KNTC to go the duty-free shops’ way in low-income areas to provide basic commodities at lower prices

May 8, 2023 - Reading Time: 4 minutes - By Warothe Kiru

Kenyans who travel by air are familiar with the concept of duty-free shops. This is where one buys specific goods such as perfumes, cosmetics, tobacco and hard liquor at lower prices because import duty has not been charged in shops located in airports.

The Kenya Kwanza government seeks to replicate this concept in kiosks located in low-income neighbourhoods across the country by providing basic commodities like cooking oil, rice, wheat, beans and sugar at lower prices for those at the bottom of the pyramid in a bid to cushion them from the rising cost of living.

The Kenya National Trading Corporation Ltd, a State Corporation incorporated in 1965, has been given a new lease of life as the importer of these duty-free basic commodities.

This is in line with its mandate to act as a procurement agent for the government and to participate in the promotion of wholesale and retail trade in order to strengthen the supply chain of essential products.

In November 2022, KNTC got Cabinet approval to spearhead the government’s initiative to stabilise the cost of essential goods amid the biting drought. It began sourcing for suppliers in December 2022. In February 2023, Kenya Revenue Authority issued an exemption of duty notice for specific imports and quantities.

Speaking on Citizen TV’s Monday Report, on March 14, KNTC Managing Director Pamela Mutua clarified the status of the importation and the quantities.

“We are importing 2,000,000 tonnes of sugar; 150,000 tonnes of rice which was sourced from India and that has already started docking in Mombasa; 125,000 tonnes of cooking oil which were expected to dock in April; 80,000 tonnes of beans are being sourced from Tanzania and Ethiopia. As for the 25,000 tonnes of wheat reported, this was a donation from the Ukraine government through World Food Programme with KNTC facilitating the duty-free aspect,” explained Ms Mutua.

There have been murmurs over the fact that there was no competitive bidding for the tenders. The KNTC MD citing the “emergency nature of the undertaking” stated in the Citizen TV interview that they “hired suppliers through restricted tendering as provided for under the Public Procurement and Asset Disposal Act.”

To finance the project KNTC has entered into deals with various banks.

Business Daily reported on Wednesday, March 8, that KNTC had secured a letter of credit—a guarantee that a seller will receive a buyer’s payment on time — worth Sh24 billion from KCB Group.

Additionally, Daily Nation reported on May 2 that part of the $3 billion (Sh407.98 billion) economic support loan from the Africa Export and Import Bank (Afreximbank) would support the importation of essential commodities.

In February this year, Cabinet Secretary for Investment, Trade, and Industry Moses Kuria led a delegation to the AfriEximBank headquarters in Egypt.

In the press release posted on its website about the deliberations, the Bank expounds on the partnership, “The parties discussed at length what Afreximbank could do to assist the KNTC develop relevant infrastructure including warehousing facilities in the counties, to support aggregation, value-addition and packaging of goods for both local and export markets.”

Afreximbank also “briefed the Kenyan delegation on its African Trade Exchange (“ATEX”) project and the meeting agreed to facilitate the immediate onboarding of KNTC and its various partners onto the pan-African commodities supply platform so as to benefit from pooled procurement of key commodities and the attendant financing.”

This ties in with the KNTC MD’s remarks in the Citizen TV interview where she pointed out that while the short-term goal was to address the cost of living through the duty-free kiosks, the long-term goal involves KNTC working with farmers and counties to provide aggregation of food stuff such as green grams, rice, beans and thereafter to find markets for Kenyan produce.

Regarding the duty-free kiosks selling cheap sugar, wheat, rice, beans and cooking oil, KNTC has a fintech plan to reach those at the bottom of the pyramid.

The State agency with the help of three distributors – technology firms Twiga Foods, iProcure and Market Force – will sell these commodities directly to 120,000 retail shops countrywide that have been mapped out.

“We have focused on fintech distributors who already are players in the market to ensure the price is not high. The duty-free pass to KNTC has to be passed to customers. We are very specific about the bottom of the pyramid. These commodities will not be in a supermarket. They will be in the slums. The process is digitally driven; from my office, I will see which kiosk has been stocked,” explained the KNTC MD.

While this sounds kosher on paper, Kenya has a history of subsidised commodities and even relief food being redirected or the monies budgeted for being looted.

It is in this vein that the Parliamentary Committee on Trade, Industry, and Cooperatives is reported by the Standard as having undertaken a fact-finding mission at KNTC’s warehouses in Mombasa three weeks ago.

“As representatives of the people, we want a system put in place to ensure the vulnerable people in the villages benefit from this project,” said committee chairman James Gakuya.

Kenya is a free market and government initiatives to stabilise prices work best in closed and controlled economies. How will KNTC navigate this? And how will other producers and manufacturers of these products compete in the market with KNTC as a government backed player?

“The RRP (recommended retail price) will be managed by supply and demand forces. This will not collapse the market but increase competition. It will also ensure other traders manage their pricing achieving the overall objective of price stabilisation. All commodities will have the KNTC brand name on their packaging and the corporation will publicise the RRP for all its commodities,” Ms Mutua is reported to have told the Business Daily.

The duty-free kiosk for basic commodities plan is noble but the taste of the pudding is in the eating. All eyes are now on KNTC as it endeavours to cushion those Kenyans who are hardest hit by the ever-rising cost of living.

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