Home Business Surge in Kenya factory import orders signals industrial rebound

Surge in Kenya factory import orders signals industrial rebound

by kenya-tribune

The value of goods ordered by Kenyan factories grew by Sh62.88 billion in the 11 months to November 2018, new data showed, signalling a rebound from a multiyear low in 2017.

Traders and factories shipped in non-food industrial supplies worth Sh568.11 billion in January-November period, latest data by the Kenya National Bureau of Statistics (KNBS) indicate, a 12.45 per cent growth over Sh505.23 billion in the same period in 2017.

The value of industrial supplies in the period was Sh17.20 billion more than the Sh550.91 billion order book in the whole of 2017.

Industrial supplies accounted for 34.83 per cent of the of imports bill in the review period, a slightly higher share than 31.91 per cent in the corresponding period a year earlier.

The factories order book was a key driver of the 3.03 per cent growth in imports to Sh1.63 trillion, the slowest rise since 2015.

Besides industrial supplies, the other driver of imports was petroleum products whose value climbed Sh61.21 billion, or 24.34 per cent, to Sh312.704 billion in the period.

The growth in the total imports bill was, nonetheless, dragged by food, machinery and transport equipment whose orders fell 25.02, 7.15 and 4.12 per cent, respectively, to Sh167.68 billion, Sh267.02 billion and Sh176.19 billion.

The recovery in the hitherto struggling manufacturing sector may cheer the rising population of graduate youth because it is a major source of jobs at different career levels.

“The year 2018 was going to see some improvement in manufacturing considering we had a relatively stable year after a 0.2 per cent growth in 2017 attributed to the fact that we were in an elections year,” said Kenya Association of Manufacturers (KAM) chief executive Phyllis Wakiaga.

“Things like the fight against illicit goods have really helped because when you look at alcoholic beverage, they have reported better growth. We are still not where we need to be, but we are seeing some strides.”

President Uhuru Kenyatta is banking on modernisation and development of new factories to help generate targeted 800,000 new decent jobs for the youth under “Big Four Agenda” economic transformation plan by 2022.

To achieve that, the sector’s contribution to the national wealth, technically gross domestic product (GDP), is expected to grow to 15 per cent from a revised decades-low of 7.9 per cent in 2017.

The sector’s share of the GDP has steadily dropped from 10.7 per cent in 2013, 10.0 per cent (2014), 9.4 per cent (2015) and 9.1 per cent in 2016, data by KNBS shows.

The sector’s reduced contribution to the GDP is a result of sluggish growth over the years to a low of 0.2 per cent in 2017 from 2.7 per cent in 2016, 3.6 per cent (2015), 2.5 per cent (2014) and 5.6 per cent (2013).

The plan, under the manufacturing pillar, is to create an additional 1,000 small- and medium-sized (SMEs) factories in targeted sub-sectors such as agro-processing, leather, textiles and fish-processing.

Treasury Cabinet Secretary Henry Rotich says in the Budget Statement 2018 the manufacturing sector will have to add $2 billion to $3 billion (Sh200.32 billion to Sh300.45 billion) every year to the GDP to attain the projected 15 per cent share of the national wealth.

“This will be achieved through establishing leather parks and textile industries in various parts of the country, reviving and transforming industries such as the blue economy and manufacturing of construction materials, and re-establishing the automobile industry, which will make new vehicles more affordable,” Mr Rotich says.

“We will target investors that are ready to invest in specific areas by providing tailor-made incentives.”

Some of the targeted incentives extended to the manufacturing sector this financial year, which are in line with Vision 2030s third Medium Term Plan 2018-22, include reduction in electricity costs, higher duty on selected imports as well as remission of duty and exemption from Value Added Tax on key raw materials.

Manufacturers have cited higher electricity prices compared with regional peers as one of the drivers of the high cost of production for the domestic industry, with Kenyan companies estimated to be at least 12 per cent less competitive than the global benchmark.

Average industrial power tariff in Kenya at $0.1365 (Sh13.67) per kilowatt-hour in January 2018 was higher than neighbouring Ethiopia’s $0.066 (Sh1.66), Tanzania’s $0.0688 (Sh6.89) and Uganda’s $0.1226 (Sh12.28), according to an analysis by the African Development Bank.

Large factories were expected to start deducting a third of their total electricity bills from corporate profit before they pay tax to Kenya Revenue Authority from January 1 in a bid to lower the relatively high cost of production.

This rebate is, however, subject to conditions to be set by the Energy ministry in an amendment to the Income Tax Act through the Finance Act which was operationalised on September 21, 2018.

The ministry was yet to reach a deal with manufacturers and taxman over criterion for 30 per cent refund on cost of electricity by end of last week, keeping the cost of production high.

The talks involve stakeholders such as the Energy Regulatory Commission (ERC), Kenya Power and KAM.

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