May 09, 2012
Several manufacturers have been closing up shop in Kenya because of high energy costs and inefficiency at Mombasa's port, among other grievances, which some industrialists say threatens Kenya's competitiveness in the world.
"It is high time the government addressed issues of energy, infrastructure and bureaucracy to ease the cost of doing business in Kenya," said Betty Maina, chief executive of the Kenya Association of Manufacturers, a lobby group for industrialists.
Maina said that some manufacturers have relocated because it is expensive to do business in Kenya, both in terms of production and transportation.
"The time it takes to clear goods at the port of Mombasa and transportation to the respective locations affects productivity in a number of manufacturing companies. There is still a lot of paperwork, which causes delays in clearing goods, and thereby makes it very difficult to get your goods out of the port in time," she said.
Some of the companies that have relocated to other parts of the continent include Colgate-Palmolive, Reckitt Benckiser and Cadbury, which has shifted the bulk of its chocolate making operations to South Africa.
In April, the World Bank released a survey on the ease of doing business, indicating that despite improvements within the East African Community, Kenya has been losing its competitive edge to countries such as South Africa, Egypt, Mauritius and Rwanda.
The report says Kenya's ranking slipped from position 98 to 109 from 2011 to 2012, out of the 183 economies surveyed. For East African Community countries, the report ranks Rwanda 45th, Uganda 123rd, Tanzania 127th and Burundi 169th. These countries all showed improvement or remained at around the same position.
The report blames high energy costs, poor infrastructure and a slow judicial process to resolve business disputes as reasons for Kenya's slip.
"The current high power tariffs are already having a negative impact on the country's manufacturing sector," Maina said. "This is in turn hurting our competitiveness in the international market, as locally produced products are priced higher than those produced by competing countries."
The Kenya Ports Authority (KPA) says congestion and delays at the port are being addressed.
"We are faced with a number of operational challenges, which we are handling with the support of development partners and the private sector as we work on long-term solutions," KPA head of corporate communications Bernard Osero told Sabahi.
He said the government has invested 10 billion shillings ($120 million) for the port's expansion and operational efficiency, including dredging works, the construction of a new berth, and information and communications technology upgrades. This will be complimented by the completion of the proposed Lamu port, launched by President Mwai Kibaki in March.
In addition, the government launched a project in January to increase efficiency and capacity at Mombasa's port.
The government also says the energy sector has been restructured to respond appropriately to the needs of both industrial and domestic electricity consumers.
"The government is addressing the challenges through a rapid expansion of electricity capacity and is upgrading transmission and distribution networks and increasing investment in renewable sources of energy," government spokesman Alfred Mutua told Sabahi.
Last month, the government signed a deal with a Chinese firm to provide Kenyans with cheaper geothermal power.
United Kingdom-based Unilever Group, which has vast manufacturing interests in Kenya, held a meeting with Prime Minister Raila Odinga in April to request government intervention for some of the challenges the business community faces.
Unilever CEO Paul Polman, however, assured Odinga that the firm would not relocate its plant from Kenya, despite rising costs.
"On the contrary, we are investing hugely in innovations, market-development activities, manufacturing capacity, technology, working capital, distribution infrastructure and talent development," Polman said.
Jonathan Chifalu, communications manager at the Kenya Export Processing Zones, said a number of companies in the area, about ten kilometres outside Nairobi, incurred an estimated loss of 20 million shillings ($240,000) in April due to power outages, which lasted for three consecutive days.
"[The companies] were forced to use stand-by generators which are more expensive to run," he told Sabahi.
Similarly, Orata International, Ltd., an animal-feed manufacturing company based in Nairobi's industrial district, said it lost more than 3 million shillings ($36,000) between the months of March and April due to blackouts.
"It is very difficult to run a business with continuous power blackouts which nobody has explained to us," Orata managing director Iyadi Orata told Sabahi. "Who will compensate us for the losses?"
The Kenya Private Sector Alliance (KEPSA) says excessive business licensing procedures are discouraging to investors.
"The reason Rwanda is ranked ahead of Kenya is because it is the only country in the region that has put in place a one-stop-shop system that really works," KEPSA chairman Patrick Obath told Sabahi.
Obath says Kenya needs to catch up with necessary judiciary reforms to expedite resolution of business-related disputes.
Despite the challenges frequent blackouts and a burdensome bureaucracy impose on the business sector, the outlook remains positive, says Aly Khan Satchu, an emerging markets investment analyst in Nairobi.
He told Sabahi that growth has been hindered in sectors heavily dependent on energy, but that a number of non-manufacturing companies continue to register remarkable growth.
"The unattractiveness is for heavy energy-consuming sectors. There are a number of global firms setting up in Kenya, for instance in information and communications technology, such as Visa, MasterCard and others," Satchu said.
Nonetheless, if the government does not address the debilitating energy problem, Kenya's Vision 2030 development plans may not come to fruition, he said.
"The high cost of power is simply unacceptable. It means we are essentially not competitive globally when it comes to manufacturing," he said.
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