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Textile firm says cost of labour, power too high

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Workers at United Aryan EPZ Ltd on Ring Road, off Thika Super Highway. The firm says Kenyan products can be competitive only if electricity tariffs are charged at $ 0.7 (Sh7) per kilowatt hour. Photo | salaton njau

A Dubai textile company operating in Kenya has said the high cost of power and increased minimum wages have pushed up cost of production, a situation which may out-price their products.

United Aryan (EPZ) Ltd, which has been operating in Kenya for the last 16 years, said it is still paying high energy tariffs and spending heavily on wages compared to countries such as Ethiopia, Rwanda, Malawi and Egypt where the cost of labour is cheaper.

The minimum wage in Kenya currently stands at Sh13,475. This is expected to rise to Sh15,372 this year if recommendations by the Central Organisation of Trade Union secretary-general Francis Atwoli to Federation of Kenya Employers will be ratified.

“The manufacturing sector in Kenya has a very huge potential for growth unlike other countries in East African region. The only challenge we are facing as manufacturers at the moment is the high cost of power and high wages which have left us struggling to meet production costs,” said United Aryan (EPZ) Ltd founder and chairman Pankaj Bedi in an interview with the Sunday Nation.

Apart from increased minimum wage in Kenya which has led to higher costs of doing business, the country charges firms about $0.15 (Sh15) per kilowatt hour when taxes and other levies are incorporated, which is seen as uncompetitive compared to Ethiopia where manufacturers are paying as low as $0.4 (Sh4.14) per kilowatt hour.

Electricity tariffs in Egypt and Uganda stand at $0.6 (Sh6) and $1.2 (Sh12) per kilowatt hour, respectively.

Tanzania, on the other hand, reduced its tariffs to $14 cents (Sh14) while South Africa manufacturers are paying $0.9 (Sh9) per kilowatt hour.

“A number of companies will prefer setting up their operations in Ethiopia because the cost of power, land and labour is cheaper,” he said.

Mr Bedi said products in Kenya can only remain competitive if electricity tariffs are charged at $ 0.7 (Sh7) per kilowatt hour.

He said should the situation persist, then companies planning to set up their bases in Africa will prefer operating in countries where the cost of power and labour is relatively cheaper.

READ: Employers say rise in minimum wage pushing them out of Kenya

The textile contribution to the country’s gross domestic product (GDP) has stagnated at about 10 per cent in the last 10 years.

Last year, the sector’s share to GDP fell to 9.2 per cent, the lowest growth compared to the economy.

The  lacklustre performance of the sector has been blamed as the reason Kenya has failed to achieve the targeted sustainable annual 10 per cent growth in GDP from 2010 as envisioned in the Vision 20130 plans.

The best performance of the overall economy was in 2010 when GDP expanded 8.4 per cent. Since then, it has grown below 6 per cent dashing hopes of an upper middle-income economy in the next 12 years.

This has pushed Kenyan goods off the shelves in favour of cheap imports from international and regional markets, denying local industries revenues.