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How manufacturing fell off its lofty perch

FINANCIAL STANDARD
By Macharia Kamau | September 14th 2021

Manufacturing’s position is being taken over by other sectors such as real estate and building and construction. [Courtesy]

A decade ago, the manufacturing sector was the second-largest economic sector in Kenya after agriculture.

However, it has over the years slid and last year it was ranked the fifth-largest contributor to the country’s Gross Domestic Product (GDP)

GDP is a measure of the economy and is the value of all products produced in a country or what can be described as the national cake.

Over the years, the sector’s contribution to this cake has been on a consistent decline, standing at 7.3 per cent last year.

This was down from 7.9 per cent a year earlier, according to the latest data contained in the Economic Survey 2021 by the Kenya National Bureau of Statistics (KNBS).

The decline has been evident over the last decade. In 2011, the manufacturing sector’s contribution to GDP stood at 11.8 per cent. While manufacturing, as was the case with other sectors, faced the challenges brought about by Covid-19 last year, which saw it register a much slower growth rate.

Manufacturing’s position is being taken over by other sectors such as real estate and building and construction. 

Other sectors that have dislodged manufacturing from the list of the key contributors to the country’s GDP are transportation and storage, wholesale and retail trade.

These sectors, along with agriculture, offered differing degrees of growth and created much-needed jobs at the height of the pandemic last year.

Transport is among sectors that has dislodged manufacturing from the list of key GDP contributors. [Benjamin Sakwa, Standard]

In many instances, these sectors offered a soft landing of sorts for people who were laid off from their jobs in other sectors hit hard by Covid-19.

The Economic Survey noted that these sectors provided a buffer, preventing the economy, which contracted 0.3 per cent, “from deeper contraction.”

Last year, the manufacturing sector registered a much slower growth rate of 0.2 per cent compared to 2.8 per cent in 2019.

This was attributed to reduced demand for their products in the country as Covid-19 slowed down economic activities and eroded earnings, leaving both individuals and companies with reduced spending power.

The KNBS data also shows that the sector also shed 10 per cent of jobs last year.

“In 2020, the performance of the manufacturing sector was adversely affected by a general slowdown in economic activities, largely due to measures instituted by the government to curb the spread of Covid-19. These measures resulted in reduced demand for manufactured products locally and internationally,” said KNBS in the survey.

“The sector’s real value-added contracted by 0.1 per cent compared to a growth of 2.5 per cent in 2019. The share of the manufacturing sector in GDP was 7.6 per cent in 2020.”

Real estate along with building and construction has steadily grown over the last decade. The construction industry’s contribution to GDP rose to seven per cent last year up from 4.4 per cent in 2011.

The two sectors’ growth is such that they even contributed to the growth of certain sub-sectors within manufacturing, though this was not enough to lift the performance of manufacturing.

Cement consumption, for instance, which is a key input to construction activities, rose significantly from 6.1 million tonnes in 2019 to 7.4 million tonnes last year, representing an increase of 21.3 per cent.

While megaprojects take a substantial chunk of cement produced, individuals building homes are key consumers as well.

Last year, infrastructure projects accounted for about 30 per cent of cement consumption, with the balance mostly being bought at the retail level by home builders.

Infrastructure projects accounted for about 30 per cent of cement consumption. [Kibata Kihu, Standard]

The construction and real estate sectors created a significant number of jobs during a year when many other sectors, including manufacturing, sent employees home.

According to the survey, employment in construction went up 33 per cent to 230,500 people in 2020 from 173,300 in 2019.

Manufacturing, according to the Economic Survey 2021, shed 10 per cent of its jobs last year. It is the second-largest employer after agriculture.

Manufacturing employed 353,300 people in 2019, but this had reduced to 316,900 by the end of 2020, according to the Economic Survey.

The underwhelming performance by the manufacturing sector is contrary to expectations, including by the government, which has earmarked the sector as key in achieving both short and long-term growth.

The sector, together with universal healthcare, food security and affordable housing, are key in the Jubilee government achieving its Big Four agenda.

Under the Big Four – a medium-term framework of the country’s Vision 2030 – manufacturing had been billed to increase its contribution to GDP to 15 per cent by 2022, a near-impossible target now.

Among the incentives that the government has thrown to the sector are reduced power tariffs, especially for firms whose production plants continue running at night.

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