Manufacturers hurt by erratic, costly energy

By NICHOLAS WAITATHU

Inadequate energy production has continued to deny the country the chance to enhance its competitiveness.

The move has seen some investors flee for cheaper production costs elsewhere. They include Mecer, Colgate, Palmolive, Unilever among others.

Kenya’s manufacturing sector registered 3.4 per cent growth in 2011, but declined to 3.1 per cent in 2012. The decline is blamed on high cost of production and stiff competition from imports.

 Others are high cost of credit and political uncertainty due to the 2013 General Election.  Such costs have turned the country into a ‘supermarket’ of sorts.

 huge volumes

Most investors who relocated elsewhere ship into the country huge volumes of finished goods at less cost. These have in most cases out competed local produce.

Kenya Private Sector Alliance chairman Vimal Shah concurs that the country has lost its competitiveness over the years owing to lack adequate and affordable energy and general weakness of business structures.

This, he said has seen some companies close local operations and relocate to other regions, where the cost of doing business is less.  Shah says growth of businesses and population has not been in tandem with energy production in the country since independence.

Devolution and Planning Cabinet Secretary Anne Waiguru last month when launching the Economic Survey 2013 said a total installed capacity of electricity expanded by 4.7 per cent to 1606.1 megawatts (MW) in 2012, up  from 1534.3  MW in 2011.

 “Total domestic demand for electricity recorded a growth of 2.2 per cent from 6.2 billion kilowatts per hour (KWh) in 2011 to 6.4 billion KWh in 2012,” Waiguru explained.

 “The number of customers connected under the Rural Electrification Programme grew by 23.7 per cent to stand at 382,631 customers as at June 2012.” Key sources of energy in the country include hydropower, thermal oil, geothermal, and cogeneration. Waiguru said that domestic (small, large, medium, commercial and industrial) sectors remained the main consumers of electricity accounting 93.2 per cent of the total domestic consumption.

 Domestic and small commercial consumption increased by 3.9 per cent to 2.5 billion KWh while sales to the large and medium commercial consumers declined to 3.4 billion KWh in 2012. This accounted for the largest share of the total demand.

Vision 2030

 Employment in the manufacturing sector increased by 2.3 per cent to 277,900 in 2012 compared to 271,500 recorded in 2011. Total employment under Export Processing Zones rose from 32,043 in 2011 to 32,516 in 2012.

 Government still in the financial year will review the Vision 2030 energy plan with the view to ensuring it conforms to the current realities in the country.  Vision 2030 delivery Secretariat Director-General Mugo Kibati recently in an interview confirmed that the Government will engage local and international energy experts to review the plan. “Our aim is to ensure the promises we pledge to Kenyans are workable and reflect the current realities,” he said.

Shah who is also the Bidco Oil Refineries Ltd chief executive officer faulted the Government over its failure to invest more in the energy sector to enhance industrialisation.

“The country cannot attain the middle income status as prescribed in the Vision 2030 while there is little that has been done in terms of boosting the energy sector,” he said in telephone interview.  “We expect in the budget this year, National Treasury Cabinet Secretary to provide stimulus package geared towards fast business growth.”

 The last decade has seem some multinationals companies shut down their local operations and relocate to more investor appealing regions. Procter & Gamble, the multinational manufacturer of personal care and household cleaning products, in 2000 restructured its business to optimise on efficiencies because they did not find themselves competitive in the local markets. The company that manufacturers Always and Pampers among others products relocated to Egypt from where it produces high volumes and serve its market segments.

 In 2004, computer giant Mecer closed its local computer manufacturing arm at the Export Processing Zone. Colgate Palmolive followed by relocating to South Africa. Other companies that have in the last decade relocated to other world market segments owing to high cost of doing business include, Castle Breweries, Unilever, and Tesco Supermarket. 

The current budget estimates have seen the State allocate Sh78.5 billion to the ministry of Energy and Petroleum.

The State continues to invest in the generation of additional geothermal power at Olkaria wellheads, and hydropower development