget’s recommendations with respect to public debt by enhancing accountability in public and private sectors to free more resources to development.

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On 31st May 2019, Strathmore Business School’s Africa Media Hub in collaboration with the Business Advocacy Fund hosted a Media Policy Breakfast for Business and Finance journalists. The theme of the breakfast was “Public Finance and Revenue Performance in line with 2019-2020 Fiscal Strategy”. The speakers at the breakfast were Dr Miriam W. Oiro Omolo, Ph.D., Executive Director at the African Policy Research Institute (APRI) and Elias Wakhisi, Manager, Public Policy, Institute of Certified Public Accountants of Kenya (ICPAK).

You can download Dr Miriam W. Oiro Omolo’s presentation here.  

You can download Elias Wakhisi’s presentation here.

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Rosemary Okello-Orlale is the Director of the Africa Media Hub- Strathmore University Business School.

Posted On Monday, 10 June 2019 15:33

By John Recha (Ph.d)

The impact of climate change on crop, livestock and fisheries systems in Africa is evidently overwhelming, yet we must produce more food for the growing population.

Climate-smart agriculture (CSA) can help countries and communities adapt to the impacts of climate change, while sustainably increasing productivity, and delivering co-benefits of reducing/removing GHGs for environmental sustainability, nutrition and livelihoods.

Sustainable goals

The CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS) suggests ten CSA innovations that can help the sector step up to the challenges posed by climate change.

The innovations are useful in achieving the UN Sustainable Development Goal-2 of ending hunger, achieving food security and improved nutrition, and promoting sustainable agriculture.

The first innovation involves agroforestry to diversify farms and enhance resilience.

Agroforestry involves the integration and use of trees in crop fields, farms and across agricultural landscapes.

Trees buffer climate change impacts and variability and diversify land use and farming systems, providing additional livelihood and environmental benefits not delivered through land management without trees.

Secondly, the farming of fish and other aquatic products in an innovation that enhances nutrition and diversify incomes.

Fish farming can increase farmers’ adaptive capacity by providing an alternative supply of fish to depleted wild fisheries, as well as an additional nutrient rich and widely accepted animal food for homestead consumption and sales.

Fish ponds on smallholder farms help diversify income for farmers and thus enable them to increase resilience in the face of shocks.

The use of stress tolerant varieties to counter climate change is the third innovation.

Climate change affects the yield of crops through increased exposure to high temperature, water stress, flooding, diseases, pests and salinity.

Use of crop varieties that have increased tolerance to climatic stresses increase smallholder farmers resilience to climate change.

Stress tolerant varieties

These benefits come about by either increasing the physiological resilience to climatic extremes or the use of early-maturing varieties that allow cropping calendars to be adjusted to cope with seasonally unfavourable conditions.

The fourth innovation involves improving smallholder dairy production. The interventions could include improved feed and forage management, breeding for heat tolerance, and efforts to improve animal health.

Due to the high consumption of rice, the fifth innovation targets rice production through alternate wetting and drying.

The practice helps rice farmers become more resilient and reduces emissions.

It is suitable for irrigated rice systems and involves periodic drying of the field by suspending irrigation for several days.

Fields are irrigated again once the first small soil cracks are visible so that there will be enough water available for the rice plants.

Use of solar irrigation is the sixth innovation. Irrigation can help millions of smallholder farmers intensively cultivate their small parcels to improve income and better cope with climate induced uncertainties.

Solar irrigation is more affordable, useful for both groundwater and surface flooding without threatening resource sustainability and minimising its environmental footprint.

Digital agriculture

The seventh innovation is utilisation of digital agriculture.

This encompasses an array of technologies, channels, and analytic capabilities that are being applied to make farming more precise, productive, and profitable.

These technologies tend to be applied with the goal of increasing productivity per unit of land, and they can be a natural complement to climate services and other services e.g. credit offered through digital platforms.

The use of climate-informed advisories is the eighth innovation.

Climate services involve the generation, translation, communication and use of climate knowledge and information in climate-informed decision making, policy and planning.

By reducing uncertainty, climate information and advisories enable farmers to better anticipate and manage adverse climatic conditions, take advantage of favourable conditions, and adapt to change.

Use of weather index-based agricultural insurance is the ninth innovation.

Agricultural insurance normally relies on direct measurement of the damage that each farmer suffers. Index-based insurance, on the other hand, is a feasible alternative.

Pay-outs are triggered not by observed crop losses, but rather when an index – such as rainfall or average yield – falls above or below a prespecified threshold.

Insurers can automate pay-outs and make them quickly.

This lowers administrative costs and premiums compared with conventional crop insurance.

Individual farmers can purchase insurance or groups, can also purchase the insurance for farmers.

The tenth innovation is scaling up financing for climate change adaptation in agriculture.

The success of adaptation actions in agriculture rely not only on technological innovations, but supporting institutional, policy, and investment environments, which can help innovations reach scale rapidly.

New, fit-for-purpose business and financial models are an area for innovation to support scaling up of proven technological innovations.

There is need for stepping up the CSA campaign by national and county governments, research and development partners, the private sector and community groups.

At recent “Climate Resilient Agribusiness for Tomorrow” workshops organised by the SNV Netherlands Development Organisation, it was observed that time is ripe for CSA knowledge to be disseminated to small scale farmers for food and nutrition security.

Mr Recha (PhD) is a Research Scientist at The CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS) This email address is being protected from spambots. You need JavaScript enabled to view it. This opinion piece also appears in The Standard on 21st May 2019.

Posted On Tuesday, 21 May 2019 09:55

By Andrew Mwangura

Current government plans on shipping and blue economy calls for an immediate re-look at the Merchant Shipping Act 2009.

A clause in the Act blocks foreign shipping lines from engaging in other businesses and confines them to cargo haulage — and that has been the case for the past 10 years that the law has been in effect.

BARRING OUTSIDERS

There is a need to repeal or amend the draconian Act and come up with a Cabotage Law.

Cabotage by merchant ships is prohibited in most countries that have a coastline. The aim is to protect the domestic shipping industry from foreign competition, preserve domestically owned shipping infrastructure for national security purposes and ensure safety in congested territorial waters.

The purpose of Section 16 of the Merchant Shipping Act is to allow the “local talents/entrepreneurs” to venture into these jobs/businesses of providing services to ship owners — both local and foreign — while barring outsiders from setting camp in Kenya to provide services that can otherwise be offered by locals.

A change in the law, however, should take into consideration the realities and dynamics in the maritime world.

One is that shipowners nowadays do not necessarily operate their own vessels. They “outsource” many services — including technical management (such as superintendence), commercial management (shipbrokers and supercargoes), crew management (crewing agencies) and bunker supply.

A typical shipping line will have a very small office in, say, the UK, a technical management service office in Hong Kong, a crewing office in Manila, a commercial management office in New York and a bunker supply office in Singapore.

The shipowner will then concentrate on trading his own assets (the ships) or chartered assets on the lucrative trade routes. He will be dealing with bankers, shipbuilders, insurers and other stakeholders.

UNEMPLOYED YOUTH

The question of cabotage is a complicated one since the East African Community Customs Management Act 2004/2009/2011 (as amended) is interpreted differently by Kenya and Tanzania, leaving foreign ship owners baffled.

For instance, the Kenyan coast does not have safe and sheltered anchorages for transshipment, and that has to be carried out within the port limits. On the other hand, Tanzania and Mozambique allow their coast to be used for such operations.

But then, how many Kenyan- or Tanzanian-flagged coastal vessels can take part in these operations?

There is a need to support the blue economy implementation team in its bid to revitalise the Kenya National Shipping Line (KNSL) and, hence, create jobs for the seafarers and other unemployed youth, especially in the coastal region.

The President has a political and moral responsibility to effect plans for harnessing local national resources and ensure they are organised in a manner that advances the social and economic well-being of all citizens. Indeed, it is a constitutional duty.

This responsibility is more critical to the coast residents, who have for many years been marginalised, resulting in high poverty levels and massive unemployment. This has caused a social crisis in the form of violent extremism, drug abuse, radicalisation and hopelessness.

Mr Mwangura is the convener, Seafarers and Mombasa Youth Assembly. This email address is being protected from spambots. You need JavaScript enabled to view it.. This opinion piece appeared in the Daily Nation on May 14th, 2019.

Posted On Tuesday, 21 May 2019 09:14

By Kennedy Manyala

The signing of the Kigali Declaration on the African Continental Free Trade Area (AfCFTA), in March 2018, by African Heads of State and Government, marked a significant shift in expectations by Africa’s business community, for Africa’s future economic growth and development.

The Declaration introduced enhanced intra-African trade, achievable through AfCFTA as a sure way of achieving elusive sustainable economic development, employment creation all over member states, and most importantly, reversing the declining economic growth and development trend in the continent.

Over the past fifteen or so years, most countries in Africa experienced sustained economic growth, with the rates often exceeding 5% a year. Between 2000 and 2010, the continent achieved average real annual GDP growth of 5.4%, adding US$78 billion annually to GDP. This growth inspired optimism around and about the continent’s socio-economic prospects and in its ability to deliver better socio-economic welfare gains to the people.

However, this was not the case. Between the years 2010-2015, Africa’s economic growth slowed down. Growth dropped to an average of 3.4% per year thus sending shockwaves through the leadership of Africa and the entire business community. Despite this decline in the performance of mentioned economies, the rest of Africa’s economies were able to maintain stable growth rates in general. Nonetheless, African economies amid many internal and external shocks have been resilient. According to the World Bank Review (2018), growth in Sub-Saharan Africa is estimated at 2.3% for 2018, down from 2.5% in 2017. Economic growth remains below population growth for the fourth consecutive year. This trend created a shockwave among economic policy makers in Africa, the continents leadership, and the entire business community.

‘Africa cannot continue playing catch-up all the time’

Realizing that the time for economic growth and development ‘catch-up’ is over, and that spiritual, economic, and political history would judge them harshly, the African leadership moved swiftly and agreed to establish the Continental Free Trade Area (CFTA) by 2017. In so doing, they endorsed a road map and architecture for fast-tracking the establishment of the CFTA and the Action Plan for Boosting Intra-African Trade by: fast-tracking the EAC, COMESA and SADC (Tripartite FTA), overseeing the completion of Free Trade Agreements (FTAs) and, Consolidating the Tripartite and other regional FTAs into a CFTA initiative. It is believed that a more open Africa through the CFTA will grow intra-Africa trade from its current levels. Under the present policy environment and physical conditions, intra-African trade remains low. In the trading period 2017-18, intra-Africa exports accounted for 16% of Africa’s total exports. The share of intra-African exports as a percentage of total African exports increased from about 10 % in 1995 to around 17% in 2017 with some slight improvement expected in 2018, but it remains low compared to levels in Europe (69%), Asia (59%), and North America (31%).

But isn’t the initiative ambitious?

No doubt, the AfCFTA among other commitments Africa’s leadership has made in the past such as the Comprehensive Africa Agriculture Development Programme (CAADP) and the Programme for Infrastructure Development in Africa (PIDA), to name a few, is probably the most ambitious commitment we have ever seen in recent times.

Though it looks good on paper and in economic spirit, Africa’s economic development planning history shows us that the AfCFTA could be a public relations exercise. That is unless African governments through their respective Regional Economic Communities (RECs) act on trade barriers, physical infrastructure challenges and overall national competitiveness.

Africa must do the following:

Africa must make AfCFTA work. African governments through their respective RECs must have the courage to read and implement the Economic Textbook requirements. We understand that structure, nature and physical dynamics in Africa can be intimidating to intra-Africa trade and its CFTA policy component of free movement of goods. But Africa must have the courage to fix it.

First, Africa through the AfCFTA must try to remove trade barriers within and across all RECs and allow the free movement of goods, services, and people across Africa. The CFTA could help to increase combined consumer and business spending on the continent to $6.7 trillion by 2030. Second, Africa has poor road and rail network that has stood against intra-trade. Africa must put its road and rail infrastructure in place. All roads connecting countries and every RECs will be key in speeding up the movement of goods and reducing transport costs. For example, a road from Mombasa (Kenya) to Matadi via Kinshasa (DRC) or from Mombasa, Kampala to Kisangani and Bangui, would expose trade with the Central Africa Region. Third, Africa must engage, promote and participate in a massive private sector development agenda that would primarily start with national completeness programs that are cascaded down to the SMEs. Such a programme would make the AfCFTA work for the African consumer, as well as make African goods globally competitive.

Kennedy Manyala is an applied microeconomist with a deep understanding of issues worldwide ranging from the Americas, European Union, Asia, Middle East, and Africa to the East Africa Community (EAC) especially on strategic public and private investments in non-tourism sectors and tourism and socio-economic development issues 

Posted On Monday, 20 May 2019 12:03
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