- Manufacturing’s contribution to GDP has dropped from a high of 15 percent to the current 7.4 percent.
- The failure of manufacturing will have a far-reaching implication on tax revenues.
- It is about time Kenya began to wear a human face in its philosophical approach to economic development. Unless rich people are moderated, they will always exploit the poor.
- Our manufacturing sector is a den of these characters using power to influence policy at the expense of multitudes of people.
Last week, my article on this column highlighted grave issues that are contributing to the imminent collapse of manufacturing sector in Kenya.
The sector’s contribution to GDP has dropped from a high of 15 percent to the current 7.4 percent. I decided to find out what is going on and sought the views of experts in the sector.
Although manufacturing contributed a paltry 7.4 to the GDP last financial year, it contributed more than 20 percent of the tax collection in Kenya over the same period. Agriculture, where the country spends much of the resources, contributes only three percent to the tax collected. The failure of manufacturing, therefore, will have a far-reaching implication on tax revenues.
Agriculture and manufacturing complement each other. Indeed, the dominant manufacturing activity is food and beverages, which accounts for between 40 and 70 percent of manufacturing in the country. The sector is under the greatest threat ever, with an increasing number of foreign retailers in the country preferring to import most consumer goods.
A casual survey of two foreign-owned retailers revealed that only three percent local content can be found on their shelves. The implication of increasing preference of imported foods over local produce is that the local supply chains will be severely impacted, as farmers will have nowhere to sell their produce in their own country. They will be discouraged from farming and poverty will increase as a result.
It doesn’t have to be that way. It is simply not sustainable even for those basking in wealth out of the facade of capitalism.
Unfortunately, this is happening in the glaring eyes of policy makers. There isn’t a trade policy on local content. The 2017 National Trade Policy has all the right descriptions like “Transforming Kenya into a Competitive Export-Led and Efficient Domestic Economy” but extremely falls short of its intentions.
If I were to summarise it, it is an assemblage of the country’s challenges and a veritable promise that policies that can grow our Micro Small and Medium Enterprises (MSMEs) into competitive enterprises will one day be developed.
The policy’s chapter three on revitalising domestic retail trade completely misses the opportunity to stamp out misbehaviour by multinational retail companies. For example, the policy correctly identifies constraints and challenges affecting the retail subsector supply chain but the policy interventions recommended include:
- Promote domestic trade development through establishment of Brand Kenya initiative product development incubators/centres targeting products with revealed domestic and international market potential.
- Promote development of Brand Kenya retail outlets for enhancing domestic market access for Brand Kenya products initiatives.
- Facilitate capacity of traders to cope with domestic market outlet demand.
- Capacity build MSEs on government procurement procedures.
None of these prescriptions would really turnaround the problems MSMEs face. For the past 50 years we have used capacity building as reasons why we perform sub-optimally in trade but no one has ever questioned pedagogical methods used in entrepreneurial training in the country.
I am of the view that the narrative is driven by conflicted officials who want to continually pay consultants to teach mundane curriculum in entrepreneurship. Since participants are paid to attend in some cases, the incentive to continue with ineffective programs is higher than otherwise.
The correct policy should have been to mandate the investor to collaborate with local entrepreneurs to progressively increase local content, especially manufactured goods. Such a policy will, for example, stimulate local production and create a multiplier effect in the economy that would benefit farmers and ultimately lead to a sustainable development of the country with a greater number of middle-income earners becoming customers.