Invest in innovation to make Kenyan goods more competitive

The ‘Buy Kenya, Build Kenya Initiative’ received fresh impetus after President Uhuru Kenyatta, in his Jamhuri Day address last year, called on Kenyans to buy more locally made products, citing the impact it has on employment.

Kenyans’ strong taste for imported products is not the result of a deficit in patriotism or a lack of local alternatives. I have travelled to several countries and you will never meet people who believe in their country more than Kenyans.

Local industry is also strong and has the capacity to meet domestic demand, despite recent headwinds such as late payments, non-tariff barriers and an increasingly complex and unpredictable tax and regulatory environment that have collectively resulted in manufacturers not operating at full capacity.

So, why don’t Kenyans buy locally made products? There are several reasons.

The first is the high cost of manufacturing, which is passed on to consumers by way of higher prices, making Kenyan goods uncompetitive in comparison to cheaper imported goods, many of which come from low cost Asian manufacturing hubs such as China and India.

To its credit, the Kenyan government has made commendable progress in improving some aspects of the business environment.

Kenya is one of most improved business destinations globally, having moved up 80 positions in the World Bank’s Ease of Doing Business over the past five years to position 56 out of 190 economies.

Despite this progress, a lot still needs to be done to make Kenyan goods more competitive. Data from the Kenya Association of Manufacturing (KAM) indicates that Kenya is at a cost disadvantage of nearly 12 per cent on most of the goods it manufactures compared to competitor countries.

Besides uncompetitive prices, there is also another major reason locally made products are not competitive compared with their imported alternatives – innovation.

The overall level of innovation in Kenyan industry still lags behind the level of innovation in competing countries.

This means that beyond price, Kenyan goods are also disadvantaged on the basis of innovation and value proposition to consumers.

Research on the impact of innovation on consumer choices has consistently shown that consumers will actually pay more without grumbling if they are confident that a product delivers superior value due to a unique innovation in the production process, packaging or even distribution, as is the case with e-commerce today.

Despite what classical economics says about the inverse relationship between price and demand, consumers can and do pay more if they see value beyond what they are paying for. The reality in the market is that prices are ultimately set by consumers through their valuation of the goods and services offered to them.

Innovation, which helps increase the value of a product in the eyes of a consumer, can therefore help Kenyan goods stay competitive, even where the price is high due to the comparatively high cost of doing business in Kenya. Innovation is the tool that Kenyan manufacturers need to outsell imported goods.

Innovation can be as simple as rebranding, changing the formulation and packaging. Rebranding doesn’t cost much, but it can have a huge impact on customer perceptions by showing them that you are evolving with them.

Create incentives

Innovation doesn’t need to be high-tech and impossibly expensive. It can be simple and precise, as long as it presents additional value to the final consumer. This philosophy is the key to success in any economic sector, not just manufacturing.

Manufacturers need to embrace innovation. It is an investment in future growth, even though it reflects as a cost on the books today.

The government also needs to create incentives for companies to invest in research and development, which is the backbone of innovation. Incentives can range from tax incentives, access to government research facilities and access to data.

Similarly, the pace of implementing reforms to improve the state of manufacturing also needs to be stepped up.

We particularly need to prioritise those reforms that will stabilise the cash flow of enterprises in Kenya, such as prompt payment and elimination of multiple levies and taxes.

The cash that will be freed up from these reforms can be invested in innovation, helping Kenyan manufacturers appeal to Kenyan consumers by offering superior value relative to imports and giving the “Buy Kenya, Build Kenya initiative” the boost it needs to be a success.

Mr Malde is the Commercial Director of Pwani Oil