Kenya needs policies that boost value-addition in manufacturing

Value-addition by the manufacturing sector grew over the five years (2015-2019) from Sh588 billion to Sh734 billion. [Courtesy]

Manufacturing is the second biggest driver of Kenya’s economy - at 10 per cent of Gross Domestic Product (GDP) after agriculture’s 30 per cent.

According to the Kenya Economic Survey 2020, value-addition by the manufacturing sector grew over the five years (2015-2019) from Sh588 billion to Sh734 billion, a 24.8 per cent increase.

Manufacturing value is evident in intermediate consumption – the goods and services utilised as inputs in the manufacturing process at Sh1.8 trillion in 2019.

In terms of job creation, formal average annual wages per person paid by private manufacturers in Kenya also grew from Sh370,925 in 2015 to Sh529,968 in 2019.

These numbers demonstrate the industrial sector’s significance to the economy beyond just the production of goods. And apart from being a large consumer of goods and services, manufacturing also supports key sectors like agriculture, the source of raw materials.     

It requires an enabling environment to effectively play its value addition role in the economy.

Industrialists cannot invest in technology, knowledge and other essential value addition inputs if the right policies and conditions do not exist.

The policies and other interventions are geared to reducing the cost of production, providing the appropriate infrastructure, as well as minimising the burden of taxes and administrative costs like permits and fees levied by the State and counties.

Recovery strategy

Realigning the sector to the pandemic environment requires an emphasis on value addition as a key recovery strategy.

By raising the net value of output (total output minus intermediate consumption), the target of 15 per cent as the sector’s contribution to GDP is attainable.  

Prioritising investment in increasing value added by industries to Kenya’s economy will not only spur the sector’s recovery but also create additional jobs and promote innovation.

How? By providing incentives for manufacturers to invest in scaling up added value components in the production process.

Promoting technological development through research and innovation is key to generating more value out of factories.

Tax allowances on capital expenditure, waiver of fees and provision of essential infrastructures like roads, water and sanitation systems would attract direct investments in innovative processing technology. 

But no investor wants to put their money where the high cost of production cancels out these benefits. A sustainable competitive industry requires affordable, reliable energy.

The cost of power at an average of Sh17 per kilowatt-hour in Kenya is not competitive by global standards. In China, the cost is equivalent to Sh3, in India Sh9 and Sh11 in Egypt, making their goods cheaper.

In creating a conducive environment, the State should work with sector players to craft the right policy execution strategies such as cutting power costs and allowing manufacturers to pass on the benefits to consumers.

 -The writer is the Commercial Director, Pwani Oil Products