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Kenya: KAM boss reveals how small firms can gain from AGOA dollar

Kenya: KAM boss reveals how small firms can gain from AGOA dollar
Published date:
Tuesday, 24 November 2015
Frankline Sunday

There’s renewed hope in Kenya’s manufacturing.

The country’s sustained campaign to market Kenya as a strategic destination for investment has seen manufacturers strive to grow their footprint into the region.

Phyllis Wakiaga took over the helm of the Kenya Association of Manufacturers (KAM) succeeding Betty Maina who had held the position for 11 years.

The Business Beat caught up with Ms Wakiaga on her first interview since taking office to discuss the growth of the country’s manufacturing industry, the journey to formalise the informal sector and the new push to give Small and Micro Enterprises a bigger platform. Agoa has been extended for another 10 years. What does this mean to manufacturers?

AGOA has traditionally been viewed as a textile agreement and in the initial first phase there was a lot of focus on the textile sector. This went okay because we grew our textile exports and our export processing zone (EPZ) but there are several other areas that we need to look at. We undertook a priority study in partnership with the World Bank and identified the leather industry, cotton and apparel, furniture and the agro-processing sectors as key areas in which we need to build capacity.

Right now, there is a lot of demand for agro-processing in specific products like honey, macadamia and groundnuts and we are working with manufacturers to see how we can get to build exports in these areas. The fact that we have received a 10-year extension also means that manufacturers have a longer period of time to recoup their investment so we expect to see manufacturers putting up processing plants or expanding their existing ones. 

Awareness was the critical issue that makes us lose out on preferential trade agreements whether it is with the EU, the EAC or the US. A lot of manufacturers, particularly SMEs were not aware that Agoa existed and which goods they could export and how to start.

For example, you need an Agoa visa and if you do not even know how and where this is processed you cannot even begin to appreciate the opportunities that are available. The other thing is linkages with the buyers at the other end. How does Walmart for example, know what you as a manufacturer can and want to supply and how can you get access to them as a potential supplier?

The other thing was financial support particularly for the SMEs because orders from export markets come in bulk and many do not have the funds to scale up their production to meet the orders. In addition to this some manufacturers are yet to meet export quality standards particularly for the US and UK on their goods and they need information on how to do this.

There are some gaps in the SME and the informal sector and every time you engage this industry segment you get questions like how do we even draw a business plan? How do I do a marketing strategy etc.? In addition to this and particularly for the informal sector, the existing tax regime appears complicated for a lot of them.

We need to simplify the system for them and show them the benefits they stand to get from formalising. Manufacturing can grow to even 20 per cent of the gross domestic product but the focus has always been on the formal sector and it is the same segment we continually tax for government revenue. If we brought more of the informal sector into the tax base the burden will be shared across the board and we will improve our competitiveness. There’s growing concern that Asian imports are crowding out Kenyan exports into the East African Market.

Where are we going wrong and how can we fix this? One of the factors that affect our competiveness in the region is the cost structure of local manufacturing. How efficient are you at using and preserving energy for example? We continually do audits for our members and we have seen reductions of up to 30 per cent in some cases in the energy component of production costs.

In the local market how many regulators do you have and how much do you have to spend in levies to these regulators? In addition to this, if you have operations in different counties there are chances that you find yourself having to pay taxes in all these counties that affects your cost of production.

In the external market, we have a 25 percent Common External Tariff (CET) on the raw materials, intermediary products and the finished products. But there is a lot of distortion because every year countries request for a stay on several items implying the CET is not meeting the needs of manufacturing whether it is in Kenya or other countries.

We also have a lot of non-tariff barriers among member countries that we need to address. You move your goods across the border to country Y and you are told they do not recognise your standardisation mark because they have their own standardisation mark that you need to get.

The CET was structured a log time ago and it is reviewed every few years but in the meantime some realities change and there is a need to have a CET that is alive to this change. Some developing markets like the UK and the US have raised duty for products that come into the country from other economies that are priced at below production prices at the import countries and this is also something we can look at.

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