BY JAMES MULIRO
Kenya’s earnings from manufactured goods sold in foreign markets dropped by Sh10 billion in 2014, even as the declining competitiveness of the country’s industrial sector continues to raise eyebrows. According to the Monthly Economic Review (MER) released last month by the Central Bank of Kenya (CBK), the value of manufactured goods that Kenya sold in the export market declined by 16 per cent to Sh54 billion ($592 million), a five-year low.
In 2013, the country earned Sh64 billion ($705 million) from exporting manufactured products, most of which were sold in the East African market, Kenya’s largest trading bloc. The trend has been attributed existence of non-tariff barriers in regional markets like Uganda and Tanzania, and the growth of the industrial sector in a number of regional countries. The NTBs have impeded the flow of manufactured goods from Kenya to her neighbouring countries. Already, Kenyan exports to the region, largely consisting of manufactured merchandise, have been on a decline since 2012.
The decline comes on the back of government’s efforts to boost productivity in the country’s manufacturing sector. Such efforts include improving the state of infrastructure in the country, an attempt to lower the cost of energy with development of cheaper sources of power, like geothermal and wind, and reforming the business environment.
Lifted by foreign investors, the industrial sector in neighbouring Tanzania and Uganda has recorded substantial growth in the last decade, which has overreliance by EAC members on industrial products from Kenya and other countries with a comparatively strong industrial base decline over the last decade.
“Most of the countries in the region, which have been relying on our manufactured products, have continuously improved their manufacturing bases,” Wilson Songa, Principal Secretary in the ministry of Industrialisation and Enterprise Development says.
This is not only an indication of a case of rising competition in the manufacturing sector in the region, but more specifically on the seemingly declining competitiveness of Kenya’s industrial sector. Traditionally, countries like Uganda, Rwanda and South Sudan were undisputable destinations of Kenya’s products. The tide has since changed, with Uganda now exporting manufactured products to Kenya, Rwanda and South Sudan, the latter two being her major export destinations.
Contrasting standards for manufactured goods, especially within the region, continue to deal a blow to Kenya’s industrial exports, according to Eng Patrick Obath, a former chairperson of the Kenya Private Sector Alliance (Kepsa). Most of these countries use standards as a non-tariff barrier, which hinders entry of manufactured products to their local markets from other countries within the region. Whereas the standards keep changing from time to time, analysts say that the countries should move to harmonise them so as allow easy access to their markets by partners within the regional trading bloc.
Besides the varying standards, the sector is also reeling from high costs of energy and an unfavourable business environment. “The costs of energy and the cost of doing business in Kenya have increasingly made our manufactured products in the export market unattractive,” Obath notes. He suggests that the government should fast track improvement transport infrastructure, enhance the development of cheap energy sources and improve the business environment.
Recently, news of the closure of Eveready East Africa and Cadbury production plants in 2014 has been, to say the least, alarming. Referring to high input costs, incursion of cheap Chinese batteries in the local market and changing technology, Eveready shut down its dry cell production plant in Nakuru. Cadbury, associated with Cadburys chocolate and other consumer brands, also shut down its Kenya operations. The firm cited high production costs relative to Egypt, where it said it had shifted production of its products for the East African market.
Songa, however, says that the government has now focused on improving the competitiveness of the local manufacturing sector by lowering the cost of energy and by improving transport infrastructure across the country.
“Our energy costs need to get much lower and we need to improve our transport infrastructure as a way of improving the competitiveness of the local manufacturing sector,” the principal secretary says.
Currently, East Africa accounts for over 54 per cent of Kenya’s exports. Uganda, a landlocked neighbour, claims the biggest portion of about 70 per cent of the exports. More than 250 Kenyan firms exports to regional markets. Likewise, at least 30 per cent of the foreign direct investment (FDI) in Tanzania and Uganda consist of Kenyan manufacturers who opted to invest in those markets to circumvent difficulties associated with cross-border trade.
Kenyan manufacturers that have established operations in Uganda and Tanzania include, Bidco, East African Breweries Limited (EABL) and Athi River Mining (ARM). This has partly led to shrinkage of Kenyan exports to the region by 7.4 per cent – from about Sh134 billion in 2012 to Sh124 billion in 2013. The volume of exports to Tanzania alone declined from Sh46 billion to Sh40 billion while exports to Uganda fell from Sh67 billion to Sh65 billion in the same period. Exports to Rwanda, on the other hand, fell from Sh16 billion in 2012 to Sh13 billion in 2013.
While the value and share of Kenya’s exports to the region declined in 2014 on account of a drop in exports to Uganda, South Sudan and Rwanda, exports to the European Union and the US have increased. The value of Kenyan industrial exports to Uganda, for instance, peaked at Sh75.9 billion in 2011, with Kenya traditionally exporting lime, cement, fabricated construction materials and consumer goods to the landlocked neighbour. Kenya has sold similar products to Tanzania.
As the government attempts to fix the local manufacturing sector, the country is increasingly becoming a consumerist economy, heavy on imports and weak on exports. The country’s major importers last year were India, with a share of 16 per cent, China with 15 per cent and the US with 10 per cent. Some of the products that Kenya imports include chemicals, textiles, metal, plastics, rubbers, machinery and transport equipment, most of which originate from India and China. With a value of Sh151 billion ($1.66 million), imports from within Africa accounted for 9 per cent of total imports, having declined by Sh4.6 billion ($51 million) compared to 2013. Agricultural products, mostly sold in raw or semi-processed form also account for Kenya’s foreign exchange earnings, with coffee, horticulture and tea taking the lead. Analysts say that efforts to improve the country’s performance in the export market should be centred on adding value to Kenya’s agricultural products before they are sold to foreign markets.
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