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Incompatible investment climate causes factory closures

24
Nov '08
A high percentage of firms that were involved in a Kenya Association of Manufacturers (KAM) survey have either closed down or scaled down on their operations over the past decade as a result of the hostile investment climate in Kenya.

According to the survey, approximately 72 percent of the firms have closed down while another 18 percent have scaled down on their operations.

A survey that was conducted by the Kenya Association of Manufacturers in April this year (2008) reveals that a further five percent either relocated to other business friendly countries or sold out.

The survey which was aimed at looking into the investment distress and resultant relocations and/or closures of businesses in the country, disclosed that the textile sector was the hardest hit with about 30 percent of the firms closing down. This is in spite of the lucrative AGOA market.

Other firms that were disinvested include Chemicals and allied with 26 percent closures, shoes (17 percent), food and beverages (13 percent) and metals and plastics with nine and four percent closures respectively.

According to the survey, unfair competition from imports was the main cause if disinvestments particularly within the textiles and shoes sectors. This was as a result of under invoiced imports coming in mostly from south East Asia which were sold in the local market at very low prices.

Additionally, most these were reported not to meet the set Kenya Bureau of Standards requirements but somehow found their way into local market.

The survey cites other reasons for this as the dumping of second hand footwear from developed countries into local market and brand new footwear that had been declared as second hand footwear entering into the market due to improper declaration of Harmonised System codes.

It also alludes to the hostile investment climate and high cost of doing business as other reasons for disinvestments. Other reasons that are given for factory closure and/or relocations include:

* General high cost of doing business in the country due to high fuel prices and resultant high transport and operational costs;
* General slow down of the economy following the post election period and induced inefficiencies;
* Unavailability of raw materials;
* High cost of manufacturing due to high electricity costs, poor infrastructure and unnecessary high levies among others;
* Labour laws and awards to workers ( compensations, maternity leave, health care, health & safety – all non tax exempt);
* Strong labour unions, worker indiscipline, low productivity, drive for higher wages/benefits;
* Local government licenses, and harassment over petty demands;
* KRA not refunding taxes for reimbursement, but collecting duly.

In the face of hostile climate, the study reveals that some companies opted to shift from manufacturing to trading (import and distribution). This entails the importation of finished goods from within the COMESA region or China and India among others for the purposes of stocking and distribution.

Among the companies that have closed down include Tiger Shoe Company, Mareba tiles, Afro Spin Limited, Raymond woollen Mills, East Africa tanning and Extract (EATEC), Kenya Orchids and Johnsons IT among others. Those that have scaled down operations are Cadburys and Bata Shoes among others while Colgate/Palmolive is among those that have relocated.

Kenya Association of Manufacturers


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