E-Malt.com News article: Kenya: Alcohol industry under pressure

When South African Breweries divested from Kenya after failing to achieve a critical market share, one of the main lessons missed was that the Government had miserably failed an investor who had shrugged off good advice and put his massive capital in Kenya, The Nation posted May 15.

If the international brewer had the option of closing down the operation at Thika, it is manifestly obvious that this rarely apply to indigenous Kenyans who know no other home, even when it comes to investing.

That is why businesspeople braved the recession period of the late 1990s and early this decade.

That said, the poor investment climate that nudged the South Africans out has not changed much, particularly qualitatively.

While the liquor industry in various ways employs up to 300,000 Kenyans, the fiscal regime does not seem geared to support either their continued stay in employment or generating more job opportunities.

Traditionally, Government takes at least 60 per cent of the earnings by the liquor industry. This is a situation that is common globally.

As a matter of fact, that is one reason most governments throw a heavy protective wall around their alcohol industry. A country like Germany through State encouragement has in excess of 3,000 liquor players and exports millions of hectolitres. The same thing applies to South Africa and Italy.

Where the Kenyan Government severely fails the industry is ill thought-out heavy excise tax on neutral alcohol, an important input in the industry.

Kenya has the highest neutral alcohol excise duty in the region at nearly 300 per cent. In countries like Uganda, this is about 60 per cent. What this has meant is that companies have taken to sneaking in the liquid from across the borders, which has made it very difficult for the serious players to operate.

When importation of the neutral alcohol is made easier, Kenya ends up killing the local sugar industry.

Politicians, particularly from the sugarcane producing zones, do not appear as if they see the danger inherent in this.

Table sugar can only account for less than a third of the actual monetary yield of the sugarcane. As long as duty is not harmonised within the region, neutral alcohol will continue to be a top priority for smugglers: a situation which leaves Kenyan farmers dependent on erratic regional and global sugar prices.

Another fundamentally important point is that this uncontrolled flood of neutral alcohol has resulted in numerous informal players in the industry. As long as these players remain uncontrolled, the health of Kenyans remains outside the domain of the authorities. So does millions that should accrue to Treasury.

With a reported 60 players known to be operating in various forms, only about 10 are on the radar of the Government. Yet products that are uncertified by Kenya Bureau of Standards and unknown to the Kenya Revenue Authority are in abundant supply, yet their brands are well displayed, vehicles conspicuously branded and a clear distribution network in place.

For the industry, it has meant competition has shifted to price instead of quality enhancement, making long-term prospects bleak.

Back to the original point of foreign investors and their shifting loyalties, it is imperative that the Government recognises that local investors are important in its long-term development planning. Without a well-grounded class of entrepreneurs, any industrial infrastructure is built on quicksand.

To give credit where it is due, the Narc Government has, to a large extent set out to disabuse Kenyans of the notion that foreigners are our saviours. Indigenous companies ranging from banks to manufacturers are at last gaining recognition. But more has to be done to "de-racialise" investment in the minds of Kenyans.

A multinational may pay employees more because they enjoy obvious economies of large production. But will they pay for the livelihood of all Kenyans?

Deliberate policy must be directed toward nurturing indigenous business, not derailing it.

As Finance minister Amos Kimunya embarks on putting final touches to the Budget, it is important that he recognises the internal strengths of this country and builds on them. Besides planning expenditure devoid of foreign aid, he must recognise that Kenyan enterprises have a lot of potential.

Drinking did not start yesterday. Kenyans will always drink. The challenge is to make these drinks affordable by fixing reasonable taxes considering the consumer, regulating all players and enforcing standards. That is all serious players are asking for.


16 May, 2006