More needed to make Kenya the region's investment hub

France Minister for Finance and Economy Michel Sapin and Treasury CS Henry Rotich sign an agreement during announcement of Industrialization Agenda at State House, Nairobi. (Photo:Boniface Okendo/Standard)

Once again, the scrapping of a 20 per cent excise tax on locally assembled vehicles appears to have paid dividends. Peugeot, the iconic French brand, is making a comeback into the economy with a Sh1.2 billion investment in a vehicle assembly plant. With it, 200 Kenyans will get employed directly.There has been good news about the economy recently.

Manufacturing output grew by 3.5 per cent in 2016. Wrigley, the American confectionery conglomerate invested Sh5.8 billion in a plant in Machakos, Volkswagen (VW) Group, the world’s largest car manufacturer, started production at its Thika plant late last year. Last month, the engines were turned on at Pan-Paper Mills.

At a State House meeting on industrialisation agenda, President Uhuru Kenyatta announced the comeback of Peugeot, now as Peugeot Group, with the first car expected to roll out of the assembly plant in June.

Yet the rosy picture painted by the Jubilee-led Government is misleading. The entry of three companies when others are issuing profit warnings or divesting out of the country is in spite of, not because of Government.

For to speak glowingly about the economy based on a few bright flashes is to engage in self-promotion in an election year. Not when the Central Bank has cautioned of a slowdown in the economic growth to 5.7 per cent (it grew by 5.9 per cent in 2016 amidst a prolonged drought and heightened political activity in the run-up to the August 8 elections).

In truth, virtually all sectors of the economy are contracting, with most investors hedging their bets. From the once robust financial and telecoms sectors to the media and manufacturing, there is evidence of a slump. Last month, the Nairobi Securities Exchange recorded the lowest trading, to record levels last seen in 2001.

Close to two dozen companies have downsized and sent employees home. Banks, media and even some companies in the manufacturing sector like the East African Portland’s Ltd, Eveready and Sameer East Africa - key drivers of the economy - have had to let go of employees or close shop altogether citing a poor operating environment.

First, Government, the biggest business partner in any economy is wasteful, slow-moving and remains ill-at-ease with being held accountable. Systemic corruption and lethargy that feeds off red-tape and bureaucracy is rampant.

Former US president Barack Obama said a staggering 250,000 jobs are lost each year because of corruption. The World Bank estimates that nearly three-quarters of Kenya’s youth are not in employment despite possessing the qualifications.

That should worry all of us. The economy has simply not grown fast enough (in double digits) to create enough jobs.What troubles our economy is that there is seemingly a mismatch in economic policy formulation and the reality on the ground.

In truth, other than corruption and red tape, investment remains prohibitively high. Despite heavy investment, electricity is not cheap and supply is never guaranteed. Cases of day-long outages are commonplace while labour disputes have become too frequent. So despite reports that we have risen in the ease of doing business rankings, doing business in Kenya is still not for the faint-hearted.Gaps in governance wipe out the gains from sound macroeconomic stability and additional investment in infrastructure (SGR ($13.8 billion), roads and private sector investment (like that of Peugeot Group) and private consumption.