Higher energy cost puts Kenya on losing edge in manufacturing

The business community has expressed concern that Kenya’s competitiveness as an investment destination is being eroded by developments in other regional economies.

The Kenya Association of Manufacturers (KAM) says Tanzania, Ethiopia and Uganda are gaining the manufacturing edge over Kenya due to increased investments in electricity generation, especially hydropower, which has helped lower energy costs. KAM Chief Executive Tobias Alando told the Senate Energy Committee that conversely, Kenya’s investment in renewable energy sources such as geothermal and solar has not translated into reduced power costs.  Mr Alando told the committee chaired by Nyeri Senator Wahome Wamatinga that energy is a key enabler of the manufacturing sector, with manufacturers consuming up to 67 per cent of the electricity produced in the country.

“The manufacturing agenda by 2030 is anchored on a business environment that guarantees competitiveness in energy pricing, a stable tax regime and export-oriented manufacturing to grow its contribution to the Gross Domestic Product from the current 7.6 per cent to 20 per cent by 2030, according to the Economic Survey 2024,” he said on Thursday.

Mr Alando said Kenya’s electricity tariff cost is 70 per cent higher compared to its peers in the region, and any upward adjustments to the cost would be counterproductive to the Vision 2030 economic blueprint’s agenda.

He warned Kenya is likely to see investments shift to other destinations, leading to reduced sales instead of energy sales growth. Mr Alando noted that in the year ending June 2024, the manufacturers consumed 5, 431.74 gigawatt-hour (GWh), accounting for 51.86 per cent of the country’s total consumption, where small commercial enterprises used 1,715.54 GWh, accounting for 16.38 per cent of overall electricity consumption.

“We would like the Kenya Association of Manufacturers to elaborate to the Senate ways in which the manufacturing sector is integrating renewable energy sources like solar, wind, and geothermal and its operations,” said Mr Wamatinga.

KAM’s Joyce Njogu head of consulting and business development told the Senate watchdog manufacturers are proposing reduced regulatory caps and bureaucracies on licensing, resulting in delays to businesses, with the regulations being a facilitative requirement rather than a deterrent.

Mr Wamatinga also sought to know the specific projects or partnerships in renewable energy that KMA is involved in.

Ms Njogu said the lobby is currently promoting the greening of the manufacturing sector through audits of renewable energy technologies and energy efficiency.

Narok Senator Ledama ole Kina sought to know the legislative or policy reforms that the KAM proposes to promote cleaner, more affordable and reliable energy for the manufacturing sector. “We are proposing the operationalising of net metering regulations and development of wheeling tariffs for open market access and review of electricity tariffs to ensure cost reflectiveness and develop clear guidelines on the maximum level of commercial losses electricity utility provider can pass through to end user to avoid burdening consumers with commercial losses,” clarified Ms Njogu. 

“We are proposing the fast-tracking of the finalisation and gazettement of the draft tax procedures regulations 2024, which will provide a regulatory framework attracting investments in the industry and promotion of local content development in the sector and sourcing from local suppliers,” said Njogu.

Tana River Senator Danson Mungatana sought to know the contribution made by the manufacturing sector to Kenya’s efforts to meet its carbon emission targets. 

Ms Njogu explained the last Energy Management Awards through which industries demonstrated a heavy investment in fuel substitution, improving their energy mix.