The year that was in the manufacturing sector

 

When the first Covid-19 case was reported in Kenya on March 12, it was a beginning of an unprecedented period that no one had foreseen.

The economy took a blow with key sectors being hard-hit as measures to contain the virus took the centre stage, with at least 342,300 jobs being lost withing two months of the pandemic in the country.

By June, more than 5.9 million jobs had been affected according to Kenya Private Sector Alliance(Kepsa) data.

The global supply chain was disrupted, markets shrunk and production went down as companies and industries mitigated the effects of the virus.

Manufacturing is one of the sectors that have suffered the brunt of Covid-19 and as the Kenya Association of Manufacturers (KAM) CEO Phyllis Wakiaga says:“This year, we have dealt with a new phenomenon.

More than 30,000 direct jobs were lost due to overall reduction in demand, in the short-term.

Between 100,000 and 150,000 additional indirect jobs were lost due to closure of other key sectors such as hospitality.

According to a survey by KPMG and the KAM, 78 per cent of manufacturers had to swiftly shift their focus from increasing profitability, revenue and domestic market share pre-Covid, to reducing costs, retaining jobs, and improving cash flow.

“Manufacturing had to repurpose their production lines, faced cashflow challenges which caused them to face difficulties in meeting their financial obligations, saw reduced demand and revenues and reduced output,” Wakiaga notes.

Closure of major factories and businesses in China, where the Coronavirus emanated from, forced about 57 per cent of local manufacturers to outsource inputs from other countries to bridge the disruption of the supply chain from China.

According to KAM, about 82 per cent source their inputs or export to China, hence faced a direct risk of supply chain disruption.

KAM notes that 40 per cent of manufacturers had to reduce their casual workforce.

“However, 73 per cent retained their permanent employees,” Wakiaga notes.

There was an overwhelming number of manufacturers experienced a fall in turnover, with at least 23 per cent registering losses in the range of 65-100 per cent, and 51 per cent between 30-65 per cent.

This was attributed to a fall in demand of products.

The worst hit sectors were the textile and apparel and timber, wood and furniture sectors followed by the leather and footwear who had a loss in turnover of more than 65 per cent.

“However, some sectors saw an increase in turnover. These include metal and allied 18 per cent, chemical and allied six per cent, paper and paperboard five per cent and food and beverages three per cent,” Wakiaga said during an interview with the Star.

The pandemic added to predicaments of manufacturers who also struggled with high power costs, taxes and an regulatory changes that added to the cost of doing business.

From the KAM Manufacturing Barometer (Quarter 3), the leading headwinds to the manufacturing sector’s growth include taxation policies (64 %), exchange rate depreciation (57%) and the high price of raw materials (50%), among others.

Other challenges include lack of policy predictability and stability, the high cost of doing business at the national and county levels due to multiple fees, charges and levies, illicit trade and trade and non-trade barriers that hinder local industry’s access to regional and international markets.

“We continue to engage government to resolve these challenges, to increase the manufacturing sector’s contribution to the country’s GDP to 15 per cent by 2022,” Wakiaga told the Star.

Recovery

The sector is keen to turnround its fortunes and growth as the economy slowly recovers.

From the quarter three Manufacturing Barometer, 33 per cent of local manufacturers have a positive outlook of the economy, for the fourth quarter (October-December 2020).

About 44 per cent of surveyed manufacturers expect a positive performance of their businesses between October 2020-March 2021.

“Our focus now as a country should be overcoming the pandemic. This will also enable other sectors of the economy to recover from its effects,” says KAM chairperson Mucai Kunyiha.

The sector is riding on the Manufacturing Resilience and Sustainability Policy Toolkit in charting forward the growth, development, and resilience of the manufacturing sector to attain the 15 per cent contribution to Kenya’s Gross GDP, according to Kunyiha, as envisioned in the Big Four Agenda.

The Policy Toolkit makes recommendations to aid the country’s economic and manufacturing sector’s recovery from the impact of Covid-19 as businesses navigate challenges caused by shocks arising from the virus.

Some of the interventions include nurturing nascent and emerging opportunities uncovered by the pandemic, adoption of a ‘do-no-harm' principle by government when developing policies, supporting Small and Medium Enterprises (SMEs) through affordable credit and increasing the resilience of the manufacturing sector through policy stability.

It also looks at creating a fiscal space by rationalizing government expenditure through operationalization of the public investment management guidelines.

“Our recovery from the pandemic will be determined by the efficacy of public health and fiscal measures, containing the spread of the virus, protecting jobs and income and restoring consumer confidence,” Kunyiha notes.

KAM has in the past and continues to advocate for a conducive business environment for business, he says, and will continue to support the development of an inclusive, innovative sustainable and competitive Manufacturing sector.

“We are also keen to see a predictable and stable business environment in Kenya and the EAC region. For any industry, the predictability in policy and regulatory environment plays a central role in driving competitiveness,” Mucai said.

The sector can only hope for a better 2021 as the local and global economy navigates through the pandemic.