Manufacturing can be the engine for Uhuru’s Big Four pillars need

President Uhuru Kenyatta opens the Volkswagen production line at Kenya Vehicle Manufacturers in Thika. file photo | nmg 

By JAMES KARIUKI

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Summary

• KAM chief executive Phyllis Wakiaga says expanding factory work will require collaboration of counties and negotiated long-term policies.

Kenya’s manufacturers have welcomed President Uhuru Kenyatta’s second term ‘Big Four’ agenda, saying it could be easily achieved with improvement in policy and business environment.

Kenya Association of Manufacturers chief executive Phyllis Wakiaga said the decision to pick manufacturing as one of the four growth pillars is timely as it bears the highest potential of impacting the other three core areas.

“Expanding manufacturing is the surest way to creating quality jobs and open new revenue streams for the other sectors that must invest in warehouses, vehicles and staff,” Ms Wakiaga said.

Agro-processors are, for instance, expected to contract farmers to produce raw materials, bring in transporters as well as build a distribution value chain locally and abroad.

Mr Kenyatta has four areas including food security, universal healthcare, affordable housing and manufacturing as the four pillars for economic growth that his government seeks to pursue during his final term in office.

Ms Wakiaga said Kenya needs to put its act together and have the national and county governments read from the same script on the policy front.

“Manufacturers pay multiple levies to access raw materials as well as distribute finished products. The only way to recoup this cost is to pay raw material producers less and charge consumers more,” she said, adding that the right policies should help smooth out some of the market’s challenges.

Ms Wakiaga called for re-introduction of mutual recognition agreements where licences issued by a manufacturer’s home county are accepted as proof of payment, thereby eliminating duplicity of levies.

“Moving goods from Mombasa to Kisumu, for instance, means traversing 10 counties at the risk of paying 10 levies,” she said.

KAM says it has increasingly become difficult for manufacturers to sustain such an operation and for consumers to buy finished products charged at a premium after factoring in such costs.

This, Ms Wakiaga said, reduces the competitiveness of locally-processed goods against imported goods whose manufacturer enjoys subsidies, cheap credit and government support in search for markets.

The manufacturers reckon that a no-frills bare-knuckle conversation with the Council of Governors’ committee on manufacturing and the national government should be convened to discuss fair play in formulation of policy on county levies to reverse proliferation of levies that reduce the country’s competitiveness.

Ms Wakiaga said Kenya’s huge developments across all sectors were impeded by unpredictable policies that disrupt manufacturing activities at the stroke of a pen.

“No cabinet secretary, principal secretary or regulatory agency should issue any directive that re-aligns the business environment before consulting stakeholders,” she said, adding that ad-hoc policy changes have forced many investors to hold back expansion plans and drive away incoming investors for fear of haphazard proclamations that hurt business.

Globally, investors prefer long-term policies of at least 10 years that offer a predictable environment.

KAM believes Kenya can leapfrog its economy by organising investor-search delegations from among multinationals that buy raw produce from Kenya such as tea and coffee and invite them to set camp in Kenya.

Ms Wakiaga said the firms could be encouraged to establish their operations at export processing zones where they enjoy tax incentives.

Such a plan, she said, will help create a market for locally-produced raw materials such as farm produce and minerals and use the same to manufacture products for the export market.

The journey could start with the provision of free land for local and foreign investors looking to establish or expand their operations, thereby unlocking jobs in construction, transport and manufacturing sectors.

“This would have a ripple effect in increasing demand for housing, enhancing incomes that enable workers to afford better food for their families and to pay for health insurance,” Ms Wakiaga said.

Kenya offers firms established within the Export Processing Zones (EPZ) a 10-year corporate income tax holiday and a 25 per cent corporation tax exemption.

Non-resident EPZs are allowed to repartriate profits tax-free. Local purchases of raw materials, machinery, office equipment, fuel for boilers and generators and building materials get a perpetual Value Added Tax and customs import duty exemption.

Firms are also allowed to recoup 100 per cent of their money spent on setting up operations for over 20 years.

READ: Under-funding hits Uhuru’s Big Four project

Kenya exports 97 per cent of its tea and it is estimated that local processing could, for instance, multiply the Sh129 billion earned in 2017 12-fold while processing of leather into finished products bears the potential of increasing the sector’s earnings 14 times.

Last year, Kenya exported 415 million kilos of tea earning the 600,000 small scale tea farmers Sh78 billion. The rest of the money went to multinational tea producers.

KAM reckons that a local processing unit for various tea varieties could catapult tea-producing regions into economic hubs that host tea factories as well as support other industries producing goods and services.

Ms Wakiaga said efforts should also be made to streamline economic policies of East African states including Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan and DRC Congo, arguing that none could progress in isolation.

“There is a need for policies that allow free flow of raw materials, finished goods, people and capital. Infighting among member-states under the guise of protecting local turfs only creates a leeway for foreign countries to flood local markets with their goods.”

Ms Wakiaga, however, warned that Kenya’s success in the pursuit of industrialisation will only come with strict enforcement of standards for locally-made and imported goods.

“There must be a concerted effort to wipe out fake products from our markets and Kenyans must discard the notion that foreign products are better than what is locally-made,” she said.

Ms Wakiaga said value addition offers the surest route for the Jubilee government to fulfil its 2017-2022 quest of creating 1.3 million jobs adding that Small and Medium Enterprises (SME) should be assisted to access cheap and patient credit to expand operations.