The manufacturing sector recorded a slow growth in 2016 as industries struggled to cope in a tough business environment characterised by massive layoffs and closure of some businesses, the Kenya Association of Manufacturers has said.
KAM has noted companies continue to grapple with high cost of energy at Sh11 per kilowatt hour, compared to Ethiopia, where factories are enjoying lower tariffs of between four and five cents per kilowatt hour.
Threats from illicit trade are also a major concern for manufacturers as the year comes to an end.
It is estimated that Kenyan manufacturers are losing at least 40 per cent of their market share to counterfeiters, KAM CEO Phyllis Wakiaga said, which has “unfairly” reduced the industry’s earnings.
This, coupled with frequent power outages, congested industrial zones, high labour input costs, increasing overall production costs and a huge import bill are denying the manufacturing sector an opportunity to thrive, the association pointed out.
“We currently have a structure that supports imports and not local manufacturing where finished products and raw materials attract the same Value Added Tax rates. Corruption is also hindering the industry’s growth,” Wakiaga said.
She said the harsh environment is to blame for the closure of industries, the most recent one being tyre manufacturer Sameer Africa, which announced it would shut down its Mombasa road manufacturing plant on September 30.
The company’s managing director Allan Walmsley blamed the closure on competition from cheap and subsidised tyre imports mainly from China that enter the Kenyan market.
“The closure and relocation of big manufacturing plants such as Sameer Africa to neighbouring countries is one of the low moments for the sector in 2016,” Wakiaga said.
Another firm that stumbled this year was the Kenya Fluorspar Company which scaled down operations with an impending closure.
This is despite the World Bank ranking Kenya 92nd globally in its Ease of Doing Business Index, pegged on business reforms initiated by the government.
The Kenya National Chamber of Commerce and Industry this year warned that Kenya faces stiff competition from Ethiopia in attracting manufacturers despite the former’s higher ranking in the World Bank’s Ease of Doing Business 2016 report.
“Ethiopia is certainly proving to be a very competitive neighbour. And her population size, first of all, is a compelling one for investors. Ethiopia’s cost of energy is low and we really have to up our game to make sure that we become attractive,” KNCCI chairman Kiprono Kittony told the Star in an interview.

“As a result, the number of formal jobs in manufacturing has grown at just seven per year over the past four years. Our exports have stagnated at 15 per cent of GDP, while imports have grown to 40 per cent of GDP, creating a trade imbalance, weakening the Kenyan shilling and increasing inflationary pressure,” Wakiaga said.
Renewed efforts
However, the sector had a number of positive indicators that gave it new hope in the year, among them the government’s Buy Kenya, Build Kenya initiative which was actualised by buying local materials for mega projects such as the Standard Gauge Railway.
However, KAM says “more needs to be done to enforce this policy”.
The government also attracted local and foreign investors with the upcoming industrial park in Naivasha, infrastructure development and political stability.
The Industry and Trade ministry has been pushing to implement the country’s first-ever blueprint aimed at reviving the underperforming manufacturing and industrial exports sector.
Cabinet Secretary Adan Mohamed said the 10-year plan – Kenya Industrial Transformation Programme – launched in 2015, aims at growing the sector to above 15 per cent of gross domestic product.
“As an emerging economy moving from an agriculture-based low-income economy to an industrial middle-income economy, it is important the manufacturing sector share to the GDP increases,” Mohamed said on September 16, 2015.
The blueprint also seeks to create an industrial development fund, industrial parks along infrastructure corridors, and support the agro-processing, textile and mining sectors, among others.
The plan is expected to pump an additional Sh200-Sh300 billion into the economy in the next five years, while increasing the sectors’ jobs by 435,000.
New year wish
KAM’s 2017 wish list include the gazettement of the Transition Authority’s recommendations to enhance ease of doing business in the counties. The lobby has also called for increased market access for Kenyan products, locally and internationally, low cost energy and support for existing industries. “There is need for immediate intervention to attract investors,” Wakiaga said.
Source: The Star

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