Industry seeks State action in roadmap to economic growth

Rajan Shah KAM Board Chair with Abubakar Hassan Abubakar PS State Department for Investment Promotion during the launch of the 2023 manufacturing priority agenda. [Wilberforce Okwiri, Standard]

Manufacturers have outlined key government interventions that could help the industry to increase its contribution to the country's economic growth.

They say the State action could boost the manufacturing sector's contribution to over 20 per cent of gross domestic product (GDP) from the 7.24 per cent recorded in 2021.

Among the interventions identified by the Kenya Association of Manufacturers (KAM) are a reduction of the regulatory burden, access to affordable and reliable energy and a sustained fight against illegal trade.

Others include ensuring certainty and predictability of tax policies, lowering the cost of industrial inputs, prompt payment of bills and provision of long-term financing to manufacturers.

Manufacturing was prioritised in the Vision 2030 economic blueprint and later by former president Uhuru Kenyatta in 2017 as one of the pillars of the Big 4 Agenda alongside food security, affordable healthcare and affordable housing.

Endless opportunities

For a sector punching well below its weight, KAM Chairman Rajan Shah says there are endless opportunities that remain largely untapped, such as value addition in the agriculture sector.

"Low-value addition in Kenya has made it impossible to realise the full potential of the manufacturing sector, hence denying citizens extra jobs, wealth retention and incentivisation of the sector to increase production and economic growth," he said during the launch of the KAM Manufacturing Priority Agenda (MPA) 2023 in Nairobi on February 28.

"In the agriculture sector, we export products with little or no value-added, hence we miss out on increased income. It is paramount that we create linkages between farmers and manufacturers to reduce the share of agricultural products that are exported in the primary form to derive more value from exports."

The MPA is an annual publication that guides the industry lobby's advocacy efforts with the government and its agencies. Data in the Economic Survey 2022 indicates that the value of Kenya's manufactured output increased from Sh2.11 trillion in 2017 to Sh2.69 trillion in 2021.

There was, however, heavy reliance on intermediate inputs, which averaged 65 per cent of the final output for the period. Shah said an enabling environment would bring to life the sleeping manufacturing giant.

"This shall be achieved through sound policy, regulatory and institutional frameworks that foster forward and backward linkages, dynamic economies of scale and innovation," he said.

The manufacturing sector created 336,800 jobs in 2021 in both the public and private sectors, a decline from 343.7 thousand jobs created in 2017, according to the Economic Survey 2022. "Given that a manufacturing GDP of 7.24 per cent in 2021 was equivalent to 336,800 jobs, holding other factors constant, a manufacturing GDP contribution of 20 per cent by 2030 will yield about one million jobs," the MPA says.

Employment in the industry has been almost static for the 2010-19 period, it said.

"Industry employment in comparator countries was almost four times compared to Kenya. For instance, in 2019, 26.94 per cent of people in Egypt were employed in the industry compared to only 6.22 per cent for Kenya."

Speaking during the MPA launch, Investment Promotion Principal Secretary Abubakar Hassan Abubakar said the government has prioritised various value chains geared towards driving industrial growth.

"Manufacturing is known the world over as a creator of jobs due to the value chains involved. As a government, we have prioritised leather, textiles, dairy, edible oil and pharmaceutical sectors among others, to drive our country's industrial growth," he said.

"This will be driven through the County Aggregation Industrial Parks across all 47 counties."

The PS said attracting investments calls for public-private dialogue to improve the business environment in the country. "We shall drive investments through the National Investments Council by attracting, facilitating and enabling investments in Kenya."

The goal of reaching a 20 per cent contribution to GDP will, however, need the government's commitment to a raft of agendas.

KAM says that realigning existing national government institutions and counties to remove overlapping and duplication of mandates will ease the regulatory burden hurting manufacturing.

"Realignment of existing fees, charges and levies imposed by various government agencies and regulatory bodies, and counties, will also ease this burden," it says in the MPA. "National government agencies and county governments should create sharing platforms to facilitate compliance and reduce costs for businesses."

KAM also wants the government to allow generators of electricity to sell directly to bulk electricity consumers "to enhance quality and reliability of electricity".

Investment destination

It also asks the State to reduce the cost of power from a high of Sh18 per unit to below Sh10 per unit. "Kenya's competitive positioning as an investment destination is being eroded by developments in the other economies," the MPA says.

"Tanzania, Ethiopia and Uganda are investing in hydropower generation. Kenya, however, is investing in geothermal, wind and solar power. The cost of the energy thereof from these investments is working out to be higher for Kenya compared to other countries in the region."

KAM also asks for a review of the pre-conditions for the Time of Use Tariff for existing industries to cover all-night consumption and lock in the rate for each facility, and for removal of the Sh5.5 Fuel Development Levy. "Incentivise manufacturers to upgrade from fuel-based boilers to electric boilers with a view of saving our forex, increase power utilisation and reduce carbon footprint," it says.

All the selected performance indicators of the Export Processing Zone programme showed growth, with the number of operating enterprises increasing to 145 in 2021 from 111 in 2016.

The number of employees engaged also increased to 66,654 in 2021 from 53,565 in 2016. "In addition, the value of exports rose from Sh64.151 billion in 2016 to Sh91.34 billion in 2021," KAM says.

The percentage of imports to exports was 52 per cent in 2021.

Manufacturers have also asked for a review of rail charges to match the road market rates to encourage more importers to use the Standard Gauge Railway.