How do we develop a competitive manufacturing sector?

Kenya needs to be deliberate about creating an environment that genuinely encourages investments in competitive manufacturing.

This is can only be made possible through a commitment to actualizing factors and policies that make it possible for small industries to grow, and existing medium and large companies to expand operations.

The first critical factor is to shut down rent-seeking practices and corruption.

These have been huge obstacles to innovation, expansion and other types of investments. Even as we talk of the risk of ‘falling behind’ our neighbours, we must consider that the reason why investors prefer to invest in other countries is because they exhibit minimal rent-seeking practices.

Long-standing bureaucratic processes that characterize running of businesses, locally, are sometimes filled with loopholes through which rent-seeking is advanced. Consequently, you find that the cost of this practice is added to the real cost of doing business.

Add to this, daily corruption and infrastructural gaps that are leveraged for bribery. Competitive manufacturing in Kenya becomes unattainable.

Corruption undermines good policies

Good policies aimed at enhancing competitive manufacturing in Kenya are open to corruption. For example, a policy is issued to impose import duties on goods that can be produced locally. But agencies and departments fail to implement them.

Subsequently, cheap imports flood the market at a higher advantage than local goods, distorting prices and eventually causing local companies to shut down.

This is among the top reasons that that investor enthusiasm has been decreasing in our country. Manufacturing contribution to Kenya’s GDP has gone from 14.5% in 2007 to the current 9.2%.

Moreover, when our local companies shut down, they cease to create jobs; and our unemployment rate continues to sky-rocket. Kenya has the highest unemployment rate in East Africa, at 39.1%.

Counterfeit products

As counterfeits continue to penetrate our borders, and flood our markets, their networks become even more sophisticated and elusive. This is aided by corruption.

The larger problem with counterfeits is that they put at risk the health and well-being of Kenyans. Gas cylinders may explode in homes. You may even ingest expired and unsafe medication. In the end, you are faced with a two-fold quandary. You have the problem of a population that is both unwell and unemployed – which affects the economy on a whole.

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Another important factor when it comes to competitiveness is predictability. Sudden changes in policy and regulations divert industry’s resource-allocation from productivity into meeting the costs associated with drastic shifts towards fast compliance. These may very well include restructuring and a hiring freeze.

In such cases, it is impossible for any investor to make long-term plans.

Policy development also must be coherent. Government agencies must talk to each other so that we pull in one direction towards vision 2030. If the goal is to develop Kenya through industrialization, all policies developed must look at supporting industrialization in a sustainable manner.

Otherwise, if regulations or policies are actioned to the contrary then we spend more timein the push and pull of our own making – as opposed to moving together towards a common goal.

 

The writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya. She can be reached at ceo@kam.co.ke