Avoid protectionism and promote productivity instead

It is a surprise that the government plans to introduce and implement from next year legislation to ban importation of products that arguably can be produced in the country, starting with steel and iron products.

It may be a coincidence that the import plan will start with products in the iron and steel industry but it is instructive that the announcement was made last week during the official commissioning of a relatively large steel products manufacturing plant in Kilifi owned by Devki Steel Mills.

President Willian Ruto, eager to be seen as a leader attuned to the interest of local manufacturers, was responding to the pleas for protection from Devki Group Chairman Narendra Raval.

A successful entrepreneur, Mr Raval knows the value of having a protected business – it creates a virtual monopoly for him and provides a guaranteed market.

But surely, protecting one dominant individual — as will happen in this case given the player’s dominance — is not a very bright idea given the urgent imperative to expand the manufacturing base to enable it to achieve the ambitious target set by the Uhuruto government of manufacturing contributing at least 15 per cent of the country’s GDP by 2022.

No one can dispute the fact that the local manufacturing sector needs significant interventions at the regulatory and direct support levels.

Although the Ease of Doing Business Index has improved very significantly over time, some onerous challenges exist. The cost of energy, a critical input in manufacturing, remains a formidable disabler here.

The fact that Mr Raval has chosen to produce his own power rather than tap into the national grid should tell us that something is seriously wrong with the way power is costed here.

Experts tell us energy costs in Kenya can drop to more manageable levels because most of our supplies are from the cheaper geothermal source, of which we have plenty.

One intervention that the government must pursue with zeal is to review and fully implement the recommendations of various commissions and agencies on this matter, the latest of which is the 2021 report of the special task force set up by President Uhuru Kenyatta to recommend far-reaching changes to improve the efficiencies of the energy production and distribution sector. This could include costing. Apart from a team set up to review the existing PPA agreements, little else has been heard on the other recommendations.

Investment sweeteners

Other areas that have been highlighted as needing attention include encouragement to use alternative conflict resolution mechanisms to allow corporate disputes to be resolved speedily, improvement of investment sweeteners to persuade local and foreign investors to invest here; and speedy processing of tax refunds.

An elaborate marketing of the special economic zones could expose more opportunities for industry.

One opportunity that comes to mind is to respond to the search by the global textile and apparel sector for alternative product sources from the traditional China and East Asia countries.

Kenya ticks all the boxes (except energy cost) that this industry needs to set up here, with the possibility of creating thousands of jobs. That we have lost this opportunity to Ethiopia is highly instructive and disappointing.

Another opportunity the government must unpack and implement is the local content promotion protocol that has been in the works since 2017.

That was when the Kenya-based Global Institute of Management leadership was invited by the then Trade Principal Secretary Chris Kiptoo, to present the Kenya Local Content Mechanism concept at the Kenya Trade Week and Exposition. The idea was positively received at the forum and expectation was that an implementation process would start.

It is yet to start although the concept is fully fleshed out and is sitting with the relevant ministry. The Kenya Local Content Mechanism Policy Act (the legislative cloth to give effect to the policy) defines the local content mechanism as the making of specific parts of a product using indigenous local material resource in a host country to complete a product from a foreign country.

Once implemented, it will by law require a minimum level of Kenya Local Content to be used in the manufacture of any product destined for sale here. Its roll-out will start with simple products used in everyday life – pencils, knives; to graduate into slightly more sophisticated products – bicycles, motor cycles, electronics; and finally, to heavy-duty machinery.

If implemented successfully, this project can create an endless supply chain of local content for products manufactured in Kenya, with profoundly impactful consequences on employment, income generation and tax revenues.

Rolling out these and addressing the other issues raised above is an infinitely more progressive way for the new government to boost local manufacturing than re-introducing protectionist measures.

Mr Mshindi, a former editor-in-chief of Nation Media Group, is now consulting. [email protected]; @TMshindi)