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Local manufacturers losing out to Ethiopia, says KAM chairperson

Robin Obino @obinorobin

Kenya is struggling to revive its manufacturing sector that has largely lost out to Ethiopia due to the high cost of electricity, Kenya Association of Manufacturers (KAM) has said. It said companies continue to grapple with high cost of energy at Sh11 per kilowatt-hour, compared to Ethiopia, where factories are enjoying lower tariffs of between four and five cents per kilowatt-hour.

Speaking during an interview with a local TV station, KAM chairperson Flora Mutahi said threats from illicit trade are also a major concern for manufacturers as the sector aims at creating 1.3 million jobs by year 2020. “Ethiopia is certainly proving to be a very competitive neighbour.

And her population size, first of all, is a compelling one for investors. Ethiopia’s cost of energy is low and we really have to up our game to become attractive,” she said. She also pointed out that the sector was on a downward trajectory having moved from 10 per cent, where it has stagnated in the last 10 years to the current 9.2 per cent.

“It is estimated that Kenyan manufacturers are losing at least 40 per cent of their market share to counterfeiters which have “unfairly” reduced the industry’s earnings,” said Mutahi.

“This, coupled with frequent power outages, congested industrial zones, high labour input costs, increasing overall production costs and a huge import bill are denying the manufacturing sector an opportunity to thrive.”

Mutahi said the country currently has a structure that supports imports and not local manufacturing where finished products and raw materials attract the same Value Added Tax (VAT) rates.

“Corruption is also hindering the industry’s growth,” she said and blamed the harsh environment for the closure of industries. High cost of capital has also been blamed for discouraging investors from setting up new plants.

“As a result, the number of formal jobs in manufacturing has grown at just seven per year over the past four years. Our exports have stagnated at 15 per cent of gross domestic product (GDP), while imports have grown to 40 per cent of GDP, creating a trade imbalance, weakening the shilling and increasing inflationary pressure,” said Mutahi.

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