Steel makers not yet out of the woods despite Kenya’s protectionist measures

Local steel manufacturers are not yet out of the woods even after the Government increased duty on importation of metal to protect the sub-sector.

Manufacturers of iron and steel will still face stiff competition from Egypt which brings into the country the metals duty-free by virtue of being a member of Common Market for Eastern and Southern Africa (Comesa), a trading bloc.

Manufacture of iron and steel is one of the areas President Uhuru Kenyatta is banking on in his quest to significantly create jobs as part of the Big Four Agenda. The three pillars include universal healthcare, food security and nutrition and low-cost housing.

In his Budget speech, National Treasury Cabinet Secretary Henry Rotich proposed to increase import duty on imported steel and iron to 35 per cent. This was to protect local manufacturers against cheap imports of the two metals.

However, local steel manufacturers insist they will still face stiff competition from steel produced in Egypt which subsidizes its steelmakers.

Kaushik Shah, Director on the Board of Kenya Association of Manufacturers said they suspect Egyptian manufacturers are getting a lot of subsidy from their Government, a fact that makes it hard for them to compete.

“Egypt’s imports come under the Comesa arrangement. And they are zero-rated. So an increase in duty does not affect their products,” said Shah noting that there were a lot of other products coming into the country from Egypt under the zero-duty remission.

“We don’t actually have a level playing field,” added Shah, noting that the Government, besides protecting local manufacturers by increasing import duty, it should also look at the relationship it has with Egypt.

The increased duty would not apply to imports from Egypt, a major producer of steel and iron that is also a member of Comesa.

Moreover, local manufacturers will continue to struggle with the high cost of production, with electricity taking up about 30 per cent of the input used in the production of steel. Labour is another stumbling block in the improved production of steel production in the country.

Local steel players say the 35 per cent increment was not enough, calling on the Government to instead create an enabling environment that will make them competitive.

The players also wondered why Egypt was only bringing in the finished product when other countries brought in the raw material.

“Mr Speaker, our iron and steel industry is facing stiff competition from imported cheap and subsidized iron and steel products. In order to protect the local iron and steel industries, I have increased the rate of import duty from 25 per cent to 35 per cent in a wide range of steel and iron products which are available in the region,” said Rotich when he read his budget speech in Parliament in June.

Imports of steel and iron were the main drivers of the import bill in 2017. Kenya imported 1.3 million tonnes of steel and iron, a decrease from 1.4 million tonnes of the metal that the country imported in 2016.

The country paid Sh11.7 billion for the import of the metals in 2017, down from Sh13.1 billion that it paid a year before.

Achieving 15 per cent contribution to the GDP for the manufacturing sector, which is part of President Uhuru Kenyatta’s Big Four Agenda, says Phyllis Wakiaga, the CEO of Kenya Association of Manufacturers (KAM), is only possible if the country focuses on making local manufacturing competitive.

“One way to do this is to increase value addition to boost the value of exports and ease the country’s import bill,” says Ms Wakiaga.

Iron and steel are one of the sectors that President Uhuru Kenyatta hopes will help him achieve one of his Big Four Agenda- job creation.

Grow Kenyan industry

The Government’s aim is to attract investments valued at Sh100 billion in the iron and steel industry by 2022. This, the Government hopes to achieve by developing a policy and incentive framework, establishing coal and iron deposits and committing Government share of at least 30 per cent to the iron and steel players in the country.

A number of steel manufacturers were major suppliers of the first phase of the Standard Gauge Railway. And there is a chance for improvement as the second phase of construction begins.

Most of the local supply of steel was for bridges and civil works such as culverts, as steel rails are not produced locally.

Ultimately, the Government wants to increase the share of manufacturing as a percentage of gross domestic products (GDP) to 15 per cent from 10 per cent where it has stagnated for more than 10 years.

“The Government will target to increase the contribution of manufacturing sector to GDP from 9.2 per cent in 2016 to 15 per cent by 2022 by adding $2 to 3 billion to our GDP. It is expected that this will increase manufacturing sector jobs by more than 800,000,” said Treasury in the Budget Policy Statement for 2018.