Q: What issues are you dealing with at the helm of KAM and what do you offer the industry?
A: At KAM, we deal with a lot of industry issues. KAM was established in 1959 with the aim of advocating for a competitive business environment for the industrial sector in Kenya. Something the Association has pursued for 58 years since its formation. What we really strive to do is to create a competitive business environment to address the issues like cost of manufacturing, ease of doing business, the logistics cost of getting the business to run, which impinge businesses.
The other thing we look at is the competition among manufacturers, i.e. what manufacturers in retrospect to what they can do to make themselves more competitive. For examle, we assist our members to look out on the energy usage, carry out energy audits and actually come up with energy measures to reduce the cost of energy.
And through this, we have seen people save 30-40 per cent of their energy cost. We also encourage people to invest in renewable energy efficiency machinery and to achieve this we have a credit line funded by AFD to assist them embrace renewable energy alternatives. The project is being supported by Ministry of Energy and Danish International Development Agency (DANIDA).
We also offer training to our business members to assist them get market for their exports through our business information services.
Q: What policies are you advocating toward boosting the growth of small and medium scale enterprises, aid in job creation and expansion of the manufacturing sector?
A: SME’s form a critical part of the economy not only for the manufacturing sector. According to a survey done by Kenya National Bureau Statistics (KNBS) on small and medium enterprises in 2016 was quite clear on this. SMEs are creating majority of the employment in the country and we have very many manufacturing entities in the SME sector.
As an organisation over the years, we have identified some of the key challenges SMEs are facing like financing their businesses as they have to borrow loans that come with high interest rates. Secondly, inadequate expertise to do their financial management and marketing is a challenge too.
As a result, the Association is addressing this in three major ways; one is by creating a business scope program which includes seven modules of an SME program where SMES are trained on different aspects that are critical to their businesses. This involves from how they can run their business, marketing, product development, opportunities on how they ca n finance their projects and good manufacturing practices. Hence capacity building is key.
We also have a mentorship programme whereby we collaborate with other players in the sectors who have great experience in the sector to mentor SMEs. For example, we organize company visits for SMEs to actually see what is happening and learn from them what can be done better. Additionally, we assist SMEs to do energy audits at no charge in a bid to encourage them to be cautious of their energy needs.
We have also established an SME caucus, which is held quarterly to help small enterprises to present any advocacies or issues to the government. A member’s help desk has also been put up to air any problems SMEs are facing either in taxation and regulations.
Q: Is there turmoil in manufacturing and industry, is there a crisis, are companies justified to relocate or downsize?
A: The manufacturing and industry sector is dynamic. There are businesses opening, reinvesting or closing down. I think if we look at it holistically as a country, these are things that happen at given times. Though, we should ask ourselves why are companies relocating or shutting down. Because, I believe as a country or government, we should focus on solutions to ensure we attract enough investments from both foreign and domestic market.
In terms of company closure, some of the companies have cited reasons that we do advocate for as an Association of Manufacturers. Like cost of energy, the government is increasing power capacity to the grid to reduce the high power costs and make Kenya globally competitive.
In my opinion, a business relocating is a business decision as companies can consolidate to have their businesses on one side. This is something beyond control of the Association but what we try to do is to understand what challenges exist so as to proactively tackle them. Illicit trade is also a justification of relocating as sometimes companies compete with counterfeit products or substandard goods where tax hasn’t been paid posing a risk to businesses. Dumping is an issue that makes it uncompetitive to do business. This is a situation where we find that certain goods are sold at a lower price than the production cost.
Q: A part from the cost of electricity, what other challenges do manufacturers face currently?
A: First, cost of doing business. A number of companies will find it hard to do business because it isn’t possible for them to compete with international players in the market. A case in point is Sameer Africa, who were unable to compete with other international tyre manufacturing companies setting business in Kenya. In some cases, the landing cost of their tyres was almost 40-60 per cent higher than the normal cost among local manufacturers. In such a scenario, this would cause Sameer to relocate.
Cost of production also affected their business (Sameer). Another challenge among manufacturers is duplicated regulations and cost of compliance. Other problems include the Railway Development Lev (RDL) charged on all imports coming to the Port and Import Declaration Fee (IDF), which are factors of production incurred in transport services making businesses uncompetitive too. To avoid this, I would urge the government to do away with RDL and IDF among manufacturers because if you put VAT at 7 per cent return margin, it hurts business in a big way.
Q: How are you championing Agriculture and Agro processing industries, is it a growth sector in Kenya?
A: The agro processing sector is a key industry in Kenya as we know agriculture is a great contributor to Kenya’s Gross Domestic Product (GDP). Hence the link between agriculture and manufacturing is very critical. For example, 40 per cent of KAM members come from the food processing sector because of the agricultural background that Kenya has.
Indeed, we are keen on agro processing. In a bid to improve the growth of agro processing industries, KAM works closely with farmers to deal with issues around productivity at the farm level to increase competition. This can aid farmers move from rain fed agriculture to irrigation farming.
Besides that, we focus on opportunities for backward integration in other sectors. This means that we are doing a process forward but the farmer isn’t involved. For instance, we have the apparel sector where we export a lot under African Growth Opportunity Act (AGOA) but the backward integration is using a local product such as cotton or textile to produce local materials, which is from farm to fashion.
Moreover in Agro processing, we are looking at preventing or minimizing post harvest loss from farm to the market. Like tea, its value addition is minimal so we look out for ways through which we can get investors to invest and add value to our country. Lastly, more expectation for growth will be experienced in the agro processing sectors in a few years.
Q: How is “buy Kenya, build Kenya” working for you so far, has it been effective?
A: The “buy Kenya, build Kenya” is a big passion for KAM and is something we have championed over the years. It has been effective as we have been able to supply the Kenyan economy with locally made products. There is a law that was passed to promote the intiative, the Public Procurement and Disposal of Assets Act under it there is the Preference and Reservations Regulations. The Regulations guide government ministries, departments and agencies on what preferences they should give for procurement.
Under that regulation, 40 per cent reservation has been made to what will be purchased locally. The government has gone a step further to include it in performance contracts among government employees. So on a quarterly basis, they have to report what they have purchased locally. Therefore, the major role for KAM, government and procurement agencies is to highlight or list what is in the market or manufactured locally before they import from other countries.
Q: The TVET project you just launched with GIZ, how is it going to work, who is going to benefit from it?
A: Skills are critical in the manufacturing sector and conversations have been ongoing on how there is a mismatch between industry and academia. For us the launch of the partnership with GIZ is really the contribution we want to bring in as a Manufacturing Association. This is because we have realized that if students don’t have practical skills for the industry, we will not have the right employees for the industries.
The project will offer a three-month internship programme for students graduating from technical institutions with certificates and diplomas and will run for an initial period of 2 years until December 2018.
We have identified the incremental areas that our members find difficulty in getting skills. These include heavy and light machinery operating, welding, electrical (installation), Electronics (instrumentation), Mechanical technology and maintenance, carpentry, among others. We have been able to get support so that the internship costs aren’t incurred by the company but are covered by the project.
After training, the students are later put into job sites of various manufacturing industries and in case our members are looking for people with the skills taught, they pick the ones who have undergone the TVET program.Also, the project will provide refresher training to industry employees based on identified skills gap.
Q: What has been the effect of devolution on your members and on manufacturing in general?
A: I think devolution has been a good opportunity for the country as we have been able to devolve services closer to the ‘mwananchi’ and has stimulated a lot of economic activity at the county level. The manufacturing sector is quite supportive of the fact that devolution could impact economic growth. We are keen on having more manufacturing plants across the country.
As KAM, we have devolved too in that we have opened seven regional offices across the country to cater for the manufacturing sector in terms of addressing issues faced in the counties. The counties have the power to make laws but the Association has to ensure the laws don’t impede growth.
We have also worked with Commission for Revenue Allocation (CRA) on creation of a revenue law required for counties so that business can flourish. Sometimes we face a challenge in distribution of goods especially in counties. You find that some counties may charge for advertising and distribution costs. Such issues have been brought to the attention of the Attorney General and Council of Governors and there is a gazette notice being put in place to address these challenges.