Tag Archives: manufacturing

Kenya manufacturing shrinks and exports to region fall, contributing to job losses, raising more questions on #BBIReport

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I had not realized quite how badly this was going, as reported in Standard story this weekend.

No wonder Kenyans On Twitter are energized against the performance of the Government in a seemingly broader and deeper way than in the past when the the economic malaise did not get as deep into the “middle class”.

The employment emergency described by the BBI Report is real, but the proposed solution is rapid industrialization for regional exports. There was already a credibility problem for the current Government as to what in the Building Bridges Initiative would make that type of rapid growth likely to happen. Now we see that the actual performance of the current system is not slow growth but rather a sharp decline in manufacturing and regional exports.

And again, a lot of the problem is thinking based on a relatively paternalistic environment where as long as Kenya “played by the rules” the major world economic powers that could otherwise squash Kenyan manufacturing at least conceptually would cheer Kenya on in developing into a regional manufacturing leader. In the real world of 2013 to date and in the future envisioned by the BBI, Kenyan manufacturing has to compete with Chinese manufacturing both domestically and for regional exports. And China doesn’t have the debt problem that Kenya now has.

Since the 2007 election debacle, pervasive hunger has continued to grow in Kenya, while China and the United States promote and backstop the power of leaders who do not care enough

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The population of Kenya has grown roughly 25% since my year “promoting democracy” in 2007-08, from around 40 million to around 50 million. These are loose numbers because they do not reflect anything that is of the highest priority for Kenya’s leaders (and thus those outsiders who promote and underwrite Kenya’s leaders).

Kenya is to conduct a census this year, but the process is politically contentious and corruption makes it hard to carry off undertakings of this nature (another area where the United States seems to be moving toward convergence with Kenya recently). And there is always a new gambit, like “Huduma Namba” that comes along, with the help of Kenya’s politically-connected corporates and foreign corporate foundations, to get in the way of the core functions of the Government of Kenya, like conducting the census.

Unfortunately, although the size of the economy has continued to grow hunger has increased and Kenya remains a “middle income” country where the majority of citizens are inadequately fed. Agricultural performance has actually declined rather than merely grown at an insufficient pace as experienced in many other sectors.

Please take time to read this report from the Daily Nation’ Newsplex: “Poor planning and inaction to blame for food insecurity” There are a lot of important facts and figures, but here is a key summary of where things stand:

But despite the decline in the undernourishment rate, which is, however, higher than Africa’s 20 percent, the prevalence of severely food-insecure Kenyans jumped four percentage-points from 32 percent in 2014 to 36 percent in 2017, resulting in Kenya’s ranking as the eighth-worst on the indicator globally.

Yes, Kenya continues to have a problem with employment as a whole and the failure of the various power generation schemes over the years has been one factor for Kenya’s reliance on imports rather than it’s own manufacturing. But the decline of agriculture is the more immediate and inexcusable problem–and would be much easier to address if it were prioritized–as opposed to yet another questionable power generation scheme.

Tariff Tussles–those bales of used clothes and the Kenyan economy

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Sometimes an unheralded item in Nairobi’s business press tells a larger story of policy, politics and economics in Kenya.  Until the 1990s import of used clothing was banned in Kenya.  With liberalization, it was allowed, along with other cloth imports.  Domestic manufacturing has been hurt, thus the Kenya Associations of Manufacturers supports a new tariff increase, but a whole sub-economy itself has grown up around the import and subsequent distribution of the bundles of used clothing:

“Dealers in used clothes brace for hard times as taxman raises duty”

Which way dealers in second-hand clothes? This is the question thousands of traders in used clothes are grappling with as the increased cost of doing business hits home.

After doing booming business for many years, the sector now faces some of its worst challenge which threaten its survival.
The traders should brace for hard times following a decision by the Kenya Revenue Authority (KRA) to raise import duty on used clothes.

The taxman has nearly doubled the duty to Sh2.1 million per container from the previous Sh1.3 million.

The new charges have pushed the cost of each bale to about Sh22,000.
Continued delays at Mombasa port have not helped the situation either as shippers are set to raise charges to factor in extra costs incurred over the clogging.

The shippers want to increase charges on each container by at least Sh70,000, bringing the total cost to Sh495,000.

The trend will force importers to increase the price of clothes to factor in the new charges.

Such a move is likely to be risky for businesses, especially coming at a time when consumers are battling eroded disposable incomes.
Inflation, which is hovering near 20 per cent on the back of high food and fuel prices, has left consumers with little to spend on goods outside essentials such as food.

This means that any rise in prices of clothes could turn off potential buyers, denying traders much needed income. “Already, the number of buyers has decreased over the past six months,” said Solomon Kagwe who sells clothes at Sunbeam, one of the most popular outlets for second-hand clothes in Nairobi’s Central Business District.

.  .  .  .

The trade has led to the setting up of huge markets in the country’s big towns that deal exclusively with used clothes, such as Nairobi’s Gikomba.

Retailers source second-hand clothes from such markets and sell them through stalls and shops across the country. Government statistics show that the second-hand clothes business employs more than 200,000 people countrywide and generates billions of shillings annually for the economy.

“The new tax is going to kill the entire industry.

The way out is to renegotiate with KRA and shippers to bring down the costs,” said Abdi Mohammed who sells second hand clothes at a stall along Moi Avenue in Nairobi. “The government can’t just watch as a whole industry is wiped out,” said Mr Mohammed.

The second-hand clothes sub-sector has not gone down well with investors in the textile industry.

Relocation of factories

The investors together with cotton farmers blame the used clothes sector for leading to closure and relocation of factories leading to job losses over the years.

“Efforts must be put in place to ensure that all second-hand clothes and new garments coming into the country are properly levied in order to reduce unfair competition,” said Kenya Association of Manufacturers CEO Betty Maina.

She said that 41 textile making firms had closed shop in the last three years partly due to an influx of cheap second-hand clothes.