Use data to plan the economy

SACIR EST Export Sales Director Alberto Rischio (right) explains how their products work to Trade and Industrialization PS Juma Mukhwana and Qatar Ambassador to Kenya Jabor Bin Ali Al-Dosari during the opening of the 24th Africa’s premier Automotive, spare parts, industrial tools and equipment trade exhibition at KICC on May 4, 2023. PHOTO | LUCY WANJIRU | NMG

Manufacturing is dying in this country. That is the stark message from the latest statistics in the Economic Survey.

The share of the manufacturing sector’s contribution to GDP has shrunk to 7.8 percent from double-digit levels hardly 10 years ago.

The disingenuous boasts we hear from the elites about promoting growth and business investment are all hot air.

And, we must not forget that under Vision 2030- our long-term economic blueprint- our aspiration is to achieve a minimum of 15 percent manufacturing sector’s contribution to GDP.

We are stuck in a productivity slump for more than two decades. Granted, firms trading non-tangibles and non-exportables- property rentals, tech and financial instruments have been making lots of money and hoarding cash.

But the material economy has been in deep trouble. It is the low-productivity businesses that offer mostly insecure and low-grade jobs that have been flourishing.

Clearly, the situation calls for a vigorous government response to shake up and restructure the incentives regime for the manufacturing sector.

Yet, when you listen to most of the large manufacturers today, the stories you will hear are about benign neglect and lack of incentives.

Cement makers woke up the other day to find that the government plans to introduce a new ‘export and investment levy rate’ of 10 per cent whose effect will be to force them to purchase raw materials from a politically- influential local competitor.

Manufacturers of steel billets, wire rods, welding alloys and other semi-processed steel products also tell long tales of woes about how taxes have tilted the playing field in favour of one player.

Local manufacturers of edibles are currently operating in an environment where they have to compete with products that have been imported into the country on a duty-free basis.

All this is happening in the name of encouraging local investment and deepening import substitution.

Yet the experience world over is that the promotion of local investment and attraction of manufacturing FDI has better chances of success when a country is pursuing a deliberate industrial policy.

You spell out the type and structure of the industrial sector you desire and select champions you deliberately want to nurture as a country.

When tax protection is introduced in a piecemeal manner and granted only to politically-influential players, you breed cronyism.

What Kenya needs is an ambitious industrialisation strategy to tackle the productivity crisis and the anaemic growth in the manufacturing sector.

The opinion is unanimous that our best chance at driving productivity and growth in manufacturing to a new level is in implementing special economic zones and industrial parks.

Yet our policymakers don’t seem to have thought through how to implement special economic zones properly.

Where it has worked, especially in the NIC economies, special economic zones are implemented under a cluster model and by establishing different manufacturing clusters making specific products.

Other proxies of national income point to anaemic growth: an upsurge of profit warnings by listed firms, flat-lining in electricity demand by large and industrial consumers, widespread distress across large department stores and supermarkets, a drop in the flow of credit to the private sector and a rise in the number of redundancies by even profitable companies.

Even the usually bullish property sector is feeling the heat, finding itself in the middle of an unprecedented fall in demand for office space and a fall in rental incomes.

Capital markets are still in the middle of a bear run.

The writer is a former managing editor of The East African Newspaper.