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Supporting Kenya’s manufacturing sector in international markets

High costs of business in the country are a great disadvantage

In Summary
  • Under the Big 4 Agenda, Kenya hopes to expand the manufacturing sector’s contribution to GDP from the current 8.7 to 15 per cent.
  • The growth of Kenya’s manufacturing sector has been hampered by cheap imports from jurisdictions such as China and India which undercut prices.
Trade Cabinet Secretary Betty Maina and Professor Mutahi Ngunyi, who leads the Aggregation Unit at State House (both in reflector jackets) look on as workers assemble a motor vehicle at AVA in Miritini Mombasa.
LOCAL MANUFACTURING Trade Cabinet Secretary Betty Maina and Professor Mutahi Ngunyi, who leads the Aggregation Unit at State House (both in reflector jackets) look on as workers assemble a motor vehicle at AVA in Miritini Mombasa.
Image: LABAN WALLOGA

As discussed previously on this column, the Government of Kenya has earmarked Kenya’s manufacturing sector as being a crucial growth area that has the potential to propel Kenya into the next stage of her developmental agenda. Under the Big 4 Agenda, Kenya hopes to expand the manufacturing sector’s contribution to GDP from the current 8.7 per cent to 15 per cent. 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. Historically, high costs of business in Kenya, for instance energy costs and costs of labour, place Kenya at a disadvantage as compared to these jurisdictions.

In the interest of enabling the domestic manufacturing sector effectively compete in international markets, various stakeholders, inclusive of the Kenya Association of Manufacturers (KAM) and the Kenya Private Sector Alliance (KEPSA) have sought to collaborate with the Government of Kenya to develop policy and regulatory solutions 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, private sector players have proposed the reduction of levies and duties imposed by the Government of Kenya with respect to manufactured goods. Specifically, it has been proposed that taxes and duties levied on the importation of manufacturing inputs, such as Railway Development Levies and Import Declaration Fees, be revised downwards with a view to reduce high overheads faced by players in the manufacturing sector. It is argued 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.

Similarly, with respect to energy costs, the Government of Kenya, together with the relevant stakeholders, have embarked on an ambitious strategy to reduce the energy costs evident in Kenya, both from a fuel perspective as well as electricity costs. Should this exercise be completed successfully, Kenyan manufacturers would benefit from reduced transportation and operational costs thereby enabling effective competition in the international market.

Further, the expansion of Kenya’s Double Taxation Treaty networks, which set the taxation parameters applicable in cross-border transactions, together with the conclusion of bilateral trade agreements, sets to ensure that Kenyan manufacturers access international markets.