Business Daily (Nairobi)
David Mugwe
12 December 2011
Kenya is well-positioned to grow a strong manufacturing base in textiles, chemicals and automotive parts, which could help the country to diversify its exports, the World Bank has said.
Growth of exports beyond tea, tourism and horticulture would reduce the demand for foreign currency, making the Kenyan shilling more stable and the economy less susceptible to external shocks, the Bretton Woods institution said in a report published last week.
“Kenya will succeed economically and be less vulnerable to shocks only if it balances its economy through stronger exports. It is well positioned to enter new markets such as Asia if it continues to improve its infrastructure and investment climate.”
Kenya is currently a net importer having bought goods and services worth Sh947 billion last year against Sh385.7 billion worth of goods and services sold to other countries in 2010.
Factors such as the volatility of the shilling and its depreciation to the dollar by almost 27 per cent through the first 10 months of this year have however increased the cost of Kenya’s imports.
The World Bank says that the country now needs to move beyond tea, tourism and horticulture, where it is already performing strongly and focus on increased domestic energy production, especially geothermal, to reduce dependence on expensive fossil-based thermal energy.
Imports of crude petroleum and petroleum products, most which are used in the production of energy, cost the country Sh72.598 and Sh122 billion respectively per year.
Last year the country earned Sh91.6 billion, Sh73.7 billion and Sh72.1 billion from tea, tourism and horticulture respectively, according to the Kenya National Bureau of Statistics.
It also earned Sh621 million from textile yarn, Sh15.56 billion from clothes, Sh1.659 billion from insecticides and fungicides and Sh5.86 billion from medicinal and pharmaceutical products.
In his speech at the Jamhuri Day celebrations yesterday, President Kibaki said diversification from tea and horticulture was important to help attract foreign exchange, in addition to consuming locally produced goods.
“Our focus must now turn to manufacturing, mining and agriculture value addition in order to cushion us from external shocks,” he said.
Industry experts now say that the country can shield itself from external shocks that have contributed to an increase in the cost of basic goods and services by taking advantage of its location, port and natural resources that will help reduce the costs of energy.
“We are strategically located and we are duty-free to Comesa, EAC, Europe and Agoa but unfortunately we do not take full advantage of these markets,” said Jaswinder Bedi, chairman of the Kenya Association of Manufacturers.
He said that competitors such as China and India, which export their products to the same international markets do so with duty and are becoming more expensive as they focus on meeting the demand in their domestic markets, adding to Kenya’s advantages.
The country’s poor transport infrastructure, that provides a gateway into the regional markets and high costs of production have however pushed up costs for companies operating locally.
George Mwangi, chief executive officer of East African Cables, which has operations in Uganda, Tanzania, Rwanda and Burundi said that the country’s location and its port gives it a distinct advantage.
“The port of Mombasa is well placed for a manufacturer to export to Rwanda, Uganda and others.
I think to some extent we have begun to address some of these issues but we must address infrastructure and the road network in the region,” he said.
Mr Mwangi added that all the EAC countries needed to be involved so as to effectively address the regions infrastructure challenges.
The World Bank said that this year industries that depend on imported raw materials saw their production costs increase significantly due to high import bills of oil and steel, coupled with the depreciation of the shilling.
AllAfrica – All the Time