Capital FM (Nairobi)

16 January 2013

Kenya: KAM Warns of Investor Caution As Polls Approach

Photo: Julius Mwelu/IRIN
The post-election violence in early 2008 resulted in more than 1,000 deaths and the displacement of at least half a million Kenyans.

Nairobi — The Kenya Association of Manufacturers (KAM) has warned that the manufacturing sector may experience slow growth during the first quarter of this year as investors await the outcome of the forthcoming elections.

KAM Chief Executive Officer Betty Maina emphasised that the country's political framework and stability before and after the election period will largely impact the overall economic growth of the country.

"In the post-election violence that took place after 2007 industry lost over Sh10 billion, more than 4,000 jobs... foreign direct investment plummeted by almost 75 percent from $729 million to $183 million," she said.

"A repeat of the same could bring the industry to its knees. Investors are holding their cards close to their chest as they await the outcome of the March elections," she pointed out.

On a positive note however, Maina revealed that Kenya's manufacturing sector welcomes various initiatives by government to boost international trade which also includes the signing of the Special Status Agreement with Ethiopia late last year.

"Exports will offer respite to the manufacturing sector as the uncertainty on the local market may potentially cripple the vibrancy of the sector," Maina said.

She added that labour costs and energy supply will remain the key drivers of productivity for industries.

"Government should learn that the ceremonial wage increases on Labour Day will always work against industry's quest to keep the prices of products down and should not be entertained. Wage increases should be based on performance and productivity," she explained.

Energy remains a critical issue in the manufacturing sector as the price of energy has been a crippling factor for the multibillion shilling industry.

"Kenya is competing on the global market with goods from countries such as South Africa, who are paying, for their energy costs, as low as US$6 per kilowatt hour."

Manufacturers also said that the industry is in dire need of increased energy supply to ignite more production and the current supply falls far short of the country's requirements and this in turn is frustrating developments in industry.

"The country is in a power deficiency situation. The available grid capacity of 1,330 MegaWatts (MW) against a peak demand of 1,300MW leaves a reserve margin of two percent which falls far short of the global standard of 15 percent," she said.

She explained that good infrastructure is an excellent enabler of growth, and there is need to expedite completion of all infrastructure projects to boost capacity of the country.

"Market watchers are cognizant of the fact that economic growth is associated with the expansion of the manufacturing sector and there is need to shore up industry development efforts for the common good of the country's economy," she said.

"As the country goes to elections in March, the industry is saying that it will not be business as usual, it is time for Kenya to take off and all stakeholders should work towards a common development goal in the interest of national economic growth," she emphasised.

The manufacturing boss also noted the need for the government to work on easing trade with other regional countries.

"The signing of the Special Status Agreement with Ethiopia late last year is one such development that industry welcomes and it is imperative that non tariff barriers that are being faced in trading with other regional countries are removed," she said.

KAM represents 700 members in the manufacturing industry and the manufacturers arguably contribute about a quarter of the country's gross domestic product.

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InFocus

Kenya's Economic Prospects Tied to Polls

The post-election violence in early 2008 resulted in more than 1,000 deaths and the displacement of at least half a million Kenyans.

As the nation heads toward the 2013 polls, observers have warned that election violence or malpractice could seriously stunt economic growth and investment. Read more »