Corruption, payment delays stifle Kenyan manufacturers

A recent report by the Kenya Association of Manufacturers indicates that members are largely operating below capacity and their economic growth prospects are not bright due to lack of funds, drought, and corruption. The survey, called the Manufacturing Barometer was carried in the first quarter of this year.

According to the findings, 47 percent of those surveyed operated at about half capacity, 33 percent operated at 75 percent of installed capacity and a fifth operated near full capacity. Probably why, President Uhuru Kenyatta says the sector was one of his top four priorities when he commenced his second term in 2017, due to its potential to create jobs. The government, however, has struggled to boost the sector due to high electricity tariffs and illicit imports of goods such as sugar and cigarettes.

According to Stanbic Bank Kenya’s Purchasing Managers’ Index (PMI) survey, it showed that activity in Kenya’s private sector contracted for the first time in 17 months in April, hurt by drought and strained cash flows. In 2018, the manufacturing sector grew by 4.2 percent from official data-  contributing 7.7 percent of the country’s annual economic output of about 80 billion U.S. dollar, down from a share of 8 percent in the previous year.

The sector’s contribution to Kenya’s gross domestic product (GDP) however, has dipped gradually since 2014, when it stood at 10 percent. President Kenyatta’s government says it aims to raise the contribution of manufacturing to 15 percent of GDP by 2022. But till then, the forecast for the sector this year could worsen because of the continuous dry weather, the association captured in the report.

Private sector credit growth has slumped since the government capped commercial lending rates in September 2016 to lower the cost of credit. Delays by the Kenya Revenue Authority in processing tax refunds likely to hurt manufacturers’ cash flow, the report said. Some survey respondents say delays in clearing cargoes at the Mombasa port is also leading to loss in sales and setback due to higher charges. The survey also found 76 percent of respondents planned to freeze hiring of new full-time employees, or reduce their numbers. The manufacturing sector covers a wide range of businesses, including food and beverage production, metal products fabrication, pharmaceuticals and cement production.