Inflation is a major and growing source of uncertainty for paint firms

By Remie OTIENO

Kenya’s paint sector is facing a deteriorating outlook for the remaining months of the year, as inflation – related snags, price variance in raw materials as well as high fuel costs weigh heavily on some firms’ performances.

Market trends and some executives’ analysis for the year give a grim view on the future of some paint companies, with expectations that there will be a marked slowdown.

Companies like Neuce Kenya Paint industry ltd, although a small player in the local market and depend heavily on imports, is one of the firms feeling the long-term effects of an economic vagueness, with the sinking value of the Shilling against global currencies and high fuel a growing concern.

“Apart from the forex, other major factors such as price variance in raw materials, fuel cost, clearing goods, NSSF and other costs have seen a similar upward spiral.

Due to these reasons, we will not be able to sustain the current prices and we have no alternative but to further review the prices,” reads a statement in part from the firm’s managing director Nelson Fiuza to its customers.

As a result, the company says it will be forced to pass on those charges to the consumer effective July 10, when new prices are affected, in a review that will reflect higher bills for its customers.

“We would like to bring to your attention that our price list will be reviewed and take effect from the 10th of July 2023,” continues the statement dated June 30, 2023.

But bigger manufacturers like Crown Paints are optimistic with its Chief executive officer Rakesh Rao exuding confidence that the second half of the year “will be fine’ despite a reduced consumer demand from its products.

“Inflation has seen most people’s purchasing power reduced in the last months, and while the demand has been down, we haven’t decided on that just yet (review in prices). We are hopeful that in the second half of the year we will achieve a double-digit growth,” offered Mr. Rao in a telephone interview Tuesday, admitting that the first six months of the year were not good for the NSE– listed paint maker.

The firm increased the price of its products by up to eight percent in April last year in the wake of a rise in the cost of shipping raw materials, after the cost of importing raw materials more than doubled at the time to Sh567,800 ($5,000) per tonne from Sh227,140 ($2,000) before the outbreak of the Covid-19 pandemic.

Prices of raw materials used to make paint and coatings are still skyrocketing, with the upward trajectory set to continue over the next few months as new taxes begin to take effect.

Some of the raw materials used in making paint include unsaturated polyester, alkyd, Emulsion VAM, Emulsion-styrene acrylic, Homopolymers, and Emulsion B.A.M.

In march last year, paint firms lost a bid to block new taxes on raw materials. In their petition, the manufacturers including Basco Products (K) Limited, Crown Paints Kenya limited, Nasib Industrial Products Limited, Maroo Polymers Limited, Galaxy Paints and Coatings Limited, and Super Manufacturers Limited described the tax measures as unlawful, unconstitutional, null and void as they impose an unfair tax burden on them and their customers.

They were opposed to the 10 percent excise duty rate introduced in 2021 in the Finance Act 2021 as the government mobilized tax revenues to finance the 2021/22 budget of Sh3.6 trillion. Their main contention was that the amendments were not subjected to public participation.

But with the introduction on new taxes in the Finance Bill 2023, manufacturers and not just paint companies are expected to increase their price margins as they contend with the high cost of doing business in the country.

Weakening of the shilling against the dollar since last year for instance, has also led to the spike in the cost of importing goods for paint firms which source over 95 percent of raw materials from abroad.

The new prices look set to protect margins for the paints maker which is recovering from the sales drop caused by the Covid-19 economic fallout, inflation brought by the war in Ukraine, and general weak economy.

The Shilling against the dollar is presently trading at 140.65 while the annual inflation rate in Kenya eased marginally to 7.9 percent in June 2023, down from 8 percent in the prior month but still above the central bank’s preferred range of 2.5% to 7.5 percent.

This article first appeared on People Daily