- Shipping agents are not allowing cargo to Kenya as they avoid having goods getting stuck at points of entry, says a mobile importer in Nairobi.
- Kenya Revenue Authority is increasingly tightening checks at ports of entry to eliminate under declaration and concealment, which deny the country taxes.
- On average device shipment went down by about 13.5 per cent in the fourth quarter of 2022.
Kenya is hurtling into a severe shortage of smartphones as new tax measures and import regulations pile pressure on traders who have cut on shipments. Traders are projecting that the shortage of smartphones could push up the price of the gadgets by about 40 per cent.
The move follows a decision by the Kenya Revenue Authority (KRA) to plug loopholes used by traders to under declare or conceal the value of gadgets in turn denying the government revenues.
Alice, an importer and dealer within Nairobi’s Central Business District, noted: “There is a problem that we must admit. All goods coming via air are not being cleared. No goods are coming in whether you’re shopping or shipping in from Dubai or China to Kenya via air.”
According to Alice, the tax authority wants anyone importing to clear the goods in person as opposed to using clearing agents. And therein lies the catch: KRA wants to pin down potential tax evaders.
“Shipping agents are not shipping cargo to Kenya as they avoid having goods getting stuck at points of entry,” she explained.
Cargo consolidation amid shortage of smartphones
The bulk of mobile phones are imported into Kenya as consolidated cargo. In practice, consolidation involves bundling multiple small shipments into one large consignment for distribution to the same end location.
With most traders in Kenya unable to fill up containers with a single import, they turn to agents for consolidation. Once bundled together, the agents then ship their goods to Kenya. The country’s main entry points are the Port of Mombasa, for cargo being shipped by sea, and the Jomo Kenyatta International Airport (JKIA) for airfreight.
Kenya applies the World Trade Organisation (WTO) General Agreement on Tariffs and Trade (GATT) in valuation of imported goods. KRA further enforces minimum test yields in assessment of imports to avoid unfair competition and catch cheats.
Read Also: How heavy taxation, illicit trade killing Kenyan industries
Tax processes also driving shortage of smartphones
While the market is concerned about a shortage of smartphones, KRA has heightened its cargo verification measures. The strategy aims at curbing under declaration and concealment, which importers use to dodge the taxman.
The authority is now taxing some imports based on value as opposed to the previous blanket charge of $2 per kilogramme. To avoid KRA’s radar, unscrupulous traders were consolidating semi-processed goods (taxable at 10 per cent) and finished goods (taxable at 25 per cent), posing a taxation challenge.
For instance, an item that had yielded $600 on per kg assessment ended up yielding in excess of $4,943 after 100 per cent verification, KRA Commissioner General Rispah Simiyu said during a media interview.
The move to carry out 100 per cent verification is said to be among the reasons imports have slowed down. Affected traders are warning that it will affect volumes amid a worsening shortage of smartphones.
“This is a zero sum game. Traders have shunned trade and left it to the government to create jobs. We will see who will suffer,” posed Henry Kabogo, a city trader and chairman of the Kenya Water Bottlers Association. His lobby has been pushing for zero excise tax on bottled water.
Inflation and weakening shilling
The tax measures, a tanking shilling and high inflation are pushing Kenya’s smartphone market to a year-on year decline. Latest data shows that device shipment dropped by about 13.5 per cent in the fourth quarter last year.
The International Data Corporation (IDC) report attributed the decline mainly to supply shortages and inflation. IDC added that the strong US dollar pushed up import costs translating to higher retail prices for buyers.
“While the general market sentiment was negative in Q4 2022 and reflective of the supply chain squeeze that occurred throughout 2022, those vendors that offered their products via asset-financing platforms were the least impacted, demonstrating a growing appetite for mobile financing schemes,” said George Mbuthia, a senior research analyst at the IDC.
Mbuthia said asset-financing platforms promise the next big innovative service and fast penetration. The initiative is increasingly appealing to the vast but untapped segments of the consumer base in Africa.
“Very soon, the industry will witness these platforms grow, taking the smartphone market along with it,” he added.
Consumer spending on smartphones
The report revealed that smartphones now account for 72 per cent share of overall mobile phone shipments to the country. Consumer spending on smartphones, report said, declined as prices for basic commodities increased, constraining budgets for technology products.
According to IDC, smartphone distributors held back on their investments and cut inventories to avoid losses. Market survey shows Samsung led the way in Kenya’s smartphone market with a 31.7 per cent unit share. Tecno came in second with an 18.8 per cent share, while third-placed Infinix accounted for 9.2 per cent of shipments.
Looking forward, IDC expects Kenya’s smartphone market to remain relatively flat, with shipments growing by just 1.4 per cent. Ramazan Yavuz, a senior research manager at the IDC says inflation will hurt the smartphone market.
Recovery is, however, expected to begin in the final quarter of the year as economic uncertainty eases. At year end, vendors will bring price volatility under control as the supply shortages eases, Yavuz noted.
“With all the challenges in the market, the rapid transition to smartphones will continue, enabled by mobile financing schemes,” Yavuz said.
Kenya’s love affair with illicit trade
Meanwhile, Kenya remains a hot bed for illict trade with industry estimates putting it in excess of $5.6 billion. The bulk of counterfeits enter Kenya through official entry points, with the importers colluding with customs to under declare or simply concealing the goods.
According to the Kenya Anti-Counterfeit Authority, 78 per cent of consumers in the country buy counterfeit goods. Cheaper price points in comparison to original brands are part of the reasons why Kenya loves counterfeits. An estimated 70 per cent of Kenyan consumers buy counterfeits knowingly. With the high cost of living, authorities are warning of a rise in illicit trade in the country.
Counterfeit refers to illicit trade that infringes Intellectual property rights such as trademarks, patents, designs and utility models. In Kenya, most of the counterfeits are electrical and electronics, alcohol, cosmetics, clothing, leather and foot wear goods.
Stop Crime Kenya, which has a secretariat at the Consumers Federation of Kenya, is warning that an increase in prices will push more Kenyans into counterfeits market.
Revenue losses due to illicit trade
A study by ACA–National Baseline Survey on Counterfeit and Other Forms of Illicit Trade in Kenya, indicates the government loses in excess of $1.08 billion (Sh153.1 billion) in potential revenue to illicit trade.
“The reality of this threat is further amplified by the fact that illicit trade in goods manufactured by sixteen sectors, that contribute 90 per cent of total manufacturing sector’s GDP accounted for 71 per cent of the total illicit trade,” ACA says in its market report.
The negative impact on industry manifests in lost sales, lack of jobs, and investment opportunity losses running into billions.
Most of the counterfeits are imports from Kenya’s key trading partners China, India, Uganda, UAE, Turkey, Netherlands, France, Germany, the US, South Africa and the UK.
