Kenya's Hostile Business Environment Drives Manufacturing Exodus, Threatening Economic Future

To address this crisis, the Kenyan government must take decisive action to create a more business-friendly environment. This includes implementing policies that reduce the cost of doing business, streamlining regulatory processes, combating corruption, and providing targeted support to key industries. Only by demonstrating a genuine commitment to the success of its business community can Kenya hope to regain its competitive edge and secure a prosperous future for its people.

The Kenyan business community, represented by umbrella organizations such as the Kenya Association of Manufacturers (KAM), the Kenya Private Sector Alliance (KEPSA), and the Federation of Kenya Employers (FKE), has repeatedly voiced concerns over the increasingly hostile business environment in the country. Despite their persistent efforts to engage with the government, their pleas have been largely ignored, leaving many businesses feeling neglected and unsupported.

The Kenyan government seems to be operating under the misguided assumption that manufacturers are somehow tied to the country and have no choice but to remain here. However, this notion is far from reality. The East African Community (EAC) Common Market, established in 2010, allows businesses to freely set up operations anywhere within the region while maintaining access to the entire EAC market. This means that manufacturers have the flexibility to relocate to countries that offer more favorable business conditions.

The consequences of this lack of government support are already being felt. According to data from the Kenya National Bureau of Statistics, the contribution of manufacturing to Kenya's GDP has plummeted from 11% in 2012 to a mere 7.6% in 2023. This alarming decline should serve as a wake-up call for any responsible leadership, yet the Kenyan government appears to be unmoved by this unfolding crisis.

In the past, Kenya prided itself on being the manufacturing hub of the region. However, as businesses shift their operations to neighboring countries that provide a more competitive business environment, Kenya risks losing its position. Countries like Ethiopia, Rwanda, and Uganda are actively courting industrialists with attractive incentives such as free land, low energy costs, reduced taxes and exemptions, streamlined bureaucracy, and lower levels of corruption.

A prime example of this exodus is Sher Agencies, a prominent flower farm that relocated its operations to Ethiopia in search of a more conducive business environment. Rwanda has also emerged as a compelling destination for businesses, boasting a streamlined process that allows companies to be established in less than three days. Even major brands that Kenyans consume daily, such as Omo, Ariel, and Pampers, are now being manufactured in Egypt, a COMESA country known for its low electricity costs and favorable tax policies. These products are then exported to Kenya, where many companies are now opting to maintain only distribution offices rather than full-fledged manufacturing facilities.

It is not a matter of playing politics when we question the effectiveness of the president's numerous foreign visits in attracting investment. The reality is that no amount of global promotion can compensate for a government that actively undermines its own business community. Investors are savvy enough to look beyond the sales pitch and assess the on-the-ground realities of doing business in a country.

We must recognize that businesses have choices, and Kenya is not the only option. As industries continue to relocate, Kenya risks becoming a warehouse economy, heavily dependent on imports to meet its consumption needs. This is a tragic fate, considering the country's once-promising position as a regional leader in manufacturing.

To address this crisis, the Kenyan government must take decisive action to create a more business-friendly environment. This includes implementing policies that reduce the cost of doing business, streamlining regulatory processes, combating corruption, and providing targeted support to key industries. Only by demonstrating a genuine commitment to the success of its business community can Kenya hope to regain its competitive edge and secure a prosperous future for its people.

E-Njega. FINTAK

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