Kenya must turnaround her fortunes in manufacturing sector to remain a giant economy in the region

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BY BENARD AYIEKO

In any economy, the manufacturing sector is part of the goods-producing industries super-sector group. Kenya has a relatively larger manufacturing sector in the EAC and exports more manufactured goods to the region than Tanzania, Uganda, Rwanda, Burundi and South Sudan – the new EAC entrant. According to a 2011 World Bank Report, the contribution of manufacturing sector to the GDP of Kenya, Tanzania, Uganda, Rwanda and Burundi stood at 11.8%, 6.8%, 7.6%, 6.2% and 8.8% respectively. Even though Kenya remains industrially developed in the EAC, it is an open secret that the sector has lately run into headwinds contributing a paltry 10.9% to her GDP in 2014. This represents 8% decline.

If the situation is not arrested, then the manufacturing sector could just be headed into a very serious recession. With dwindling fortunes in that sector, Kenya’s position as the regional giant in the production and exportation of manufactured goods could be under serious threat. The decline has been attributed to high cost of production caused by both internal and external factors.

Internally, blame has been put on the unfriendly laws and regulations, cumbersome administrative procedures, poor labour productivity, poor infrastructure, corruption, high cost of capital and input costs and disincentives to export because of delayed Value Added Tax refunds. These factors have partly contributed to the firm level inefficiencies leading to a decrease in the manufacturing sector quantum index from 6.3% in 2014 to 3.9% in 2015.

Externally, most firms in the Kenyan manufacturing sector continue to suffer heavily due to cheap imports, counterfeiting and substandard goods. What this means is that locally manufactured goods are less demanded by consumers since they are costlier than such imports.

Manufacturing is known world over to set economies on a path to economic development. It has been the strategic achievement of rich nations to create a high-quality manufacturing sector in order to develop national wealth and power. From the rise of England in the 19th century, to the rise of the U.S, Germany, Japan and the USSR in the 20th, to the newly industrializing countries like Korea, Taiwan, and now China, manufacturing has been the key to prosperity. These are the lenses that Kenya should be looking herself through.

Secondly, manufacturing is the foundation of “Regional Economic Power”. With a vibrant manufacturing sector, Kenya will cement her position as the regional economic powerhouse. Most powerful nations in their regions are those that control the bulk of the global production of manufacturing technology. That is, it isn’t simply enough to have factories and produce more goods; you have to know how to make the machinery that makes the goods. The key to power, then, is to make the “means of production” – Kenya can certainly be the “Great Power” in the region and the continent.

Thirdly, manufacturing is the most important cause of economic growth. With a double digit growth target enshrined in the Vision 2030 economic blueprint, the growth of manufacturing sector in machinery output and technological improvements will offer Kenya ample opportunity to achieve this growth – a fete that will stretch Kenya’s economic might in the region.

Fourth, since regional trade is based on goods and not services, Kenya can’t trade services for most of its goods. According to the World Trade Organization, 80% of the world trade among regions is merchandise trade — that is, only 20% of world trade is in services. In 2015, Africa was the leading destination of Kenya’s exports at Sh242 billion, with exports to EAC partner states accounting for 52.3% of the total exports to Africa. The manufacturing sector would be a great source of merchandise trade that would help boost her credentials as a regional economic powerhouse.

Fifth, services are dependent on manufactured goods. World over, services are mostly the act of using manufactured goods. An economy can’t export the experience of using something. Therefore, the health of the economy is critically dependent on the health of the manufacturing sector.

Sixth, manufacturing creates jobs. With over 70% of the youths in the region being unemployed, most jobs – directly or indirectly depend on manufacturing. Therefore, reviving the sector could provide tens of millions of new jobs as it happened in Germany, Japan and U.S.

It’s time for Kenya to wake up before it’s too late and rebuild the foundation of a strong, prosperous, middle-class economy through manufacturing. Without a robust revival strategy, we can kiss our status as a regional economic power goodbye.

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