Hits and misses in building a competitive manufacturing sector

The sector contributes only 7.2% to Kenya's GDP.

In Summary
  • To promote faster growth of the sector, there is a need for basic low-cost automation.
  • To become more competitive, the supply chain relationships become more critical.
Operations at the Bamburi Cement Athi River plant /FILE
Operations at the Bamburi Cement Athi River plant /FILE

The manufacturing sector is the cornerstone of Kenya’s industrial sector. This sector is not only the economy’s engine of growth but also a means of diversifying it.

However, after decades of existence, the sector is still grappling with problems that continue to slow down its growth and competitiveness.

These problems have contributed to the poor performance of the sector especially in the last ten years with Gross Domestic Product GDP contribution declining from an average of 9% in 2017 to a low of 7.2% in 2023 and this has to be reversed quickly to align with the government’s vision of 20% of GDP by2030.

Industrial policies and foreign investments in manufacturing are modest predictors of manufacturing output growth.

To promote faster growth of the sector, there is a need for basic low-cost automation to enhance productivity and quality which increases the per capita income levels.

To this end, access to best practices is required in the agricultural and cottage industrial sectors which are major sources of employment and income.

The future of manufacturing will also depend heavily on the growth of its exports and the adoption of more import substitution strategies. More importantly, the growth of the sector will depend on what extent industry-specific policies are adopted to rationalize and re-structure the whole manufacturing sector.

The export market can only be accessed if we have products manufactured following applicable standards.

Good Manufacturing Practices (GMP) will resolve the gap for small-scale industries, understand basic requirements by KEBS standardization and prepare for wider market access.

The linkage between agricultural activities and the value addition of facilities to create synergy continues to be the weakest point in our country’s approach to economic transformation. A case in point is the edible sector, as a country we consume approximately 600,000 metric tons per year and the average import price is $900 per tonne.

As a country, what effort have we put to benefit from this demand, our neighboring country already has plantations of Palm trees and is actively reducing its net imports by using local farmers thus creating a high-value market for its agricultural subsector.

On industrial chemicals, approximately 90% of hand wash soaps on supermarket shelves are imported yet we have our very own manufacturers shutting down or running two days a week due to market shrinkage.

The real reason is the cost per unit of product in our country compared to source countries.

From a fiscal policy point of view, how the can government support manufacturers to be more competitive remains an ever-elusive question.

To become more competitive, the supply chain relationships become more critical.

In addition, a solid supply chain management strategy can unlock value creation and competitive advantages for the economy. The conversion cost factors performance-tracking indicates that the cost of electrical power continues to rise and is now among the highest in the region.

According to a recent analysis, the cost power is very high compared to Egypt and South Africa which have fairly good rates almost 50% of our rates.

In conclusion, according to Michael Porter, one of the World’s most influential thinkers on management, competitiveness and business strategies, wealthy economies are the most productive, ensuring that there is motivation for farmers to go to the farms and produce their raw materials for value addition in the factories and there is ready market to consume the products.

Our farmers are not fully in the farms as they should be because there is no structure to ensure their produce is paid at competitive rates and the factories are slowly and surely operating at extremely low capacity utilization, economies of large-scale production are not being realized and higher consumer prices will be the outcome, leading to lower demand for goods and services which will affect overall economic performance.

The writer is a Business Process Consultant working for over 20 years in the industry. Affiliated to KNCCI.

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