Inadequate skills, obsolete technology blunt Kenyan firms’ competitive edge

Most of the manufacturers hire temporary manual labour to move goods around on their backs instead of using forklifts to optimise and offset the costs of higher productivity.

Every day, a long trail of men and women creep into the Industrial Area in Nairobi - Kenya’s oldest manufacturing belt - in the wee hours of the morning.

They are mostly from the surrounding Sinai Slum in what is a typical working week of a top Kenyan manufacturer.

Those who are a rung up the social ladder live as far as Kayole, Kariobangi or Kibera and trace their steps over 10 kilometres away from some of the most congested, crime-riddled estates of Nairobi.

Those who can spare Sh20 will take rickety old buses plying the Lunga Lunga route.

The buses look unroadworthy — literally welded together from old scrap metal, a testament of industrialisation.

These dreary souls will wait hours before the gates open at around 8am, and the owners will then pick at random a few lucky hands to be the engine of manufacturing for the day.

They are competing on a global scale against developed countries that conversely use machines operated by trained personnel.

The personnel only track production, reduce wastages, optimise the speed, maximise the rate, and cut costs, making their products affordable to the final consumer.

A study conducted by SYSPRO, an Enterprise Resource Planning (ERP) software for manufacturers and distributors in conjunction with Strathmore University, showed that Kenyan companies cannot compete favourably on a global scale due to the skills of their workforce and insufficient use of technology.

The study that polled 100 companies drawn from 12 sectors of the production and manufacturing industry in Kenya, showed that six per cent of companies completely used manual labour.

About 83 per cent were semi-automated, meaning they switched between man and machine and only 11 per cent were fully automated.

“About 62 respondents reported that the manufacturing sector would have difficulty competing with counterparts in other developed countries that have an advanced education and training system,” said Prof Ismail Ateya, principal investigator and dean of research and innovation at Strathmore University.

“Over 85 per cent of companies interviewed were either semi-automated or fully-automated, with a majority still holding on to outdated production units because of the high cost of spare parts, unavailability of locally manufactured spare parts and inability to differentiate quality from fake until used,” he said.

Most of the manufacturers hire temporary manual labour to move goods around on their backs instead of using forklifts to optimise and offset the costs of higher productivity.

Low use of ICT in the manufacturing sector also continues to negatively impact the competitiveness of the country’s goods in the global market. “A lot of uncompetitiveness in the sector arises out of internal rather than external factors - meaning that the problem is not the lack of incentives but rather the manufacturer’s attitude toward technology,” Industrialisation Principal Secretary Betty Maina said.

Protectionist policies

Kenyan manufacturers have been demanding for incentives from the Government but have not been able to increase their capacity to produce even with lower tariffs on electricity and protectionist policies against imports from more efficient manufacturers abroad.

For instance, the Government two years ago introduced the Time of Use Tariff, whereby manufacturers operating during the off-peak hours of between 10pm and 6am would get a 50 per cent discount on power costs.

The tariff, however, comes with a condition that the power billed has to be what a manufacturer consumes over and above what they have been consuming on average for the previous three months. This requirement has resulted in only a handful of heavy power users enjoying the lower power rates as companies grapple with a tough operating environment that has eroded consumer spending.

This has, in turn, resulted in low demand for manufactured products.

Out of the over 3,200 large power consumers that qualify to use the tariff, only 818 have taken advantage, according to Kenya Power.

The Strathmore report said if a typical manufacturer produced for 24 hours a day, they would take three months to complete the work they do in a year.

The report said the engines of Kenya run for less than eight hours a day for five days a week, meaning that they only produce for 86 days each year.

“In the study, only about 46 per cent of companies run a full eight hours a day, while the rest run between six to eight hours. Moreover, 50 per cent of companies run three to five days a week thus affecting the country’s quest to become a 24-hour economy,” said Strathmore University lead researcher Ismail Ateya.

Half of the manufacturers operate the machines for only six to eight hours each day, while about six per cent only operate for five hours each day, which means that in a year, the machines are only working for 76 days. Most of the companies did not even know the gaps in their production as they did not have the Enterprise Resource Planning (ERP) solution that allows an organisation to use a system of integrated applications to manage the business and automate many back-office functions related to technology, services, and human resources.

“Out of the companies polled, 33 had not installed ERP Systems, leaving 63 of the rest having installed ERP Systems, with 10 companies not using any hardware or machinery,” said the report.

Local manufacturing has failed to contribute more than 10 per cent of the Gross Domestic Product to the economy, and the Government seeks to double production to 20 per cent in the next 16 years.

This will require a complete change in the nature of manufacturing, the companies involved, and State-led interventions.

According to the World Bank, most of the manufacturing firms in Kenya are medium-sized (56 per cent) but small and medium-sized firms make up 77 per cent of the population sample.

Kenyan manufacturers are also mostly populated by over 40-year-old firms, which make up a quarter of known industries.

This requires that the Government encourages new industries to set up in the country since only 15 per cent of existing manufacturing plants have been in operation for less than 10 years.

Financing is also a key issue as most industries are self-funded through bank loans, invoicing and shares.