KAM: Rising electricity costs to take toll on Kenyan manufacturing
In Kenya, electricity prices will from April increase by up to 78 per cent if the energy sector regulator approves new tariffs from Kenya Power. If given the nod, the new prices are likely to derail Kenya’s quest to make energy costs competitive compared with other African nations like Ethiopia, South Africa and Egypt. On how it is likely to impact the manufacturing sector, CNBC AFRICA spoke to Rajan Shah, the Chairman of Kenya Association of Manufacturers.
Mon, 27 Feb 2023 10:30:20 GMT
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AI Generated Summary
- Rise in electricity prices threatens Kenya's goal of competitive energy costs in the region, posing a challenge to the manufacturing sector.
- Manufacturing sector faces decline in GDP contribution despite adaptation during the COVID-19 pandemic, with a target to increase share to 20% by 2030.
- Disagreements between manufacturers and government on imported edible oils and proposed power tariff hikes risk job losses and industry competitiveness.
Kenya is facing a looming challenge as electricity prices are set to rise by up to 78 per cent in April if the energy sector regulator approves new tariffs from Kenya Power. This increase, if authorized, could hinder Kenya's goal of making energy costs competitive with other African nations like Ethiopia, South Africa, and Egypt. The potential impact on the manufacturing sector is a cause for concern among industry leaders, including Rajan Shah, the Chairman of the Kenya Association of Manufacturers. Shah highlighted the struggles faced by the manufacturing sector in recent years, noting a decline in its contribution to GDP from 12.8 per cent in 2013 to 7.2 per cent currently. Despite the absolute growth in numbers, the sector has not kept pace with other segments of the economy. However, the government aims to boost manufacturing's share of GDP to 20 per cent by 2030, posing a challenge to increase growth by 1.6 per cent annually.
Shah discussed how the sector adapted during the COVID-19 pandemic, with manufacturers seizing opportunities to produce essential goods like protective clothing and masks. Despite ongoing challenges such as global fuel and food price inflation due to the Russian-Ukraine crisis, manufacturers remain optimistic. Shah emphasized the need to address rising costs and supply chain disruptions to maintain competitiveness and consumer demand.
One recent point of contention involved the disagreement between manufacturers and the Kenyan government over imported edible oils. The government's move to bring in refined edible oils could jeopardize local industry capacity and jobs. Shah stressed the importance of finding a balance between reducing living costs and supporting local manufacturing. The industry, which currently operates at 60% capacity, faces uncertainty over potential layoffs in the edible oil sector, impacting over 40,000 jobs across various related industries. Ongoing discussions aim to preserve local production capacities while achieving cost reductions.
In addition to the edible oils dispute, the proposed hike in power tariffs by Kenya Power poses a significant threat to the manufacturing sector. Electricity costs are a key factor in production expenses, ranging from 2% to 40% depending on the industry. The Kenya Association of Manufacturers emphasizes the need to benchmark against export competitors like Egypt and improve global competitiveness. Shah outlined the critical role of affordable electricity in ensuring industry sustainability and global market access. With manufacturers consuming 55% of the country's total electricity output, any further tariff increases could erode competitiveness and hinder export potential. As stakeholders engage in ongoing dialogue with the regulator, the focus remains on stabilizing electricity costs to support the growth and sustainability of Kenya's manufacturing sector.
