Why manufacturers will take longer to hit 15 per cent growth target

The local manufacturing sector is still struggling to reach its potential despite the many initiatives by the Government to aid its growth.

The manufacturers aim to contribute up to 15 per cent to the Gross Domestic Product (GDP) by 2022.

The sector has a 7.3 per cent gap to close, less than two years to the deadline, according to their lobby, the Kenya Association of Manufacturers (KAM).

World Bank data indicates that the Kenya services sector continues to dominate in contribution to the GDP - constantly accounting for more than 40 per cent of the GDP.

Even with the initiatives such as “Buy Kenya Build Kenya” that had come up in June 2017 to appeal to Kenyans to promote local industries, it has not done much.

The Big Four agenda has also failed to catapult the sector’s contribution to the economy past 10 per cent. “The Buy Kenya Build Kenya Strategy” is aimed at inculcating patriotism and preference for Kenyan goods and services in the minds of all Kenyan citizens as a means of supporting the domestic economy,” said the then Cabinet Secretary for Industry, Trade and Cooperatives Adan Mohamed.

In 2018, the services sector reached 42.67 per cent, a rise from a slight depression in 2017, which saw it record 41.98 per cent contribution. The agricultural sector has been on a constant rise in its contribution to the economy, peaking at 34.83 per cent in 2017, perhaps due to a poor performance by the services and manufacturing sectors - not due to the sector’s improvement.

The manufacturing sector remains below 10 per cent, currently oscillating at 7.7 per cent in 2018; the lowest figure since 2014.

However, the Kenya National Federation of Jua Kali Associations (KNFJKA), which is part of the country’s manufacturers, continues to grow steadily.

The sector is growing at a rate of 10 per cent annually. “We have incorporated both very skilled and unskilled people in the industry and we are making admirable progress,” said KNFJKA Chief Executive Richard Muteti.

This was during the 28th Economic Symposium of Institute of Certified Public Accountants of Kenya last month.

Micro and Small Enterprises Authority Chief Executive Henry Rithaa observed that in 2017, more than three per cent of the total 6.4 per cent GDP growth could be attributed to Micro, Small and Medium Enterprises.

Global ranking

Latest Competitive Industrial Performance (CIP) data from the United Nations Industrial Development Organisation places Kenya’s manufacturing sector competitiveness at position 112 (out of 150 economies) in the global ranking.

Kenya’s score has been on a steady decline since 2009, without any recovery. In the push to boost manufacturing, exports of food and beverage experienced a steady rise but had a slight drop in 2018 (from 48 per cent to 47.73 per cent).

There were more imports than exports, for non-food industrial supplies, at 34.66 per cent and 23.5 per cent of the total imports and exports, respectively.

The same trends happened for fuel and lubricants, machinery and other capital equipment, as well as transport equipment. For all of them, Kenya imports more than it exports.

On the whole, the export value of Kenyan manufactured goods has been on the decline, dropping from well over Sh172.1 billion in 2015 to 151.4 billion in 2017.

There was a slight recovery in 2018, with the exports at Sh155.1 billion. The percentage contribution of manufactured exports to all exports has also been declining steadily to stand at 29 per cent, down from 36 per cent in 2014.

Kenya’s three biggest export destinations remained Uganda, Pakistan and the US, though, in all three, exports figures reduced in 2018.

The World Bank Ease of Doing Business Report of 2019 placed Kenya at position 56 globally, up from position 61 in 2018.

Even as the contribution of the sector to the GDP fell, value addition in the manufacturing sector increased from Sh655.3 billion to Sh689.3 billion.

KAM Chief Executive Phylis Wakiaga, however, ranks value addition among the key raft of changes and improvements that need to be considered to revamp the industry.

Other interventions by the government will help revive the sector. “We want to appeal to the government to ensure there is more liquidity in the economy.

There should also be created a level playground for businesses to ensure there is competitiveness, with the regulation of imports to support the local industry,” she said.

“We should create a system to ensure small and medium enterprises grow actively, and above all, reach a solution that enables us to have a sustainable manufacturing sector.”

KAM has announced five pillars that will turn around the sector’s fortunes as outlined in the Manufacturing Priority Agenda 2020 document.

They include the creation of competitiveness and a level playing field for manufacturers in Kenya, fight against illicit trade, addressing multiple fees, levies and other charges on businesses and enhancing cash flow for manufacturers.

Industrial policies

They also seek to enhance market access by boosting local market access, promoting regional market access and diversify regional market access. The third pillar, construction of pro-industry policy and institutional framework, seeks to ensure predictable and stable industrial policies, certainty and predictability of tax policies and national policy coherence among others.

Ethics in the manufacturing sector will also protect small traders and suppliers from collapse. Interior Cabinet Secretary Fred Matiang’i warned KMA against tolerating unethical business behaviour from members, citing it as the main reason small suppliers were struggling.

He said the State will root out graft that has seen behemoths such as Nakumatt collapse.

“The government will not sit and watch as wanton businesspeople cripple small suppliers due to application of unethical practices. We will come down hard on those who fail to honour their obligations to suppliers,” he said.  

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