Economic Update

The manufacturing sector is a key beneficiary of both Kenya’s 2018 budget and a new policy identifying medium-term economic growth drivers.

Released by the Treasury on January 19, the draft 2018 budget policy statement (BPS) outlines plans to increase state support for developing manufacturing, while also setting targets for growth and employment across a range of industrial segments.

Objectives include increasing manufacturing’s contribution to GDP from 9.2% in 2016 to 15% by 2022, adding some $3bn to the economy and creating around 400,000 new jobs.

The BPS details a range of measures to achieve these aims, including developing value-added facilitators, such as cold-chain and warehousing sites for the agro-processing segment, and fast-tracking industrial zones for the leather and fisheries segments.

The plans are in line with the government’s wider blueprint for social and economic growth, known as “The Big Four”. The initiative targets four key pillars of the economy for development over the next five years: manufacturing, affordable housing, health care and food security.

President Uhuru Kenyatta, who unveiled the plan last December, said four manufacturing subsectors would form the cornerstones of the new manufacturing policy, namely the so-called Blue Economy, focused on sustainable fishing and aquaculture, textiles, leather and agro-processing.

Inefficiency and high costs weigh on industry’s performance

While industry players have welcomed the increased focus on manufacturing, some point to fundamental structural weaknesses in the local economy that need to be addressed in order to achieve growth targets.

Of major concern is the high cost of domestic transport and logistics, which has affected the operating efficiency of manufacturers, along with problems associated with securing reliable access to energy.

The national drive to provide manufacturers with improved access to power will include closing gaps in supply, bolstering distribution and addressing cost concerns. Providing universal access to affordable electricity within the next four years by increasing the use of renewable energy and other domestic sources is also outlined in the BPS.

Further support is expected to come in the form of continued investment in transport and logistics infrastructure, notably through the ongoing, multibillion-dollar Lamu Port-Southern Sudan-Ethiopia Transport corridor programme.

In addition to improving rail and road links between eastern Kenya and neighbouring countries, the project involves development of the 32-berth Lamu Port and construction of an 865-km oil pipeline linking the Lokichar Basins in Turkana County to a refinery at the port.

Officials announced in February that terminal one at Lamu Port should begin operating later in 2018, with ground already broken on three berths at the facility.

Several major manufacturing operations expand

Despite challenges, the manufacturing sector has steadily been gaining momentum in recent years, with several major manufacturers expanding their operations.

Last October Kenyan firm Chandaria Industries, one of the largest tissue paper and hygiene product manufacturers in East and Central Africa, began work on a second manufacturing plant at Tatu Industrial Park in Riuru. Chandaria aims to double annual production capacity to almost 29,000 tonnes and create an additional 1000 jobs when the KSh5bn ($49m) facility opens.

One month earlier, the multinational consumer goods manufacturer Bidco Africa opened a KSh2bn ($19.7m) detergent factory at its main facility in Thika, with initial production set at 3000 tonnes per month. The firm also launched a juice manufacturing facility in the Tatu park after entering into partnership with the Danish company CO-RO.

The projects form part of a longer-term, KSh200bn ($2bn) expansion drive being undertaken by Bidco, which includes opening several new factories at the Tatu site and building a new self-contained industrial park. Vimal Shah, the group’s chairman, told local media in 2017 that Bidco was looking to create 2000 new jobs directly within the park and about 200,000 others within its ecosystem.

Investment has also come from outside the continent. Global chewing gum giant the Wrigley Company, a subsidiary of US-based Mars, is nearing completion of a KSh5.8bn ($63m) plant in Mavoko, Machakos County. It aims to double production to 7.8bn pellets of the brands it produces locally, which include Juicy Fruit and Orbit, as well as diversify into other product areas.