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How to spur growth of manufacturing sector

by biasharadigest
Ideas & Debate

How to spur growth of manufacturing sector



Workers at a factory. FILE PHOTO NMG
Workers at a factory. FILE PHOTO NMG 

The manufacturing sector as a share of GDP has been on a steady decline from 10 percent in 2014 to 7.7 percent in 2018, data from the Kenya National Bureau of Statistics (KNBS) shows. Despite the dip in the sector’s contribution to national wealth, it has grown modestly through the years, with jobs expanding from 287,500 workers in 2014 to 307,000 workers in 2018, according to KNBS.

However, this growth has not kept up with other sectors nor measured up to the aspirations in President Uhuru Kenyatta’s Big 4 Agenda, which seeks to expand manufacturing to 15 percent of GDP by 2022.

We need to urgently roll out well-targeted initiatives that spur growth in the manufacturing sector. This is not only because manufacturing is a national development priority under the Big Four, but also because the sector is the greatest catalyst for job creation.

We have been incessantly complaining about the ironic state of Kenya’s economy, where economic growth is strong but new jobs are not being generated at the same pace. In fact, the Central Bank Governor, Dr Patrick Njoroge, was recently quoted as saying: “It’s true you have GDP numbers, but you cannot eat GDP.”

I reckon that this painful state of affairs — where headline economic numbers paint a rosy picture but the ballooning number of unemployed youth tell a different heartbreaking story — can be reversed if we give manufacturing more attention.

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Manufacturing has extensive linkages with other sectors such as agriculture, logistics, energy and retail, meaning that growth in manufacturing leads to growth in these sectors as well. It has often been said that for every one job created in manufacturing, at least five more are created in related value chains.

A lot is being done to turnaround the fortunes of the manufacturing sector. From lowering the cost of energy through tax rebates of up to 30 per cent for large manufacturers to promoting local content in public procurement through Presidential Directives.

The Buy Kenya Build Kenya initiative, for example, has gained a new lease of life after President Kenyatta issued a recent directive to all government officials to dress in Kenyan attire on Fridays. This should extend to other sectors beyond apparel, in line with local content policies.

We also need to confront the fact that part of the reason behind the manufacturing sector’s lax growth is job losses and a general increase in unemployment. With less jobs being created, less money is being spent in buying Kenyan products. Manufacturers can’t therefore fill their capacity, leading to further job cuts.

Essential commodities like cooking oil, flour, soaps, rice, sugar may have contracted compared with last year. We need to spur consumption to get manufacturing back on track. Government can address this by servicing unpaid debts by National and County government for goods and services already bought.

We also need to look at non-tariff barriers to trade in both the domestic market and the regional market in the EAC, where Kenyan products still enjoy market leadership, despite significant inroads by cheaper Chinese and Indian imports as well as improved production capacity in neighboring countries.

Government agencies such as the Kenya Revenue Authority (KRA) and Kenya Bureau of Standards (Kebs) need to act as enablers of Kenyan exports in the region.

For example, KRA insists that all export trucks should have Electronic Cargo Tracking Devices (ECTS). This is leading to high transport costs and making Kenyan exports uncompetitive. ECTS requirements need to be harmonized across all EAC countries. KRA should also provide the devices rather than saddle businesses with these additional costs.

We have also seen a situation where Kebs issues permit on a brand by brand basis. This is increasing production costs. One general permit can do as long as the brands covered fall under the same product category.

Ultimately, we need to have a bold conversation about the state of public finance in Kenya. Part of the reason why nearly every government agency has been turned into a quasi-tax collection agency is budget cuts and a cash crunch at the exchequer. If this persists, Kenyan products could get to the final consumer when the price has almost doubled.

We also need to set our sights on the Africa Continental Free Trade Area, which comes into force in mid-2020. AfCFTA opens up many opportunities across Africa. In light of this, we need to push for closer collaboration between the Ministry of Trade, the Ministry of Foreign Affairs and local manufacturers.

We need to jointly identify priority markets in Africa, identify sectors where Kenyan goods will have a competitive advantages and initiate strategic trade missions to grow our market share across Africa. If we have larger markets, we will be able to operate at full capacity as manufacturers, improving our efficiencies and allowing us to create more jobs for our youth, who are the future of this Great Nation.

The writer is commercial director of Pwani Oil.

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