Kenya has remained an economic powerhouse in East and Central Africa with a projected growth rate of up to seven per cent by 2017. One of the key areas the government is counting on for growth is increasing the competitiveness of the manufacturing sector, which is also expected to be the engine for job creation. The sector however continues to face a number of challenges. Business writer Martin Mwita spoke to the newly appointed Kenya Association of Manufactures CEO Phyllis Wakiaga.
Give us an overview of the country’s manufacturing sector?
Kenya is poised to be among the fastest-growing economies in East Africa, according to the latest World Bank Group’s economic analysis for the country. This is due to the solid growth in areas such as infrastructure, agricultural production, manufacturing and other industries. Despite these advantages, our manufacturing sector has remained stagnant at 11 per cent of GDP over the past ten years. As a result, the number of formal jobs in manufacturing has grown at just seven per cent per annum over the past four years. Our exports have stagnated at 15 per cent of GDP, while imports have grown to 40 per cent of GDP, creating a trade imbalance, weakening of the Kenyan shilling and increasing inflationary pressure.
What do we need to do then?
Revitalising our industrial sector and turning Kenya into an industrial hub can help close these gaps. Increasing our manufacturing base is critical to job creation and economic growth as well as domestic and foreign investment.
What are the challenges the sector is facing?
A lot of challenges continue to plague the manufacturing sector, which ultimately impacts on the sector's competitiveness. These include the cost of energy which could be lower, double taxation issues especially now with the devolved government, transport which impacts on the cost of goods and services, security threats, land for investment, securing of markets both local and external, inadequate support for the Small and Medium Enterprises, corruption, illicit trade amongst others. The fiscal policy and taxation regime in the country needs to promote industrialisation and growth of the manufacturing sector.
Is the sector where it is supposed to be in line with Vision 2030?
There have been a lot of developments but it is not really where it should be. The growth potential of the industrial sector is hampered by expensive electricity, an unequal playing field in the EAC, and competition from fake and substandard goods, lack of proper market access for our products and poor uptake of locally manufactured goods. KAM however acknowledges and appreciates the work that has been done so far by the government in supplying reliable and cheap energy.
The country has had a number of industries close down in the last 20 years, what went wrong?
This all goes back to the cost of doing business and facilitation of a friendly business climate. A number of companies have closed their local manufacturing unit and only use Kenya as a distribution point while others have shut down their local operations completely. Companies continue to face threats from illicit trade. KAM has formed partnerships with institutions such as the Judiciary, which has led to the development of the Illicit Trade Manual for combating illicit trade. There is increased momentum in rooting out counterfeit goods.
The government has developed a new industrialisation blueprint dubbed the “Kenya Industrial Transformation Programme”, what do you think of it?
The KITP by the Industrialisation and Enterprise Development ministry is the right path in growing Kenya back to the industrial hub it needs to be. This programme is good as it identifies opportunities that will more than double the amount of current formal manufacturing sector jobs.
Imports from countries such as China and India have been making inroads into the region eating into the country's earnings. As an association what is your position on this?
The partner states within the EAC need to be strategic about the growth of the industry. We need to implement and capitalise on each other’s strengths, take advantage of our competitive advantage and grow the export market within the EAC region. There is also need to critically address the existing trade barriers within the region.
The East Africa region is pushing for a common market, what does this mean for the manufacturers?
Regional integration is critical for development. A well-integrated region will create a positive snowball effect of a strengthened business sector through increased trade, job creation, economic growth and ultimately poverty reduction. KAM has been keen and has championed engagements at the regional level.
What has KAM done to protect manufacturers in the country?
We partner with the government to address a wide range of policy and administrative issues that affect the cost of doing business in Kenya. A lot of gains can be highlighted which point to the success of our advocacy work over the years. The reduction in the number of licenses, introduction of Single Business Permit, our engagements in expanding our markets, all these are evident. We continue working on behalf of manufacturers in Kenya to advance policies that help them create economic strength and jobs.
Is the government doing enough to support manufactures?
Yes, the Government has put a lot of efforts in creating an enabling business environment. The developments in the energy front, engagements with the Judiciary and Commission of Revenue Allocation, the launch of KITP. There have been a lot of public private partnerships and engagements. However a lot more needs to be done. There is need to streamline overlaps in regulations, simplify doing business in Kenya, reduce corruption by working on the anti-bribery law which will ensure that both the public and private sector are accountable. The government should ensure there is policy stability for investment.
What can the country do to increase its exports that are way low than imports creating a trade imbalance?
We should take advantage of the trade agreements that have been signed to penetrate the markets that are available under these agreements.
What impact will be there if we increase our exports?
Exports would enable the country to effectively deal with the fiscal and monetary challenges as it reduces the current reliance on domestic consumption.
As the new CEO how do you plan to drive growth in the sector?
I plan to advocate for policies that will lead to the creation of a competitive and sustainable manufacturing sector for the shared prosperity of all Kenyans. We have developed a Manufacturing Priority Agenda highlighting the most burdensome challenges facing industry in Kenya, which need to be addressed.
What potential does the manufacturing and service sector in the country have in regards to job creation?
The manufacturing sector employed over 280,300 people directly in 2013 up from 271,000 people in 2012. The informal sector contributes a further employment of 1.6 million people. The sector needs to be further supported for this potential to be enhanced. The agro-processing, fisheries, textiles and apparel, leather, construction, ICT, oil, gas and mining services sectors cumulatively have the potential of creating approximately 450,000 jobs.
According to the 2014 World Bank's Kenya Economic Update, Kenya's manufacturing industry is lagging behind, how do you evaluate that?
The report identifies issues that affect competitiveness, which mainly include the business environment related issues. In 2014 the manufacturing sector grew by 4.3 per cent whereas the Kenyan economy grew by 5.4 per cent. The growth of the Kenyan manufacturing sector has been performing poorer than countries such as Bangladesh, Ethiopia, Tanzania and Vietnam. Inefficiencies continue to plague the sector through the underutilisation of labour and capital. Innovation through more research and development in the sector will be imperative so as to create unique products and create a unique selling point for locally manufactured goods.
What should county governments do to support industrialisation?
The cost of doing business in the counties needs to be addressed so as to attract investors. There are concerns by the private sector on levies and charges imposed by county governments. It has not been very clear to counties that they should not raise revenue solely from the private sector or that any levies and charges imposed should correspond to services rendered by the county in return. To make matters worse some counties have been collecting these levies unlawfully, without enacting the proper legislation.
What is KAM’s position on the planned privatisation of state run sugar factories in the country?
The privatisation of the sugar factories in the country is a welcome move since this will improve our competitiveness.
Where do you see the country’s manufacturing sector in the next 10 years?
I see a vibrant and diverse manufacturing sector that is contributing to over 20 per cent of the GDP while creating more jobs.