Competition from cheap imports remains a major challenge for the local manufacturing sector. To successfully compete in the market, it requires high quality products at prices that are cheaper than imports. Globalisation means customers have the option of selecting better and more competitive products from elsewhere. This is witnessed in the textile and food industry where local products are competing for space with imported products. First it was space in high-end supermarket shelves, now it has moved to the streets. To achieve impact, the industry strategy needs to support and incentivise industry to build the capacity to compete, both locally and for export. Furthermore, with fast technological changes, the environment in which industrialisation occurs keeps changing and markets have to continuously build capacity to compete.
The Kenyan manufacturing sector has experienced mixed results. Even with the emergence of super-brands such as Bidco and the growth of foreign direct investments, other firms have recently relocated to other regions. The exit of firms are hard lessons that need to be incorporated in the industry strategy. In the long run, the manufacturing sector will be driven by the gradual and consistent growth of small firms to sizeable producers. There are several success factors for emerging manufacturing firms. Some are firm-related while others are due to external conditions.
One, the assurance of quality. This is the secret for many successful firms and also the source of failure for many others. The ability to standardise products and keep high quality will allow firms to build local market and penetrate the export market.Two, investment in technology and research. This will enable a firm to expand production possibilities, while maintaining the same level of inputs. This means the acquisition of modern machines and equipment, and regular upgrade and investment in research and development.
Three, a reliable supply of raw materials, especially local is vital to the industry. Setting up firms which take advantage of raw materials abundantly available locally is likely to boost the domestic industry. As an agricultural based economy, this means placing agri-processing as a priority for industry strategy. Statistics show a sizeable number of local manufacturers import most of their inputs. While some firms may manage without the benefit of a vast domestic input base, this disadvantage must be compensated by technology and location benefits. Fourth, customers want assurance of timely delivery. If orders are delayed, buyers will shift alliances where product availability is assured. This calls for both production planning and management of expectations. In sensitive export markets, delayed delivery can lead to cancelled of orders.
Kandie is the MD of IDB Capital