By Flora Mutahi
Over the past few months a panic has engulfed different spheres of our country’s leadership with regard as to whether Kenya still retains its title as the ‘economic giant of East Africa’. The question has been – Are our neighbours ‘catching up’ with us? And whilst I think the worry of whether we are losing our footing is a legitimate one I do not think we have been asking the right question.
In 2012, The East Africa Community summit unveiled the EAC Industrialization Policy that is premised on a collective obligation of all member states towards developing the region through industrialization. The main driver of this policy was the need for “structural transformation of the manufacturing sector through high value addition and product diversification based on comparative and competitive advantages of the region”. Hence, it is apparent that the plan to uplift the region’s economic performance has been underway and in high gear for the past four years or so. So to act surprised at the rate at which our neighbouring countries have been implementing means we really have not been paying attention. Hence the right question should not be focused on them but on ourselves – What are our stumbling blocks?
Despite being in advantaged position, we find ourselves stagnating and sometimes even falling behind in implementing policies that make our country attractive for FDIs and local business expansion. Export growth for example is one area that has been affected greatly by global events, the exchange rate and even more so by circumstances locally that have made the cost of doing business rise significantly.
According to the World Trade Organization 2015, Kenya’s share of global total merchandize exports remains at 0.03% whereas the share of world total merchandize imports is 0.10 per cent. On the other hand, share of world total trade in services is 0.08 per cent while that of imports is o.06 per cent. This 0.03 per cent share, looked at closely shows that Agricultural products form the bulk of our exports at 51 per cent whilst manufactured goods exports are 34 per cent. This in in wide contrast to the imports in manufacturing which stand at 64 per cent. The Kenya National Bureau of Standards stated by December 2015 our trade deficit stood at sh999.3 Billion.
To be sure, some of the gaps highlighted by the statistics can be addressed within our borders in order to increase the competitiveness and quality of our products on a global level. Infrastructural, logistical and regulatory issues have continued to compromise the growth of our exports. For many in the country, it still takes an incredible amount of time for their goods to reach the port. Not forgetting that along the way we encounter Non-Tarrif Barriers that significantly increase the expected cost of transport.
In addition to this there is increased taxation especially with the introduction of the Import Declaration Fees and Railway Development Fees on raw materials and industrial inputs. Hence, we are lowering the competitiveness of our product pricing against similar imports from other markets. Compounding this is that once this taxes are paid, local businesses still face long delays when it comes to the reimbursement of VAT. The Regulatory environment due to the duplication of agencies and regulatory bodies has led to multiplicity of levies and charges for businesses. Combined, all of these issues make it really costly for local businesses to produce at capacity and in turn undermine our country’s exports.
It is encouraging to note, however that the Government is not blind to how dire the situation is given that this issue has taken precedence in the draft National Trade Policy that has been forwarded to the cabinet. Additionally, the Ministry of Industry, Investment and Trade is developing a National Export Development Strategy collaboratively with industry, which will also look at matters of regional integration. It is our hope that these policies are adopted in the medium term in order to support the vision of industrialization towards our 2030 goals.
Our ‘competition’ with neighbouring countries has always been a healthy one based on the ‘promotion of self-sustaining industrial development’ meaning that they are growing faster because they are leveraging their competitive advantage better than we are. Their policies are first and foremost inward looking to promote their local products and create jobs for their citizens. If they are ‘rising’ at a faster pace than we are then it’s a good thing for us as it shines a light on where we are lagging behind and helps reset our policy making apparatus to deliver positive impactful results faster.
The writer is the Vice Chairperson for Kenya Association of Manufacturers and can be reached on info@kam.co.ke
