It is easy to think of Kenya as a country on the rise. Its economy, East Africa’s biggest, has been chugging along at a steady growth rate of 5–6% for the last few years, fitting the optimistic “Africa Rising” narrative characterised by thriving economies with improved quality of life for citizens.
The only speck in the country’s stellar show is its sluggish manufacturing sector. This key sector, which is expected to create jobs in a country with youth unemployment of over 17%, is steadily losing steam.
Indeed, according to the Kenya National Bureau of Statistics, growth in the sector fell to a dismal 1.9% in the third quarter of 2016, down from 3.3% at the same point in 2015. This is a far cry from increasing its share of GDP by 10% per annum as envisaged in the government’s Vision2030 programme.
The dream of becoming an industrialised nation by 2030 is therefore receding. Nowhere is the impact of slowed manufacturing growth more felt than in Nairobi, the capital city, where dozens of factories are closing down or relocating to other regions. Among other reasons, owners blame the high cost of production, counterfeits and a tough business environment.
But cheap imports are the main reason behind the slump in the manufacturing sector. In 2014, for instance, battery maker Eveready shut down its factories in Kenya citing the influx of cheap imports. Tyre maker Sameer Africa is the latest manufacturer to close down due to proliferation of cheap imports, mostly from China and India.
The domino effect is already playing out in most parts of the country. In the downtown area of Nairobi, home to many of the country’s rapidly expanding population of entrepreneurs, the effects of cheap imports are clearly evident.
James Waeni sells shoes in one of the many stalls along Price Road. He thrives on narrow margins, the reason why he makes journeys to China to get his products at a fraction of the local cost. It does not help that shoes can be easily manufactured locally.
In fact, a spot check in Nairobi’s Industrial Area reveals that a local shoemaker has slowed down production due to slow sales as wholesalers and retailers continue with their exodus. Waeni knows very well that going for cheap imports kills local manufacturing, but for now, he says it makes business sense.
“China-made goods are fast moving compared to locally made products. They fly off the shelves simply because of the cheaper price tags,” says the youthful entrepreneur. He is just one of the many business owners who are moving to China to buy manufactured goods at a cheaper price, despite rising concerns about the quality of the products.
This trend makes a mockery of the “Buy Kenya, Build Kenya” slogan introduced by the government in a campaign to spur local production. The campaign began in June 2015, when Kenya’s President Uhuru Kenyatta promised to enforce policies to ensure increased production and consumption of locally manufactured goods and services.
For a start, he announced that 40% of all goods and services procured by the government at all levels should be locally produced. Almost two years down the line, the campaign has borne no fruit.
“It has become expensive to do business in Kenya because of costly inputs. Power is expensive compared with our competing countries like Egypt,” explains Dr XN Iraki, a University of Nairobi lecturer.
Due to the high cost of doing business in Kenya, he adds, multinational firms have no other option but to shut down their manufacturing units as they look at importing their products from their affiliated firms in other countries, a less costly alternative. It does not help that Kenya’s bilateral trade with China is tilted in favour of the latter.
According to data from the Kenya National Bureau of Statistics, the value of imports from China was KSh320bn ($3bn) in 2016, while Kenya’s exports to China averaged KSh5bn.
In 2016 China supplied Kenya with railway construction materials, including steel, worth more than KSh13bn. Meanwhile, local steel manufacturers face tough times as cheap steel from China keeps them out of business, forcing massive layoffs.
Reviving the sector
Analysts say that Kenya should re-evaluate its taxation decisions with regard to value-added tax, industrial development fees and the railway development fund, as they stifle local production, making locally made goods more expensive than imports. Kotni Rao, head of the steel sector at the Kenya Association of Manufacturers (KAM), proposes a dumping duty on cheap imports to avert the trend.
KAM recently launched its Manufacturing Agenda 2017 programme, which seeks to increase the sector’s contribution to the economy by 1.6% every year for the next three years. It calls for “investment in technical skills, creating a nurturing environment for SMEs with a special emphasis on women and youth enterprises, and making Kenya an export hub thereby increasing the competitiveness for local business.”
Local e-commerce giant, Jumia Kenya, recently rolled out an online store dedicated to selling locally made products. But a lot more needs to be done to revive the sector.
Making the connection
KAM chief executive Phyllis Wakiaga says that it is easy to peg the turnaround of the manufacturing sector on government policies, but if the policies are not well implemented, they might fail to bring any tangible results. For a start, local consumers need to embrace locally made goods.
“There is a need to sensitise local consumers about the benefits of buying locally made products. Most of these consumers do not see the link between buying local products and job creation,” she says.
– See more at: http://africanbusinessmagazine.com/region/east-africa/made-kenya-narrative-loses-steam/#sthash.tyCaxErz.dpuf