BUDGET 2015 ANALYSIS

By

Peter K. Biwott

TRADE DEVELOPMENT MANAGER

Economic Growth

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• Kenya’s economic growth declined from 5.7% in 2013 to 5.3% in 2014

• Kenya’s economy to grow 6.5% to 7% boosted Low oil prices Higher public and private

investment Increased consumer

confidence High TFP (Efficiency in

production process Increased investment in human

capital

Vision 2030 Growth mirage

Failure to achieve 10% economic growth in Vision 2030 attributed to:

Low domestic savings and investments

High cost of energy

High cost of credit

Narrow range of exports

High unemployment

High poverty levels

Low absorption of development funds

Poor investment environment

Budget Priorities 1. Security improvement

2. Infrastructure development

3. Agricultural transformation

4. Business environment improvement

5. Human capital development

6. Devolution and regional development

MSEs Challenges

According to the Budget 2015/2016

High cost of credit (high interest rates) (CBR 8.5% to 10%)

Limited access to markets

Inadequate knowledge and skills

Poor infrastructure such as markets

Low access to the rapidly changing technology

MSEs Opportunities in the Budget1. Investment in security to improve profitability in investments

2. Widening the tax base: Tax reforms to enhance compliance

3. Strengthen fight against corruption

4. One stop shop investment centres and huduma centers in 46 Counties

5. Adoption of ICT and Setting ICT standards and agreements with local dealers to do business with government at discount

eCitizen platform eProcurement Digital payments for business registration, land transaction services etc. Kenya National Electronic Single Window System from 1st July, 2015 Digital talent promotion to enhance innovations

6. Business regulatory reforms Strategy: Policy and law to harmonize business legislations at national and county levels Single business permit or multiplicity of licenses and regulations EMCA and NCA Act review for repeal or structuring Finalize review of procurement law

MSEs Opportunities7. Infrastructure development e.g. roads, airports, SGR etc.

40% local content and quarterly submission on progress by accounting officers

8. Energy development Cost low by 30% 5000 MW by 2017 Electricity connection Kshs.35,000 to Kshs.15,000 40% local content

9. Irrigation incentives allows business in New investments in water facilities Importation of small holder irrigation equipment

10. Industrial parks incentives for 100 acres more in Nairobi, Nakuru, Kisumu, Mombasa, and Eldoret

No VAT on taxable goods and services to be used

11. NYS investments pool of skilled manpower to MSEs 12. Support to SMEs to acquire small industrial plants for value addition

MSEs Opportunities 13. Increased allocations Uwezo, Youth and Women funds

14. Invest in research and development: Nurture and commercialise innovations and end products

15. Facilitate leasing by SMEs as an alternate financing mechanism for capital expenditures

16. Tax exemptions for companies that employs over 10 fresh graduates for 6 to 12 months

17. Investors exemption of VAT on goods purchased for film industry

18. Restriction of importation of finished fishing nets (25%) and 0% on raw materials (nylon yarn and synthetic twine)

19. Increased exports taxes on hides and skin export duty 80% of FOB value or 0.52 dollars per kgs

20. Protection of local production of plastic tubes (25%)

21. Tax remission on beer or wine made from sorghum, millet and cassava to promote safe drinking

MSEs Opportunities22. Protection on importation of aluminium milk cans to enhance local production (25%)

23. Protection of production of gas cylinders (25%)

24. Exempt VAT on plastic bag biogas digesters to encourage clean and affordable biogas energy system in rural areas

25. Zero rate services in respect of goods in transit to make Kenyan transporters competitive in the EAC region

26. Reduction of import declaration fee (IDF) from 2.25% to 2% EAC levels

27. Bottled water and other goods that are not harmful taxable in customs and excise act will not be taxable per new Excise law

28. Restriction on sugar imports specific tax USD.200 to USD.460 per metric tone or 100 per cent of customs value (ad valorem)

Sustained Economic Development proposal

1. Increase development expenditure, reduce recurrent both at national and county level: Investment led growth rather than consumption led growth

2. Reduce borrowing, if possible stop. Trigger SME formalization to widen tax base

3. Efficiency and enhanced absorptive capacity of the increased development expenditure

4. Lower interest rates to increase access to credit and trigger investment led growth i.e. during 2003 to 2007

5. Enhance TFP through R&D, technology and innovation

6. Enhance agricultural productivity and manufacturing (value addition) targeting exports increase for sustainable growth

THANK YOU