Category Archives: Nairobi cost of living

Toxic Business: Banned in the European Union, poisoning Kenya

Agriculture is one of Kenya’s key income earners contributing 24% of GDP and employing 75% of the population either directly or indirectly. As a result, the demand for pesticides is high and increasing with the need to increase agricultural production to keep up with population increase. Imported chemical pesticides in the market account for 87% and has more than doubled in four years from 6,400 tonnes to 15,600 tonnes in 2018, yet there are few safeguards to control application.

Every year fresh produce from Kenya is rejected by the European market when it is found to have harmful levels of chemical residue. When returned it finds its way to local fresh produce markets and consumed by unsuspecting Kenyans. The result is a huge healthcare burden on households as more people, especially children, fall ill.

A report by Kenya Plant Health Inspectorate Service (KEPHIS) showed that 46% of the fresh vegetables sold in Kenyan fresh produce markets have high levels of pesticides with harmful active ingredients, with Kale (94%) having the highest level of pesticides and herbicides that are harmful to human and animal health.

A small-scale farmer Joseph, who has adequate training in the handling of pesticides, prepares to spray his crops by mixing the chemical with water in a backpack sprayer pump, using his bare hands and no protective mask or clothing, he gives the pump a firm shake to mix the ingredients in it and then proceeds to splash water on the exterior of the sprayer pack to rinse off the chemical overspill with his hands. The small quarter acre, gently-sloping vegetable garden surrounds his family’s house, which further exposes his family to harmful chemicals. He is not aware of the danger of handling these pesticides, only focusing on their efficacy in pest control.

At the local roadside Market, Daniel Maingi of Kenya Food Rights Alliance purchases green capsicum and spinach to take for testing at the University of Nairobi’s Pharmacology & Toxicology Laboratory at the Department of Public Health, where Professor Mbaria confirms harmful levels of chemicals containing toxic active ingredients on the sample vegetables.

The “Pesticides In Kenya: Why our health, environment and food security is at stake” report by Route To Food Initiative (RTFI), makes a distinction between the toxicity of the active ingredient and the toxicity of the chemical product. In the European market, the manufacturer of a chemical product first registers the active ingredient, which is then tested and must be identified by name on the product label.

Of the “247 active ingredients registered in Kenya, 150 are approved in Europe, 11 are not listed in the European Database and 78 have been withdrawn from the European market or are heavily restricted in use due to potential chronic health effects, environmental persistence, and high toxicity to wildlife.”

In a case of double morality standards, these chemicals are available to Kenyan farmers threatening the health of both citizens and the environment by contaminating the soil and water. Most of these pesticides take years to degrade and therefore persist in the environment for many years and many are acutely toxic causing severe long-term toxic effects, disrupting the human endocrine system, harming wildlife and other non-target organisms that are crucial to the ecology.

The Pesticide Control Products Board (PCPB) set up by the Government of Kenya under the Pest Control Products Act of 1982 regulates the importation, manufacture, distribution and exportation of pest control products. PCPB has registered 247 active ingredients in 699 horticultural chemical products, with more products registered than active ingredients as one active ingredient can be by several companies. Of these, a quarter are banned in Europe and they include big brand names such as Syngenta, Bayer and BASF.

In Kenya, chemical companies host robust carnival-like events where smallholder farmers are bussed in from across the country and paid a stipend to attend. Throughout the festival, no mention is made to farmers about safe handling or protective clothing when mixing the chemicals for application on the crops. The farmers appear to completely trust the chemical companies to have their best interests at heart and do not ask any questions. At these marketing events, several chemicals are presented as solving multiple problems and are touted as the best in the market.

Glyphosate-based agrichemicals have received an enormous pushback globally for its carcinogenic properties. However, there are other harmful ingredients that should attract much more attention in use in Kenya, but banned in the European Union. Carcinogenic active ingredients include Chlorothalonil, Clodinafop, Oxyfluorfen and Pymetrozine. Mutagenic active ingredients include Cabendazim, Dichlorrvos and Trichlorfon. Endocrine disruptor pesticide active ingredients include Acephate, Carbofuran, Deltamethrin, Omethoate and Thiacloprid. Active ingredients that hamper development and are harmful to reproductive health include Abamectin, Carbendazim, Carbofuran, Gamma-cyhalothrin, Oxydemeton-methyla and Thiacloprid. Neurotoxic active ingredients include Abamectin, Acephate, Dichlorvos, Glufosinate-ammonium, Omethoate, Permethrin and Thiacloprid.

Before the advent of chemical herbicides, farmers would weed their farms by hand and using hand hoes, this has been increasingly replaced by pesticides even for the smallholder farms under five acres. Mono-cropping or monoculture where one crop is planted year in year out, depleting the soil of nutrients and necessitating the increased use of fertilizers to improve yields with each subsequent year, also encourages the spread of crop pests which require chemicals to treat. Another area that receives little focus is post-harvest storage pesticides. If fertilizers are subsidized, why not include hermetic storage technology (HST) storage bags that provide moisture and insect controls, without pesticides, in this policy?

If we continue to consume chemicals, consciously or subconsciously through the food we eat, the water we drink and the air we breathe, then the next generation we produce will be of a lesser quality than ourselves, as will subsequent generations.

A guest post by Velma Kiome 

Acorn Green Bond for Student Accommodation in Nairobi

This week saw the approval of the first-ever green bond in Kenya, issued by Acorn Holdings to fund student accommodation projects around Nairobi.

Acorn is one of the largest developers in Kenya, having delivered over 50 projects worth $550 million in the last decade. These include the local headquarters for Coca Cola, Equity Bank and Deloitte, and the UAP Tower, which is currently the tallest occupied building in Nairobi. They plan to raise up to Kshs 5 billion ($50 million) investors through a bond that has a bullet maturity in five years and which pays 12.25% interest. The green bond issue is partially guaranteed by GuarantCo up to a maximum of $30 million.

Acorn has ventured into purpose-built student accommodation (PBSA), under two brands, Qwetu and Qejani. They are developing projects close to universities around Nairobi, which target students at campuses of USIU, University of Nairobi, Daystar, KCA and Riara universities.

This is to address the current situation where the increasing number of students at universities live in sub-standard housing, without amenities, in poor condition or which are considered unsafe. These are mostly in older building not designed for students such as former domestic-staff quarters. Yet students require reliability water & electricity, Wi-Fi, security, furnishings etc. and which ensure security and privacy.

Qejani is a high-rise, mass-market, offering which students can rent for between Kshs 7,500 -12,500 ($125) per month for single, double or quadruple room accommodations, while Qwetu is their premium brand.  The funding will go towards completing student accommodation facilities including Qwetu USIU Road 3 & Road 4, Sirona Phase 1 & 2, Bogani East Road Qwetu, Bogani East Road Qejani, and Nairobi West Qwetu.

The green bond offer, which is restricted to sophisticated investors, opened on 16 August and closes on 27 September 2019. Allotments will be done on 30 September 2019, with the minimum level of subscription set at 40% for it to be deemed a success.

Other aspects of the bond issue:

  • It is restricted to sophisticated (institutional) investors.
  • Opened on 16 August and closes on 27 September 2019. Allotments will be done on 30 September 2019.
  • The minimum level of subscription is set at 40% for it to be deemed a success.
  • Stanbic Kenya is the issuing and paying agent for the green bonds, and they will confirm that funds will not be used for more than 65% of the project costs with Acorn contributing the other 35%. 
  • Helios Partners are investors in Acorn.
  • GuarantCo is sponsored by the governments of the UK, Netherlands, Switzerland, Australia and Sweden and by FMO, the Dutch development bank.
  • Moody’s Investors Service has assigned a provisional B1 to the Acorn bond.
  • The issue will be certified as a green bond given that Acorn’s projects are constructed in accordance with the International Finance Corporation – IFC’s EDGE (“excellence in design for greater efficiencies”) requirements for sustainable buildings and certified by the Green Business Certification Inc. (GBCI) “.. they aim to steer construction in rapidly urbanizing economies onto a more low-carbon path. Certification is based on benefits generated from providing solutions in construction and operation: energy, water, and materials.” 
  • The green bonds program is endorsed by the Central Bank of Kenya, the Capital Market Authority and the National Treasury.

EDIT October 3, 2019.

 

Kenya Finance Bill 2018

In a year in which there were crucial changes proposed to Kenya’s tax system, the National Assembly passed the Finance Bill 2018, but the President refused to assent to it and sent it back to Parliament with his proposed amendments to fuel, banking, housing, gambling and other taxes.

Sectors affected by the memorandum.

  • Banking: For every transaction your bank charges you, currently there is a 10% levy which will now go up to 20%. Also, the fee on money transfer and mobile banking services will be 20% on excisable value – up from a proposed 12.5%.
  • Telecommunications: a tax on telephone and Internet services will be 20%, up from an earlier 15% tax on the excisable value
  •  Food: He proposed reinstating a sugar confectionery tax that parliament had dropped.
  • Fuel; Kerosene will cost the same as diesel after the introduction of an anti-adulteration tax. VAT which Parliament had pushed back by another two years, and which the President wrote would cause a Kshs 35 billion shortfall in this year’s budget. He, therefore, proposed an immediate reinstatement of VAT at 8%. (VAT in the country is levied at 16% for all other goods and services that qualify).
  • Housing: Employers shall pay a new housing development levy on behalf of employees – with the employer’s contribution at 1.5% of salary and the employees at 1.5% of salary – up to a maximum of Kshs 5,000 – to be remitted on the 9th of the following month to the proposed National Housing Development Fund.

Employees who don’t qualify for the low-cost housing proposed will still have their money go to the Housing Development Fund and will get it back when they retire,

  • Gambling: tax reduced from 35% to 15%.

The President also asked Parliament to reduce the national government budget by Kshs 55 billion. Parliament was on a month-long recess but has resumed this week for special sitting sessions relating to the Finance Bill 2018. They received the President’s memorandum on Tuesday 18th September, with the budget committee meeting on Wednesday to review and approve these changes for Parliament to vote on Thursday 20th September.

Urban Inflation Index July 2018

The running urban inflation Index compares prices of common goods In Nairobi to what they cost one year ago, five years and ten years ago when the index started.
The  July 2018 index comes at a time when there are sensational headlines about quality and counterfeits that was triggered by the drought of 2017 and subsequent importation of foods including sugar late last year.

It has also tricked into crackdowns, indictments, arrests, and parallel investigations by the Police, tax authorities,  parliamentary committees and food safety regulators that has seen queries about tons of goods including sugar, fertilizer, animal feed, building materials, alcoholic spirits, (refilled) LPG gas, auto spares, and sports shoes among other common items – with confiscations at the Mombasa Port, airports like Eldoret and bazaars and shops in Nairobi which have resulted in some demonstrations by business traders.

On to the index.

More expensive

Staple Food: A 2 Kg pack of Unga is Kshs 98 today. Last year, it was at a government-subsidized price of Kshs 90. In 2013 it was 104, and ten years ago, an Unga pack was Kshs 73.

Beer/Entertainment: A bottle of Tusker beer is Kshs 230 at the local pub. Five years ago a beer was 200, and ten years ago a beer was Kshs 130. Just a few months ago, during a tour of Kenya Breweries, the managers said that, based on the recommended retail price of Kshs 140 for a bottle of Tusker, Kshs 84 was tax, Kshs 23 goes to the distribution chain and just Kshs 33 was for them as a company to produce the beer at profit and to pay its shareholders.

Domestic electricity pricing over ten years of the inflation index.

Electricity: A chart of domestic prepaid electricity purchases shows that electricity was at its lowest in May 2015, and its highest in July 2015 and now in July 2018. One observation is that pre-paid power purchases no longer fluctuate. At the beginning of the month, one used to get 40 or even 50 units for Kshs 500 ($5), but now that amount only realizes 22 units and the pre-paid meters issue a (low-token )beep warning the whole month – and power tokens seems to exhaust a lot faster (because the units are less initially)

Other Food Item: Mumias, which used to be part of the index, was Kenya’s sugar industry bellwether – a diversified company that also produced ethanol and electricity and whose shares were once offered to the new investors at Kshs 49 per share. but which now trades at less than a shilling (Kshs 0.70) today. But Mumias now has no stocks on supermarket shelves as production was halted due to a lack of cane and long pending bills owed to farmers. A  2 kg pack of Mara, a competing sugar brand, is Kshs 298. A year ago, a bag of Chemelil sugar was 290, and five years ago Mumias sugar was 250, while ten years ago, a Mumias pack cost Kshs 145.

About the same

Fuel: Earlier this month, the ERC raised the price of petrol by 3 shillings – so in Nairobi a litre of petrol now costs Kshs 112.2 (approximately $5 per gallon). Last year a litre of petrol was Kshs 97.1, five years ago it was Kshs 109.52, and ten years ago it was Kshs 101.50 per litre. But from September 1 2018, Value Added Tax (VAT) which is 16% is expected to be added back to the cost of fuel.

Finance: Bank loans are 14.%, and have remained so ever since the introduction of interest capping in 2016. But the law is set to be adjusted this year by the government, in spite of opposition from parliamentarians who had passed the cap law. Also, average bank rates were 17% in July 2013.

Communication: Not much has changed in terms of phone rates over the last few years. At Safaricom which had (March) 2018 revenue of Kshs 224 billion, 40% of that was from voice, 28% from payments (such as M-Pesa), and 16% from data while SMS accounted for 8% of revenue. The cost of making mobile payments went up slightly in this year’s budget with a tweak in the excise tax on money transfers, and a charge on large bank transfers that has since been temporarily suspended by a Court.

Foreign Exchange: 1 US $ equals Kshs 100,75, while a year ago it was Kshs. 103.9. Five years ago it was 87.15 and ten years ago the dollar exchanged at Kshs 67.4. Also ten years ago the Euro was at 101, the Rand 8.9 and the Sterling Pound 125, while today the Euro is at Kshs 117, the Rand at Kshs 7.4 and the Pound at Kshs 133.

Other Energy Source: An LPG gas cylinder at Kenol is Kshs 2,250 this month. A year ago (in March) it was 2,030 and six years ago (2012) it was 3,000.

Less Expensive

Nothing really

Share this inflation index if you agree with the perceptions about what has become more or less expensive over the years.

If it were all left up to you, how would you improve the urban inflation index?

Kenya Income Tax Cuts, Increases, and Other changes 2018

The Kenya government, through the National Treasury, is proposing some long overdue changes to the country’s income tax laws, which are contained in a draft bill that will be submitted to Parliament.

The bill has new clauses that affect transfer pricing, new extractive (oil & gas) industries, phase out of turnover tax, and an apparent tax cuts. It comes after other recent changes to the tax code. Kenya also has an ongoing waiver and amnesty program for income tax and assets held outside Kenya to be declared and repatriated to the Kenya Revenue Authority (KRA)  by June 30.

Leading accounting and audit firms such as KPMG, PWC, and Deloitte have looked deep into the clauses, and these are some of their findings: 

KPMG:

  • Companies are to produce and maintain transfer pricing documentation and policies in place for the year of income.
  • The withholding tax threshold of Kshs 24,000 had been deleted.
  • Payments to non-resident petroleum contractors will be 20% (up rom the current 12.5%)
  • Developers who build over 400 houses to pay taxes of 15% on gains.
  • Micro-finance institutions (MFI’s) interest will be exempt from withholding tax.
  • Sports clubs & associations will get taxed on entrance fees and subscriptions.
  • Farms, warehouses or doing consultancy work for more than 91 days in a year are now considered permanent establishments. KPMG comment – This will require non-resident persons doing business in Kenya to re-think their operational models.
  • A listed company will pay 25% taxes for five years if 40% of its shares are floated.  KPMG  comment – this will reduce the impact of taxation as an incentive to list.

Deloitte:

  • Income tax rate of 35% on more than Kshs 750,000 (~$7,500) per month
  • Non-residents’ who receive their pensions in Kenya will pay a tax of 10% on transfers (up from 5%) 
  • A higher corporate tax of 35% for large companies with taxable income over Kshs 500 million (~$5 million).
  • Real-estate capital gains tax of 20% (up from the current 5%). Deloitte comment – Though the increment is quite steep, it enhances equity considering that CGT is regarded as a tax on wealth.
  • Equality: Each person in a marriage is now required to file their own tax returns: no more cases of wives having their incomes filed under husband’s income tax returns.  
  • Mining & Oil: Losses can be carried forward for a maximum of 14 years (There is no current cap)
  • EPZ holiday removed: Now EPZ’s will pay 10% tax for the first 10 years, and 15% for the next ten years (other companies pay 30% corporate tax).
  • SACCO’s: Cooperative societies to pay a withholding tax on dividends and bonuses of 10% (up from the current 5%) 
  • Subsidiaries in Kenya to pay 10% tax on dividends remitted to the parent companies.
  • E-commerce: The Treasury Cabinet Secretary will be allowed to introduce taxes on digital platforms.
  • Capital allowances reduced: The 150% allowance for investments outside cities has been removed, those for filming equipment reduced from 100% to 50%, and educational institutions from 50% to 10%.
  • Small businesses, that are licensed by counties, will pay a presumptive tax of 15% of the business permit fee. Deloitte comment – (this) replace the turnover tax, currently at the rate of 3% of a person’s turnover (KRA has faced challenges collecting) ..  will require collaboration with the county governments. 

PWC

  • All medical insurance paid by employers for employees is now tax-exempt (even for expatriate staff) and age limits for children covered goes up from 21 to 24 years.
  • withholding tax of 5% will be levied on payments to foreign insurance companies. PWC comment – this is aimed at promoting local insurance companies.
  • Income tax exemptions that have been dropped include income of the Export-Import Bank of the USA (relates to Kenya Airways?). Also on the income of stockbrokers from trading in listed shares. PWC comment – this may have a negative impact on the growth of the capital markets in Kenya;
  • 20% withholding tax on payment to non-Kenyan companies for horticultural exports. 
  • 20% withholding tax on payment of air-tickets to non-resident agents. PWC comment – may lead to increase in airline ticket prices in Kenya which may affect competitiveness of local airlines.

They also looked at other recent tax adjustments which PWC notes will mainly alleviate the government from paying VAT refunds.

  • Milk, maize, bread, bottled water, will all cost more after moving from “0%” VAT to “exempt” VAT as importers will pass on non-recoverable VAT to consumers.
  • Same for LPG gas, some medicines and agricultural pest control inputs.
  • Making housing affordable. PWC comment – the Government is also proposing a stamp duty exemption for the purchase of a house by a first time home owner under an affordable housing scheme
  • Betting/Gambling: For winnings, a 20% tax will be deducted at source i.e the betting company) on any prizes (this is up from the current 5%)

Other Clauses in the Income Tax bill

  • Parent companies are to file country-by-country reports with KRA within 12 months of year-end.
  • No capital gains tax is due on land if it is compulsorily acquired by the government.
  • No capital gains on listed securities.  
  • While there is a new 35% tax for the rich, the income tax bill appears to lower taxes for the low-income.  e.g. someone earning Kshs 40,000 (~$400) per month, who pays 5,932 in tax per month now after personal relief, will have a lower tax burden.  Income tax bands are expanded in the 10% range (now up to 13,000 from the previous 10,000) and there is also a higher relief of Kshs 1,408 versus the current 1,162) and the resulting net tax for the person will now be Kshs 5,009 for the month – a 15% income tax cut?.  
  • Tax rate of 15% for five years for local vehicle assemblers. This can be extended by another 5 years if the company achieves 50% local content value in the vehicles.  
  • Taxes waived on the income of disabled persons, amateur sports associations, and NGO’s (relief, poverty, religion, distress) whose regional headquarters are located in Kenya.  

Finally, other stakeholders are invited to review the proposed changes to the 103-page income tax bill and submit comments via email to ITReview2017_at_treasury.go.ke by May 24.