Manufacturers shun State's pet sectors as projects rise

The government faces an uphill task in convincing small businesses to invest in sectors critical to its economic recovery plan.

According to the latest data, the food industry is the most preferred venture for micro, small and medium enterprises (MSMEs) in the manufacturing space.

The Kenya National Bureau of Statistics (KNBS) data shows food products scooped a huge chunk of the loans advanced to MSMEs in 2023 in the manufacturing sector, with chemical and chemical products being the least attractive ventures.

Leather and related products and textile and apparel - key sectors at the heart of President William Ruto’s administration, seem unattractive to MSMEs in manufacturing.

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Notwithstanding, the amounts advanced to the manufacturing sector increased in the period as well as the number of projects supported through the State agency in charge of MSMEs. 

Data from the KNBS 2024 Economic Survey shows the amount advanced to MSMEs through the Kenya Industrial Estates (KIE), a State agency, increased by Sh251.9 million during the period.

Manufacture of food products had the most number of projects advanced to 150 and Sh484.2 million.

Chemical and chemical products had the least number of projects approved by KIE for funding at three with Sh7.1 million advanced.

This manufacturing sub-sector was significant in 2020 with 11 projects approved for funding that resulted in Sh61.3 million advanced. This was informed by the manufacture of sanitisers that were in high demand due to the spread of Covid-19.

Since then, this sector has always had single-digit projects.

The Sh484.2 million credit to MSMEs in the manufacture of food products was five times what was advanced to those in textiles and apparel and 19 times for leather and related products.

There were 49 projects from MSMEs approved by KIE for funding in textiles and apparel which received Sh96.2 million and only four in leather and related products which received Sh25.1 million during the period.

“KIE continued to play its role of promoting MSMEs by financing their development activities. In the year under review, the loans advanced by KIE to the manufacturing sector increased to Sh975.9 million from Sh724.0 million in 2022,” reads the Economic Survey report.

“The number of manufacturing projects approved increased from 291 in 2022 to 355 in 2023.”

Apparel sectors

Leather and related products and textiles and apparel sectors are emphasised in the Kenya Kwanza manifesto that details their Bottom-up Economic Transformation Agenda (BETA) approach.

The manifesto cites the leather and related products sector to have the potential of being a Sh120 billion industry providing 100,000 jobs.

However, as of 2022, it was a Sh15 billion industry with 17,000 jobs.

“Key challenges are low recovery and quality of hides and skins, skills. Hides recovery and quality improvement to be addressed through feedlot facilities. Leverage public procurement to build capability (uniformed services, school shoes). Build leather industry clusters (Athi River, Narok, Isiolo-Wajir) and secure linkages with and technical support from markets (Italy),” the manifesto reads.

For garments and textiles, as referred to in the manifesto, the document says there is a huge entry industry for export-led industrialisation similar to what has propelled South East Asia.

“We have pursued this strategy since the early 90s, with limited success. Although garment exports are now our third largest export at Sh65 billion (4500 million), employing 50,000 it pales in significance compared to Bangladesh’s Sh4.5 trillion ($35 billion) exports employing four million people, and accounting for 90 per cent of exports,” reads the manifesto which manifested the grow the textile industry in the country to the levels of global leaders.

Growing these two sectors was envisioned to expand the contribution of manufacturing to the Gross Domestic Product (GDP) from the current 7.2 per cent to 20 per cent by 2030.

Additionally, the Kenya Association of Manufacturers (KAM) has noted that such sectors which encourage value addition are the ones that would make a bigger impact on this growth.

Small and medium enterprises (SMEs) constitute 80 per cent of businesses in the manufacturing sector according to KAM.

KAM in a detailed Manufacturing Priority Agenda (MPA) 2024 noted that the country’s focus on the food and beverages sector for the export market will not leapfrog it into industrialisation.

As noted in the just-released KNBS Economic Survey 2024, food constitutes the most number of projects where KIE advances loans.

But for KAM, these products are ‘poor country goods’ which it says they cannot compete in the global market if exported.

Overall, the amounts advanced to businesses in the manufacturing sector according to the 2024 Economic Survey report increased to Sh639 billion in 2023 from Sh529 billion in 2022.

These amounts are inclusive of those advanced by KIE.

“Development finance institutions have continued to play a significant role in promoting industrial growth and advancement by providing loans. Total approved credit to the manufacturing sector by both commercial banks and industrial financial institutions rose to Sh639 billion in 2023 from Sh528.9 billion in 2022,” the report says.

Financial institutions

Total credit approved by industrial financial institutions increased from Sh1.7 billion in 2022 to Sh1.9 billion in 2023. Similarly, the number of projects funded by these institutions went to 362 from 303.

Kenya Development Corporation (KDC) approved Sh510 million for manufacturing which was less compared to Sh613.8 million in 2022. “This was partly on account of the decline in the number of projects funded by KDC from nine to four,” the 2024 Economic Survey report says.

The report also shows increased demand for loans from the Development Bank of Kenya which had the institution approve Sh384 million in three projects compared to Sh353 million for the same number of projects in 2022.

“The projects are mainly capital expansion in manufacturing of mattresses, industrial gases and printing,” the report says.