Cushion local firms from import shocks

NAIROBI: That many foreign manufacturing companies are closing shop in Kenya is no longer news. The disturbing issues are; will we ever absorb the shock of this exodus?

Are there any deliberate efforts towards filling the gaps created by their departure? Will these companies relocate elsewhere and then export to Kenya?

The absence of a conducive manufacturing environment continues to draw back the manufacturing sector. Something urgent must be done to reverse the situation. The dream of Kenya as an exporter of manufactured goods will remain a mirage because it seems we have embraced import trade and service industry.

No country has attained a high standard of living on the basis of services alone. Countries that have escaped poverty have had to put a lot of workers through factory gates.

There is a traditional path where an economy transitions from an agricultural one to an industrial one and then to a service economy.

Cadbury, Eveready and a few other foreign-owned manufacturing companies have shut down their plants and will likely lay off hundreds of their workers over high costs of production and constant power outages, which is the real bane of this sector.

When a single factory closes down, it creates a vortex that has far-reaching consequences. Economists estimate that every manufacturing job creates approximately 15 jobs outside the factory.

You close a manufacturing plant, and a supply chain of producers disappears with it. Dozens of companies supplying the factory with packaging, office equipment, telecommunication services, energy and water utilities, marketing and sales support, building and equipment maintenance services and security service providers all suffer.

The burden then spreads to local restaurants, schools, shopping outlets, the mama mbogas and then to the tax base that supports public services.

So when we hear of some 200 jobs being lost because of some factory closing shop, we should know that this translates to over 3,000 jobs lost in the economy from the closure of that single factory.

Now imagine the multiplier effect on the economy when many factories close shop and relocate to elsewhere on the continent.

The only long-term solution to ensure manufacturing plays a big role in economic growth is to encourage and patronise domestic manufacturing companies.

We must discourage imports so as to promote and then protect our local industries. Every country in the world provides better opportunity for local manufacturing compared to imports.

However, in our case, the business model is such that it is often easier and cheaper to import goods than to manufacture them locally.

This is the biggest impediment for the growth of our manufacturing industry.

Kenya is a consumption-driven economy and manufacturing for domestic consumption has to be encouraged and facilitated with the twin objective of creating jobs and fuelling economic growth.

Large-scale manufacturing for domestic consumption would make us more competitive and provide opportunities for exports.

A thriving and competitive manufacturing industry needs an excellent infrastructure to enable it to be competitive on cost, quality and supply chain — the three important parameters that determine the success of this industry.

The Government has to play an active role in facilitating the growth of the manufacturing sector by incentivising mega projects for the sheer magnitude of their impact across sectors.

It must award tenders like the laptop ones to local industrialists and offer them concessions as several long-term benefits accrue with these kind of mega projects.

The capital of local industrialists, that would otherwise lie idle or fly elsewhere, gains movement into the domestic economy.

Due to this, several commercial opportunities emerge.

One mega manufacturing project, for example, attracts dozens of vendors, ancillary units, advisory and consulting companies, several types of hospitality units etc.

This would also boost job creation. We already are experiencing 'jobless growth' given the capital-intensive nature of growth.

Our economic planners must dream of us becoming a manufacturing hub for the region. We should aim to raise the sector's GDP contribution from the current 11 per cent or so reported under the rebased numbers to at least 20 per cent.

Manufacturing growth would be ideal given our population size and that of region where our economy is dominant.

In fact, it is confounding that Kenya has yet to develop a regionally competitive manufacturing sector given the size of our economy, our strategic location and human capacity.

We need to create a manufacturing-friendly ecosystem through policy changes, significant improvements in power, ports and people issues coupled with a tariff structure that promotes and incentivise domestic entrepreneurs and industrialists to engage in manufacturing.

For us to become an industrialised middle-income nation by 2030, we must witness a contribution from this sector in excess of 20 per cent to GDP growth.

Multinational companies that come in when things are rosy and close shop during difficult times will not take us there.