Kenya in $235m manufacturing plan to boost key sectors, revive factories

Saturday February 22 2014

Kenya has approved an ambitious industrialisation roadmap that seeks to boost light manufacturing while reviving failed factories at an initial cost of Ksh20 billion ($235.3 million). Photo/FILE

Kenya has approved an ambitious industrialisation roadmap that seeks to boost light manufacturing while reviving failed factories at an initial cost of Ksh20 billion ($235.3 million).

The blueprint — tabled before Cabinet for approval two weeks ago — aims to take the country to middle-income status in the next nine years through targeted investments in the energy and transport sectors as well as agriculture sub-sectors — textiles, leather, agro-processing, beef and fishing — where Kenya has a competitive edge.

The government has also earmarked Ksh9.5 billion ($11.7 million) to finance existing factories, especially in the paper, sugar, coconut, coffee and pyrethrum subsectors that are either facing collapse or are already closed.

The roadmap aims to grow the country’s GDP by between $4 billion and $6 billion per year and increase the country’s manufacturing base from 11 per cent of the GDP to 20 per cent in the next decade, driven by a projected rise in exports.

Increased exports would help the country effectively deal with the fiscal and monetary challenges it has faced for the past 10 years as it will reduce the current reliance on domestic consumption as a major driver of growth.

The World Bank, in its latest assessment of the country’s economy, said Kenya’s bid to attain middle-income status depends on its ability to grow its exports.


READ: Kenya’s economy is growing, but middle income status way off

The Ministry of Industrialisation is requesting Ksh27.9 billion ($324.4 million) to enable it to begin implementation of the grand plan in the next financial year. The allocation, if granted, will be four times the capitation of Ksh7.4 billion ($87 million) disbursed to the ministry in the current financial year.

The roadmap plans to increase the competitiveness of critical sectors such as tea, flowers, coffee and horticulture, which contribute nearly 50 per cent of all exports. In 2012, for example, tea and coffee contributed 26 per cent of the total exports; flowers 15 per cent and vegetables six per cent.

Some of the interventions to be used to improve the critical sectors are: Identifying and removing obstacles to growth — whether they be financial, logistical, or regulatory — and focusing on sector specific growth strategies. The roadmap also plans to grow the textile, leather, agro-processing, beef and fishing industries.

“The economy needs structural reforms to improve the business environment and increase foreign direct investment flows to Kenya,” said John Randa, the World Bank’s country economist for Kenya. “Such reforms will include tax and expenditure measures, which will see an increase in savings and investments in manufacturing exports.”

In the textile industry, for example, 90 per cent of land for cotton is unused, while the leather industry is yet to satisfy local demand. Data shows that in the cotton industry, the national lint demand stands at 111,000 metric tonnes (MT) while local production is at 11,000MT, serving only 10 per cent of the demand. Ginneries have been closed due to lack of raw materials as most Kenyans buy cheap second-hand clothes.

Kenya plans to increase duty on new and used textiles in the next 24 months to cushion the local cotton industry. This should also provide a direct market for farmers, encouraging them to take up cotton growing.

The government plans to invest Ksh9.5 billion ($11.7 million) in six agricultural sub-sectors. The sugar industry requires the largest investment of Ksh5 billion ($58.8 million). The sugar industry has decried inflow of sugar from other countries, which creates a surplus.

Mumias Sugar Company has more than 11,000 tonnes of white sugar in its stores, according to Peter Kebati, the company’s managing director.

ALSO READ: Government gives $5.6m loan to Mumias

The coconut and cashewnut industry will receive Ksh500 million ($5.8 million) while the pyrethrum, livestock and coffee sectors require Ksh1 billion ($11.7 million) each.

To reduce the cost of doing business in the country, the government plans to reduce the number of procedures required to start a business from the current 10 to three days.

Manufacturers have frequently cited high energy costs, insecurity, expensive trade logistics and difficulty in accessing external markets as the top challenges that have restricted the sector’s growth.

“The tax rate is not only too high — at 45 to 50 per cent of profit — but the real burden is that firms have to pay 40 different kinds of levies at different places,” said KAM chief executive Betty Maina.

The Ministry of Industrialisation said the country hopes to ride on growing opportunities in East Africa, which are expected to increase with the planned $100 billion infrastructure projects for the next five years.

Among the infrastructure projects are the Tanga Port; standard gauge railway and the Lamu Port-South Sudan-Ethiopia Transport corridor.

READ: EAC sets its calendar for 2014 projects, policies

“If the government could help sort out the demand side, the roadmap should be implementable in the medium term,” said Kenneth Kaniu, chief investment officer with Stanlib Kenya.

By Jeff Otieno and Scola Kamau