TRALAC - Trade Law Centre

Kenya: High Costs Hinder Manufacturing Sector

Wednesday, 11 October 2006

Source: The Standard (Kenya)

High taxation and prohibitive fuel costs are holding back the growth of the manufacturing sector, say industry players.

Mr Steve Smith, the chairman of the Kenya Association of Manufacturers (KAM), says that the sector has grown in tandem with the economy over the last three years without improving its processes.

"A close examination reveals that this growth has been driven more by an increase in volume of output than by improvements in efficiency and productivity," he says.

The increase in output is largely explained by large exports to the US under the African Growth and Opportunity Act (Agoa), and to East African Community and Common Market for East and Southern Africa countries.

A report on a survey of local manufacturers says the high cost of doing business is holding back greater growth. The report, ‘Manufacturing in Kenya’, was released by KAM on Monday.

It argues that: "The country must address ‘supply side’ constraints such as infrastructure, security and cost of energy because these have a direct bearing on the cost of doing business."

The study also identifies HIV/Aids as "one of the biggest barriers" to growth.

"Survival of Kenya’s private sector, including manufacturing, is threatened by the high prevalence of HIV/Aids in the country, since the scourge impacts negatively on the workforce and consumers."

Kenyan manufacturers were yet to understand and take full advantage of the World Trade Organisation, European Union tariff preferences or Agoa to boost exports, the survey found.

Kenyan manufacturers are also suffering from low capacity utilisation that has been brought about by insufficient domestic demand for locally manufactured products and stiff competition from imports. KAM says that one way of addressing the issues affecting industry is for the government to develop a long-term plan for addressing production constraints.

"Constraints that affect the competitiveness of Kenya’s manufacturing sector against competitor countries need to be addressed if Kenya is to attract new investors and retain existing ones," the survey says.

Kenyan manufacturers are also limping after competitors, having to grapple with obsolete and inefficient technology. "This implies that updating of technologies used and retraining of labour are crucial issues that require attention for the sector to increase its efficiency."

KAM chief executive officer, Ms Betty Maina said the Government would have to formulate a comprehensive strategy to free the wheels of the industry for the country to lead as the regional manufacturing hub.

Maina said the Government would have to scan the business environment to understand the challenges, constraints and opportunities that exist in industry.

However, despite the negative factors that are facing the manufacturing industry, there has been growth. Smith said that from a low of 1.6 per cent in 2001, the manufacturing sector grew by an impressive five per cent last year.

According to KAM survey, the biggest boost to the Kenyan industry came last year when the export markets of Southern Sudan, Rwanda and Democratic Republic of Congo were opened up, leading to increases of 21, 18 and 15 per cent respectively.

Smith said that though not often reported, the manufacturing sector has played a crucial role in increasing the country external trade volumes.

"It would surprise many to note that manufacturing goods constitute over 34 per cent of value of foreign exchange earnings ahead of agriculture, tea, coffee and even tourism," he says.



“ Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Kenya’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.