150,000 jobs to go as EU taxes Kenya goods

Thursday October 2 2014

George Mutethia tends to cucumbers at the

George Mutethia tends to cucumbers at the Amiran Agribusiness Training Centre in Meru Town on August 18, 2014. Unless something is done, a reduction in the volumes of export will tilt the balance of trade much more in favour of the EU at a time when there is a global movement to reduce economic inequality within and across borders. PHOTO | PHOEBE OKALL | NATION MEDIA GROUP

By CHARLES WOKABI
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More than 150,000 Kenyans stand to lose their jobs if the horticulture industry collapses from the effects of new taxes imposed on Kenyan exports to Europe, the country’s biggest market for fresh produce.

Another 450,000, who depend on the sector’s employees could also lose their livelihoods after European countries forced Kenyan exporters to sell their goods at higher retail prices effectively pushing away potential customers.

Industry players said they expected to incur losses of at least Sh1 billion a month if nothing is done to save the situation.

Kenya, and the other member states of the East African Community (EAC), had up to September 30 to conclude and sign an Economic Partnership Agreement (EPA) with the European Union for goods originating from the region to continue enjoying preferential treatment in Europe.

However, the deal miscarried after disagreements occurred on two levels. First, the five member states of the EAC could not agree on some issues among themselves. Second, the region could not reach an agreement with the EU. The result was that the region missed Tuesday’s deadline.

LDCs

That means Kenyan products will be subjected to a new regime of high taxation in Europe. However, Tanzania is unlikely to suffer the same fate because it is ranked among the Least Developed Countries (LDCs) which will continue to enjoy preferential treatment.

“It is a total disaster. We are talking about new taxes of up to 15 per cent for some of our most popular products in Europe,” said Mr Stephen Mbithi, CEO of the Fresh Produce Exporters Association of Kenya. “This basically means the retail price has to go up by at least a similar margin which leaves us at a disadvantaged position.”

Hardest hit are exporters of processed fruits and vegetables, such as Delmonte Kenya Limited, who will have to factor in a new tax of 15 per cent in their retail prices.

Fresh flowers and vegetables, which were zero-rated, will now be taxed at 6.99 per cent. Fresh fruits, such as avocados, will attract at least two per cent in new taxes.

LAY-OFFS LIKELY

Cut flowers will be subjected to tariffs of 8.5 per cent and fish six per cent, while pineapple and other fruit juices will be taxed at 11.7 per cent.

Higher retail prices are expected to trigger a significant drop in sales, which means that local companies could start laying off workers.

Kenya Association of Manufacturers CEO Betty Maina said the new terms mean that Kenya risks reduced export volumes to the European Union this year.
“The volume of exports is certainly under threat as we may end up losing out to competitors,” she said.

According to Economic Survey 2014, Kenya’s exports to the EU accounted for 24.6 per cent of total value of exports. About 90 per cent of the exports are agriculture products.

SCALED-DOWN OPERATIONS

It is estimated that the sector employs 150,000 people directly and is the source of livelihoods for over 450,000 more.

“We know of companies that have already scaled down operations because new orders are not forthcoming,” Mr Mbithi said. 

A source in the government, who was part of the negotiating team, said there was reluctance from the other EAC members because, having smaller economies, they can still enjoy preferential treatment without having to sign the EPA.

Besides, the other countries in the EAC — Tanzania, Uganda, Rwanda and Burundi — do not export large volumes to Europe as Kenya does.

“Some members, like Tanzania, were not in the negotiations fully and sometimes we had to carry them like eggs,” the government official, who requested not to be named, told the Nation. "Perhaps because they knew they would still be allowed to export to the EU as LDCs”.

COMMIT A NEW DATE

He said the regional talks faced challenges such as “sometimes arranging for meetings but some participants don’t show up or they simply don’t commit a new date”.

The head of communication at the EU delegation in Kenya, Mr Christophe De Vroey, has said the region had called for a fresh meeting to hopefully settle the issues.

“There has been no progress in the negotiations so far, but the EU and EAC could meet again following a request by the EAC secretariat,” he said in a telephone interview.

Additional reporting by Aggrey Mutambo.