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manufacturers out of business
because it undermines growth
and job creation. It is up to the
region’s tax administrators and
anti-counterfeit departments to
put an end to this,” Mr Kahuthu
said.
Egypt clamps down on
cheap imports, allowing local
manufacturers to produce
By ALLAN OLINGO
The EastAfrican
In the past week, two large
Kenyan manufacturers
have announced plans to shut
down their plants and shift
operations to Egypt. In both
cases, counterfeits and cheap
imports have been blamed for
the closures.
Two weeks ago, Cadbury
Kenya announced that it will
close down its manufacturing
plant in Nairobi by the end of
October.
Navisha Bechan-Sewkuran,
Cadbury’s corporate and
government affairs lead for
Southern, Central and Eastern
Africa, said the move is part of
a global transformation strategy
to reinvent its supply chain after
suffering unfair competition
from imports.
“We have only stopped the
manufacturing segment, but
we will still remain active in
the marketing and distribution
functions. We have resorted to
importing our products from
Egypt so that we can achieve
our objective of doubling our
business in Kenya in the next
three years,” Ms Bechan-
Sewkuran said.
To achieve this, Cadbury
says that it plans to invest
substantially in its marketing
and distribution network to
reach more consumers. This
move is also seen as a way to
take on imported products that
have led to the depletion of
market share and decrease in
profit margins.
In 2011, a surge in the
importation of cheap
products by leading retail
outlets subjected locally
produced chocolates to unfair
competition. Cadbury Kenya
could not justify continued local
production, and the company
resorted to importing Cadbury
chocolate from South Africa.
from Kenya or restructured
operations blaming high
production costs.
Consumers in Uganda and
Tanzania pay $0.11 and $0.07
per kilowatt of electricity
respectively.
In May, Kenya Power
through the Energy Regulatory
Commission announced an
increase in the fuel charge from
$0.06 to $0.08 per unit due to
increased thermal generation.
According to ERC, Kenya’s heavy
reliance on diesel-powered
generators to produce electricity,
due to low water levels in the
country’s hydroelectric dam,
has been blamed for the rise
in the fuel adjustment costs.
Electricity charges for big
domestic consumers have
been rising since December,
after Kenya Power raised
the consumption charge for
commercial users by over 30 per
cent. After December’s review of
tariffs, consumers of more than
200 Kwh paid $0.04 more per
unit.
Betty Maina, the chief
executive officer of the Kenya
Association of Manufacturers,
said Kenya’s competitiveness
on the global market has been
declining due to the high cost of
production.
“We are seeing a web of laws
and regulations, administrative
procedures, poor labour
productivity, poor infrastructure
and high energy costs that
constitute a challenge to Kenya’s
efforts to remain competitive,”
Ms Maina said.
In the World Bank’s 2014 Ease
of Doing Business report on
Kenya, it came out clearly that
despite improvements within the
East African Community, Kenya
has been losing its competitive
edge to countries such as Egypt,
Rwanda and South Africa.
“Manufacturing had been
growing at 13 per cent, but in
recent times this has gone down
to 10 per cent; expansion in the
sector has been constrained by
energy costs. We need to lower
the costs of energy so that we
can achieve a more feasible
industrialisation,” Ms Maina
said.
Last month, in a meeting
with the Cabinet Secretary for
Energy and Petroleum Davis
Chirchir, KAM chairman
Pradeep Paunrana called for
reliable power supply to boost
productivity.
“Power supply continues to
be erratic, and this is negatively
affecting the productivity of the
manufacturing sector,” said Mr
Paunrana.
Fakes, high energy costs push
manufacturers out of Kenya
EXIT STRATEGY
Cadbu≥y and Eve≥eady have
announced plans to shift ope≥ations
to Egypt whe≥e the cost of
p≥oduction is lowe≥
significant volumes and enjoy
economies of scale.
Last year, the Kenya
Association of Manufacturers
(KAM) raised concern over a
tax regime that seems to favour
foreign businesses. KAM said
imports from Egypt, which
are zero-rated, have effectively
priced locally manufactured
goods out of the market.
In addition to import duty,
Kenyan manufacturers have to
contend with a higher cost of
power than their counterparts
on the continent. On average,
Kenyan manufacturers pay
$0.21 per kilowatt hour
(KWh) of electricity; Egypt’s
manufacturers pay an average
of $0.03 and South Africans pay
$0.05.
Reckitt Benckiser, Procter &
Gamble, Bridgestone, Colgate
Palmolive, Johnson & Johnson
and Unilever are among the
firms that have either relocated
Eveready East Africa has
also been negatively affected by
cheap imports and counterfeits.
In the same week as Cadbury,
the company announced the
closure of its Nakuru-based
manufacturing plant citing
competition from cheap imports
that are not charged any tax,
making it difficult to provide a
level playing field.
In the full-year to September
2013 results, Eveready’s net
profit fell 58.7 per cent to
$493,237, from $784,783 the
previous year. Its production
capacity dropped to 50 million
units annually, down from a
previous high of 180 million per
year.
Eveready managing director
Jackson Mutua said they have
chosen to import from Energiser
in Egypt because power costs
are lower there.
“Most Egyptian firms enjoy
low production costs due to
lower power and labour costs. It
makes business sense to import
these products and sell them
locally instead of manufacturing
them here,” Mr Mutua said.
Manufacturers in the region
lose over $330 million annually
due to counterfeit products, and
the government loses $67 million
in potential tax revenue. It is
estimated that manufacturing
companies have lost 70 per cent
of their market share in East
Africa to bogus products.
The East Africa Chamber
of Commerce chief executive
officer, Charles Kahuthu, says
that counterfeiting is a problem
that requires a tough approach
from regional governments
because it is choking local
manufacturers.
“It’s unfortunate for
manufacturing firms and
investors to close shop after
incurring millions of shillings
in losses due to counterfeit
products. The regional
governments should not allow
counterfeits to drive genuine
It is estimated that manufacturers consume 60
per cent of the electricity generated in Kenya.
The average consumption by manufactures is $2
million a month. Kenya Power is in the process
of providing a dedicated powered line to 200
industrial consumers.
RECKITT BENCKISER : In 2007, the company
shut down local factory operations and transferred
some of its manufacturing to Orbit Chemical
Industries in Kenya.
CADBURY: In 2010, the company stopped
production of chocolates in Kenya in favour of
South Africa.
EXPENSIVE POWER
OCTOBER 11-17,2014 41
BUSINESS