President William Ruto Pledges On Manufacturing

• Promises Made - Kenya President
• 2 Years, 9 Months ago
• 327

President William Ruto Pledges On Manufacturing

Our manufacturing sector is headed in the wrong direction. At a time when we should be industrialising, the manufacturing share of the economy is declining. It has fallen from 9.3 per cent to 7.6 per cent in five years (2016-2020). Paradoxically, manufacturing has borne the brunt of the infrastructure investment drive that is meant to spur industrialisation in crowding out from the credit market by government, and lately, by the external debt service pressure on foreign exchange that has seen the government resort to rationing foreign exchange for the first time since the market was liberalised in 1993.

Kenya Kwanza is committed to help our manufacturers weather this storm. Our economic turn-around strategy outlined in this manifesto is meant to put the challenges behind us as quickly as possible. That said, we need to have an honest conversation about our manufacturing industry. As highlighted earlier on in this manifesto, it is inordinately capital intensive and falls short in job creation.

This is a reflection of both history, that is, legacy of import substitution industrialisation policies of the 1960s and 1970s as well as geography, namely, landlocked hinterland countries that have provided a captive market for capital intensive manufactured products based on imported raw materials. Kenya Kwanza is confident that transformation of our manufacturing, through bottom up, is a win for the industry, for the people and for the government.

The value chain approach that we have adopted enables us to analyse our economy from a competitiveness angle and to address the bottlenecks that impede the growth of our manufacturing in a deliberate manner. The value chains highlighted below are examples of this approach and are, by no means, the only ones.

Other value chains elsewhere in this manifesto include edible oil processing, dairy, electric motocycle/vehicle and plastic waste. Leather. Kenya has a big potential to develop its leather sector. Currently it is a Sh15 billion industry creating 17,000 jobs (7,000 formal, 10,000 informal), while it is potentially a Sh120 billion industry that can create 100,000 jobs. But the key challenges are low recovery and poor quality of hides and skins, and lack of skills.

Hides recovery and quality improvement can be addressed through the provision of feedlot. We can leverage on public procurement to build capacity. There is a potential market in uniformed services and schools. Therefore, Kenya Kwanza commits to set up leather industry clusters in Athi River, Narok, Isiolo and Wajir and secure linkages with and technical support from overseas markets.

Building products.

They are already one of Kenya’s leading manufactured exports to neighbouring countries (mabati, building steel, etc). There is potential to leverage on housing programmes to scale up and broaden the range of products. Establishing standards will enable Jua Kali to produce mass fittings such as, windows and doors.

Pharmaceuticals and medical supplies

Pharmaceuticals and consumable medical supplies account for an estimated 20 per cent of total health expenditures currently at Sh550 billion, which translates to a domestic market worth Sh110 billion. Pharmaceutical imports in 2020 were at Sh76 billion (70 per cent of the Sh110 billion estimated market), meaning that when other imported supplies are factored in, domestic production is less than 20 per cent.

Domestic pharmaceutical manufacturers have the capacity to manufacture bigger share competitively, but are hampered by high cost of doing business and a punitive tax regime (to the extent of shifting manufacturing to neighbouring EAC countries and exporting to Kenya).

Kenya Kwanza Commitment

• Work with the pharmaceutical industry to address the tax regime and cost of doing business;

• Leverage on UHC to identify and scale up manufacturing of essential supplies we can do competitively;

• Leverage on our human per capita to work towards a regional pharmaceutical manufacturing hub.

Garments and textiles

This is a huge entry industry for export-led industrialisation that has propelled South East Asia. We have pursued this strategy since the early 1990s, with limited success. Although garment exports are now our third largest component at Sh60 billion and employing 50,000 people, it pales in significance compared to Bangladesh’s Sh4.2 trillion exports and employing 4 million people, and accounting for over 90 per cent of exports. Notably, the Bangladeshi industry is less than a decade older than ours.

The difference is the cost of labour. Shop floor wage in Bangladesh is $80 (Sh9600 a month), while ours is more than double, even though productivity is the same output per worker at $10,000 (Sh1.2 million) a year. This is partly because of the comparative advantage. Bangladesh is labour rich/resource poor, with a population density of 1,265 people per sq. km, 13 times that of Kenya (94 people/sq.km). Bangladesh also has high agricultural productivity which makes food cheap and, in effect, low cost of living, hence Bangladeshi workers spend much less on food than in Kenya.

This applies to South Asia generally, as well as the Asian Tigers in the 1960s and 1970s. But this is not the only model. Turkey with a minimum wage of $500 (Sh60,000) before currency collapse, is also globally competitive with exports of $12 billion a year. The difference is that the Bangladeshi industry serves mass market generic garments, while Turkey specialises in the fashion industry. Kenya is stuck between the two: Wages are too high for the mass market, and industry is not sophisticated enough for the fashion market.

The original terms of African Growth and Opportunity Act (AGOA) required Kenya to integrate the garment export industry backwards, that is, to use locally manufactured textiles made with locally grown cotton. To date, Kenya has been unable to meet its quota. The industry is still importing over 90 per cent of the raw materials from Asia. Since raw material, primarily fabric and yarn, is two-thirds of cost/value, current export level translates to a $300 million (Sh300 billion) market. If we are to meet this market, simplistic interventions such as banning mitumba (second-hand clothes) will not solve the problem.

We must be able to produce and convert cotton into fabric competitively. Much hope is pegged on BT cotton. Pilot projects over the last two years show good results with irrigation, but high vulnerability to drought. The Kenya Kwanza government will work with the apparel export industry to develop a viable cotton raw material supply chain.

SOURCE: Citizen Digital

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