For Kenya to prosper, counties must be industry-centric
Kenya county competitiveness can be enhanced if county governments address challenges that businesses face every day, including low levels of public participation, insufficient allocation of resources to facilitate critical county functions, which subsequently impact effective and efficient service delivery, good governance and economic development, writes Tobias Alando.
Twelve years since Kenya ushered in the devolved system of government, the fruits have been bittersweet for businesses. Today, we need to pause and take stock from 2013, Where are we now? Have we fulfilled that promise? What does success truly look like and how do we translate the dream of devolution into a lived reality for our citizens, our industries and Kenya’s prosperity?
On the positive side, devolution has brought services closer to the people and enhanced citizens’ participation in governance. For Kenya’s manufacturing sector, devolution came with hope. Hope for enhanced access to resources. Hope for a surge in economic opportunities at the county level. Hope for increased focus on developing local industries and enhanced value chain linkages as well as streamlined operations driven by efficient governance.
On the converse, businesses are facing a myriad of challenges such as low levels of public participation, insufficient allocation of resources to facilitate critical county functions, subsequently impacting effective and efficient service delivery, good governance and economic development.
Let us look at where we are, starting with county industrial competitiveness. One of the top key issues businesses have overwhelmingly identified that has led to increased costs is costs related to movement of goods now famously known as ‘county movement taxes. Article 209 (4)(5) of the Constitution mandates that Counties’ revenue raising powers should not jeopardize national economic policies or activities across counties. Unfortunately, counties continue to impose exorbitant inter county fees, levies and charges in addition to business service permits. This has resulted to increased cost of doing business in counties and across counties and disrupts the flow of goods to consumers across counties and country. The most affected being micro and small businesses who are unable to pay each county such fees.
Such fees take the form of offloading fees in market and non-market areas including private facilities or depots in other counties, annual registration fees for vehicles (all lorries, canters, and pickups), cess fees, branding fees, advertisement fees, among a long list of other fees and charges. Another example is transport cess which costs up to Ksh. 2,000 per truck, charged on containers transporting raw materials from the Inland Container Depot (ICD) or the Container Freight Stations (CFS) to industries and imports that have already been subjected to statutory customs duties. Thereafter, the finished goods are then subjected to an additional cess fee upon exit – this constitutes double taxation.
What makes it worse is that the same keeps on being increased frequently with exorbitant percentage rates of even up to 300%. This has affected operational planning predictability of manufacturers in the country. For businesses to thrive predictability is critical.
However, the move by Senate to pass the County Licensing (Uniform Procedures) Act, 2024, has given hope to businesses that Government is making an effort to tackle the county fees challenge through the law assented by the President on 28th June 2024. The main purpose of the Act is to establish standard uniform procedures for licensing by county governments. The Act will go a long way in ensuring uniformity and consistency in the imposition of fees and levies at the county level. To make the Act fully operational, government is in the process of enacting Regulations to guide the implementation of the Act. Further, the Council of Governors is also developing strategies and guidelines for the Counties for the harmonization of licensing regulations, procedures, requirements and fee structures to ensure freedom of transit of goods and provision of services across various counties.
Another challenge facing businesses in the counties is investment uncertainty due to frequent changes in taxes, particularly through the County Finance Acts, which create an unpredictable business environment, leading to instability for investors. Subsequently, our competitiveness as a country is eroded, placing Kenya at a disadvantaged point, compared to East African Community (EAC) partner states, which collectively implement a more streamlined tariff structure under the EAC Common External Tariff (EAC CET).
With this picture in mind, what does successful devolution look like for Kenya’s manufacturing sector?
The devolved system of government, if correctly implemented, is a powerful economic tool that can spur industrial growth and transform Kenya into an industry-led economy. However, realizing this vision requires deliberate action. First, we need a harmonised regulatory and tax framework. This will enable businesses to operate under a consistent, stable and predictable environment across countries, reducing the heavy compliance burden and facilitating smooth cross-country operations. Secondly, are predictable and transparent county processes. It is critical for county governments to provide clear, timely, and publicly available administrative processes, decisions, and timelines. This will help to build trust with businesses and citizens.
Thirdly, streamlined and simplified licensing. This will enable businesses to easily access and complete licensing through simple, uniform, and digitalized systems. Fourth is a supportive physical and digital infrastructure. Counties need to provide reliable infrastructure such as roads, water, and sewerage systems that meet industrial needs, enabling manufacturers to produce and distribute efficiently. Fifth, strong local supply chains and domestic value addition are crucial. Counties, in collaboration with the relevant national government ministries, ought to create conditions where manufacturers can source inputs locally, reducing import dependence, increasing local content, and stimulating county-level production ecosystems.
Lastly, we need effective county-industry partnerships, where manufacturers and county governments collaborate regularly to shape policies, investments, and initiatives that support industrial growth and local economic development.
Creating manufacturing-centric counties is within reach, it is doable with goodwill from all relevant stakeholders. It can be achieved by making intentional decisions to fast-tracking alignment between the national and county governments on regulations, taxes, and levies, establishing national guidelines for county-level manufacturing policies and creating a one-stop regulatory and tax portal that is accessible to businesses across all counties. Additionally, finalisation of the regulations to implement the County Licensing (Uniform Procedures) Act, 2024 and digitalization of county licensing systems that are integrated into national platforms and offer centralized online payment and renewal processes.
Industrial development is predicated on the availability of public goods. County governments need to prioritize county infrastructure investments aligned with industrial needs, expand industrial parks, special economic zones, and digital infrastructure and encourage public-private partnerships (PPPs) to close infrastructure gaps. It is also important to develop and implement local content targets through County Aggregation and Industrial Parks (CAIPs), promote local supplier development programs, provide incentives for manufacturers using local inputs and align county procurement rules with the Buy Kenya, Build Kenya initiative.
To realize the benefits of devolution calls for close collaboration between the National and County Governments. This calls for structured engagements with the citizens, including manufacturers, and the creation of joint action plans for industrial development. Only then, will Kenya be able to enjoy the fruits of devolution and achieve her socio-economic development goals.
The writer is the Chief Executive of Kenya Association of Manufacturers and can be reached at ceo@kam.co.ke.
