COVID-19 and Rise of New Opportunities for Kenya’s Manufacturing Sector

COVID-19 and Rise of New Opportunities for Kenya’s Manufacturing Sector

As the effects of COVID-19 continue to be felt with an uncertain future, members of the Kenya Association of Manufacturers (KAM) are contemplating a shift strategy to remain competitive.

In collaboration with tax consultancy firm, KPMG, they have published a ‘Manufacturing resilience and sustainability strategy: Priority Policy Toolkit’ on how the sector will be in a position to better build business resilience plans and policies, prioritize their workers, monitor potential pain points, and implement measures to stay resilient during this crisis and beyond.

The report emphasizes that going forward, the sector will need to focus on cost competitiveness and diversifying the supply chain in achieving 15 percent contribution to the Gross Domestic Product.

“COVID-19 has presented us with huge opportunities including the manufacture & supply of medical equipment, investments in adopting new technology and need for developing local value chains to reduce dependence on imports,” said KAM CEO Phylis Wakiaga.

According to the report, the crisis can be viewed as an opportunity by both the government and businesses. 

“For government, it is an opportunity to rethink the current economic model with a view to aligning it to the “new world” that the pandemic is creating. In particular, the need to diversify and exploit emerging opportunities such as component manufacturing, development of agro-industry value chains, and shortening of supply-chains. This is also important to reduce exposure to external shocks.”

“For businesses, they have to retool and reconfigure business models based on emerging realities. Businesses will require government support. Clearly, fiscal space is required and must be created.”

In the first quarter of 2020, the sector growth declined by 2.9 percent compared to 3.5 percent in the first quarter of 2019.

According to the Competitive Industrial Performance (CIP) Index Report, Kenya is ranked 115 among 152 countries in the ability to produce and export manufactured goods competitively.

KAM says global manufacturing output has declined by 6.9 percent in Q1 2020 in comparison to Q4 2019 output.

A situation KPMG partner Gerald Kasimu says increased exports could help in bridging the balance of trade between Kenya and its key trading partners.

The value of manufactured exports has remained constant over the recent period as the sector’s output increased. In turn, the value of manufactured exports as a share of manufacturing output has been declining from a high of 37 percent in 2012 to 23 percent in 2018.

COVID-19 and Rise of New Opportunities for Kenya’s Manufacturing Sector
The trend in value-added in the manufacturing sector and sector’s contribution to GDP, 2012-2019

“The declining trend contrasts with a projected increase in the value of manufactured exports as a share of manufacturing output from 23 percent in 2017 to 36 percent in 2018 and ultimately 55 percent in 2022 as per the National Export Development and Promotion Strategy,” part of the report highlights the situation.

As a result, manufacturers have identified 76 opportunities for investment and value addition as learning from Covid. Key among them is increasing investments in adopting new technology and giving attention to developing local value chains to reduce dependence on imports.

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However, persisting challenges affecting the manufacturing sector include the unpredictable policies from the Government particularly on taxation as evidenced in the Tax Laws Amendment Act 2020 and the Finance Act 2020.

Slow responsiveness from regulatory agencies in approving innovations from local manufacturers.

According to the report, there is also a broad consensus by analysts that normalcy cannot return until the pandemic is defeated.

“More precisely, containing the pandemic is a stimulus program in its own right. The virus is a major cause of uncertainty. Failure to reduce uncertainty will induce more precautionary saving behaviour by households, businesses will hold on to their investments due to anxiety about the future, while banks may lack creditworthy borrowers and therefore hold on to their excess liquidity. This will directly affect overall consumption and reduce demand for manufactured goods.”

“Through our long-term development framework, we hope to build Kenya into an export-driven economy. We continue to work with the private sector to develop measures that boost productivity, reduce imports & drive industrial growth,” said Julius Muia, PS Treasury.

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