• Consuming our local products as nation instils in us 'a sense of ownership' in the making of our economy that fosters growth in the value chain
• The thinking that something is not of quality because it is made locally is 'simplistic and obsolete'
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The cost of living has gone through the roof. Companies are downsizing, with job losses becoming routine. Unemployment is almost at tipping point.
At the same time, the government is seeking to attract a double-down on local investment in the manufacturing sector, with the clarion call "Buy Kenya, Build Kenya". President Uhuru Kenyatta even directed government officials to wear locally made garments on Fridays.
But how realistic is it to buy locally made products when their costs are sky-high compared to the unbridled proliferation of foreign products, mostly low-priced? The Star interviewed the chief executive of the Kenya Association of Manufacturers Phyllis Wakiaga on the state of the economy, particularly the performance of the manufacturing sector relative to the push to buy local products.
The Star: Most of the locally made products tend to be inordinately expensive, driving local buyers away. Why is this?
Wakiaga: The cost of any goods is determined by the overall production costs incurred by businesses. At present, Kenya is at a cost disadvantage of nearly 12 per cent on most of the goods it manufactures compared to competitor countries. For manufacturers to operate effectively and efficiently, they require a business environment that enhances competitiveness, including low cost of power, reduced transport and logistics costs, enhanced cash flow for manufacturers, lower costs of imported industrial inputs, access to long-term financing and markets.
KAM drives the competitiveness of local industries by developing policies and sustainable frameworks to boost production, creating sustainable jobs and increasing investments. Competitiveness ensures our locally made products can compete regionally and internationally.
How grown and active is the local manufacturing capacity? It appears we have ceded a lot of latitude to foreign forces.
Manufacturing has the potential to play a particularly important role by putting Kenya on a sustainable growth path through its direct contribution to creating quality employment, strong linkages with other sectors, ability to raise capital accumulation and smooth volatility in the economy.
Manufacturers are investing heavily in new machinery to increase production, market share, locally and regionally. However, have not been utilising the machinery and production capacity, resulting in huge losses. To promote manufacturing, key issues need to be addressed, including the influx of cheap imports that render products noncompetitive, late payments, increased taxation, multiple levies and charges and other non-tariff barriers that in the end impact their pricing.
What do you say about the dumping of fake Chinese products in the market, driving Kenyan manufacturers out of business?
The influx of cheap imports has adversely affected the industry since local industries are faced with unhealthy competition. We have seen companies close down their manufacturing plants, which has rendered many people jobless and decreased government revenues. Further, trade in illicit, substandard and counterfeit products is a major challenge facing manufacturers in Kenya today. Counterfeiting and illicit trade affect all levels of our society and our economies. It threatens the health and safety of all citizens and the economic future of all nations.
The fight against illicit trade has been a difficult task, despite numerous collaborative efforts by both government and industry. The keenness to embolden these initiatives by the Office of the President assures investors of full government support in terms of resources, intelligence and security apparatus. The main driver of illicit trade is the need for quick money (greed). This is because illicit traders want to circumvent the laid-down procedures for fair trade and to ride on already existing market share in order to maximise profits. The other driver of illicit trade is lack of awareness by consumers and low purchasing power of consumers as they opt for cheap alternatives.
In addition, the government needs to develop laws and policies to prevent dumping and importation of counterfeits. We will also advocate the operationalisation of the Kenya Trade Remedies Agency, which seeks to deal with unfair trade practices, such as dumping, subsidising and import surges and the need to adopt technological measures to fight illicit trade. We will push for the establishment of a special court to fast-track the rulings associated with these crimes. There should also be a review towards stiffer sentences and penalties.
The economy being as hard as it is, is the government doing enough to facilitate and incentivise local manufacturing. How, for example?
The government declared manufacturing as a top priority investment area for the country to drive economic growth. It has put in place incentives to promote local manufacturing, including procuring from local industries, where progress has been made in the leather and footwear as well as textile and apparel sectors, through procurement of footwear and fabric for Kenya’s uniformed forces. The apparels sector also supplied all the garment requirements for the Huduma Number registration programme.
Secondly, the government sustained a spirited anti-illicit trade campaign, launching the National Action Plan and Implementation Framework to Combat Illicit Trade in June 2019. The strategy against illicit trade is one of the signs that the government is committed to sustaining the fight against illicit trade in Kenya. Thirdly, the Finance Act 2019 introduced policy and taxation measures for revenue generation in the financial year 2019-20 for government expenditure as well as to support the Big Four Agenda.
Moreover, the main tax and policy changes introduced include reduction of Withholding VAT Rate from 6-2 per cent, increased Railway Development Levy from 1.5-2 per cent on all imported goods except raw materials and intermediate goods, and reduced import declaration fees from 2-1.5 per cent.
The government also has incentivised plastic recycling by lowering corporation tax of 15 per cent for investors operating a plastic recycling plant for the first five years, as well as procuring from local entities.
However, we still need to address a myriad of issues impeding the growth of the local manufacturing sector. Among these are to reduce regulatory overreach and overtaxation.
Delayed payment for supplies made and services rendered is also still an issue. Prompt payment is critical to a business’ performance and operations since it ensures necessary cashflows and smooth operations. Delayed payments hurt industry, especially SMEs, due to financial lock-in.
High-cost power and its reliability is also a major issue in the sector. Industry relies heavily on electricity for production. High power costs increase the cost of doing business.
Finally, skills gap is also a challenge, in the sense that adequate skilled labour is lacking in the country, hampering labour productivity. Therefore, it is time we developed and implemented industry-led skills policies that will ensure human skills development connects effectively to labour market needs.
There is the swirling perception that KAM and manufacturers are withdrawn from the issues affecting the poor mass majority that also form the bulk of their customers. What are you doing about this relative to the need to 'Buy Kenya, Build Kenya'?
The association advocates a conducive environment for business, which is critical for job and wealth creation. Prolonged challenges that have plagued the sector over the years have been attributed to, among others, unfair competition from imports and the illicit economy, unpredictability in the policy and regulatory environment, low liquidity in the market affecting operations and, therefore, productivity, and low uptake of local content in national projects.
Further, if manufacturing is thriving, it is operating at optimum capacity. This means it can provide productive and sustainable jobs and also increase the ability for industries to expand. The latter will lead to the dispersion of competitive industries throughout the country and growth of relative value chains. This has a domino effect of creating jobs (direct and indirect) and subsequently an increase in purchasing power for most people who are gradually finding it difficult to afford basic necessities.
Moreover, what growing jobs does for an economy is that it increases the number of people earning decent wages. Meaning more people are able, by and large, to afford to cater for their basic amenities and their purchasing power is enhanced. This then increases the demand for goods that can be produced locally, consequently spurring the growth of local industries. When industries grow and expand, they can hire and train more people, equipping them to perform efficiently, benefiting both themselves and the companies. Local industries have the potential and substantial capacity to serve our local markets if only such opportunity is provided. This will be a sure way to grow local industries, create massive employment along the value chains and ultimately, lead to the realisation of the Big 4 Agenda.
What do you tell the resentful youth languishing under ever closing businesses hence no jobs, high taxes and unbearable living costs? How do you sell to them 'Buy Kenya, Build Kenya'?
Preference of imported products has for some time eroded local manufacturers' market share. Consumers need a mindset change that imported goods have better quality. There exists instruments to support the production and consumption of locally produced goods in National Policies and Strategies. But as citizens, we must be deliberate about the consumption of our locally made products for the sake of our country’s present and future economic sustainability. The thinking that something is not of quality because it is made locally is simplistic and obsolete.
Indeed, consuming our local products as nation instils in all of us a sense of ownership in the making of our economy. We become invested in seeing better raw materials grown so we enable our farmers to do so; we become invested in expanding local markets so we build infrastructure and develop regulation to support that; we become intentional about strengthening our value chains and new streams of income are formed, small businesses are made profitable and jobs increase.
It is paramount that even consumers promote local content. In doing so, they indirectly promote the economic growth of the country. By purchasing products manufactured locally, consumers widen the local market, increase liquidity and provide greater opportunities for innovations.