Kenya National Trading Corporation to handle Sh15bn drought cash
The Kenya National Trading Corporation (KNTC) is to borrow a whopping Sh15 billion from a local commercial bank to fund what ranks as one of the largest and most expansive state-sponsored duty-free imports regime of consumer goods in recent times, The Weekly Review has established.
The money is to be extended to the 58-year-old company in the form of lines of credit, which KNTC will deploy to import rice, cooking oil, sugar, wheat and beans. On top of this, another Sh5 billion worth of credit lines is to be extended to KNTC to import subsidised fertiliser.
The details are contained in a confidential letter to the Ministry of Trade and Industry signed by the Secretary to the Cabinet, Ms Mercy Wanjau, dated November 15, 2022, which was communicating decisions made by a Cabinet meeting held on November 10, 2022.
The name of the specific bank to fund the expensive duty free import programme is not mentioned in the letter, which merely states that the cabinet had approved that funds be borrowed from a ‘government-approved bank’ — implying that the new administration of President William Ruto intends to direct one of the state-controlled commercial banks to provide credit facilities to KNTC.
Major challenges
Considering the size of the facility needed, it is clear that any ‘government-approved bank’ roped in to participate in funding the massive duty-free imports programme is going to face major challenges and risks on compliance with single borrower limit guidelines set by the Central Bank of Kenya. Commercial banks can only lend a described percentage of their capital base to a single customer. Very few banks have the capital to absorb the exposure.
If anything, this is a risk that crystallised in a separate transaction, where a similar arrangement between the government and the Kenya Commercial Bank in 2018 left the lender with a sticky non-performing loan that sits out on its balance sheet to date.
Several questions arise. Where will the dollars to fund this massive programme come from? Indeed, the economy is under the grip of an unprecedented foreign exchange crisis, characterised by historically low levels of forex reserves at the Central Bank of Kenya and a currency that is on a free fall. Are we looking at a return to the regime of foreign exchange allocations to the well-connected?
Does it make economic sense for the government, in the name of stabilising local prices, to commit hundreds of millions in hard currency resources to purchase duty-free consumer goods and risk not only inflation of the foreign exchange crisis but flooding of the local market with a deluge of imports that are bound to disrupt local supply chains?
Duty exemption programmes
The manner and speed with which the new administration of President Ruto is executing what ranks as one of the largest and most complex duty exemption programmes in Kenya’s recent history has raised eyebrows.
Mark you, this is an assignment with high corruption risks, especially because it is being implemented in an area with very weak governance institutions.
The wisdom of giving the responsibility of executing the task of importing billions worth of consumer goods to the KNTC - the hitherto moribund state-owned trading enterprise that used to thrive and only had relevance in the ‘70s and ‘80s, when Kenya was still under the ancient regime of the command economy, price controls and foreign exchange allocation committees - is also controversial.
The experience in the country is that duty-free import programmes of such magnitude only work where there are open and transparent tenders, transparency in commodity sales, transparency of payments and transparency of beneficial owners.
KNTC and other state-sponsored price stabilisation enterprises in Africa have been collapsing under pressure from domestic liberalisation and international trade rules. Where they still exist, their effectiveness is hampered by chronic underinvestment in storage and transport capacity, inadequate commercial trading skills, limited access to finance and weak contract enforcement capacity.
KNTC does not have a balance sheet to support the tax. Its latest audited and published accounts show that total annual income was a measly Sh150 million and a profit of Sh15 million. BY DAILY NATION



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