PLAN B

Kepsa pushes for local content as corona hurts businesses

China alone accounts for about 21 per cent of Kenya’s imports, meaning $3.66 billion worth of products may need to be sourced elsewhere or substituted by local production due to the Covid-19 disruptions.

In Summary

•Kenyan imports from China are valued at approximately Sh371 billion and exports to China being Sh11 billion (Economic Survey, 2019).

•Sub-sectors that are most affected are textile and apparel (25%); plastics and rubber (14.29%); building, mining and construction (14. 29%); food and beverages (14. 29%).

A worker in a protective suit is seen at the closed seafood market in Wuhan, Hubei province, China, on January 10, 2020. The seafood market is linked to the outbreak of the pneumonia caused by the new strain of coronavirus, but some patients diagnosed with the new coronavirus deny exposure to this market.
A worker in a protective suit is seen at the closed seafood market in Wuhan, Hubei province, China, on January 10, 2020. The seafood market is linked to the outbreak of the pneumonia caused by the new strain of coronavirus, but some patients diagnosed with the new coronavirus deny exposure to this market.
Image: REUTERS

The global coronavirus pandemic which has hurt supply chains provides an opportunity to grow local industries and intra-africa trade, the Kenya Private Sector has said.

A survey by Kepsa has revealed manufacturing, tourism, service sector, agriculture, construction and the retail sectors are the most affected.

Kenya imports intermediate and capital goods from China and outbreak of the virus in China has had a negative impact on manufacturing activity in Kenya.

Bilateral trade between the two countries, valued at approximately Sh382 billion in 2018, has also been hit hard.

A survey by Kepsa, where 95 businesses drawn from 17 sectors of the economy participated , indicates about 61 per cent of businesses estimated losses of less than Sh1 million, while 21 per cent reported losses of between Sh1 million and Sh5 million.

Sub-sectors that are most affected are textile and apparel (25%); plastics and rubber (14.29%); building, mining and construction (14. 29%); food and beverages (14. 29%).

More than half (53%) of the surveyed businesses were large companies with more than 100 employees. The micro enterprises, with 1-9 employees, were 23 per cent while small and medium sized businesses were 13 per cent and 12 per cent respectively.

“On average 61 perc ent of the businesses reported negative business effects due to the Covid-19 outbreak,” Kepsa says in its survey released on Friday evening.

The impact, according to Kepsa, is very low to moderate for majority of the businesses and the financial loss incurred so far averages below Sh1 million.

There is shortage of raw materials due to reduced supply from China as cited by 80 per cent of manufacturers and an increase in logistics cost at 36 per cent due to an increase in lead time between the placement of an order and delivery changed due to alternative sourcing.

“This may be an opportunity for Kenya to harness and grow local industries, supporting existing ones to expand their capacity or incentivizing creation of new industries for import substation as well as leverage on the regional market such as EAC and AFCFTA,” Kepsa notes.

In the wake of coronavirus, about 57 per cent of manufacturers have been forced to outsource inputs from other countries as a way of coping with the disruption of supply chain from China.

About 13 per cent have downsized their production capacity.

The agricultural sector has been hit by reduction in airfreight volume, cancelled shipping vessels and drop in export volumes.

Business activities in the construction industry have been also adversely affected as the country sources key inputs such as compressed roofing boards from China.

Delayed payments and decision making from Chinese affiliated projects have also affected the sector.

In the wholesale and retail sector, delay in importation of products, shipment and receipt of goods has affected businesses.

“Most goods come from China and therefore importation of goods has been banned – it becomes risky handling goods,” Kepsa notes.

According to a report by McKinsey dated February 28, 2020, all major global sectors have been affected majorly tourism and hospitality that may see up to 40 percent decline this year, aviation and airlines, the automotive industry and oil and gas.

This, as demand and prices especially in Middle East drop, consumer products that is whole sale and retail trade, and electronic products affected due to supply chain disruptions in China and South Korea.

Kenyan imports from China are valued at approximately Sh371 billion and exports to China being Sh11 billion (Economic Survey, 2019).

From Kenya Association of Manufacturers’ (KAM) survey of 32 manufacturers, about 82 per cent source their inputs or export to China and face direct risk of supply chain disruption.

China alone accounts for about 21 per cent of Kenya’s imports, meaning $3.66 billion worth of products may need to be sourced elsewhere or substituted by local production due to the Covid-19 disruptions.

Top imports include electrical machinery and equipment, machinery, mechanical appliances, nuclear reactors, railway or tramway locomotives, iron and steel, furniture and textile.