Before assuming office in 2022, the Kenya Kwanza coalition promised to implement reforms that would enhance the manufacturing sector’s contribution to GDP from 7.6 to 15 percent by 2027.
Two years into power, it is very discouraging to see foreign real estate developers being allowed to import building materials that can be produced and sourced locally, such as paint products. Already, local manufacturers are grappling with several challenges including the high cost of energy, low mechanisation, high taxes and poor access to markets that are stifling their competitiveness.
According to the World Bank, Kenya’s manufacturing companies contribute the least to GDP in East Africa, followed by Tanzania (8 percent), Rwanda (9.0 percent), and Uganda (16 percent).
If we are to become more competitive in the region, we need to start by seriously implementing policies that will prevent importation of goods which can be sourced locally. Incentives such as exemptions and rebates, used commonly in advanced economies such as China, could similarly be used here to boost the competitiveness of local manufacturers.
When a manufacturer is given tax incentives, they are able to pass on the cost benefit to the consumer, which creates room for more money to circulate in the economy. It also leaves them with enough revenue to invest in new technologies such as automation and artificial intelligence, which can be leveraged to increase production capacity.
Reducing the red tape involved in pursuing these incentives could encourage more investment into the sector. We also need to do away with the repetitive taxes affecting the sector and implement a more predictable taxation framework, to encourage local production of goods.
Over the last two decades, contrary to the National Tax Policy, which stipulates that a review of taxes should be done after five years, Kenya’s tax laws have been amended every financial year.
We also need to start seriously investing in local value addition, to avoid exporting raw materials, only for us to import finished goods at higher prices. As net importers, the country is spending a lot of money on importing products which can be manufactured locally, sold locally and the remainder exported.
Titanium, for instance, which is a component used in many products including paints, is mined in large quantities in Kwale, but what are we doing with that raw titanium?
Reducing reliance on imports could also help solve challenges the value chain has been grappling with such as the fluctuation of the Kenyan shilling against the US dollar.
When the dollar hit the Sh160 exchange rate, manufacturers had a very difficult time balancing between selling their products at competitive rates and maintaining a profit.
We also need to start paying suppliers promptly for goods delivered; to avoid depriving particularly the small and mid-sized firms of money they need to sustain operations.
While retailers pay in advance before importing goods from foreign manufacturers, they delay payment for several months when obtaining the same goods from local manufacturers.
Pending bills for goods supplied to national and county governments has also been a challenge particularly for businesses owned by women, youth and persons with disabilities.
The African Continental Free Trade Area (AfCFTA) and the integration of Ecowas, SADC and Comesa, creates a Sh340 trillion market which connects over 1.3 billion people.
Expanding export market access through the establishment of regional and international trade logistics centers, could also boost competitiveness of local manufacturers.
This will not only enhance the sector’s contribution to GDP, it will also increase manufacturing-based employment from 456,000 currently to about 2.3 million in 2032.
The writer is Managing Director, United Paints Limited
