Cheap Chinese imports may hurt Kenya’s bid to industrialise as aspired in the Vision 2030, a survey has warned.
A World Bank policy research working paper titled 'Deal or no Deal; Strictly Business for China in Kenya?’ pointed out that Kenya’s manufacturing industry is mired in challenges, giving China a huge advantage over products made here.
“Because Kenya produces and trades few intermediate goods, researchers have concluded that Chinese imports could lead to a de-industrialisation.
Many suspect a premature decline of industry because manufacturing growth was only 3.4 per cent in 2014, down from 5.6 per cent in 2013,” the report noted.
The manufacturing sector currently accounts for 10 per cent of GDP, half of what the government wants to meet in its Vision 2030 programme.
The global lender says Kenya will need to promote more foreign direct investment into manufacturing, improve labour productivity and infrastructure, lower transport costs, and lighten the regulatory burden of trade it if hopes to boost exports and the share of manufacturing in GDP.
“China also has lower labour costs, better technology, and better connections in global value chains. If China can manage its market share even with Agoa. If Agoa is removed, Kenyan exports may experience a major loss of their US market share,” warned the report.
Chinese imports are also eating into Kenya’s export prospects both in the region and in overseas markets, according to the report.
One cited commodity is the Kenyan apparel exports to the US under the African Growth and Opportunity Act and the MultiFibre Agreement (MFA).
The US received over 90 per cent of Kenya’s clothing exports, rising 292 per cent from $78 million to $306 million, this did not, however, last.
Between 2004 and 2006, the value of Kenyan clothing exports to the US dropped 5.1 per cent after the first two years of quota removal and declined 4.6 per cent between 2005 and 2011.
Five factories closed in 2004-2005 with 4,603 job losses - though much fewer than the predicted 25,000 job cuts.
After the renewal of Agoa in 2008, Kenyan apparel exports rebounded but even with its help, the country’s exports are still much smaller than those from China, which is becoming a supplier of choice for most US importers because it can meet the massive volumes required by large retailers and apparel companies.