In the 1980s, manufacturing in Kenya was so big that Daniel arap Moi's government dared to join the car manufacturers' league by commissioning the building of its own car.
The plan failed because the exotic car, the Nyayo Pioneer, could barely move a kilometre, but the dream of building the car demonstrated the Moi administration's enthusiasm for local manufacturing.
At the time, manufacturing's contribution to the country's gross domestic product, or GDP, was about 10.5%, second only to agriculture.
The financial sector – combined with real estate and business services – contributed 6.2% of GDP.
February 27, 1990: President Daniel Toroitich arap Moi launched the first three Kenyan-made cars called Nyayo Pioneer 1, 2 and 3. He announced plans to produce it in large quantities and said that land had been allocated to build a factory and assembly line. . The President drove one of the saloon cars to the delight of the huge crowd at the Moi International Sports Center Kasarani Complex where the ceremony was held. Cars that reached speeds of up to 160 kilometers per hour were 120 kilometers per hour.
Image credit: file | Nation Media Group
Moving forward to 2023, the financial and insurance sector's share of GDP has surpassed that of manufacturing to become the fourth largest industry after agriculture, transport and real estate, according to the latest annual economic survey by the Kenya National Bureau of Statistics (KNBS).
Last year, the financial and insurance sector contributed 7.8 percent to the GDP compared to the manufacturing sector, which reached 7.5 percent, indicating faster growth in banking and insurance activities compared to manufacturing.
However, the contribution of the manufacturing sector to GDP declined from 10.4 percent in 2007 to 7.7 percent in 2022 against the 15 percent target under the Big Four agenda of the Uhuru Kenyatta administration.
For its part, the services sector, including transportation, real estate and trade, witnessed faster growth in the same period.
While banking activities have been revived by financial technology and the regional expansion of some of the country's largest lenders, the manufacturing sector is suffering from high production costs, the spread of counterfeit products, low-technology adoption and recurring droughts, the government says in its fourth report. Medium-Term Plan (Fourth Medium-Term Plan).
Christopher Kande, vice chairman of the manufacturing committee at the Kenya National Chamber of Commerce and Industry (KNCCI), said there were also punitive tax measures implemented in various sub-sectors.
“Conversion costs which include labor and electricity are also rising steadily. It has also been reported that some multinational companies find it more profitable to import finished products from their operating units in other countries, thereby reducing the growth of the sector.
The difficult operating environment has seen a number of prominent manufacturers exit the country. Includes a sweets maker Cadbury Kenya that moved To Egypt in 2014, where they said the cost of labor and energy was relatively lower.
Earlier in 2007, personal care giant Reckitt Benckiser stopped direct manufacturing in Kenya due to “cost and economy of scale issues”.
Colgate-Palmolive, an oral and personal care company, also closed its factory in 2006, leaving nearly 50 permanent and casual employees out of work.
Factories in Kenya, like many others around the world, are struggling to compete against those in China, which has recently been the main exporter of Kenya-manufactured goods including those made of iron, steel, plastics and textiles.
It is not only the Kenyan market that has been flooded with Chinese manufactured goods, but also neighboring countries that have long relied on Kenya for products made of iron and steel as well as plastics.
One of the manufacturing giants was the textiles and clothing sector, whose fortunes declined.
In the 1990s, thanks to the encouragement of import substitution through tariffs and import quotas, the textile subsector employed about 30 percent of the national manufacturing workforce.
Encouraging import substitution was also supported through foreign exchange allocation measures. The exchange rate has also been overvalued to contain the cost of importing raw materials, and credit and interest rates have been implicitly subsidized for imported raw materials, writes Dr Jacob Omolo, economics lecturer at Kenyatta University.
Imports of used clothing, known as mitumba, have also been blamed for the poor performance of the textile sector.
However, successive regimes, from the late Mwai Kibaki to Uhuru Kenyatta and William Ruto, have pinned their hopes of reviving the manufacturing sector on textiles.
Former National Treasury Minister Henry Rotich, after unveiling the Big Four agenda in the 2018 budget policy under the Kenyatta government, launched an attack on Mitumba and even hinted that Kenya would stop the flow of used clothes into the country.
“Our textile and footwear sectors are closing down due to unfair competition from cheap imports,” Rotich said in his June 2018 budget speech.
Effective July 2018, Mr Rotich announced that all imported clothing including mitumba would be charged a higher import duty of $5 (500 shillings) per unit or 35 percent, whichever is higher.
He said that the tax aims to encourage local production and create job opportunities for young people in this sector.
New clothing imported from countries such as China has also been targeted by high tariffs aimed at encouraging local production.
Imported spirits also attract higher tariffs as a way to encourage local production of alcoholic beverages.
In its fourth medium-term plan, the Ruto administration attributes this decline to high production costs, competition from counterfeit goods, low technology adoption, and recurring drought.
But the government believes that there is progress in reviving the manufacturing sector.
“The sector has facilitated export-oriented investment through the development of the textile hub on the Athi River; the modernization of the Revatex Textiles factory; and the initiation of special economic zones in Dongo Kundu and
Naivasha. “Contribution of manufacturing industries to Kenya’s GDP compared to lower-middle-income and upper-middle-income countries between 2007 and 2022,” the fourth medium-term plan said.