Industry in Kenya Upbeat about 2020

2019 was a good year for the manufacturing sector in Kenya, the industry umbrella body has said. The Kenya Association of Manufacturers (KAM) says that despite a few hiccups, the sector ended 2019 on a strong note.

KAM stated the positive vibes maintained between industry and the policymakers ensured that business maintained a steady trajectory in terms of growth in various segments.

“As the representative of Value-Add industries in the country, we continue to spearhead policy reforms in the interest of the sector. This is in line with our intention to achieve the Government’s Big Four Agenda, particularly under the manufacturing pillar in which the sector is expected to contribute 15% of the GDP by 2022,” said KAM in a statement.

Fight against illicit trade

KAM noted that headway has been made in the fight against illicit trade, after years of losses to the counterfeits menace and other illegal and unfair trade practices in the country that were threatening to drive investors out of business.  The National Action Plan and Implementation Framework spearheaded by a Multi-Agency Enforcement Team launched by the government to Combat Illicit Trade in June 2019 was followed by a sustained crackdown that has resulted in arrests and convictions, with market players in several sectors reporting improved business due to reclaimed market share.

Buying Kenyan

In addition, procurement of footwear and fabric for Kenya’s uniformed forces, and all the garment requirements for the Huduma Number registration program by the government effectively unlocked a market that increased the manufacturers’ capacity utilization by about 10-30 percent and created about 500 new direct jobs. The move to buy Kenyan gave a much needed shot in the arm for the Leather and footwear as well as textile and apparel sectors.

Other sectors set to benefit include the Automotive sector through procurement of locally assembled vehicles and Paper and Paperboard sector through procurement of locally produced paper and books.

KAM actively participated in bilateral and regional meetings on Non-Tariff Barriers. This has seen 75% of the issues raised resolved, however, there is a slow uptake by member states in adopting some resolutions.

The Africa Continental Trade Area Agreement AfCFTA was launched in July 2019 bringing together more than 1.2 billion people and countries with over $ 3 trillion in Gross Domestic Product (GDP). The AfCFTA opens up export opportunities for manufactured goods.  94.7% of AfCFTA Rules of Origin have been negotiated and agreed upon.

Africa is effectively a major emerging market and player in global business. Major developments in other regions and economic blocs present opportunities as well as challenges. Brexit, for example, will result in the UK ready to negotiate and relate with Africa on a different level, competing with other world powers like the US, China and the European Union, as well as the Asian Tigers for a piece of the emerging market.

Kenya has been urged to ready herself for this development and moves have been made to realign the economy with the dynamics of the new global economy. The country has not been resting on her laurels.

The Finance Act assented by the president in November 2019, introduced policy and taxation measures for revenue generation in the financial year 2010/2020 for government’s expenditure as well as to support the Big Four Agenda.

Reduction of Withholding VAT Rate: The rate of withholding VAT has been changed from 6% to 2%. This is meant to reduce refunds arising from WHVAT.

  • Increased Railway Development Levy: The rate of RDL has been increased from 1.5% to 2% on all imported goods except raw materials and intermediate goods.
    • Import Declaration Fees: IDF for raw materials and intermediate products imported by approved manufacturers has been reduced from 2% to 1.5%.
    • Promotion of Plastic Recycling:
      • Lower corporation tax of 15% for investors operating a plastic recycling plant for the first 5 years.
      • Exemption of VAT on services offered to plastic recycling plants and supply of machinery and equipment used in the construction of the plants.
    • Support to computer assemblers: Inputs for manufacture of motherboards and the supply of locally manufactured motherboards are now exemption from VAT. These were previously vatable at 16%.
  • The EAC Common External Tariff was reviewed to include a 4th band rate. The EAC partner states have unanimously adopted a four (4) band structure of 0% (raw materials and capital goods), 10% (intermediate input/products not available in the EAC region), 25% (intermediate inputs/products available in the EAC Region) and either 30% or 35% (Finished products). However, the CET rate for the highest band, criteria and list of products above 25% are yet to be agreed upon.
  • Kenya Plastics Action plan: At the beginning of the year,  key players in the plastic value chain initiated a new platform, the Kenya Plastics Action Plan, launched in December.

The plan is a private sector – led policy and action plan aimed at enabling a circular economy for environmentally sustainable use and recycling of plastics in Kenya.

The plan proposes a road map to a Circular Economy for plastics use and waste management in Kenya. It identifies the specific actions that the public and private sector should undertake to achieve this including waste management at county level, formation and regulation of Extended Producer Responsibility schemes and establishment of recycling value chains and standards.

  • Women in Manufacturing Program: We partnered with the International Center for Research on Women (ICRW) to conduct the first ever research study on women in manufacturing in Kenya.

The Association established its Women in Manufacturing Program in 2017 to bridge the gap between existing opportunities in manufacturing and the skills required to increase the participation of women in manufacturing.

The study aims to inform the advocacy strategy to mainstream equality and inclusion in the manufacturing sector. We shall be approaching some of our members for statistics to inform the report. We also look forward to seeing you all during the launch of the report in March 2020.

  • Manufacturing SME Hub: We launched the manufacturing SME Hub in July 2019 to prepare, nurture and grow manufacturing SMEs in the country. The Hub seeks to address the challenges affecting SMEs in the country including unfriendly policies and regulatory regime, tedious and lengthy process in quality standards and certifications

Key challenges facing the manufacturing sector in 2019

  • Regulatory Overreach
    • The essence of regulations is to create the right environment for people and businesses to be productive and thrive. A conducive regulatory environment is necessary to promote investment which results to economic growth.
    • The role of regulatory agencies in a country are critical to creating a conducive investment environment and also support implementation and enforcement of specific laws.
    • Despite being a key pillar in the Big 4 Agenda, the manufacturing sector continues to be plagued with numerous regulations and over taxation.
    • Poorly designed regulation and ineffective implementation of regulation can stifle innovation, growth, job creation and investments. Our economy has been in dire need of a massive boost and this can come through an enabling business environment which increases productivity, jobs and wages, and equal distribution of resources through growth and investments.
  • High cost of power: The cost and reliability of electricity and its provision presents a real challenge to the sector. Industry relies heavily on electricity for production. High power costs increase the cost of doing business.

To reduce the cost of power, the government committed to developing measures for reducing the cost of electricity to a single digit level to spur the sector’s growth. One such initiative is the Energy Rebate program that portends a possible reduction in the Government’s income tax from the industries.

  • Delayed payments: Prompt payment is critical to a business’ performance and operations since it ensures necessary cash flows and smooth operations. Delayed payments have continued to hurt industry, especially SMEs due to financial lock-in.
  • Preference of imported goods over local goods (cheap imports): This limits local manufacturers’ access to local markets. Local manufacturers are ‘crowded out’ hampering their access to domestic and regional markets.
  • Skills gaps: Whilst Kenya is keen on realizing the Big 4 Agenda aspirations, the lack of adequate skills is hampering labour productivity. Therefore, it is time that we developed and implemented industry-led skills policies that will ensure that human skills development connects effectively to labour market needs.

2020 Outlook

  • One of the key drivers of economic growth and global trade is the manufacturing sector. The sector has, over the years, become a reliable business segment through which investors have innovatively built agile strategies to meet the dynamic needs of different communities.
  • KAM has in the past and still continues to advocate for a conducive business environment for business. As industry, we will continue to support the development of an inclusive, innovative sustainable and competitive Manufacturing sector.
  • In striving to meet market needs, the sector has gradually cemented itself as a key stakeholder and an integral part of the systems, meeting market demand and driving socio-economic progress at both national and regional levels.
  • 2020 promises to be a strong year for the sector, specifically if predictable and stable business environment can be guaranteed in policy formulation and implementation.
  • Our first step towards realizing this is to implement some of the proposed solutions by industry, such as predictable regulatory policies  to achieve low-hanging but very impactful results. Hence, we have a huge role to play to ensure that we make these changes in time to reap from global trends and markets, and to build a strong future for our country.
  • KAM is a key partner to the National and County Governments as it sets out to enhance the role of the manufacturing sector to economic growth and development in Kenya.
  • Thus, the Association will continue to work with the government to ensure that industry remains competitive, government implements policy and institutional framework for industrial growth and expansion and the future of the manufacturing sector is secure.
  • We, therefore, expect to see more industries take up technology, especially e-commerce. This is a large but untapped market that gives more market access at minimal costs. It will enable businesses, particularly SMEs, to lower costs, stay competitive and at the same time, go global by harnessing the power of the Internet and scale.
  • Furthermore, with continued automation and use of data manufacturing, next year promises to be the future of Kenya, among other African countries with continued investment and deliberate growth of the manufacturing sector. Manufacturing will therefore be central to our ability to meet its development goals.
  • We also expect industry to grow because of increased market access.  Africa Continental Free Trade Area (AfCFTA), for instance, opens up huge export opportunities for locally manufactured goods to the vast market. However, for Kenya to participate effectively, competitiveness, diversification of manufactured goods and productive capacity enhancement to ensure exportable surpluses are inevitable pre-conditions.
  • We also expect to see more industries take up initiatives to drive Kenya’s circular economy. Circular economy aims to eradicate waste—not just from manufacturing processes, as lean management aspires to do, but systematically, throughout the life cycles and uses of products and their components. Transitioning to a circular economy represents a systemic shift that builds long-term resilience, generates business and economic opportunities, and provides environmental and societal benefits.

*ENDS*

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