By Achola Kevin

Manufacturing starts and ends with the people, in between there are different processes that engineers set in place and run. According to Kenya Institute for Public Policy Research and Analysis (KIPPRA) the manufacturing sub-sector in Kenya constitutes 70 per cent of the industrial sector’s contribution to gross domestic product (GDP)

with building, construction, mining, and quarrying cumulatively contributing the remaining 30 per cent. Kenya has constantly tried and still does try to increase the contribution manufacturing has on the economy. In the different blue prints Kenya has put in place, right from Sessional Paper No 10 (1965) to Sessional Paper No 10 (2012) policy makers have asserted the eminence of manufacturing to spur the economy yet the tag newly ‘industrialized state’ remains elusive for Kenya. Why is this so?

The backdrop

In 2015, the question has never been more pertinent, especially after constantly witnessing the demise, collapse, or exit of major manufacturing outfits in 2014 and the years leading to it. ‘I oversee over 800 manufacturing companies. I also say goodbye to over 10 manufacturers who shut down every year, others merge. The net increase is not enough to compensate for the losses.  Ms Betty Maina said to parliament in November 2014 after the closure of Eveready

Last year chocolate maker Cadbury announced it would cease local manufacturing, retaining only its marketing and distribution arms that will rely on supplies from Egypt. Companies already left include, Reckit-Benkiser, Procter and Gamble, Bridgestone,Colgate Palmolive, Johnson and Johnson, and Unilever. Eveready closed shop announcing that they would rather venture into other businesses like real estate since their manufacturing venture hit a snag. This departure is not limited to the manufacturing industry, Hong Kong Shanghai Banking Corporation (HSBC) left citing extortion and hostile business environment. 

Troubled companies of note include all the sugar manufacturers and state animal processor Kenya Meat Commission (KMC). It is worth noting that the history of manufacturing in Kenya is dotted with grandiose failures in manufacturing including Rivertex, Pan paper,, just to name a few. The sugar companies that play a major role in the country have perennially collapsed then put under receiver managers only to emerge and make monumental losses. The Sugar processor Mumias sugar that seemed healthiest has been neck-deep in chaos since 2013 resulting in a massive loss and a closure albeit for maintenance. This resulted in sugar shortage that forced the government to sanction sugar importation.  

There has always been a desire and a drive to set right (KMC). The current budget gave it a fresh cash injection of at least KES 600 million. KMC reopened in 2006 after a 15-year break with the government injecting billions of shilling into the plant, including paying National Bank KES 5.2 billion it had guaranteed the factory. Agriculture Cabinet Secretary Felix Koskei had said KMC has been riddled with corruption and mismanagement.

Some issues are anaemic to the manufacturing sector in Kenya. These include lack of access to an effective and efficient labour force, inadequate infrastructure, political uncertainties, corruption, and injurious policies. None of these is conducive to long-term capital investments. Most manufacturing players are currently blaming higher-priced electricity for their woes. About 60% of electricity generated in Kenya is used in manufacturing according to KAM. “Out of 100 hours of manufacturing, 30 hours you have to spend using oil or incur the cost of downtime because you have no power – it is a choice manufacturers have to make”, according to Jackson Mutua, managing director of Eveready East Africa. In Egypt power cost 0.03 dollars per kwh while Kenya 0.21 dollars per kwh. ‘Kenya’s cost of power is among the top three in the countries that we operate in and this is a big concern’ Bamburi managing director Bruno Pescheux.

The reasons that cut across the organisations that change base, merge, or collapse include; interest rates that are too high, energy costs too high, transportation costs too high and hardship in doing business. Favoured countries in Africa where manufacturers dock when they find Kenya unbearable is South Africa, Nigeria, and Egypt.

Comparative World Bank investment climate indicator country rankings

Global Performance (Economies are ranked from 1-185. Rank 1 means business environment is more conducive)

Economy

Global rank

Registering property

Gettingcredit

Protecting investors

Enforcing contracts

Starting a business

Kenya

121

161

12

100

149

126

Singapore

1

36

12

2

12

4

South Africa

39

79

1

10

82

53

 

 

 

 

 

 

 

 Source: World Bank (2013)

 Exporting jobs

The departures of manufacturers lead to exporting of jobs.KIPPRA data shows the number of wage employment in the sector vary around 276,000 employees. The sector’s contribution to total wage employment has actually gradually worsened from 13.9 per cent in 2008 to 12.9 per cent in 2012. With the current departures and closures, this figure may dip.

For a single factory job lost, ten or more other people loose income in suppliers, packaging, contracting, design, advertising, and marketing. Since these companies simply relocate to other companies and leave their employees jobless in the country, there results a net export of jobs to other countries from Kenya

Geography of manufacturing in Kenya

In Kenya’s arsenal of manufactured goods one gets chemicals, textiles, ceramics, shoes, beer and soft drinks, cigarettes, soap, machinery, metal products, batteries, plastics, cement, aluminium, steel, glass, rubber, wood, cork, furniture, and leather goods. The only manufacturing commodity doing great buoyed by the booming construction industry is cement. Currently there is over production of cement in Kenya with the manufactures involved gearing up to supply Kenya’s mega projects.

According to the fifth Kenya Economic Report prepared pursuant to the KIPPRA Act. The share of the manufacturing sector in GDP has stagnated at about 10 per cent, with the sector’s growth during the first Medium Term Plan being a mere 3.16 per cent. The weak performance is attributed to high costs of production, stiff competition from imported goods, high costs of credit, drought incidences during the first quarter of 2012, and uncertainties due to the 2013 general elections. The influx of counterfeits and volatility in international oil prices also affected the performance of the sector. Although the sector value added improved from KES 292.4 billion in 2011 to KES 316.7 billion in 2012, the sector’s contribution to GDP declined from 9.6 per cent in 2011 to 9.2 per cent in 2012.

In their report KIPPRA also say Kenya’s manufacturing is largely agro-based. The sector is predominantly agro-processing, with manufacture of food, tobacco, beverages and textile accounting for over 34.0 per cent of total sectoral value added.  This contrasts with newly industrialized countries where food manufacture constitutes a small share, with manufacture of chemicals, electronics, and machinery constituting over 40 per cent of total value added.

How to stimulate development

Having rebased its economy in 2014 becoming a middle-income economy, Kenya harbours great ambition. There has always been more than one way to get to the Promised Land. The path to be a newly industrialised state that Kenya should adopt is a subject of topical debate even when the journey is already began. When others seem to advocate for Mega projects like Techno cities and industrial parks. Others concentrate on the people and the inherent skills in them as the major driver for industrialisation.

Looking at the East Asian economies that Kenyans like deriving inspiration from, pundits draw mixed ideas and conclusions. In the words of some Asian economists Mahbub ul Haq and Khadija Haq: ‘The East Asian economic miracle is attributable, among other things, to the region’s sustained levels of investment in human capital over a long period. One can identify an education miracle behind the economic miracle.’ Shall we then say all we need to be a newly industrialised state by 2030 is proper education? With so many graduates in Kenya, yet little innovation, does this not blemish the idea of education as a means to industrialisation?  

On the other hand how will it be if China continues to give Kenya loans and build its infrastructure, yet Kenyans do not build any capacity of their own from developments. Will those projects be sustainable or even meaningful? If foreign manufactured goods continue to dwarf the manufacturing scene in Kenya, what effects would that have?

Does Kenya have the key drivers to manufacturing?

There are many drivers to industrialisation; in Kenya, these would include the efforts underway by the nation and her resources.

Kenya is actively putting in place the much-needed infrastructure for heavy industry. Roads are coming up and with the annuity-financing framework in place; the bitumen standard road network in the country is set to go up. The framework will see 10000 Km of road network in the next five years. The Standard Gauge Network and the Lamu – South Sudan – Ethiopia Transport (LAPPSET) corridor will also boost the infrastructure Kenya greatly.

Countries have always depended on their own raw materials to industrialise. Kenya has an abundance of agricultural raw materials. This has translated into manufacturing in some sectors like in the fruit processing industry yet it remains problematic in many sub-sectors. Say the sugar sector, swaths of the country’s  arable land does support sugar cane yet the sugar processing industry remains in shambles, shivering at the prospect of external competition even as much as Kenya is officially a sugar importing country. It remains to be seen if the mineral resources like hydrocarbons under development will change the industrial landscape in Kenya. Handled well they will stimulate manufacturing and industry.

Labour quantity and quality are vital ingredients to industrialisation. Kenya had a population of 44.35 million in 2014 according to the World Bank. The demographics indicate that fifty five percent of the population is between 15-65 years. The data shows that the labour force in Kenya is not problematic, especially in numbers maybe skills.

The cost and skills of the local workforce are key drivers of the manufacturing sector’s development.

 

Countries that have the ability to innovate have an advantage and are most likely to experience sustainable growth in industrialisation. In these countries, innovative individuals and companies can often find the best ways to deal with constraints, and to identify and exploit gaps in the market. Japan got its footing after the Second World War thanks to the May innovative companies and individuals who dedicated themselves to rebuilding that country. Kenya has demonstrated a lot of innovation in the Information and telecommunications sector, a clear indication that Kenyans can be innovative.

 

Deliberate policy support by the government and institutions to spark and nature industrialisation will take the industry through leaps and bounds. These policies would include incentives like tax relief and other waivers. The existence of a ministry dedicated to industrialisation is a great impetus for this. Budgetary provisions aimed at encouraging industrial entrepreneurship and innovation will be a huge help to budding indigenous industrialists

Can Kenya rise without manufacturing? In addition, Can manufacturing rise without engineers?

Kenya’s Economy was rebased in 2014 becoming a middle-income economy. Manufacturing and not just consumption is a mainstay of developed economies. The so called East Asia tigers  we liken ourselves to albeit decades back have manufacturing industries far much sophisticated than ours. Theirs is a mix of multinationals and indigenous manufacturing industries. Kenya must not only strive to satisfy most of its internal demands but also have a robust export base in manufactured goods. Kenya’s exports under African Growth and Opportunity Act (AGOA) are about 0.8 per cent, comparing favourably with Tanzania, Uganda, and Ethiopia, each having a share of less than 0.3 per cent. However, it compares unfavourably with Angola (20%) and South Africa (17%). Kenya’s share of manufacturing in total merchandise exports is 35 per cent compared to South Africa (47%), Malaysia (67%), and Singapore (73%).

It has been established that the well being and development in a country is directly proportional to the number of engineers in it. Engineers play a pivotal role in the development and running of the manufacturing industries in a country. Infrastructure development cannot be expected without technical input. If indigenous engineers do not do this, then the skills must be imported.

 

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