MPs’ failure to shield local manufacturers hurting job creation by Wanjiku Manyara-General Manager, PIEA

Three pertinent sustainable development-related issues came out glaringly in the recently published Economic Survey 2021.

One, for the first time in two decades, salaried jobs took a plunge and particularly in the private sector, where more than 200,000 workers were laid off.

Secondly, the self-employment sector which accounts for 83 percent of the country’s total jobs, reduced the workforce by more than 500,000.

Last but not least, manufacturing declined as a result of reduced domestic and international demand for locally produced goods.

Preceding these damning economic development negatives was the unsettling news of Parliament rejecting a proposal in the Public Procurement and Asset Disposal (Amendment) Bill 2020, aimed at boosting local manufacturing to maintain and spur job creation.

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Members of Parliament justified their rejection of the proposal to compel, subject to availability, all foreign tenderers participating in international contracts to source at least 40 percent of local products and services, with a blanket condemnation of local products as being of poor quality and low standards.

This misinformed and deceptive narrative cannot go unchallenged, particularly because it is from a script that has been concocted to deride Africa-driven innovations and originality so as to advance the nefarious deprivation of our locally produced goods and services from equal opportunity even within our jurisdictions.

This adversely impacts on entrepreneurial and employment opportunities particularly for our youth.

For instance, Kenya is home to five lubricant manufacturing plants that produce high-quality oils of well-known international brands, four of which remain operational and in fact produced hand sanitizer for public distribution by the government last year.

One has shut its doors due to unfavourable fiscal policy which breeds unfair competition and incentivises illicit trade of lubricating oils.

Local lubricants blending currently supports approximately 1,000 direct jobs and many more indirectly in spite of the fact that the production is low and is currently at 40 percent of Kenya’s 130,000m3 installed capacity, which has an estimated value of Sh10 billion.

Thirty percent of lubricants in the country are imported as finished products.

Yet the existing lubricant manufacturing companies are running at half capacity, never mind the huge capital-intensive infrastructure construction that could have driven up demand for locally produced lubricants and along with it job opportunities and tax revenues, if the contractors were obligated to comply with the 40 percent preferential procurement rule.

A deliberate policy and regulatory framework to catalyse an increase in locally procured volumes will mean higher capacity utilisation and this will lead to modernisation of local blending plants to be at par with global peers which in turn will improve production efficiency and product quality.

There will be an increase in exports as we can compete favourably with other producers. Kenya already has a geographical advantage hence shorter lead times to target markets as compared to our competitors and therefore we should also strategically position ourselves to benefit from the upcoming African Continental Free Trade Area as a manufacturing hub.

It should be recalled that Kenya’s lubricants business segment was a major direct employer of the steel drum manufacture, plastic packaging and label manufacture industries up to the end of the 1970s when the Arab gulf countries imposed 25 percent duty on all imported lubricants and removed duty on base oil and additives to their local blending plants thereby automatically shutting Kenya out of the lucrative Yemen market.

Gulf countries are now major exporters of lubricants employing thousands of people with backward integration that has seen massive growth in the base oil and petrol chemical manufacturing industry.

Kenya could learn from this example. The Petroleum Institute of East Africa has pulled out all stops seeking to convince the Treasury and Parliament to consider data-based fiscal reform strategies that can revive local lubricant manufacturing and further attract local manufacturing of the required raw materials specifically base oils, additives and plastic raw materials.

These reforms, if implemented, have the potential to exponentially increase economic development gains, in particular, reduction of current imports of finished lubricating products which will lead to an increase in sales of locally blended lubes and an ncrease in corporate taxes of approximately Sh35O billion.

Further, there will be additional VAT earnings of approximately Sh160 billion from the reduction of illicit trade which is about three percent of the current market. Additionally, there will be an increase from PAYE taxes and a reduction in KRA’s administrative costs.

The specifications for locally produced lubricants which should be enforced by the relevant regulatory agencies, one of which is the Kenya Bureau of Standards (Kebs).

The concern then by the MPs regarding locally produced goods being of low quality and non-compliant with standards is far-fetched, insincere and a lame excuse for not protecting local manufacturing from imports influx, discrimination, and capital flight.

It also stifles wealth creation and employment opportunities given that lubricant manufacturing is very labour-intensive as Kenya is still doing batch blending as opposed to inline blending.

The opportunity for the local population to participate in manufacturing should be prioritised because there is a genuine and compelling sustainable development case for employment of the bulging youthful population; it promotes apprenticeship, technology transfer and retains talent. And it is cheaper to source local goods and services.

Let us vigorously defend policy and regulatory developments that upport the Buy Kenya-Build Kenya Initiative.

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The following article has been extracted from Business Daily published on 27/September/2021. 

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