Ideas & Debate

7 pillars Kenya needs for industrial growth

Workers at Rivatex East Africa Limited factory in Eldoret last year. Local industries play a crucial role in job creation. PHOTO | FILE
Workers at Rivatex East Africa Limited factory in Eldoret last year. Local industries play a crucial role in job creation. PHOTO | FILE 

Manufacturers are optimistic on their outlook for the sector this year. We currently contribute 11.3 percent to the country’s gross domestic product (GDP). 

But to achieve more growth, we have identified seven priority areas which need to be addressed in order to create an enabling business environment.

First is securing investment. Manufacturers rely on a stable, balanced and common-sense regulatory environment to create jobs and fuel economic growth.

However, the burden of unnecessarily costly and duplicative rules weighs heavily on their ability to grow and create jobs. 

To secure investment in the sector, the government needs to guarantee investors a stable policy environment, supportive taxation measures, and an investment climate that facilitates the growth of industry.

The second pillar is the securing markets by building on the ‘Buy Kenya, Build Kenya’ initiative and export competitiveness.

In Kenya, exports would enable the country to effectively deal with the fiscal and monetary challenges to reduce current reliance on domestic consumption as a major economic driver.

The open trade policy and  export oriented currently adopted by Kenya should be safeguarded and further enhanced through initiatives related to promoting the uptake of local content and curbing illicit trade and counterfeits to secure local markets.

To grow and diversify Kenyan exports,  there is a need to review East African Community regulations to expand our export share in the bloc and other regional markets as well as concluding pending treaties and agreements with other countries.

The third pillar is infrastructure. Energy and transport affect the day-to-day running of a manufacturing firm. While a lot has been done by the government to increase and stabilise power supply, the country is still not energy secure and the expansion is not keeping up with demand.

Transport impacts on cost of goods and services while water is becoming a concern for businesses due to the risk posed in the future due to its shortage. As a water scarce country, we cannot continue to ignore this risk.

The fourth pillar is safeguarding constitutional gains. The government has to secure gains to business as outlined in the Constitution.

Businesses are the main actors in mobilising and distributing wealth and resources in a county. While devolution was meant to improve service delivery, it has also brought about a number of challenges for manufacturers because counties have introduced regulations that are not favourable to businesses.

Manufacturers are now confronted with the issue of double taxation where they are forced to pay similar charges and levies in more than one county which is a trade barrier or hindrance.

Securing justice for the economy is the fifth pillar. This will be attained through the judicial system which must not only be impartial, but also accurate and efficient.

Judges have a fundamental role to play in dispensing justice and balancing the interests of various stakeholders in commercial disputes.

Inaccurate or well-meaning decisions which fail to appreciate the commercial realities and implications will decrease confidence in the legal system and increase uncertainty in economic activity.

The sixth pillar is security. Until rampant insecurity is arrested, the economy will continue to suffer and economic opportunities will nosedive. 

Crime prevention can reduce the long term expenses associated with the criminal justice system and the costs of crime, both economic and social, and can achieve a significant return on investment in terms of savings in justice, welfare, healthcare, and the protection of social and human capital. A safe and secure society is key to service delivery.

The seventh pillar is reinforcing the future of industry in order to achieve the desired growth in the sector by resolving key challenges.

By supporting the small and micro enterprise sector, fostering appropriate education and training, promoting innovation and focusing on the agro-processing sector as a catalyst for more manufacturing activity, the sector can see tremendous gains in the future.

In addition, the sector intends to have a strong focus on agro processing to increase jobs and contribute significantly to economic development.

The sector offers immense linkages to other industries and emerging trends already show the crucial role agro processing sector plays in economic growth of countries such as China. 

Still, Kenya’s agricultural sector has suffered several challenges which have seen the contribution of key crops like cotton, sugarcane, pyrethrum and sisal, among others, decline. We need to prop up these sectors because they are the source of raw materials for industries.

Last week, the World Bank launched the quarterly Economic Update, which puts the sector on the spotlight to anchor more growth and points out what needs to be done for a more robust industrial sector. 

While manufacturing should be the leading sector in terms of contributing to the country’s GDP, the sector is lagging in third place. Growth in the Kenyan manufacturing sector has increased. In 2013, the sector grew by 4.8 per cent.  

The finance and private sector development specialist at the World Bank in Nairobi, Ms Maria Paulina, during the launch of the 11th edition of the Economic Update told the forum that Kenya’s manufacturing sector has been performing poorer than countries such as Bangladesh, Ethiopia, Tanzania and Vietnam in terms of growth and added that inefficiencies continue to plague the sector through the underutilisation of labour and capital.

Of particular concern is the large productivity dispersion across manufacturing firms within and across sectors raising the question: “why do companies that are unproductive continue to survive in a competitive environment?”

This can only point to unresolved challenges in compliance, tax evasion and the sale of illicit substandard goods.  The informal sector also poses a threat to the manufacturers due to increasing obstacles such as non-compliance.

Viewed from a global perspective, the sector has great potential for growth.

According to a report on Global Competitiveness released by the World Economic Forum in Davos last year, Kenya remains a factor driven economy that still relies on its natural endowments and a large pool of unskilled labour.

The country ranks 96 out of 148 countries overall in the Global Competitiveness index. Our performance was greatly dented by insecurity.

What is interesting is that the country’s innovative capacity was ranked at 46. Arguably, the global future of manufacturing lies in innovation and if we could leverage on this, our production capacity is bound to grow.

The government has promised to reignite the manufacturing sector and the industry is pleased at some of the progress made thus far.  

The writer is the chairman of Kenya Association of Manufacturers.