EAC industries hit by high energy costs

High cost of energy and poor infrastructure have held back the growth of manufacturing sector in the East African region.

Although the East African Community is the second fastest growing bloc globally, the cost of putting up industries and making finished products is still expensive. This has curtailed systematic growth over the years.

According to a report released by the African Development Bank (AfDB) yesterday, the weak growth in the last ten years is majorly as a result of inadequate energy supply and poor roads. “The East African block has the lowest per capita energy generating capacity on the continent, which results to power outages and manufacturing industries purchasing expensive supplementary power generation equipment,” the report said. Moreover, the report added that road network is poor in most countries resulting to high cost of transport while effective railway network is limited. AfDB Director Gabriel Negatu said the East African ports generally under-perform compared to other global competitors.

Special economic zones

The study recommends that countries address constraints in the legal and regulatory environment that manufacturing firms face and in the infrastructure and logistics services on which they depend on. “A significant share of global manufacturing can be gained by East Africa with a focused and determined policy intervention. The affected country should continue investing in the energy and transport sectors which should mainly be focused on the major trade corridors.” Negatu said.

Closer home, the manufacturing sector contributes just ten per cent of the Gross Domestic Product (GDP) with the cost of transport largely contributing to high cost of the final products. In the US and Europe, the cost of transport in the overall cost of goods is about four per cent compared to an average of about 40 per cent in Kenya.

Speaking at the same event, Industrialisation Principal Secretary Wilson Songa, said the Government has established partnerships with the private sector to implement programmes that will encourage local industries to grow. The report also noted that the countries should develop special economic zones.

“East African governments must strategically engage zone developers by inviting local investors into the zones, building links to research and development institutes, as China did with the special zones it created sometimes with Singapore partners,” the report recommends.