Electricity forms a sizeable chunk of the cost of manufacturing in Kenya. Yet the cost of power has been on the rise in recent times. For the local industrial sector to thrive, we must urgently tame this trend.
Happily, the government has proposed rebates allowing manufacturers to deduct 30 per cent of their electricity expenses from taxable income. In April, Peter Munya, the Cabinet secretary, Ministry of Trade, Industry and Cooperatives, announced that the regulations would soon be gazetted into law. Local manufacturers have since been waiting with bated breath for the new rules.
The government needs to speed up the gazetting and execution of the new rules so that consumers and manufacturers can benefit from the change. This is because the new regulations will address the perennial challenge of the high cost of industrial power while injecting a sense of predictability into the country’s electricity tariff regime.
Not only will this trim down production costs, but it will also make Kenyan goods more competitive. Notably, the government and the local industry have been pushing for a ‘Buy Kenya, Build Kenya’ model to spur uptake of domestic goods and commodities.
This is in a bid to increase the manufacturing sector’s share of the gross domestic product (GDP) as captured in the government’s ‘Big Four Agenda’ through creating a large and growing domestic market for local industry. Besides the ‘Big Four’, that is also envisioned in the Kenya Vision 2030 blueprint.
However, for the ‘Buy Kenya, Build Kenya’ model to succeed, local goods need to be more affordable. Reducing the cost of electricity is one sure way of slashing the price of Kenyan goods, therefore making them more attractive to consumers in the country.
Commendably, the government and private power producers have invested significantly in green energy in the form of geothermal, wind and solar. This was expected to dramatically reduce the cost of electricity, something that has been slow in coming.
Instead, the country continues to rely on unreliable hydroelectricity, which is prone to the adverse effects of erratic weather patterns, and, consequently, expensive thermal power to bridge the electricity deficit.
Manufacturing has been identified as a core pillar of the Big Four. For Kenya to acquire industrial economy status, it needs a vibrant and competitive local industry.
But that cannot happen when some manufacturers are relocating to neighbouring countries such as Ethiopia, Uganda and Tanzania, which have moved to reduce power tariffs significantly. This simply amplifies the urgent need to tame the high and unpredictable cost of electricity in Kenya.
Escalating electricity bills affect not just industries, but also consumers as they tend to erode the latter’s purchasing power. When consumers cannot afford even the basic commodities like cooking oil, soap and so on, local manufacturers suffer. They have nobody to sell their goods to as they often have to pass the surging production costs to consumers.
This, in turn, spawns a vicious cycle, where manufacturers cannot sell their goods and consumers cannot afford them.
To reverse this situation, we have to entrench fiscal and policy incentives to promote local industry. This includes long-term measures to keep electricity tariffs low and stable. A more predictable electricity pricing model, coupled with incentives such as the proposed rebate, will go a long way in enhancing the efficiency and competitiveness of local industry.
Reducing electricity fuel cost charge and removing the fixed cost charge are also welcome measures to significantly enhance the competitiveness of local industry. Needless to emphasise, that will make locally produced commodities more affordable and attractive to consumers.
The government needs to move with speed and put in place the proposed regulations so that the benefits can be seen by consumers in the form of affordable prices for locally manufactured goods. Previously, we have seen situations where such noble initiatives are delayed or not implemented at all. This only hurts consumers and businesses.
The benefits of a growing manufacturing sector to the rest of the economy are real. It will provide a robust base for value addition to agriculture, create thousands of jobs and, more importantly, cement Kenya’s strategic position as the regional economic hub — powered by a competitive, vibrant and sustainable manufacturing sector.
