The past few years have been relatively challenging for Kenyan manufacturers, with the manufacturing sector as a percentage of GDP declining from 11.8 per cent in 2011 to 8.4 per cent in 2017, according to data from the Kenya National Bureau of Statistics.
Despite this downtrend, the underlying fundamentals are still encouraging and the potential for manufacturing to lead the country to a brighter economic future is stronger than ever.
Kenya has one of the most developed consumer markets in the region. Research from the Oxford Business Group indicates that the country’s formal retail penetration rate is between 30 and 40 per cent, the second in sub-Saharan Africa after South Africa and double Nigeria’s.
This high formal retail penetration, which has partly been driven by the entry of international retail chains, underlines the huge opportunity to manufacture and market world-class consumer goods in the country.
Kenya is also the preferred gateway to East and Central Africa and, through the Port of Mombasa, provides the region with direct connectivity to over 80 ports worldwide. This makes it an ideal base of operations for manufacturers seeking to use the country as a vantage point to penetrate other markets in East and Central Africa.
To capitalize on the country’s comparative advantages in manufacturing, the government is employing a strategic mix of reforms and incentives under Vision 2030, the Kenya Industrial Transformation Programme and, most recently, the Big 4.
President Uhuru Kenyatta’s Big 4 Agenda targets to expand the manufacturing sector as a percentage of GDP to 15 per cent by 2022. For this rapid expansion to occur in a space of just three years, the pace of reforms needs to pick up.
Issues such as fighting illicit trade and counterfeits, improving market access within key trading blocs like EAC and COMESA and the removal of punitive taxes targeting high potential manufacturing subsectors need to be definitively dealt with.
Importantly, the country also needs to urgently mobilize fresh investment in manufacturing. This includes both domestic investment and, crucially, foreign direct investment, which is key in bridging the country’s domestic savings gap.
To attract foreign investors into manufacturing, attractive fundamentals are not enough. A deliberate effort to entrench green manufacturing is also needed in view of the direction in which manufacturing is moving.
Globally, leading manufacturers are adopting a more long-term view on clean energy use amidst mounting challenges such as climate change. This is certainly the case with Mars Wrigley Confectionery.
Our recently launched $70 million (Sh7 billion) chewing gum factory in Athi River is the first in the region to be recognized for green technologies under the world’s most widely used green building rating system – LEED, or Leadership in Energy and Environmental Design. The factory has received LEED GOLD Certification status, awarded by the United States Green Building Council.
While we are not the only ones thinking about green manufacturing in the world, we are among the first to take this giant leap in Africa. This is in line with our ambition of cutting all fossil fuel energy use and greenhouse gas emissions from our operations by 2040 in the Mars Sustainable in a Generation Plan.
Industrial players are the largest consumers of electricity in Kenya, accounting for about 60 per cent of total consumption. Therefore, if Kenya wants to attract the top cadre of manufacturing multinationals, who are increasingly concerned about issues like clean energy, it needs to put in place clear policies and incentives.
Recent investments in 21st century infrastructure, such as roads, rail and ICT connectivity, will help position Kenya’s manufacturing sector competitively in the eyes global investors looking to enter the market. However, the real game changer will be policies and incentives that promote clean energy and allow manufacturers to operate in a way that is good for the planet and the people.
This is the way to do business today and the route that offers Kenya the best chances of mobilizing foreign investment to fast-track the growth of the manufacturing sector, while playing its part in combating climate change.
(Ms Mwangi is the Corporate Affairs Director, Developing Middle East and Africa at Mars Wrigley Confectionery. Wanja.email@example.com)