The William Ruto administration has set a target for the manufacturing sector’s contribution to the gross domestic product — a measure of national economic output— to triple from 7.2 percent in 2021 to 20 percent in 2030.
The initiative dubbed Kenya Manufacturing 20by30 aims at maximising “on opportunities available to spur local industry’s growth”.
Kenya Association of Manufacturers (KAM) chief executive Antony Mwangi spoke to the Business Daily on why he believes the goal is achievable. He previously worked with Kenya Airways, IBM and Tullow Oil.
You have worked with some of the biggest multinationals in the country. What motivated you to take up this role?
I had always continuously asked myself ‘what is my purpose as a Kenyan working for global companies’? So when it came to working for KAM, it was an easy choice, because I was looking at it as a perfect platform for me to use the knowledge that I have to drive the manufacturing agenda that can actually transform the economy.
I'm still convinced that we can transform the country.
What have your first months in office been like?
We have done a bit of work that we've been given by the board and taken that work to engage with the new government under the manifesto that Kenya Kwanza put together.
And when we met the President [William Ruto] last October he actually adopted what we're calling Kenya Manufacturing Agenda 20by30.
That agenda aims at expanding the sector’s contribution to GDP from about 7.0 percent to 20 percent in less than 10 years. Yet, we have seen the sector’s share consistently shrink for more than five years.
That is true, but it doesn't mean that manufacturing in Kenya is not growing. What it means is that other sectors have been growing faster in terms of contribution than manufacturing.
It doesn't mean that we sit pretty because we are growing yet we are not contributing as we should to the GDP. Currently we are at about 7.5 percent of GDP.
Now 20by30 Agenda is to migrate that contribution to 20 percent by the year 2030. That is three times. We are coming from a downward trajectory to a sharp, almost vertical trajectory. The question is: is it possible to do this?
That is the question…
As a manufacturing fraternity, we are divided into 14 sectors and over 53 sub-sectors. We will be looking at value chain by value chain. So, if we dissect and drill down into those value chains, is there an opportunity for us?
We have looked at those different value chains, and we are convinced that with the right policies, we can actually move that contribution [to GDP] from 7.5 percent to 20 percent.
How are you going to do that?
Our number one area of focus is global competitiveness. Kenyan products are competing with products from all over the world.
And, therefore, we need both as a country and at the factory level to be globally competitive, so that we can compete with the best in the world, including the Chinese, the Indians, the Koreans, the Taiwanese and the Vietnamese who are not sleeping.
We are not competitive because of expensive power, water and labour. So we are looking at all these issues with the government.
We are also asking our factories: ‘What is it that you can do to also cut off a lot of fat in your operations’? You need to have lean operations and automate your factories.
The high cost of power is something manufacturers have complained about for many years. Why is it difficult to resolve?
This has been an ongoing process for a long time and for many reasons. One is the arrangements that the government got into a long time ago in terms of thermal or emergency power. With those contracts, it is either you use or you pay.
So even though our grid is leading in the green generation of power, which is one of the highest in the world, we are still stuck with all those contracts.
Successive governments have not done much about that. The power cost is still going up unabated.
How are factories innovating around the high cost of power?
Some of the things that are being entertained include the utilisation of captive power. For example, Devki opened one of the largest plants for steel in Mombasa last November.
They are not relying on grid power, but generating their power by capturing the heat from their own operations and also wind.
There are some companies now utilising up to 100 percent of their captive power. This is going to give some relief to the companies that invest in it.
However, it is important but not sufficient because not everybody will be able to develop their own captive power. The government is willing to support those who can, especially the big industries, but the smaller ones still got to rely on the grid.
There are also people operating on solar, others on hydrogen and, perhaps, others will operate on biomass.
What makes labour in Kenya expensive?
Labour is a factor of production that needs to be managed in a very dynamic manner. Kenya has tended to set a minimum wage, which due to political considerations, inflation and all other things can go up every year.
That makes it more expensive for some companies to set up here. What we are saying is that it [wage] should be based on productivity so that if you work hard, you earn more and vice versa.
Globally, that is how things are done. With minimum wage, our productivity is highly affected because you hide behind other people.
This is what is leading some companies to say that our labour is expensive. It is not expensive in absolute terms but relative to productivity. And you cannot look at wage without looking at productivity.
Contract manufacturing is a big thing, especially in East Asia, including China. How do you plan to support your members on this?
We are thinking about contract manufacturing in a big way. For you to be a manufacturer, you don’t need to buy a machine.
You only need an idea and then you have someone who manufactures for you and you go to the market. About 80 percent of products that are manufactured in Shenzhen [China] are through contract manufacturing.
If you go to Taiwan, you find companies that have employed 300,000 people but they have no branding or name because they don’t go to the market.
They do like 20 brands of shoes and sportswear for the US market, but they don’t sell themselves. We want to drive our people to first come up with an idea.
Then, as KAM, we will work with relevant stakeholders to create an ecosystem for logistics, markets and financing.
How are you helping the small manufacturers who dominate the sector to grow?
Some of these small companies have extremely innovative products but are very small and unable to access the market outside.
We are looking at aggregating them, advising them where the market is and thinking about platforms that offer B2B [business to business] opportunities.