Why Kenyan manufacturers cannot compete with Chinese imports just yet

Kenyan Association of Manufacturers (KAM) chairman Rajan Shah. [Wilberforce Okwiri, Standard]

According to Shah, "this is the elephant in the room" that Kenyan policy-makers "need to address" to level the playing field.

"If local manufacturers can become globally competitive, then these so-called cheap Chinese goods will no longer be able to compete with our manufactured goods," he said.

"However, as a part of creating a level playing field, we also need to ensure that these cheap imported goods are complying to the local quality standards and have paid the due taxes and levies which are required. Only then can we as local manufacturers compete at par with imported goods."

The conundrum has once again been brought to the fore after the recent spat between the Trade Minister Moses Kuria and the proprietors of China Square, a Beijing-style store stocking cheap Chinese finished goods that had become a hit with Kenyan shoppers.

Buy out

Kuria appeared to fault the proprietors of the store for trading Chinese finished goods at the Kenyatta University-owned Unicity mall.

"I've today given an offer to Prof Paul Wainaina, the VC Kenyatta University, to buy out the lease for China Square, Unicity Mall & hand it over to the Gikomba, Nyamakima, Muthurwa and Eastleigh Traders Association. We welcome Chinese investors to Kenya as manufacturers, not traders," he said recently.

The controversy led China Square - which has been recently receiving a huge number of buyers - to announce its temporary closure on Sunday, February 26.

In a statement on Saturday, China Square told its customers that they will be closed on Sunday so as to "re-evaluate and replan our company strategy, in order to better serve our customers and meet their needs."

"We are also considering the possibility of cooperating with local traders to enhance our offerings and better integrate with the community," it further stated.

China Square was opened on January 29 and has since seen customers flocking in to buy household items, clothes, electronics and other commodities also available in the streets of Nairobi.

The spat has reignited heated debate about the worrying imbalance between countries like Kenya and the Chinese economy.

Official data shows that Kenya spent nearly Sh400 billion on imports from China in 2021.

Observers say most of what China buys from the continent are raw resources, produced by low-margin businesses that use low-skilled workers - hardly the building blocks of a modern economy. What China sells here, by contrast, are mostly finished goods.

But the issue is not unique to Kenya, even the US has struggled to control a flood of Chinese textiles.

Trade CS Moses Kuria. [Wilberforce Okwiri, Standard]

Local producers accuse China of dumping goods on Africa below cost and say African producers can't compete.

"China manages to export at prices that are frankly incredible, way below the raw material, the international raw material costs," Brian Brink, head of the Textile Federation of South Africa was quoted saying earlier.

Official statistics show that the nature of trade in manufactured goods between Kenya and China is characterized by high imports from China and very low exports from Kenya-a large proportion of Kenya's manufactured exports end up in countries with which it has a clear trade framework.

Moreover, Kenya lacks a comparative advantage for manufactured goods, while China has a high comparative advantage; therefore, Chinese exports complement Kenya's import needs, analysts say.

"Kenya should focus on a comprehensive trade policy with China, support more FDI in manufacturing, innovation, and technology, improve labor productivity and infrastructure, enhance its global value chains, and create new comparative advantages among others," says a study published last year by Kenyan scholars.

The study dubbed "Kenya-China Trade in Manufactured Goods: A Competitive or Complementary Relationship?" highlighted the gaps between the two countries in trade.

"China enjoys a comparative advantage in low-priced manufactured goods, as its manufacturing and infrastructure sectors are highly integrated into global value chains," it says.

"As a result, China is a major source of imports from Kenya, in particular rubber products, machinery, equipment and electronics. Kenya, on the other hand, lacks a comparative advantage in manufactured goods due to the weak rule of law, poor infrastructure, and barriers to production."

As a result, this hinders growth in the manufacturing sector, making it difficult for local producers to compete with Chinese manufactured goods, concludes the study.