Why Ruto is under pressure to cut the cost of doing business

President William Ruto is facing increasing pressure to lower the cost of doing business in Kenya following protests from small-scale traders. These protests forced the government to reconsider a controversial customs valuation and led to wider relief on cargo costs. As businesses grapple with renewed cost pressures, August's Stanbic Bank Kenya Purchasing Managers' Index showed that Kenya's private-sector activity contracted for the first time in three months.

High raw-material costs and tight cash flows limited companies' ability to respond to demand. The dispute began when the Kenya Revenue Authority raised the benchmark for general consolidated cargo, causing traders to argue that clearance costs would increase their margins and potentially trickle down to consumer prices. The disagreement escalated into street protests, leading to a meeting between President Ruto and traders on September 2.

In the agreement, KRA reduced the applicable benchmark for general consolidated cargo from Ksh2.5 million to Ksh2 million and will remove the Advance Cargo Declaration requirement. The government also plans to designate de-consolidation centers in Nairobi and Mombasa to separate consolidated shipments for individual traders. These measures aim to provide greater certainty for traders while maintaining customs and tax compliance.

However, the underlying issue of preventing under-declaration, undervaluation, and misclassification of imports remains. Kenya's small businesses, which make up a significant part of the commercial economy, could ultimately see their costs reflected in prices, investment, and jobs. The government's ability to collect more revenue while making it cheaper and more predictable for businesses to operate will be a central economic challenge for President Ruto's administration.