5 factors affecting the manufacturing sector in Kenya

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SYSPRO, a global provider of industry-built Enterprise Resource Planning (ERP) software for manufacturers and distributors in collaboration with Strathmore University released a study on manufacturing in Kenya last week.

During research, the study saw close to 100 companies drawn from 12 sectors of the production and manufacturing industry in Kenya interviewed. The study explored productivity and competitiveness of the manufacturing sector in Kenya, the role of new technologies in improving the sector and the state of adoption and use of these new technologies.

The study revealed among other things five factors that affect the manufacturing industry in the country and these include;

Spare Parts

The study indicated that a majority of the companies interviewed were still holding on to outdated production units due to the high cost of spare parts for the newer machines. Lack of availability of locally manufactured spare parts also posed a problem to the manufacturers. Manufacturers are also unable to differentiate between quality and fake spare parts until they used them which usually leads to higher costs if the spare parts turn out to be fake and there is need for replacement. The issue of counterfeits has seen many manufacturers opt to import parts instead of buying locally which can be lead to longer downtimes for machines as they await the delivery of the spare parts from overseas.

High software and hardware costs

High software and hardware costs were cited as a hinderance to the adoption of newer technologies that could help improve efficiency and productivity of the manufacturers. This has seen a majority of manufacturers opt to stick with the outdated technology which they can afford. However, this ultimately leads to higher production costs and inability to compete with those who are able to acquire the latest technology. Manufacturers interviewed proposed to have tax incentives to enable technology purchases.

However, SYSPRO indicated that they have managed to keep the costs of their solutions down by having their ERP Solution divided in modules unlike the competition, this offers their clients choice and flexibility. Basically, a company only needs just 1 or 2 modules of an ERP Solution to begin automating its business which SYSPRO provides. Unsurprisingly, this has proved quite popular with SME manufacturers.

Lack of skilled labour

In as much as the manufacturers need to acquire newer technology, there is a dearth of skilled labour in the country to be able to operate such machines. The study indicated that support for apprenticeship, graduate internships and technical courses in universities was identified as a major initiative that would make local manufacturing an attractive business venture. It was further noted that over 50% of the respondents felt that Kenya’s manufacturing sector would have difficulty competing with counterparts in other developed countries that have advanced education and training systems.

Government Support

The study indicated that a majority of the manufacturers interviewed felt that the government need to do more to support the sector so as to make it competitive and attractive to potential investors. The manufacturers indicated that they needed support in these areas Development of infrastructure, provision of exemptions, grants and subsidies as well as purchasing guarantee from the government.

High energy costs

High costs of electricity was reported as the main external factor that adversely affected business operations in the last 2 – 3 years. This is despite the government’s efforts to reduce electricity costs for the manufacturers.

Other factors which were noted as having an effect on the manufacturing sector were; high cost of capital financing, Political climate, cheap imports and exchange rates.

However, companies interviewed prioritized product development, advertisement and marketing, computer systems, hardware and software as potential investment areas to improve business operations in the next financial year.

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