INDUSTRY POLICIES

Enhancing the International Competitiveness of Kenya’s Manufacturing Sector

Kenya targets to expand the manufacturing sector’s contribution to GDP from the current 8.4% to 15%

In Summary

•Kenya has a higher cost of doing business as compared with similar jurisdictions, such as China and India

•The government of Kenya has sought to introduce tailor-made policy measures that spur growth in the manufacturing sector

The manufacturing sector has been earmarked as a crucial pillar in Kenya’s development strategy. As a component of the Government of Kenya’s Big 4 Agenda, Kenya targets to expand the manufacturing sector’s contribution to GDP from the current 8.4% to 15%. In the interest of achieving this ambitious target, the Government of Kenya has sought to introduce tailor-made policy measures that spur growth in the manufacturing sector.

Of key interest in relation to the growth strategy employed with respect to Kenya’s manufacturing sector, is the sector’s ability to effectively compete in international markets. Traditionally, the growth of Kenya’s manufacturing sector has been hampered by cheap imports from jurisdictions such as China and India which undercut prices set by the domestic manufacturing sector. This is particularly due to the higher costs of doing business in Kenya, as compared with similar jurisdictions, such as China and India.

In the interest of enabling the domestic manufacturing sector effectively compete in international markets, the Kenya Private Sector Alliance (KEPSA), in its Private Sector & Government Roundtable report for the period November 2019, proposes a raft of policy changes that are tailored at reducing the cost of doing business in Kenya. Specific proposals include the reduction of transport and logistics costs, the reduction of energy costs and measures targeted at ensuring liquidity of the domestic manufacturing sector through prompt payment for services rendered to the Government of Kenya.

On the transportation and logistics front, KEPSA proposed the reduction of levies and duties imposed by the Government of Kenya with respect to manufactured goods. Specifically, KEPSA proposed the maintenance of the Railway Development Levy (RDL) with respect to manufactured goods at 1.5% while simultaneously increasing RDL on finished goods to 2%. Similarly, KEPSA proposed that Import Declaration Fees (IDF) with respect to manufactured goods be dropped, IDF on finished goods be increased to 3.5% and IDF on industrial inputs and intermediary inputs required for manufacturing set at 2%. KEPSA argues that a reduction of fees and levies, such as RDL and IDF, imposed on manufactured goods stands to reduce the cost of doing business in Kenya, with respect to the manufacturing sector, thereby enhancing the competitiveness of locally manufactured products in the international market.

It is noted that the above-highlighted proposals were taken into consideration by the Government of Kenya in the Finance Act 2019. Particularly, the Finance Act 2019 increased RDL on finished goods to 2%, while maintaining RDL on manufactured goods at 1.5%. Additionally, the Finance Act 2019 reduced IDF on industrial inputs from 2% to 1.5% while simultaneously increasing IDF on finished goods from 2% to 3%.

Indeed, the adoption of KEPSA’s policy proposals by the Government of Kenya serves to highlight the Government’s commitment to supporting the domestic manufacturing sector to gain a competitive edge over its international competitors.

Karen Kandie – MD, IDB Capital