Industrialists put on hold growth plans for the year

Treasury Cabinet Secretary Henry Rotich and the CEO of Kenya Association of Manufacturers, Ms Betty Maina, at a past function. FILE 

By George Omondi, omondi@ke.nationmedia.com

In Summary

• The first quarterly investment index computed by the Kenya Association of Manufacturers (KAM) indicates that majority of industry investors are generally negative about business prospects this year.
• Rising cost of production, crime and sluggish external market development top the list of industrialists’ concerns.
• Official data indicates that the contribution of manufacturing to national wealth declined from 10.8 per cent in 2008 to 9.2 per cent in 2012.

Government faces an uphill task in its campaign to create more jobs in manufacturing as investors put on hold expansion.

The first quarterly investment index computed by the Kenya Association of Manufacturers (KAM) indicates that majority of industry investors are generally negative about business prospects this year.

“The business executives in the industry are less than optimistic about the general business situation in Kenya and this implies they will less likely want to expand or invest more,” said KAM’s chief executive Betty Maina.

The index released last week puts the industry’s optimism at 49.5 per cent, with 68 per cent of the respondents anticipating the investment climate to either remain the same or worsen.

Rising cost of production, crime and sluggish external market development top the list of industrialists’ concerns.

The report dampens hopes by the government that the labour-intensive sector will increase its contribution to wealth and job creation by attracting large foreign investors, restructuring industries that use local materials and expanding external markets.

READ: Government in fresh push to support manufacturing

A stunning 90 per cent of the manufacturers interviewed feel their orders have either remained stagnant or dropped compared to 68 per cent in the previous period.
About eight in ten of the respondents also expect staffing levels to either remain flat or drop in the next three months.

Official data indicates that the contribution of manufacturing to national wealth declined from 10.8 per cent in 2008 to 9.2 per cent in 2012. The sector’s ability to generate jobs also dropped, with only 6,244 new jobs being created in 2012, bringing the total number of formal jobs in the sector at the end of the period to 277,900.

Manufacturing registered modest growth of 4.3 per cent in the first and second quarters of 2013 and 4.6 per cent growth in the third quarter, data from the Kenya National Bureau of Statistics shows.

The industrialists have repeated calls for the government to address high energy costs, insecurity, expensive trade logistics and external markets as top priorities for 2014.

They have also called for a stable policy environment, creation of land banks for investment, addressing high taxation, bridging skills gap, fighting counterfeits and taming cost of devolution as priority actions.

“We have done well in developing services but if the job-creating manufacturing sector does not fire up the growth engine, we’ll not have much to show for our development,” said KAM chairman Polycarp Igathe.

Industrialists estimate that taxes and other levies take up between 45 and 50 per cent of their profit and expect the VAT Act 2013, which pushes up prices of more than 200 previously zero-rated or exempt goods, to exert pressure on their businesses.

On average, 69 per cent of the manufacturers who took part in the KAM survey expect buyers to continue demanding same or lower prices for their products in the next three months even as the new law pushes prices up.