Manufacturers map exit routes as Kenya attractiveness wanes

By Standard reporter and Reuters

Manufacturers may move their operations to other countries because of strains from high-energy costs, rising inflation, weakening shilling and political uncertainty, the head of an industry group said on Wednesday.

"A lot of multinationals are consolidating their production in cheap markets. Many have considered relocating production to Egypt," Betty Maina, chief executive officer of the Kenya Association of Manufacturers (KAM) said in an interview.

She said South Africa and Egypt were the countries most likely to be considered as new locations.

Maina said battery manufacturer Eveready East Africa is seriously considering pulling the plug on its business in Kenya, though it would still maintain a commercial presence there.

Kenya heavily depends on hydropower, which has been affected by spells of drought over the years, is beset by regular power outages, and has to rely on costly diesel-fired electricity, raising energy costs.

"We are more expensive in terms of power than countries like South Africa and Egypt," Maina said.

"We use a lot of thermal power and periodic emergency diesel-powered generators. Investment in renewable energy will reduce some of our infrastructure pain."

Higher oil prices have added further financial pressure on industry, mainly due to political unrest in North Africa. Moreover, the weaker shilling had made the purchase of some imported inputs even more costly.

The shilling hit an all-time low of Sh87.15 last Wednesday.

"A weak shilling is a two-edged sword for manufacturers. It’s definitely better for net exporters such as tea, but they are also hurt by increases in labour costs and other production costs," she said.

Soaring inflation

She also cited the soaring inflation, saying it was worsening the cost of doing business, and wages were on the rise.

In annual terms, inflation rose for the sixth month in a row to 12.05 per cent year-on-year in April from 9.19 per cent in March, raising input costs for manufacturers.

Kenya’s main union, Cotu has said it could call a strike this week unless the Government raises workers’ wages beyond a 12.5 per cent increase in the minimum wage announced early this month. "The (manufacturing) sector has grown by about 5 per cent last year. But the inflation of the last two quarters has been hurtful to manufacturers," said Maina.

She also warned that political uncertainty was a key concern for manufacturers, who are jittery about next year’s polls, following the violence after 2007/08 polls.

The coalition Government was formed to end the fighting, but has been dogged by internal power wrangles. "The coalition has been a bit dysfunctional and unable to get decisions in time due to suspicion. The only thing we are looking for in the election is clarity of leadership," she said.

"If we could have a concerted effort with the government, I expect that industry could grow its contribution to GDP (gross domestic product) from 18 per cent to about 25-30 per cent."