How imports affect Kenya’s producers

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Kenya is the most industrially developed country in East Africa, yet manufacturing accounts for only 14 per cent of its gross domestic product.

By EDWIN MOINDI

The peasants were troubled. Their seasonal cottage business was in shambles. No longer did the merchants travel to the country to give business to the spinners “” and weavers. Subsistence farming was being replaced by a capitalist system that fed millions in the industrial cities of Manchester “” and Liverpool. Many were forced to migrate to the cities.

The cities they moved to were heavily polluted, toilets were cesspits, waste was thrown in the courtyards. Local rivers were filled with dead animals “” and human waste. Sanitation “” and hygiene barely existed “” and the biggest fear was a Cholera or Typhus outbreak. This was the Industrial revolution in Britain.

Children were preferred in factories, they could reach hard to get spaces that clunky steam machines occupied. Expert artisans were out of jobs, unable to compete with faster more efficient machines.

But, all this was momentary, with time legislation was enacted, wages increased, the population became more educated “” and living conditions improved dramatically. Eventually, Britain was rightly termed as an industrialized nation, with all the trappings associated.

In the last 50 years China, Taiwan “” and South Korea have lifted themselves from agrarian economies to highly industrialized ones. A dictatorial h”” and carefully guided foreign investments to achieve the miraculous turnaround that saw populations starving in the 60s living in abundance in the early 21st century. The secret was retaining control of investments “” and developing the skills “” and infrastructure to innovate.

Kenya is the most industrially developed country in East Africa, yet manufacturing accounts for only 14 per cent of its gross domestic product. This has not changed much since independence. Kenya mainly imports from India, China “” and United Arab Emirates. In 2015, imports were led by refined petroleum which was 12.4 per cent of total imports, cars accounting for 2.9 per cent, video displays 2.5 per cent, packaged medicines 2.5 per cent, delivery trucks 2.2 per cent “” and so forth. Most of these are manufactured goods “” and they accounted for USD17.6 billion (KSh1.8 trillion). Kenya’s exports during the same time was USD5.25 billion (KSh542.3 billion), with tea accounting 22 per cent, cut flowers 12 per cent “” and refined petroleum 7.4 per cent. Kenya imports more than it exports, leading to a negative trade balance of USD12.3 billion (KSh 1.3 trillion). Given this negative trade balance, is it possible for Kenya to export products of higher value to offset this imbalance?

Balancing the act

Japan, Singapore “” and South Korea have no natural resources to speak of as Kenya does. They import raw material cheaply “” and then convert them into manufactured products of high value that they export to the rest of the world. They export the automobiles, consumer electronics, iron “” and steel we use.

What this implies then is that for a country to have a diversified variety of advanced industries, a number of conditions have to be in place. This includes cheap, adequate quality energy to drive industry, a good transportation system interlinking sources of raw material to industry “” and to the market, a skilled labour force, adequate food supply for the work force “” and economic reform to attract foreign direct investment.

A country can cordon off a zone, “” and offer foreign companies a multitude of incentives to allow them to shift base to these zones.

Ethiopia is creating industrial parks which then allow for Chinese multinationals to move their bases from China to Ethiopia. Ethiopia has a railway link to the Red Sea through Djibouti. It owns its own shipping line, despite being a l”” and locked nation. Let us not forget that Ethiopian Airlines is the most profitable airline in Africa. For this reason, Ethiopia is cutting a niche for itself globally in large segments of light manufacturing (apparel, leather products “” and agribusiness).

The word on the street had been for a while that Chinese firms were not hiring locals, but a recent survey found that more than 90 per cent of employees in Chinese construction “” and manufacturing companies in Kenya were local. What this alludes to is a transfer of knowledge.

The progression is cyclic

Chinese firm exports manufactured products to Kenya through intermediaries. Chinese firm representative visits country “” and is wooed by conducive environment for doing production locally. Chinese firm builds small factory in Kenya “” and hires locals. Business is good “” and gets support from government. Chinese firm sets up hub in Kenya to cater for larger East African market. In the meantime, it trains “” and empowers local staff. Local staff gain knowledge “” and skills “” and set up complementary services, or go into direct competition. Locals export to other locations in Africa, “” and the cycle begins again.

In conclusion, imports do affect the manufacturing sector in Kenya, but we will be ill-advised to not see the cycle that starts with importation of manufactured products “” and ends with factories making a cheaper version of the same product in the country. But, to get there, a concerted effort has to be made to woo multinationals to shift their base locally.

The writer is principal “” and managing director, Moindi Consulting Company Email: emoindi@moindiconsulting.com

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