OBG talks to Betty Maina, CEO, Kenya Association of Manufacturers (KAM)

Interview: Betty Maina

How can the “Buy Kenya, Build Kenya” campaign to promote local manufacturing be improved?

BETTY MAINA: The local market can expand only when preference is given to local public procurement. There must be some level of affirmative action in public procurement for local industrial products by government agencies, coupled with public support for Kenyan products. There is a need to inculcate the “Buy Kenya, Build Kenya” philosophy as a national culture. The procurement laws should be modeled towards promoting this philosophy by giving the primary preference and reservation to what is procured, with secondary consideration to who is contracted, thus helping local goods and services.

Are counterfeit goods an issue for manufacturers?

MAINA: According to a KAM 2012 report on the impact of counterfeiting, Kenyan manufacturers incur an annual net loss of over KSh30bn ($342m) due to counterfeit products, while the government loses KSh6bn ($68.4m) in tax revenue. In addition, more than 30% of medicines sold in Kenya are fake. KAM estimates that the East Africa region loses about $50m per annum on counterfeit goods. The report estimates that some firms have lost 70% of their market share in East African markets because of counterfeits. This can be resolved with a stronger legal framework and effective penalties. Counterfeiting should be treated as a criminal violation with stricter penalties like jail term and higher fines. Improved inter-agency collaboration is also key. All law enforcement agencies should work together to address counterfeit matters. The slow response by the Anti-Counterfeit Agency in responding to the complaints of manufacturers continues to constrain results.

Can tax reform ease pressure on manufacturers?

MAINA: A value-added tax regime that supports production, rather than consumption, while providing incentives for the sector at large would certainly help. In conjunction there needs to be a streamlining of government agencies with overlapping responsibilities that enforce multiple regulations. These agencies often use licenses and charges of equivalent effect like levies to raise their own revenues, dampening the outlook for industry. The regime should also streamline the process of making tax payments and simplify tax administration. The complexity of and time taken to file returns should be addressed as they impose administrative burdens on taxpayers, leading to tax avoidance and high enforcement cost on the part of government. Modernisation of the Income Tax Law is essential in the medium to long term. It is over 40 years old and has been amended such that it is difficult to understand for both business and the Kenya Revenue Authority, and therefore its modernisation must be a priority.

To what extent is there a skills gap between the needs of employers and the existing labour pool?

MAINA: The gap is large, as a large majority of unemployed youth between 18 and 25 lack professional skills, and university graduates do not have the right skill mix to drive competitiveness for the country at large. A survey of experts on 36 African countries by Africa Economic Outlook in 2012 asked what challenges youth faced in labour markets; 54% observed a mismatch between the skills job seekers have and what employers need, while 41% identified a general lack of skills among job seekers as a major constraint to business.

To address the skills gap there must be a review of the education mindset in Africa. Secondary education has long followed the ideal of providing the prerequisites for academic education or white collar work in the formal sector, yet studies have shown only a small minority of young people have access to those options. Moreover, the skill sets many formal employers seek are more practical and applied than those provided in most schools. We must increase enrolment in technical subjects like engineering, science and math. Polytechnics and training institutes need be upgraded to meet the needs of industry. The overarching theme is transforming theoretical knowhow to practical usage.