Ambitious plan to rev up manufacturing

Tuesday December 5 2017

The government is focusing on  expansion of speclal industrial zones to rev up the manufacturing sector in order to spur economic growth and create jobs. FILE PHOTO | NMG

The government is focusing on expansion of speclal industrial zones to rev up the manufacturing sector in order to spur economic growth and create jobs. FILE PHOTO | NMG 

By CONSTANT MUNDA
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President Uhuru Kenyatta has strongly indicated that the promotion of the stagnant manufacturing sector will be a priority in his economic agenda during his second and final term in office.
The sector’s contribution to country’s national wealth, technically referred to as gross domestic product (GDP), has stagnated at about 10 per cent in a decade or so. Last year, the sector’s share of GDP fell to 9.2 per cent, an indication that it grew at a slower pace than the economy.

The under-performance of the sector has been widely cited as the reason Kenya has failed to achieve the targeted sustainable annual 10 per cent growth in GDP from 2010 under the Vision 2030, the country’s long-term development blueprint.

The best performance of the overall economy was in 2010 when GDP expanded by 8.4 per cent. Since then, it has grown below six per cent, dashing hopes of an upper middle-income economy in the next 12 years.

The economy has also struggled to create decent employment opportunities with 89.72 per cent of the 832,900 jobs in 2016 coming from the informal sector. Only 85,600 jobs were created in the formal sector in 2016, way below the target of a million yearly that the Jubilee administration had targeted in its first term.

“Creating jobs and opportunities for our young population is also a top priority. In this regard, we will target manufacturing. As you know our manufacturing sector is the primary vehicle for the creation of decent jobs,” Mr Kenyatta said last week in his inauguration speech. “Over my term, we will grow and sustain this manufacturing sector, and raise its share of the national cake from nine to 15 per cent.”

A raft of measures have been put in place aimed at making the sector competitive, with the latest initiative being rolled out last Friday when the state-run Kenya Power slashed power tariffs by up to a third for large businesses and manufacturers operating between 10pm and 6am.

Energy Principal Secretary Joseph Njoroge, however, indicated that only firms which increase their production beyond their present day-time capacity will benefit from the cheaper night tariff to prevent a mass flight to night-time operations by manufacturers.

“What happened at one time when we had off-peak and on-peak (tariffs in 2009) is that manufacturers just went to off-peak because it (the cost) is lower, and that created a lot of imbalance,” Mr Njoroge said. 

“At the moment, we already know how many units these customers consume and we expect them to consume the same number of units. But between 10pm and 6am, we want them to make an additional production at a very low tariff.”

The President has identified agro-processing, textiles and apparel, leather processing, making of construction materials, innovation and IT, mining and extractives as key sub-sectors his administration will focus on.

Industrialisation secretary Adan Mohammed says the country has laid the groundwork for accelerated growth in the manufacturing sector, citing the setting up of special economic zones and industrial parks in Machakos and Ruiru as well as the establishment of several manufacturing plants such as the East African Breweries in Kisumu. The industrial space for textiles and apparel development in Athi River has also been expanded with Sh1.3 billion set aside in the 2016/17 financial year for the project, Industrialisation ministry’s recently released report shows.

Mr Mohammed says the last five years have been mainly about setting the necessary infrastructure on which the economy would take off. He adds that because of the foundation that has been set up, key economic milestones are set to be realized growing forward.

As per its 10-year transformation report, the ministry is also betting big on SMEs such as the footwear and leather product manufacturers in Nairobi’s Kariokor market where shared facilities have been created.

The Kenya Association of Manufacturers (KAM), the sector’s lobby group, said last week Kenya has capacity to spur industrial growth and development just like South Korea – a country whose economy was at par with Kenya at independence – did from early 1960s.

The Korea Republic focused on development of basic industries such as chemical fertilisers, cement, oil refinery, iron and steel as well as promotion of value-added exports under a five-year plan from 1962. The East Asian tiger economy, which has the 11th largest GDP in the world, also invested heavily in science and technology, and expanded agriculture and energy sectors, becoming one of the fastest growing economies in the world through 1990s.

Today, Korea is one of the world’s most industrialised and diversified economies with brands such as Samsung and LG Electronics dominating sales across the world.

“Increasing the competitiveness of local industries is key in industrial growth,” KAM says in its 10-point agenda which it presented to political parties ahead of this year’s contentious elections.

“Increasing our manufacturing base is critical to job creation and economic growth as well as domestic and foreign investment.”

The lobby is, among others, rooting for development of stronger technical and trade-based skills to enhance labour productivity and sharpen the sector’s competitiveness.

KAM chief executive Phyllis Wakiaga last week said the Jubilee administration should ensure laws and regulations are predictable, while counties should address multiple fees and licences to attract and retain investments.

She also wants the 2013 Railway Development Levy, charged at 1.5 per cent of the value of imports, and the 2.5 per cent Import Declaration Fee scrapped as they raise production costs for manufacturing firms.

Export Promotion Council chief executive Peter Biwott said the state is keen on promoting value-added exports as a way of emboldening the economy’s fundamentals.

“What Kenya has really suffered from is a narrowing of products for exports. (But) We are at the right time because the country now is going to focus on manufacturing,” Mr Biwott said.

“There’s need for provision of incentives, and we are coming up with export development fund which is a priority, so that we support these firms to diversify and enhance value addition.”

The value of exports by Kenyan firms to regional markets has in recent years come under a serious threat, partly due to growing import substitutions. Only Somalia, where consignments are largely khat (miraa), has posted a growth in orders from Kenya between January and August this year, latest data by the Kenya National Bureau of Statistics shows.

“This (drop in orders from EAC) is a worrying trend. In order to push our exports, Kenya needs to undertake coordinated action to promote exports and to secure market access for our locally produced goods and services,” Ms Wakiaga said in an emailed response.

Kenya is a signatory to the World Trade Organisation’s Trade Facilitation Agreement, commonly known as Bali Agreement. The ratification of the Bali Agreement, which came into force on February 22 this year after getting the mandatory support from two thirds of WTO members, binds the country to reforms aimed at reducing non-tariff barriers (NTBs) to trade.

The Industrialisation CS says since 2013, 20 NTBs have been resolved within East Africa, easing the movement of Kenyan goods to its neighbours. This, Mr Mohamed notes, has resulted in growth of exports and creation of jobs.

The president said the country will vigorously pursue bilateral ties to meets its ambitious objectives.

“We shall reach out to our key trading partners to work with us to achieve a win-win outcome that enables Kenyans to get the most out of their products,” Mr Kenyatta said. “This will involve negotiations to open new international markets for our products, and to attract even more new investment.”