High power costs reduce Kenya’s competitive edge

Kenya risks losing its position as a favourite investment destination in the region to neighbours Uganda and Tanzania, unless urgent measures are taken to bring down the cost of doing business, a leading manufacturers lobby has warned.

The warning comes amidst reports that at least 25 industries in Kenya have scaled down their operations by up to 50 per cent due to the ongoing power rationing.

Last week, an internal survey by the Kenya Association of manufacturers on the effects of power rationing on industries revealed that industries are experiencing losses of between 12 and 36 hours of productive work on a weekly basis due to power rationing.

This may however change by end of this month if the expected El Nino rains actually come.

Besides high energy costs, Kenyan manufacturers also face a host of other challenges that are both complex and multiple, ranging from high taxation to expensive logistics and stiff regulations.

All these have resulted in a relatively high cost of doing business, rendering Kenyan industries uncompetitive in both domestic and export markets.

“Kenya is increasingly becoming unattractive compared with its counterparts in the region,” said Vimal Shah, chairman of KAM and Bidco Group chief executive.
According to Mr Shah, Kenya’s electricity cost’s are the highest in East Africa after Rwanda, at US cents 18 kilowatt per hour compared with Rwanda’s US cents 20/KWh. Tanzania and Uganda’s are relatively cheaper at US cents 9/KWh and US cents 12/KWh respectively.  

The companies that have scaled down production are Tru-Foods, Silpak, Haco, DHL Supply Chain, Oasis Ltd, Kenafric Industries, Frigoken, Value Pak Foods, Statpack Ltd, Crown Gases, Athi River Mining, London Distillers, Auto Springs and the Kenya Meat Commission among others.  

 Energy costs in the country have increased tremendously in the past few months and now constitute over 40 per cent of the total manufacturing costs, an approximately 33 per cent increase in overall costs.

Fearing further adverse effects of rationing on their operations, manufacturers have resorted to voluntary shift options, which entail shifting production normally undertaken during the day to offpeak hours in order to reduce the current pressure on the hydroelectric supply.

According to Mr Shah, Kenya’s products are finding it increasingly difficult to compete with those from other countries, especially from Asia.

For instance, while Kenyan manufacturers are paying between Ksh10 and Ksh15 per kilowatt of electricity, their competitors in China and India pay the equivalent of between Ksh2.50 and Ksh3.80 per KW. This obviously makes their products cheaper than Kenya’s.

Within the Comesa bloc, Kenya’s two major competitors are Egypt and South Africa, and in comparison, Kenya’s electricity cost four times more than Egypt.

The high costs of electricity is bound to put the brakes on Kenya’s efforts to industrialise.

And as industries find it unsustainable to operate in the country, they will either shift to cheaper countries or shift into trading, transforming the country into a net importer of consumer goods.