Tycoons lament the difficulty of manufacturing in Kenya

Cost of doing business has gone up by almost 25 per cent in a year

In Summary

• Edible oils row is just tip of the iceberg amid struggle to compete with China and India

Staff at the Pwani Oil Products Limited in Kikambala package soap. The Kikambala factory needs about 2.5 megawatts of electricity every month
Staff at the Pwani Oil Products Limited in Kikambala package soap. The Kikambala factory needs about 2.5 megawatts of electricity every month

The age-old debate between local manufacturing and cheaper imports is once again rearing its head as the government engages in a tussle with the edible oil manufacturing industry.

The dispute started early this year with the Trade ministry accusing manufacturers of edible oil of not lowering consumer prices quickly enough.

In response, edible oil manufacturers argued that there would be no need for large-scale imports if the business environment was better.

"Why doesn't the government consider incentivising manufacturers through reduced taxation and lower costs of power to bring down the overall cost of production?" they asked in a joint statement.

Manufacturing in Kenya has always been tough. It is hard competing with industrial giants such as China and India. They produce in such large quantities that they can afford to sell at lower prices. Meanwhile, Kenya is struggling with high costs of fuel and electricity, high transport costs, higher cost of wages and rising taxes.

The past two years have been tougher for manufacturers. Global shortages of raw materials and difficulties getting foreign exchange have made production more expensive. The situation is worsened by the weakening Kenya shilling. In theory, a weaker shilling should be good news for exporters because it makes their products cheaper for export clients buying in dollars.


In reality, local manufacturers have not gained from a weaker shilling because of the rising cost of doing business. Imports of raw materials and petroleum are more expensive. Pankaj Bedi, who leads the textiles and apparel sub-sector at the Kenya Association of Manufacturers (KAM), says the cost of doing business in Kenya increased by almost 25 per cent between May 2022 and February 2023.

"Increased costs include employee costs, increase in statutory contributions such as the NSSF, power tariffs, logistics and finance," Bedi says.

The higher costs are making it harder for Kenyan-made textiles and apparel to compete in the world market. Jobs in the textile and apparel sector reduced by as much as 30 per cent between October 2022 and February 2023.

KAM chief executive Anthony Mwangi criticises Kenya's tax system as "too complex," saying the government is actually losing revenue despite heavy investment in transforming the tax system. "Revenue generated from taxes was 13.8 per cent in the financial year 2020-21, which is below the required East African Community's target of 25 per cent," he says.

Mwangi believes the tax system should be simplified as a way of boosting local manufacturing. "Our focus as a country must be on reducing the cost of commodities and sustaining our economy," he said in reaction to proposals contained in the government's 2023 budget plan.

Despite KAM's views, the organisation has come under sharp criticism from leading industrialists, such as steel and cement tycoon Narendra Raval. The billionaire businessman says KAM is "part of the problem".

In remarks published by the Standard newspaper, Raval claimed KAM is too bureaucratic and seeks to protect importers at the expense of local producers. "If anything is produced locally, there should be a duty on imported material," Raval is quoted as saying.

The tough operating conditions for local manufacturers have left them producing at levels far below the capability of their machines. Malaysian investors in Kenya's edible oil industry recently said they are operating at 60 per cent capacity because they are unable to export to neighbouring countries. In their estimation, Kenya needs 800,000 tonnes of edible oil against a production capacity of 2.4 million tonnes.

The motor vehicle assembly industry is yet another group of manufacturers with the capacity to produce more. President William Ruto alluded to this in June when he said the motor vehicle assembly industry is operating at 30 per cent capacity but still manages to support 100,000 direct and indirect jobs.

"Our ambition is not just for these assemblers to operate at full capacity, we want more to set up so we can supply the African market with globally competitive units, create more jobs and enhance skills development," Ruto said while visiting the Isuzu East Africa assembly plant.

The excess production capacity in motor vehicle assembly is further confirmed by Matt Lloyd, the managing director of Associated Vehicle Assemblers. Lloyd told the Daily Nation the company assembles more than 4,000 vehicles every year, but has an installed production capacity of 30,000 units annually.

Processing of leather is also under-performing. KAM says the 13 tanneries in the country are currently operating at 30 per cent capacity due to a shortage of raw hides and animal skins. About 5,000 metric tonnes of raw hides and skins are produced monthly in Kenya, but most of it is smuggled out of the country.


It would be in Kenya's interests to not only sustain local manufacturers but to help them grow rapidly. There's one problem, though. The problem lurks like a shadow behind every discussion about local manufacturing:

How can Kenyan producers be assisted to compete with Asian juggernauts, such as China and India? These countries produce equivalent goods at prices that are very hard for Kenyan manufacturers to match.

While local manufacturing is taking a beating from cheap imports, the consumer has greatly benefited from low-priced goods from China. For example, the mobile phone revolution throughout Africa owes a lot to low-priced Chinese gadgets. The current war of words between the government and manufacturers is about how to deliver consumer goods at low prices, while keeping local factories running. What, then, can be done to balance the needs of manufacturers, consumers and government?

For sure, even much more developed countries have lost their manufacturing to Asian countries. Among the reasons that got the controversial Donald Trump elected as US President in 2016 was his promise to return manufacturing jobs from Asia. Just as in Kenya, the dilemma between job creation versus cheap products was at play.

Job creation is the biggest compelling argument in favour of local manufacturing. Motor vehicle assembly has created 100,000 jobs despite operating at 30 per cent capacity. How many more jobs would be created if production were raised to 50 per cent?

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