Overcoming the challenges of local production

Imports from china, Kenya’s biggest trading partner plunged by at least Sh58.64 billion in the first two months of the year as the coronavirus outbreak disrupted the supply chain. A survey by the Kenya Association of Manufacturers (KAM) shows about 82 per cent source their inputs from china, hence face a direct risk of supply chain disruption.  China alone accounts for about 21 per cent of Kenya’s imports, meaning more than Sh200 billion worth of products may need to be sourced elsewhere or substituted by local production.

We sat down with the Umesh Bhojwani, brand owner at Vision Plus Kenya, a small-scale importer of LED TVs for the local Kenyan market, to understand what it would take for the country to master the art of local production.

Imports from china, Kenya’s biggest trading partner plunged by at least Sh58.64 billion in the first two months of the year as the coronavirus outbreak disrupted the supply chain. How can the business community mitigate the crisis?

I think time has come that a lot of focus and support is seriously given to local production. According to a recent article, Kenya’s import of electronics dropped by approximately 12 per cent as compared to the same period last year. This has come about by lower demand and supply chain challenges.

As we know, many government offices are not working at full capacity and this increases the time taken to clear cargo. Therefore, in the immediate, import processes at the port should be streamlined and some leniency could be given by the government. For example, on port storage costs, KEBS certifications, maybe some intervention by CBK to try and hold the strength of our currency.

For the long term, I appreciate the initiative to reduce vat and income tax for businesses. However, other levies like the KDRL levies and increased excise duties should also be reconsidered. Importers are taking a hit, from premium prices, forex, duties, taxes, lower margins and even cash flow as credit terms has become a norm in the Kenyan market. If we could work together and reduce the above costs of importing amongst others, it could go a long way.

Estimates show that about 55 per cent of all LCD panels in the world will ship from china in 2020, meaning that the Chinese outbreak will have worldwide effects on the supply chain. How has this affected electronic traders?

That’s correct, China has mastered the art of efficient production in all fields and this leaves most brands relying on them to deliver the finished product. Especially in the market of screens/panels, from the smallest to the largest. Even with local production being promoted, there is always one or many components like a panel or mother board or speaker that still has to come from china.

Therefore, making it very difficult to finish the product and this is when supply chains of traders across the globe are almost crippled. Due to the current pandemic, businesses will have to look at alternative locations to make sure not only china is relied on for their operations/products. I believe we may see a shift in sourcing of raw materials and production to other parts of the world. 

Does Kenya have the capacity to manufacture electronic products locally? What has the challenge been?

Local production is absolutely possible and, in my opinion if done right, Kenya can become the supply hub for east Africa and even parts of central Africa that are land locked. The opportunity even extends to all COMESA states where there is duty free trade.

It may not be 100 per cent possible to locally produce electronics, as majority of raw materials/components will still have to be imported. The challenge in Kenya has always been the high cost of conducting business and lack of proper skilled labour, for which I think the local education system could take responsibility.

Our workforce needs to be educated and trained correctly so as to produce efficiently without losing out on quality. This is something has been improving over the past couple of years. Another thing to be honest, employers are always skeptical of the labour laws in Kenya, which makes them second guess on employing.

Furthermore, recent tax reforms that have been announced like increased WHT for non-residents, withdrawal of tax exemptions and capital reductions amongst others will likely make Kenya less attractive for foreign investment and production. This in some sorts contradicts the big four agenda. The end game is to make sure locally produced goods are viable to sell and make business sense.

How can Kenya strengthen the local supply chain for traders to be able to access import substitute goods?

This will have to be a 360-degree proactive approach by all stakeholders involved. Starting from the education sector, the syllabus to be more in line with what is needed by the Kenyan economy. This will give you innovation incubators that come up with ways to break the status quo and bring new ideas to the table.

A great example is how Kenyatta University is currently trying to finalize locally manufactured ventilators. This came about when there was a problem that needed fixing. Local businesses need to form strategic partnerships and leverage of each other’s strengths for mutual benefits.

All of it can be achieved through innovation, local insourcing, government support/reliefs, automation and supplier development.

The average Kenyan consumer perceives foreign goods and products to be of higher quality than locally manufactured products. Will this pose a challenge to sales for locally manufactured electronics?

This perception has been around for a very long time and to add, is a major challenge to overcome. Vision Plus is designed in Kenya and manufactured in china. When Vision Plus started to market itself as a Kenyan brand the biggest challenge was to gain trust of the Kenyan consumer. The perception that local brands don’t take care of quality had to be changed through gaining trust and making sure that what you promise is what you deliver.

Making sure the right after sales support systems are in place like warranties and customer service amongst others. I still remember when I used answer support calls at 11pm or midnight. It is things like these that made consumers appreciate and believe in the brand. It may take some time but by educating the consumer through the right marketing channels, product testimonials and initiatives such as buy Kenya build Kenya, this can be overcome.

What, in your view, are the pros and cons of embracing local manufacturing post-Covid-19, especially for the electronics industry?

In respect to the electronics industry, local manufacturing comes with some perks like slightly lower cost of import and overall product job creation for the government and society more influx of foreign exchange once exports come into play hence a bigger market to serve essentially should lead to higher margins for the manufacturers.

Goes hand in hand with foreign investments and higher yield in taxes for the government once scaled up. Local insourcing and supplier development will allow the business community to grow together.

As a Kenyan brand, has Vision Plus considered manufacturing locally?

This is something that is most certainly on the business plan. The investment is quite significant and with the current situation, it may take a little longer than expected.

It would be ideal to bring most of the production/assembly to Kenya but it will have to come in phases. Of course, we look to see what support we can get from the government as it is part of the big four agenda.