The World Bank has warned of large-scale deindustrialisation or decline of an industry that could result in the loss of millions of jobs in the country.
The lender has listed Kenya among "clear-cut de-industrialisers" or countries with declining manufacturing shares in total employment.
"Five countries, including the three largest economies on the subcontinent (South Africa, Nigeria, and Kenya), have displayed strong contractions in the industrial sector," says the World Bank in a new report.
"Whether Sub-Saharan Africa is de-industrialising or not remains an unsettled question, due to different data sources with varying years of coverage."
The assessment comes at a time when Kenyan manufacturers are warning they will be forced to reduce or halt production and shift investments to other parts of the world to reduce costs amid soaring energy prices and new taxes.
The manufacturers say the prevailing high cost of production is edging them out of business.
Any shutdowns of factories would deal a blow to one of the main priority sectors in President William Ruto administration's first term.
The high cost of production and inputs, they say, remains a thorn in the side of firms, forcing them to lay off more people this year than they did last year.
The Kenya Association of Manufacturers (KAM) recently asked Kenyans to brace for tough times as a result of the new taxes and cost of fuel.
"Pump prices have reached historically high levels of over Sh200 per litre. This will increase the cost of production for manufacturers, resulting in more pain for consumers who are already struggling to make ends meet. This is because, the price of fuel cascades across the value chain - production, distribution, and even retail," said KAM.
The manufacturers advised the government to lower taxes if the mwananchi is going to find a way out of the economic mire. "We urge the government to consider suspension of some of the taxes and levies on fuel as an alternative mechanism to shield the country from the high cost of fuel and boost the country's global competitiveness," said the manufacturers.
The country's manufacturing sector posted a performance that was below 10 per cent in 2022, despite being the leading industry providing wage employment in the private sector according to official statistics.
Manufacturing contribution
Its contribution has averaged 11 per cent in the past decade, signalling a stagnation of the sector.
The sector had a share of the Gross Domestic Product (GDP) of 7.8 per cent in 2022, data by the Kenya National Bureau of Statistics (KNBS).
The value of output increased by 17.6 per cent to Sh2.7 trillion last year.
Manufacturing took in 330,000 employees in the private sector in 2022, up from 314,000 in 2021, and 23,000 in the public sector from 23,300 in 2021, KNBS data shows.
Total wage payments in the sector hit Sh203.6 billion, up from Sh178.8 billion in 2021 and had 3.2 million informal workers, only second to wholesale and retail trade, and hotels, which had 9.3 million informal workers.
When factories and industries downsize or shut down it affects workers and their communities.
"Deindustrialisation undermines the social fabric of communities, states and the nation.
The social costs of deindustrialization include the loss of jobs, homes and health care; reductions in the tax base, which in turn lead to cuts in necessary public services like police and fire protection; increases in crime both immediately and long-term; decaying local landscapes; increases in suicide, drug and alcohol abuse, family violence and depression; declines in nonprofits and cultural resources; and loss of faith in institutions such as government, business, unions, churches and traditional political organisations," says researchers John Russo and Sherry Lee Linkon of Youngstown State University in the United States.
"Even when workers find new jobs or when communities succeed in bringing in new employers, these new jobs often pay less, offer fewer benefits, are less likely to provide union protections and, in many cases, are temporary, contingent or part-time.
"Finally, widespread job loss, especially in communities that rely on just one or two industries, undermines the community's identity and sense of competence. Deindustrialised communities too often become sites of persistent struggle, creating a cycle of failure from which it is difficult to escape."
