Poor Regulation and High Production Costs Choking Investment in Manufacturing Industry

By Korir Isaac / May 6, 2019 | 8:04 am




A new report; the Manufacturing Barometer by the Kenya Association of Manufacturers for the January-March period has revealed that investment in manufacturing has been dropping gradually over the last two years.

The report attributes the declining trend to a poor regulatory environment with headwinds that have stunted its growth.

The report further stipulates that while the sector is projected to contribute 15 percent to the GDP by 2022, the regulations and policies in the sector may kill the growth.

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“With the current regulatory environment and uncertainty in the trade environment, shareholders are not willing to invest; investors have been deferring their planned investments over the past two years,” the report notes.

The Association through the report boldly states that a systemic structure to encourage Foreign Direct Investment by developing free zones in the country is lacking.

VAT refunds by the Kenya Revenue Authority (KRA) and delays in clearance at the port are some of the key challenges the manufacturers pointed out.

Consecutively, the industry’s growth is also limited by the high costs of raw materials as a result of inefficiencies at the Inland Container Depots (ICDN) and the Port as well as regulatory compliance requirements that have substantially increased complexity and costs as they are not aligned to global benchmarks.

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“In January and February, we experienced delays in clearance of our cargo at the port and Inland Container Depot in Nairobi, affecting our production operations,” some manufacturers pointed out.

The manufacturers said that county governments have no detailed role in the Big Four Agenda which has led to delays in the implementation of local content and the Buy Kenya Build Kenya strategy.

Among other things that have led to the stunted growth in the manufacturing sector include fees, multiple charges, and levies by the county government on cross county trade.

The report stated that the coordination of development strategies is a daunting task, especially where implementation and funding are scattered between different Government institutions and agencies.

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More than 50 percent of manufacturers hold the opinion that the country’s economy stagnated between January and March.

Of the number of manufacturers surveyed, 60 percent said that Kenya’s economy remained stagnant while 21 percent believed it was growing. Also, 19 percent of surveyed manufacturers believe the economy was declining.

“Rampant corruption and increased bureaucracy in government agencies are hampering Kenya’s growth prospects,” manufacturers said.

The manufacturers also highlighted delays in payment of suppliers by the government, which have created cash flow challenges from the market especially to SMEs that have, in turn, impacted negatively on the consumers’ purchasing power.

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The report concluded that the metrics in the industry are not looking promising due to the current cash crunch and runaway corruption.





About Korir Isaac

A creative, tenacious, and passionate journalist with impeccable ethics and a nose for anticipated and spontaneous news. He may not say it, but he sure can make one hell of a story.

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