Four pillars for achieving competitiveness and a level playing field for the manufacturing sector in Kenya

A recent headline in one of the popular local newspapers reads, ‘Kenyan drug manufacturers lose EAC market to India.’ The article goes ahead to point out how China, Japan, South Africa and India have a higher market share for iron and steel products than all the East African Community partner states combined.

This is a worrying trend, however; the lack of competitiveness of Kenyan products against international competition is one that has been addressed in detail by the Manufacturing Priority Agenda 2018, an advocacy report by the Kenya Association of Manufacturers

To increase manufacturers’ competitiveness the report stipulates the following steps:

  1. Reduce production costs of basic commodities

Data from the third quarter Manufacturing Barometer 2017, reveals that 45 percent of Kenyan manufacturers struggled with high industrial input costs. This trickles down to the consumers as manufacturers pass down the extra cost.

Ever wondered how the Mumias Sugar Scandal could have been economically possible (allegations were raised that cartels were importing sugar from Brazil and Egypt, then packaging and selling them locally at a cheaper price than our locally produced sugar), how can sugar come all the way from Brazil and still cheaper?

As a remedy, the report recommends zero-rating of the railway development fee and import declaration fees (IDF) for industrial inputs. It proposes clearing of outstanding VAT refunds to manufacturers and that payment processing be done, within 60 days of application to ensure better cash flow.

  1. Promote Access to quality, affordable and reliable electricity

Electricity is at the heart of competitive manufacturing, for instance, according to the Kenya Association of Manufacturers, the electricity rate per kilowatt-hour for sub-Sahara’s biggest economy and rising manufacturing giant Ethiopia is $ 0.4, while Egypt is at $0.6, against Kenya’s uncompetitive rate of $ 15 cents.

The report recommends finalizing of the enactment of the Energy Bill 2015 that seeks to address issues such as power quality, distribution reliability etc. It also calls for establishment of independent regional Kenya Power and Lighting Company (KPLC) branches, to increase competition in addition to allowing electricity generators like KenGen to sell directly to bulk electricity consumers.

  1. Increase circulation of money in the economy

“ The significance of this challenge is manifested in the estimated over sh40 billion outstanding payments for goods delivered, with some payments having been delayed by between 180 and 240 days,” reads a report done jointly by manufacturers, retailers and suppliers investigating prompt payment in the retail sector in Kenya. Cash flow is king but if it does not flow businesses die.

Solutions articulated in the report include prompt payment and accountability legislation, the establishment of a regulatory authority for the retail sector, a suppliers’ portal where they can electronically track the status of their orders, delivery schedules and payments. Furthermore, the report recommends digitization of payments and refunds by the government and business ethics and integrity compliance training for the private sector.

  1. Reduce transport and logistics costs

According to the World Bank’s 2016 Logistic Performance Index, Kenya ranked 42nd out of 160 countries; expensive traffic jams, the poor state of roads (only 10 percent of which are paved-Kenya Roads Board report of 2016 ) and limited road networks are just a few of the challenges plaguing logistics in Kenya.

The Standard Gauge Railway (SGR), widely hoped to be a savior has turned out naught, with freight charges for transporting a 20 ft. container from Mombasa to Nairobi at $ 500, excluding port charges and last mile costs (transport costs incurred from train station to destination(60 percent higher than in the US and Europe).

The report recommends, review of the SGR freight rates to be more competitive, implementation of the Integrated Customs Management System (ICMS) to make customs processing efficient, reduction of congestion at the port through investing in a cargo pre-clearance system. Moreover, the report calls out for the rollout of the instant fines scheme for minor traffic offenses to minimize corruption.


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