How expanding the manufacturing sector is achievable in the ‘Big Four’ plan

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BY BENARD AYIEKO

The analysis of the ‘big four’ plan in President Uhuru Kenyatta’s final term continues in this edition of the ‘Last Word’. In this month’s Issue, we focus on the manufacturing sector – my penultimate article of the four-part series.

The government intends to create jobs for the unemployed youth by scaling-up industrial activities in the manufacturing sector. The main areas of focus being the blue economy, agro-processing, leather and textiles. The fishing industry is also one area whose potential largely remain untapped and suppressed to a double-digit. The sector’s contribution to the GDP has performed dismally over the years with 2016 statistics showing a paltry 9.2%.

The choice of manufacturing sector as a key focus area by President Kenyatta did not come as a surprise to economists. Over the years, Kenya has occupied a dominant position in supplying the region with manufactured goods with Uganda as her biggest trading partner.  Lately, the fortunes have changed with Kenya’s manufactured exports to the region shrinking considerably due to cheap imports from China. So the focus on manufacturing is meant to reverse these emerging trends by reinvigorating the sector to increase its production, create jobs, generate incomes, offer consumers a variety of goods and services, rake-in export earnings and promote trade (locally, regionally and internationally).

Figures from last year’s Economic Survey by the Kenya National Bureau of Statistics (KNBS) do not paint a rosy picture of sector’s performance. It shows that the manufacturing sector recorded a real growth of 3.5% in 2016 compared to a revised growth of 3.6% in 2015. The marginal growth was as a result of reduced cost of production and increased volume of output. During the same period, the Producer Price Index (PPI) increased marginally by 0.2% in 2016 which was due to the stability of prices of imported raw materials and reduced cost of electricity. The report further indicates that credit to the sector decreased by 4.6% from Sh290.9 billion in 2015 to Sh277.4 billion in 2016 cutting down funding for scaling-up operations.

Despite the above challenges, formal employment in the manufacturing sector went up marginally by 1.8% to 300, 800 persons in 2016. The Export Processing Zones (EPZ) also experienced growth in most of its performance indicators. The total capital investment of EPZ enterprises increased marginally from Sh48.1 billion in 2015 to Sh51.2 billion in 2016.

To ensure that the objective of expanding the sector’s contribution to the GDP is realized, there is need to focus on the following key result areas; acquisition of appropriate cutting-edge manufacturing skills, developing a manufacturing strategy that has the input and blessings of all the stakeholders, providing tax incentives to manufacturing companies to boost their capability to produce optimally, mapping-out the major factor costs that hinder manufacturers’ ability to produce such as electricity costs; costs of raw materials; poor infrastructure, among other factors and finally, there is need to narrow down to ways and means of bolstering existing industries that will drive the manufacturing agenda.  Such industries include textile and other light manufacturing (leather, food and beverage processing, pharmaceuticals), chemicals and petrochemicals, light electronic manufacturing and green energy production.

Additionally, the national and county government need to consider issues regarding land use for industrialists, provision of business services for manufacturers and building modern infrastructure for cross border movement of manufactured goods, establish digital connectivity and transit access channels to remote areas. On land use, there is need to come up with policies that play a critical role in expanding and sustaining manufacturing jobs in the economy. Land-use stability provides manufacturers with the security they require to re-invest in new equipment and machinery, job training and to undertake energy efficiency upgrades and other sustainable practices. It also enables firms to build relationships with neighboring communities to provide employment opportunities to the locals. Real estate speculation both drives up costs and deters investment, triggering a downward spiral of disinvestment and disengagement in the manufacturing sector.

On provision of better and reliable business services for manufacturers, there is need for the two levels of government to offer efficient manufacturing services that play a key role in growing the sector and presents an opportunity to further improve manufacturers’ competitiveness. Manufacturers should also be able to access credit to expand their operations and to capitalize on new and unique opportunities that may arise to foster growth and development.

Lastly, there is need to build a modern infrastructure that meets the needs of today’s manufacturing sector to sustain and increase the competitiveness of locally manufactured goods against cheap imports.  If manufacturers can be incentivized to produce optimally and eventually access local, regional and international markets, then the goal of expanding the sector to 20% of the GDP is within sight.