State’s appetite for imports starves industries of growth

Kenya’s manufacturing sector is losing billions of shillings in the much-needed capital to grow the country’s industries, as the Government opts to outsource major projects to developed nations.

The State’s move to import more than Sh500 billion worth of manufacturing value from countries such as China in the past five years is further exporting high-value jobs at a time when the country is grappling with record high unemployment.

Last month, Transport and Infrastructure Cabinet Secretary James Macharia revealed that the Government had opted to import 64 high-capacity buses for the proposed Bus Rapid Transit (BRT) system against protests by local manufacturers.

CS Macharia stated that the Government opted to order the buses from South Africa after local manufacturers failed to meet the standards stipulated on the tender.

This is despite the Tanzanian government last year signing a deal to have Kenyan vehicle manufacturer Labh Singh Harnam Singh manufacture new units for the country’s BRT system. The project to create a BRT system is one of the latest high-value projects that local manufacturers are losing out to other economies despite the proven capacity to execute the same.

“Local vehicle assemblers have a production capacity of 34,000 units per annum, which makes them capable of producing the required number of high occupancy buses for the project,” said the Kenya Association of Manufacturers in a letter criticising the Government’s move.

KAM says local assemblers will further ensure faster delivery of the project compared to outsourcing to foreign manufacturers at the same time deliver products optimised to the local conditions in the country.

“A well-established aftersales network for parts, maintenance, service, and repairs for local buses already exists to ensure the success of the BRT system,” explained KAM in part.

“We also need to consider that apprentices locally will be trained under this project in order to sustain an up-to-date, functional system.”

Manufacturing the buses locally would also ensure cheaper units since bus complete knockdown kits attract zero per cent import duty and excise duty, unlike the imported buses that would attract 25 per cent import duty and 30 per cent excise duty. Still, the Government has gone ahead and imported the buses expected in the country in several days’ time. It is noteworthy that most tenders for key projects such as road and rail construction go to foreign firms.

This is in stark contrast to President Uhuru Kenyatta’s big four agenda on manufacturing that aims to have the sector’s contribution to the GDP double from eight per cent to 15 per cent in the next three years.

Data from the 2018 Economic Survey indicates Kenya’s balance of trade shot up from Sh853 billion in 2016 to Sh1.1 trillion, a 32 per cent increase.

The continued trend on relying on imports means the Government’s goal of growing manufacturing sector’s output from Sh2.2 trillion to Sh5 trillion in 36 months will remain a mirage.

This is not the first time the State is outsourcing manufacturing value and jobs to other economies and denying local industries the impetus to expand and create jobs.

In 2013, the then Cabinet Secretary for Trade Adan Mohamed said the Government would prioritise a revival of Kenya Railway’s Numerical Machining Complex (NMC).

The mega steel mill shut down shortly after rolling out prototypes for the failed Nyayo Pioneer vehicle construction project and has remained defunct for several decades. This is despite boasting cutting edge equipment for manufacturing several grades of industrial steel.

“This is the organisation that is at the heart of our industrialisation ambition and we need to make sure that we provide the support necessary to see it produce equipment and spare parts not only for the country but also for export,” said Mr Mohamed as he took journalists on a tour of the facility in 2013.

“The machines that are in this facility are world class and what we need to do is look at how to leverage on them and produce material for the motor vehicle industry or farmers at cheaper prices than what we import,” he said.

However, the NMC remains a white elephant with the country opting to import almost 70 per cent of the 1.2 million tonnes of industrial steel demanded locally each year.

In fact, the NMC lost out on the opportunity to supply the standard gauge railway with industrial steel, and in the course of the rail’s construction, imports from China have shot up from Sh167 billion per year in 2012 to Sh337 billion recorded in 2017  - largely composed of construction material and equipment.

The Government’s digital learning programme was similarly hailed as an opportunity to boost local manufacturing. The State had even directed local universities to form consortia with multinational tech firms as a condition for bidding for the Sh17 billion project. Moi University and the Jomo Kenyatta University of Science and Technology (JKUAT) took up the task of producing, supplying and installing digital learning hardware and software to all public primary schools working with private sector partners. JKUAT has assembled laptop and tablet models under the Taifa brand, working with Intel and Microsoft for hardware and technical support.

The university has set up an assembly lab in its Juja campus composed of computer assembly technicians, quality assurance and sales workers all staffed by current or former students.

However, the final cost of the finished units has become more expensive than imports.

A move by JKUAT to compel students to purchase the Sh41,000 Taifa laptops in 2016 raised a storm, with parents and students opting for cheaper alternatives.