One of East Africa’s largest manufacturing automobile companies CMC Motors Group has announced plans of exiting key markets citing a tough business environment. The shock exit is expected to leave thousands of staff jobless and cut back supply in the regional market. CNBC Africa’s Aby Agina had an exclusive interview with Kenya Association of Manufacturers CEO, Tobias Alando to get a sense of what this means for the market, plus how can countries boost competitiveness to attract investment.
One of East Africa’s largest manufacturing automobile companies CMC Motors Group has announced plans of exiting key markets citing a tough business environment. The shock exit is expected to leave thousands of staff jobless and cut back supply in the regional market. I had an exclusive interview with Kenya Association of Manufacturers CEO, Tobias Alando to get a sense of what this means for the market, plus how can countries boost competitiveness to attract investment. If you look at the business environment that we have been operating in, it did not come as a surprise, I would say so, because the environment that many industries in this country have been operating in are unpredictable. So the unpredictability of the tax and policy space will create such scenarios where companies exit because of probably loss of market share. So it didn't come as a surprise. The question is what do we need to do next to ensure that not more companies exit this market? Well, Tobias, this comes as very shocking news to many in the business world. And perhaps what would be the economic loss this will mean for government in terms of taxes, and at the same time for those that are working in those companies in Kenya, Tanzania and Uganda? So the economic loss is huge. Partly, one is the contribution to taxes to government. They will lose a lot of taxes, direct taxes from the company and even the supporting value chain that was employed or that was gaining an income through this kind of a company. The other issue is it creates an environment of instability for even potential investors. So any potential investor will ask the question, why and what is the reason why this company is exiting the Kenyan market or is closing down? So it has a ripple effect both economically and socially. In terms of employment, these people who are losing their jobs, this will impact negatively to many families that were fed through employment under this company. Well, I'd like to know what are some of the systemic issues right now, if you could break it down for me. What are companies currently enduring when it comes to matters to do with the business environment that precipitated the exit of CMC groups? Okay. So if you look at the economic environment in Kenya, the interest rates indeed have stabilized. However, we have an issue around the tax environment. The national government has been crippling with the debt, the national debt, and they have designed the mechanism to collect a lot of taxes. However, through this mechanism of collecting a lot of taxes to try and pay the debt, it has implication. And the implication is in the businesses and the manufacturing sector, because tax eats up into a competitiveness of the manufacturing sector. We are competing with the various markets, with various countries in the region, and even in Africa and internationally. And the more taxes that are imposed on locally manufactured goods, the more it becomes expensive and not attainable to manufacture in Kenya. But looking at this scenario, where does this leave you as the man leading Kenya's association of manufacturers? Having one of the big players exiting the market does not signal a good climate to the would-be investors. Perhaps what are some of the remedies that you are looking to front to government in order to sort out the situation? So we've had a session and conversation with government. One area that we pointed out, and they are taking action, is streamlining business regulatory process in this country. The business regulatory process in this country has been very unpredictable, in the sense that if you do your calculations on costing this year, it may change even before the year ends. So we've asked the government, and there's a committee that the government formed, the Ministry of Investment and Trade has formed, to look at the business regulatory process in this country. We are concerned that the government does not have a cockpit view of all the fees, charges, licenses, and regulations that are imposed on business. And we want them to have a clear understanding and a clear feel of all these licenses, so that they can regulate, remove what needs to be removed, and only remain with what is necessary, because every ministry, department, and agency are charging fees, licenses, and all the other related charges without really knowing the implication. The other thing we have talked with the government is to adhere to the tax policy, the national tax policy, because through the national tax policy, you will be able to do what we call impact assessment of policies that are imposed in the previous year, before you introduce new ones. So what we have seen in the past is that that impact assessment or analysis has not been done. Then you impose additional taxes that now continue to impact negatively the industry. So these are conversations that we've had, and we've seen traction. Of course, the tangible impact will be seen in the next couple of months, not immediately. But if those are addressed, then we'll see companies again retaining their production in this country. And currently, Kenya's manufacturing contribution to the GDP is at 7 percent, 7.5 percent, I beg your pardon. But with such exits, is this likely to impact the contribution to GDP? And are you worried that the country might lose to other neighboring countries when it comes to business competitiveness? Definitely, we are worried. But we've taken immediate action to raise an alarm to government that we need to realize our 20 by 30 agenda, which we had a conversation with the president about two years ago to say that we need to increase the manufacturing GDP contribution from the 7.6 to around 20 percent by 2030. And one of the things, a couple of things that we have agreed that we are going to do is to streamline the tax and policy environment in this country. And the other thing we have agreed to do is to expand the market access to create an opportunity for local manufacturing companies to export their products. And through that impact on market access, we've seen trade agreements that have been signed, AFCFTA, EUEPA, and ESC market, presenting as an opportunity to trade and sell our goods to the African and European market, and even the U.S., because there's potential in this country. In fact, through East Africa and Kenya and Africa as a whole, you can access about 50 percent of the global GDP because of the location and environment that we are in. So there's potential. We just need to address issues around policy and tax predictability. And also the other last thing is about the cost of energy, sustainable energy, because energy is expensive in Africa and particularly in Kenya. So we need to address the cost of energy in the country.
Theme: Impact of CMC Motors Group's Exit on East African Markets and Strategies to Enhance Business Competitiveness
One of East Africa's largest manufacturing automobile companies, CMC Motors Group, has made the shocking announcement of its plans to exit key markets in Kenya, Tanzania, and Uganda. The company cited a tough business environment as the reason behind its decision, which is expected to leave thousands of staff jobless and disrupt the supply chain in the regional market. To gain insight into the implications of this move and explore how countries can enhance their competitiveness to attract investment, CNBC Africa's Aby Agina sat down for an exclusive interview with Tobias Alando, the CEO of the Kenya Association of Manufacturers. Alando expressed that the unpredictability of the business environment, particularly in terms of tax and policy measures, has led to scenarios where companies like CMC Motors Group are forced to exit due to the loss of market share. This decision, though not surprising given the challenging operating conditions, raises concerns about the economic losses in terms of tax revenue for the government and the impact on employees and their families. The departure of such a significant player also signals a red flag to potential investors, casting doubt on the stability and attractiveness of the market. The manufacturing sector in Kenya has been grappling with issues such as high taxes, a burdened national debt, and an unstable business regulatory environment, which collectively undermine the competitiveness of local industries. Alando highlighted the critical need for the government to streamline regulatory processes, conduct impact assessments on tax policies, and address the high cost of energy to create a conducive environment for businesses to thrive. The Kenya Association of Manufacturers has engaged in dialogues with the government to advocate for these changes, emphasizing the urgency of restoring confidence and retaining production capacity in the country. Despite the challenges posed by CMC Motors Group's exit, Alando remains optimistic about the potential for growth in the manufacturing sector. He stressed the importance of achieving the country's manufacturing GDP contribution target of 20% by 2030, outlining strategies such as expanding market access through trade agreements like AFCFTA, EUEPA, and ESC market. By focusing on policy predictability, market expansion, and addressing energy costs, Kenya aims to strengthen its position in the global market and prevent losing ground to neighboring countries in terms of business competitiveness.
""The unpredictability of the tax and policy space will create such scenarios where companies exit because of probably loss of market share. So it didn't come as a surprise." - Tobias Alando, CEO of the Kenya Association of Manufacturers"
['CMC Motors Group', 'East Africa', 'Kenya', 'Tanzania', 'Uganda', 'manufacturing', 'automobile industry', 'business environment', 'tax policies', 'economic impact', 'employment', 'government regulations', 'competitiveness', 'trade agreements', 'GDP contribution', 'energy costs']