Industrialization is the key to economic growth and employment

The recent Gen Z protests are impacting the country’s economy and making investors hesitant.

The Star spoke to Patrick Nyangweso, CEO of the Kenya National Chamber of Commerce and Industry (KNCCI), about the country’s business and investment climate and the way forward.

What impact do Generation Z protests have on businesses?

The country has had an unpredictable business environment over the past month, with businesses not even knowing when to open or operate. However, one of the biggest impacts has been on the supply chain. Disruptions have hampered the transportation of raw materials, especially for the manufacturing sector. This has also affected the production and delivery of finished goods, both locally and for export. This poses a challenge to meeting market demand and the sector’s contribution to the economy. If we look at the approximately Sh1 trillion that the sector contributed last year, according to the Economic Survey, this means that we lose approximately Sh2.86 billion every day, mainly in value addition, when there are disruptions. If this continues, Kenya will remain a consumer market that relies on more imports as our factories are not able to produce optimally. To achieve the target of 20 percent of the sector’s contribution to GDP by 2030, we need to ensure a conducive operating environment and smooth supply chains.

What other sectors, besides the supply chain, have been affected?

The tourism sector. There have been cancellations of up to 27 percent of bookings. This comes at a time when we are in the peak season, including the ongoing wildebeest migration, and this is a huge loss to the sector and the country which is short of foreign exchange. This needs to be addressed or we will lose out to competing markets, including neighbouring Tanzania. We have also seen the shilling, which had stabilised against the US dollar, start to lose again. This means costly imports. The protests have damaged our money and capital markets, something we need to correct.

How can we best reduce the huge trade deficit?

This can only be achieved if we empower our local manufacturers. From cottage industries (small scale manufacturing businesses owned and run by an individual or a family and often housed in a home), to large manufacturers. We need to empower local industries to become more competitive. In this way we create value addition, increased local production and growth in exports which automatically reduces the current trade deficit of about Sh1.6 trillion. To keep industries competitive we need to ensure they have affordable energy, good infrastructure and access to credit otherwise local production will be too expensive and will continue to lose out to cheaper imports including from our neighbours Tanzania and Uganda. We also need to ensure a predictable tax environment and friendly taxes which is crucial in investment decisions.

What is the current investor confidence?

Investors are concerned about the political climate and stability of the country. Many are holding back their funds, which means a slowdown in foreign direct investment (FDI). Therefore, we call on the government to bring all stakeholders to the table for dialogue and stabilise the country. This will ensure that existing investors, both local and international, are retained and at the same time attract new investors.

There are concerns about bureaucracies in government. What is your opinion?

It is true; there are a lot of bureaucracies. We regulate business too much. For example, if you register a business today, let’s say a restaurant, you need more than 14 licenses to operate. Let’s say you have a starting capital of Sh500,000 or a million, you spend up to 75 percent on getting licenses and other approvals, and then the taxes, how are you going to run that business? Within a year, your turnover may not even be enough to pay salaries and continue operating. That is why we see a lot of SMEs closing within the first year of operation. Yes, there has been a push for some licenses at provinces, but by and large, it is still too expensive to start a business in the country. Both the national government and provinces need to address these bureaucracies. Provinces should also stop these additional charges and levies, such as branding that is levied when moving goods. They should harmonize these taxes.

What is access to credit like for companies?

It is a headache for many. The interest rates of the banks are too high and we end up seeing businesses struggling to repay loans when things go wrong. They end up being auctioned off. This is not healthy, especially for SMEs. We need to have structures that support access to affordable credit, including lowering interest rates. The government should also support small businesses, including tax breaks. For example, give businesses that are starting out a tax break of six months to a year before they are brought into the tax bracket. This will help stabilize them and you will see that people will actually easily adhere to it instead of evading taxes. We also need to look at agribusiness, value addition and the digital economy to create jobs, especially for the youth. We need to support women and the youth to access affordable credit to invest in businesses and seize opportunities in the production and supply chain.

The government is counting on industrial parks to support value addition and industrialization. What do you think about this?

It is a good move because most industries have been centralized in urban centers for a long time. The move decentralizes production. The county aggregation parks have the potential to boost industrialization, including the growth of cottage industries into big players, which will also lead to employment and economic growth. At the Chamber of Commerce, we support the move. If they are well managed and supported, they will turn around local economies and support export growth.

Why are investors still importing labour when Kenya has a well-educated and trained population?

The biggest challenge is the skills mismatch. Our youth, though very well educated, are not competitive in the job market because of the skills mismatch. We need to harness our educational institutions to align the needs of the industry with their curriculum. This will make our youth more competitive not only in Kenya and the region but globally. The technical and vocational education and training facilities that we have across the country can help immensely in bridging this gap. We need to have what we call dual TVET where one can work both in the institution and in the field. By the time they graduate, they simply move into the job market after having gained experience. This is something that KNCCI is doing with development partners including GIZ and government agencies. It is being piloted in about 14 counties.

How far have we come as a country?

As a private sector, we call for national dialogue to prevent disruption of the economy. We need to find solutions to the issues raised, address tax issues and create a conducive business environment for economic prosperity.