Why Kenyan manufacturers cannot compete with Chinese imports just yet

China Square Mall, Nairobi. Trade CS Moses Kuria ordered it closed at the weekend. [Jenipher Wachie, Standard]

In Kiambu town, a few kilometres outside Nairobi's Central Business District, John Njoroge hawks Chinese-made jeans jackets for Sh1,000 and tank tops for Sh300.

Njoroge, a 37-year-old graduate of Mechanical Engineering, says he started the business after failing to find a job after completing college.

He is a happy man as his imported merchandise sells fast and leaves him with a livelihood.

"I sell many pieces every day. People like them because they are cheap and come in any styles and colours," he says.

Njoroge's merchandise represents the deepening visible signs of economic ties between China and East Africa's largest economy.

He is part of a growing army of Kenyan small-scale traders hawking cheap Chinese imports from electronics, clothes, household wares at low prices and earning impressive margins in between.

These Kenyan traders selling cheap textiles and electronics are a fixture not only in Nairobi's famous business nodes like Luthuli Avenue and Nyamakima but even in small, remote Kenyan villages.

They are flourishing, even as Chinese companies continue winning mega contracts to build roads, bridges and government buildings.

While Kenyan consumers are happy to get various goods at cheap prices, not everyone is pleased and these include Kenyan manufacturers.

"The key question is why are they cheap?" posed Kenyan Association of Manufacturers (KAM) chairman Rajan Shah in an interview on Monday.

"Cheap is a relative term. Are they cheaper than Kenyan manufactured goods? If that is the case, then we have to evaluate what makes our locally manufactured goods relatively more expensive," he said.

Kenyan manufacturers feel high cost of production is edging them out of business.

"This is what we have been driving our advocacy as KAM on how to level the playing field against other countries' manufactured goods," Mr Shah said.

"This means our cost of doing business through logistics cost, taxation and regulatory burden is much higher and hence we are less competitive."

Kenyan Association of Manufacturers (KAM) chairman Rajan Shah. [Wilberforce Okwiri, Standard]

According to Shah, "this is the elephant in the room" that Kenyan policy-makers "need to address" to level the playing field.

"If local manufacturers can become globally competitive, then these so-called cheap Chinese goods will no longer be able to compete with our manufactured goods," he said.

"However, as a part of creating a level playing field, we also need to ensure that these cheap imported goods are complying to the local quality standards and have paid the due taxes and levies which are required. Only then can we as local manufacturers compete at par with imported goods."

The conundrum has once again been brought to the fore after the recent spat between the Trade Minister Moses Kuria and the proprietors of China Square, a Beijing-style store stocking cheap Chinese finished goods that had become a hit with Kenyan shoppers.

Buy out

Kuria appeared to fault the proprietors of the store for trading Chinese finished goods at the Kenyatta University-owned Unicity mall.

"I've today given an offer to Prof Paul Wainaina, the VC Kenyatta University, to buy out the lease for China Square, Unicity Mall & hand it over to the Gikomba, Nyamakima, Muthurwa and Eastleigh Traders Association. We welcome Chinese investors to Kenya as manufacturers, not traders," he said recently.

The controversy led China Square - which has been recently receiving a huge number of buyers - to announce its temporary closure on Sunday, February 26.

In a statement on Saturday, China Square told its customers that they will be closed on Sunday so as to "re-evaluate and replan our company strategy, in order to better serve our customers and meet their needs."

"We are also considering the possibility of cooperating with local traders to enhance our offerings and better integrate with the community," it further stated.

China Square was opened on January 29 and has since seen customers flocking in to buy household items, clothes, electronics and other commodities also available in the streets of Nairobi.

The spat has reignited heated debate about the worrying imbalance between countries like Kenya and the Chinese economy.

Official data shows that Kenya spent nearly Sh400 billion on imports from China in 2021.

Observers say most of what China buys from the continent are raw resources, produced by low-margin businesses that use low-skilled workers - hardly the building blocks of a modern economy. What China sells here, by contrast, are mostly finished goods.

But the issue is not unique to Kenya, even the US has struggled to control a flood of Chinese textiles.

Trade CS Moses Kuria. [Wilberforce Okwiri, Standard]

Local producers accuse China of dumping goods on Africa below cost and say African producers can't compete.

"China manages to export at prices that are frankly incredible, way below the raw material, the international raw material costs," Brian Brink, head of the Textile Federation of South Africa was quoted saying earlier.

Official statistics show that the nature of trade in manufactured goods between Kenya and China is characterized by high imports from China and very low exports from Kenya-a large proportion of Kenya's manufactured exports end up in countries with which it has a clear trade framework.

Moreover, Kenya lacks a comparative advantage for manufactured goods, while China has a high comparative advantage; therefore, Chinese exports complement Kenya's import needs, analysts say.

"Kenya should focus on a comprehensive trade policy with China, support more FDI in manufacturing, innovation, and technology, improve labor productivity and infrastructure, enhance its global value chains, and create new comparative advantages among others," says a study published last year by Kenyan scholars.

The study dubbed "Kenya-China Trade in Manufactured Goods: A Competitive or Complementary Relationship?" highlighted the gaps between the two countries in trade.

"China enjoys a comparative advantage in low-priced manufactured goods, as its manufacturing and infrastructure sectors are highly integrated into global value chains," it says.

"As a result, China is a major source of imports from Kenya, in particular rubber products, machinery, equipment and electronics. Kenya, on the other hand, lacks a comparative advantage in manufactured goods due to the weak rule of law, poor infrastructure, and barriers to production."

As a result, this hinders growth in the manufacturing sector, making it difficult for local producers to compete with Chinese manufactured goods, concludes the study.