Monday, October 6, 2014

Kenya’s flower farms threaten to relocate to Ethiopia over new EU taxes

NAIVASHA: Kenya’s flower farms on Friday threatened to relocate to neighbouring countries after talks between EU and East Africa Community (EAC) collapsed and thus attracted taxes in accessing European markets.

Kenyan flower exporters had started paying taxes on goods entering the EU from Oct. 1, while their relief, the Economic Partnership Agreement (EPA) which grant Africa product tax free in the European market, is said to take six months for ratification.

Anxiety and confusion has gripped the over 60 farms operating in lakeside town of Naivasha, about 90km southwest of Nairobi, where 75 percent of flowers to EU markets come from.

Apart from massive job losses estimated to be over 250,000, the farmers warned that the country will lose economically in the long run due to its failure to sign the agreement.

With the sector facing a new tax of around six percent on its products, the farmers warned of a financial crisis three days after the new tax regime came into force.

Two of the leading companies in Naivasha, Maridadi and Van Den Berg Flower Farms were however quick to note that the effects were yet to trickle down.

Maridadi Flowers Managing Director Jack Kneppers warned that 50 percent of flower farms would be closed down by end of 2015, if the current impasse was not solved.

Kneppers said that the new taxes spelt doom for the sector as the country’s products would be competing with cheaper flowers from other countries.

“Some of the farmers mainly those dealing in vegetables are considering relocating to Ethiopia or Tanzania where the labour is cheap and their products won’t be taxed,” he told Xinhua.

“Flower farms might be forced to follow suit next year and relocate to Ethiopia if the government doesn’t resolve the EPA issue with the European Union,” he said.

The sticking point for most African governments is that domestic industries will find it hard to compete with European companies.

The disadvantage for Kenya is a relatively strong manufacturing base, which does not fall in the Least Developed Countries category that allows tariff-free exports to the EU.

Least developed country status means other member states will continue benefiting from tax exemptions, even if the signing of the EPA is delayed.

According to Kenya Flower Council Managing Director Jane Ngige, price of Kenya’s flower exports to the EU could rise by 5-8 percent, since exports have been categorized under Generalized System of Preference (GSP) tariffs.

Under the regime, Kenyan goods will be charged between duty depended on type of products. Fresh roses and cut flower will attract import duty of between five and 8.5 percent while roasted coffee 2.6 percent

 The GSP is a preferential market access scheme for developing country granted unilaterally by the EU under certain conditions.

Kneppers whose farm has over 700 workers expressed their fears of job losses, adding that farmers would not work in conditions where there were making losses.

“Flower prices in Europe are not very good, as some countries are yet to recover from the financial crisis while the war in Ukraine is affecting the market,” he said.

Human Resource Manager of Van Den Berg flower farm George Onyango said that Kenyan produce would no longer be competitive in the European market.

He confirmed that some of the investors in the floriculture sector were eyeing Ethiopia and Tanzania in the wake of the collapse EPA talks.

“The move has raised anxiety in the sector and flower farmers will have no other option but to seek conducive environment where they can also make profits,” he told Xinhua.

He said due to the new taxes, many farmers would be forced to reduce their production, a move that would result in job losses.

The remarks came after Kenya called for the speedy conclusion of the trade talks.

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