Kenyan industries fail to pull through as profits drop

Cement maker Athi River Mining was put under administration. Kenya's manufacturing industry faced a tough 2018, posting depressed growth. FILE PHOTO | NMG 

In Summary

• The sector has seen profits shrink, leaving it struggling to remain in business and leading to job cuts.
• Interest rate capping, a credit squeeze, increase in taxes and rising operational costs made the going tough for manufacturers.
• Those with operations across East Africa were further hit by non-tariff barriers, which have been the cause of protracted trade disputes among the EAC partner states.

By NJIRAINI MUCHIRA
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Despite the sense of optimism experienced at the beginning of 2018, after President Uhuru Kenyatta announced that manufacturing would be part of his Big Four Agenda, the sector has seen profits shrink, leaving it struggling to remain in business and leading to job cuts.

Indeed, as the year concluded, confidence in the sector’s potential to boost economic growth, create jobs and boost the living standards of Kenyans, in line with the agenda, waned significantly. The other three sectors are housing, healthcare and food security.

The chairman of the Kenya Association of Manufacturers, Sachen Gudka, said that the sector has over the past year has been buffeted by both economic and political factors.

“Still, though we may not be out of the woods yet, we have witnessed solid measures put in place to bolster the capacity of local industries,” said Mr Gudka.

Interest rate capping, a credit squeeze, increase in taxes, rising operational costs due to high fuel and energy prices, unfavourable government policies, an influx of imports and rising illicit trade, made the going tough for manufacturers.

Those with operations across East Africa were further hit by non-tariff barriers, which have been the cause of protracted trade disputes among the East African Community partner states.

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The manufacturing sector’s contribution to GDP has over the years stagnated at around 10 per cent and stood at nine per cent in 2017, down from 9.2 in 2016.

By putting the sector at the core of economic growth as part of the Big Four Agenda, the government hopes to drive its GDP contribution to 15 per cent by 2022.

This ambition is however proving hard to realise, with the sector’s real value added rising marginally by 0.2 per cent in 2017, compared with a growth of 2.7 per cent in 2016, according to the Economic Survey 2018.

The sector has been in decline, posting depressed growth, attributed to uncertainties relating to the 2017 general election, a rise in inflation, high production costs and competition from cheap, imported goods.

In 2018, the sector however benefited from a stable political environment, managing to recover from a contraction of 0.2 per cent in the second quarter of 2017 to expand by 3.1 per cent in the second quarter.

“The improvement in the sector was partly attributable to agro-processing activities, which benefited substantially from increased agricultural production,” said the Kenya National Bureau of Statistics in its Quarter Two report.

While in 2018 the sector continued to operate in a tough environment, the government pushed policies to spur growth.

Key among them was encouraging commercial banks to unlock credit to the sector.

Official data shows that credit to the sector dropped from $2.8 billion in 2015 to $2.7 billion in 2016, then increased to $3 billion in 2017.

The Central Bank reported a 14.9 per cent growth in credit to the sector in the 12 months to October 2018.

The government also put in place measures to reduce the cost of doing business, particularly on energy, with the introduction of the 50 per cent discount in off-peak tariffs.

A multi-agency taskforce has also been instituted to fight illicit trade. The taskforce is leading investigations, raids and arrests.