East African manufacturers hit by cheap imports

A closed gate at Eveready East Africa Limited in Nakuru, Kenya, on September 29, 2014. PHOTO | FILE | NMG 

By NJIRAINI MUCHIRA

In Summary

• Regional governments determined to promote growth of the manufacturing sector with the establishment of the Common Market, infrastructure investment and other initiatives.
• Companies will be required to use a specified minimum amount of local content from the EAC region in terms of labour, goods and services in their production.
• Manufacturers are calling for tough measures to stop the flooding of the EAC market with cheap and substandard products, particularly from China.

Regional industries are struggling to remain afloat amid an onslaught from imports of finished goods. 

The manufacturing sector growth has remained depressed at an average of 4.7 per cent annually in recent years, and its contribution to GDP has continued to shrink to less than 10 per cent in the East African Community countries, save for Tanzania.

Industrialists attribute this to the region’s exportation of raw materials and importation of finished goods, a trend that is suffocating local companies. Many have scaled down their operations and others have closed shop.

About 70 per cent of the leather produced in the region is exported as raw, wet blue and crust, while tanneries continue to operate at less than 40 per cent of capacity due to lack of a reliable supply of raw materials.

In the pharmaceutical industry, East African manufacturers account for only 30 per cent of the market share, with imports commanding 70 per cent.

Scaled down business

Over the past five years, a number of regional companies — Eveready East Africa, Sameer, Kuguru Foods — have shut down their operations.

Although the region has identified strategic industries such as chemicals, plastics and paints, automotive, agro-food, pharmaceuticals and cosmetics, cotton, textile and apparel and leather and footwear as key to the growth of manufacturing, regional companies account for only about 20 per cent of the products on the market.

“We are importing stuff we can produce,” said Ali Mufuruki, Infotech Investment Group chairman and chief executive officer. “We need to get our act together, otherwise we will not succeed in pushing a manufacturing-led industrialisation agenda.”

READ: Layoff fears as East African economies slow down

In the EAC Industrialisation Policy, the region aspires to create a vibrant and competitive manufacturing sector whose contribution to GDP should rise to 25 per cent by 2032.

Under the policy, the region aims to diversify its manufacturing base, improve research and development capacity, develop a strong small and medium enterprises manufacturing sector and boost exports of manufactured goods.

“To achieve these targets, the EAC must focus on full implementation of the Common Market Protocol as well as on value addition for export products,” said Rwandan Prime Minister Anastase Makuza at the 2nd East African Manufacturing Business Summit in Kigali.

He said that the regional governments are determined to promote growth of the manufacturing sector with the establishment of the Common Market,  the Customs Union, investment in infrastructure, integration of telecommunications and other initiatives.

But industry stakeholders say the majority of industries are feeling the pressure of operating in an environment characterised by imports, lack of uniformity in tax regimes, high costs of doing business, particularly in terms of power and transport, a credit squeeze and unfavourable regulations.

Restriction

While the region offers a huge market of 160 million people, regional industries encounter bottlenecks in accessing the wider EAC market because of protectionism. Between 2006 and 2013, total intra-EAC trade increased from $1.5 billion to $5.8 billion, with exports increasing from $1.2 billion to $3.4 billion, while imports increased from $0.3 billion to $1.4 billion.

But in the past three years, intra-regional trade has declined by an average of 10 per cent, to $5 billion. 

“Several industries operate below capacity due to the high cost of doing business coupled with several impediments to access to the wider regional market,” said Lilian Awinja, East African Business Council executive director.

READ: Industrialists fear return of protectionism in East Africa

Reprieve

To save the dwindling fortunes of the manufacturing sector, businesses want regional governments to make key interventions, among them formulating a local content policy that will boost domestic value-addition. Companies will be required to use a specified minimum amount of local content from the EAC region in terms of labour, goods and services in their production.

The policy will also guide member states in local sourcing of goods and services at the national level as well as promoting local goods and services. The target is to increase local content from the current 8 per cent to at least 40 per cent.

“The policy should clearly define ‘local’ in a regional context to ensure that preferential treatment accorded to nationals of a country is extended to all suppliers within the region,” said EAC Secretary-General Liberat Mfumukeko.

Manufacturers are also calling for tough measures to stop the flooding of the EAC market with cheap and substandard products, particularly from China; a reduction in the cost of doing business; and a uniform application of the Common External Tariff.