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According to The Weekly Review, the Kenya National Trade Corporation (KNTC) will borrow a staggering Sh15 billion from a local commercial bank to finance one of the biggest and most extensive state-sponsored duty-free import regimes of consumer goods in recent memory.

The 58-year-old business will receive the funds in the form of credit lines, which KNTC will use to buy rice, cooking oil, sugar, wheat, and beans. Also, KNTC will be given credit lines totaling another Sh5 billion so that it can import fertilizer at a reduced price.

The information is found in a private letter from Ms. Mercy Wanjau, the Secretary to the Cabinet, dated November 15, 2022, to the Ministry of Commerce and Industry, which relays decisions reached during a meeting of the Cabinet on November 10, 2022.

The information is found in a private letter from Ms. Mercy Wanjau, the Secretary to the Cabinet, dated November 15, 2022, to the Ministry of Commerce and Industry, which relays decisions reached during a meeting of the Cabinet on November 10, 2022.

Major challenges

Given the size of the facility required, it is obvious that any "government-approved bank" involved in funding the extensive duty-free import program will have significant difficulties and dangers in adhering to the single borrower limit standards established by the Central Bank of Kenya.

Only a certain portion of the capital base of commercial banks may be lent to a single client. Only a small number of banks have the capital to cover their exposure. A similar agreement between the government and the Kenya Commercial Bank in 2018 left the institution.

with a sticky non-performing debt that has remained off of its balance sheet to this point. If anything, this is a risk that crystallized in a separate transaction. There are several issues raised. Where will the money come from to pay for this extensive program?

The Central Bank of Kenya's foreign exchange reserves are at historically low levels, and the value of the Kenyan shilling is in free fall, indicating that the country is indeed experiencing an unprecedented foreign exchange crisis.

Are we about to resume the practice of allocating foreign currency to those with connections? Does it make economic sense for the government to spend hundreds of millions of dollars in hard currency to buy duty-free consumer goods?

in the name of stabilizing local prices and running the risk of not only inflating the foreign exchange crisis but also oversaturating the local market with imports that will inevitably disrupt local supply chains?

Duty exemption programs

There have been questions about the way and pace in which President Ruto's new administration is carrying out one of the most extensive and intricate tariff exemption programs in recent history in Kenya. You should be aware that this task carries a high risk of corruption.

Especially given that it is being carried out in a region with weak governance institutions. It is debatable whether it is wise to entrust the KNTC, a state-owned trading company that has lain dormant since the 1970s.

And the 1980s when Kenya was still operating under the antiquated system of the command economy, price controls, and foreign exchange allocation committees, with the task of carrying out the importation of billions of dollars worth of consumer goods.

Duty-free import programs of this size only function if there are open and transparent bids, open and transparent commodity sales, open and transparent payments, and open and transparent beneficial ownership, according to local experience.

Under pressure from internal liberalization and international trade regulations, KNTC and other state-sponsored price stabilization enterprises in Africa have been crumbling. Where they still exist, their efficacy is compromised by persistent underinvestment in transportation.

And storage facilities, poor commercial trading abilities, constrained access to financing and weakened capacity for contract enforcement.KNTC lacks a financial sheet to back up the tax. According to its most recent audited and published statements.

It had a profit of Sh15 million and a meager total yearly income of Sh150 million. There are many sensational tales about well-connected briefcase salespeople prowling the streets of Dubai and Kuala Lumpur, peddling contracts from KNTC to cooking oil merchants.

Despite the anecdotal nature of the data, it has not helped that the state trading company does not transparently contract for supply. KNTC might become a significant hub for corruption. The Cabinet Secretary "directs that 100,000 metric tonnes of mill white sugar may be imported.

Into the nation duty-free not later than March 31, 2023," according to the announcement. "The Cabinet Secretary authorizes that 900,000 tons of white maize and 600,000 tons of milled rice may be imported into the country tax-free.

From February 1, 2023, to August 6, 2023," the notice states with regards to the two commodities. This first list of exemptions makes clear that KNTC's involvement in imports is not mentioned. It's an open invitation to any trader to bring goods in.

For some reason, the East African Customs Management Act does not require the second category of exclusions to be gazetted. The list of commodities may be found in a letter that Ndung'u, the then-KRA Commissioner-General, wrote to Githii Mburu on January 20, 2023.

80,000 MT of beans, 25,000 MT of wheat, 200,000 MT of sugar, 125,000 MT of cooking oil, and 150,000 MT of rice are the specifics. KRA issued a directive on February 14 instructing its Customs and Border Control division to begin accepting duty-free imports of the goods mentioned.

For exemption in Prof Ndung'u's letter. Unexpectedly, the duty-free approvals, which are valid until January 19, 2024, are retroactive to January 20, indicating that even items that entered the nation a few weeks prior to the internal circular on February 14 will be eligible for duty-free status.

"The quantities permitted in the referred letter of January 20, 2023, referring to the imports by KNTC do not in any way change the exemptions already granted under legal notice," Nancy Ng'etich also stated in the internal memo. Many legal issues are raised.

Can duty exemptions be implemented without first posting a notice in the Kenya Gazette? Second, can the East African Customs Management Act's provisions be revoked by a letter from Kenya's CS for Finance? The attempt by KRA to claim that duty-free imports.

The government has permitted are compliance with the provisions of the East African Customs Management Act, 2015, which was the most egregious falsehood in the entire episode. According to the Act, a member may only unilaterally announce duty-free imports.

In the manner that Kenya is doing this after the country's president has declared a national emergency, the Council of Ministers has given its approval, and the community secretariat has published the exemptions. Why are we starting pointless trade fights with other East African Community members?

According to a press release issued last week by the Ministry of Trade and Industry, Cabinet Secretary Moses Kuria recently traveled to Egypt. While there, he met with representatives from the Cairo-based Afri-Exim Bank to discuss the bank's import financing options to support the KNTC duty-free import program.

In reality, regional banks with a focus on financing commodities were included in the cabinet note that generated the idea as a potential additional source of funding for KNTC. Yet, there is a significant possibility of corruption in this area.

A son of the previous president of Sudan, Bashir, was charged with utilizing powerful middlemen with connections to the ruling class of Sudan to obtain contracts from government agencies supported by Sudan's revolving lines of credit with the regional lender, PTA Bank.