By Phyllis Wakiaga,
The latest statistics from the Kenya Revenue Authority (KRA) indicate that Manufacturing is no longer the number one source of tax revenue for the Government. It has been replaced by Financial Services. This comes on the back of news that Manufacturing’s contribution to GDP was down at 7.5 per cent in June 2019, compared to 7.9 per cent for the same period in 2018. And at the recent inaugural Kenya Exporter of the Year Awards, much was made of Kenya’s sh1.1 trillion trade deficit, with the value of goods imported outstripping that of exports by almost threefold. Then there is the recent flurry of announcements of impending restructurings, including the loss of many management roles across Multinational groups, which will inevitably touch on jobs here in Kenya.
All evidence of a sector in crisis? Not necessarily.
Many of the recently announced retrenchments have been attributed to the emergence of disruptive technologies and changing consumer preferences – the demise of demand for analogue products in a digital age. However, these developments offer a very real opportunity for Kenya to close its trade deficit and deliver on the Government’s manufacturing agenda.
For manufacturers, innovation and the digital revolution allow traditional players to adapt old business models, offering new products and services to new consumer segments. New technological developments speed up and improve the way innovative products and services are conceived of, produced, accessed and delivered. For consumers, digital transformation has heralded a fundamental shift in their preferences and purchasing habits.
Clearly, Kenya must compete with overseas manufacturers on quality and cost, and technology and innovation can help them achieve this. But the manufacturing sector must now also compete in terms of diversity of product if we are to satisfy consumers with increasingly international tastes. All this requires significant investment by Kenyan manufacturers in innovation and digital technologies.
In the case of the BAT Group, statements from its CEO suggests that its global restructuring is aimed at freeing up working capital and aligning its internal processes and structures to better meet the evolving preferences of its consumers. To invest further on its endeavor to have what it calls a ‘Potentially Reduced Risk Portfolio” of products, it is investing in a sh2.5 billion factory – the first of its kind on the African continent – in Nairobi to produce an alternative tobacco-free nicotine product. This is only possible through rapid product innovation advances in societal attitudes and public health awareness.
At the Kenya Association of Manufacturers (KAM), we believe that Kenya’s future prosperity relies on embracing innovation. However, investment by manufacturers in technology and innovation alone is not sufficient to get the Manufacturing Agenda back on track.
A recent UK Government White Paper on “Regulation for the Fourth Industrial Revolution” (June 2019) identifies six challenges that governments must address to seize the opportunities that innovation presents for their economies. Three of these challenges that underline my point are, first, we need to be on the front foot in reforming regulation in response to technological innovation; second, we need to ensure that our regulatory system is sufficiently flexible and outcomes-focused to enable innovation to thrive; and third we need to support innovators to navigate the regulatory landscape and comply with regulations.
Lofty ambitions for sure, but Kenya faces more fundamental challenges. More so in respect to the regulatory process and predictability of their outcomes. In part, this is because the core of many of the laws in Kenya, such as Poisons and Pharmacy Act 1956, Food, Drugs and Chemical Substances Act (Cap. 254) of 1965 and Environmental Management and Coordination Act (EMCA) of 1999 need to be urgently reviewed since they do not necessarily reflect the latest innovations or current state of scientific knowledge.
A 2018 joint study by KAM and Overseas Development Institute on “how to grow manufacturing and create jobs in a digital economy”, notes that Kenya not only needs to address challenges that affect the manufacturing sector such as high cost of electricity and labour, but also build digital capabilities and manage inclusive digital transformation in through similar targeted actions as those of the UK White paper mentioned above.
It is critical that we do not lose our investor-attractiveness shine to countries, which are rapidly reforming their regulatory environments to support future innovations.
As Kenyan manufacturers review and look to transform their business models to ensure that they are sustainable and future-fit, the Government too must invest in supporting infrastructure; further enhancing the ease of doing business; and, perhaps most importantly, developing robust, transparent and predictable regulatory frameworks that are future fit and that encourage, rather than stifle, innovation.
Regulatory reform is an increasingly important source of competitive advantage in the global economy. It is one that we can ill-afford to ignore.
The Writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Representative for Kenya. She can be reached at firstname.lastname@example.org.