Customs Incentives Strategy and the Growth of Tanneries Within the Leather Industry in Kenya

Abstract

Global competitionin modern world has necessitated international corporations to walk extra mile with an aim of withstanding stiff rivalry at the same time adopting dynamic changes in the market. Governments have intervened to protect theirdomestic corporations, inevitably making customs incentives to become a worldwide concern. Africa developing countries depend on tax holidays, tax concessions and export duty exemptions and replenishments which happen to be a different case with industrialized economies that for instance allow investment allowances and accelerated depreciation. Kenya tannerieswithin leather industry still post a decline in units exported and also highemployee‘s turnover. Despite introduction of customsincentives in leather industry by Kenyan Government, Tanneries still experience challenges especially fierce competition with foreign leather industries. Therefore we may need to know how these measures that have been put in place by Kenyan government impact on the growth of tanneries within leather industry in Kenya. It is for this reason that the general objective of this study aimed at establishing the effectiveness of customs incentive strategy on the growth oftanneries within leather industry in Kenya. Specific objectives of this research project were geared towards examining the effect of duty drawback, duty remission schemes, manufacturing under bond, export processing zones and special economic zones on the growth of tanneries within leather industry in Kenya. The growth of tanneries in leather industry was measured by the Return on Assets (ROA). The general research question was; is there any influence that custom incentives strategy has on the growth of tanneries within leather industry in Kenya? Profit maximizationand competition-based theory, Resource-based theory; Agency theory of tax incentive supported this study. Descriptive research design was adopted in this study. Census method of sampling was used to select all tanneries within or Nairobi County and its environs to represent all the tanneries within leather industry in Kenya. Annual financial statements and disclosures from the individual tanneries formed the source of secondary data. Primary data was obtained from finance and operation directorsin various departments of the tanneries within leather industry in Kenya. Further information was derived from research firms like the Kenya National Bureau of Statistics (KNBS). The data collected from yearly financial and general report of individual tanneries in leather industry was then coded into Microsoft excel and analysis done through SPSS version 20. Analysis of data adopted descriptive statistical and multiple regression methods. Results were used in developing a classical regression model to ascertain a causal relationship between dependent and independent variables. Analysis of Variance (ANOVA) was used to give an F test of significance. Relevant discussions and conclusions were arrived at and necessary recommendations made based on the Statistical results. This project will benefitboth government and tanneriesas it will explain how the various custom tax incentives impact on the growth of tanneries within leather industry in Kenya. It will also help in decision making on which strategies to give more weight to. Those who intend to further their studies in fields related to firms in leather industry and customs incentives will also have a base to start from.