How do we make local manufacturing competitive?

By Phyllis Wakiaga

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. Corruption and rent-seeking have been a huge obstacle to innovation, expansion and other types of investments. Even as we talk of the risk of ‘falling behind’ our neighbours in the EAC region, 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 these practices, added to the real cost of doing business becomes unbearable for most local and foreign investors. Add to this, daily corruption and infrastructural gaps that are leveraged for bribery, local manufacturing then becomes quite uncompetitive.

Corruption also distorts the development of Government policies that are meant to work for the good of our country’s economy. Good policies aimed at enhancing local industry competitiveness are open to corruption – for example when a policy is issued to impose import duties on goods that can be produced locally, but these are then not implemented by agencies/or departments. 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, from a GDP contribution of 14.5% in 2007 in Manufacturing to the current 9.2%.

Illicit Trade and Counterfeits

Moreover, corruption has a cost. When our local companies cannot sell their products, they shut down, cease to offer employment, and our unemployment rate continues to sky-rocket. Currently, Kenya has the highest unemployment rate in the East Africa at 39.1%

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

The larger problem with counterfeits is that they put at risk the health and well-being of our citizens. For example, gas cylinders that explode in homes, expired and unsafe medication, contaminated products etc. 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.

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 local or foreign to make long-term plans, which affects our investor-attractiveness in the long run.

Finally, Policy development also must be coherent. Government agencies must talk to each other so that we are pulling in one direction towards vision 2030. Policies should be aligned, because once this is done, our economic goals are easily achieved. For instance, if the goal is to develop through industrialization, then all policies developed must look at supporting the industrialization vision sustainably. Otherwise, if regulations or policies are actioned to the contrary then we spend more time, as a country, in 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