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Wednesday, April 11, 2012

Manufacturing - Egypt & the downdraft

Kenyans manufacturers have (rightly so) complained about Egypt's 'misuse' of COMESA to sell subsidized goods into the region.

Last week, I had an interesting conversation with the MD of a major Egyptian firm discussing the challenges facing Egypt.

  1. Rising cost of fuel. For decades, energy was subsidized including petrol & diesel. Egypt WAS an oil exporter but not faces a shortfall. The subsidies are unsustainable.
  2. Rising cost of electricity. Egypt has relied on 'cheap' electricity from the dams across the Nile. The water was accumulated at the expense of the riparian states including Kenya thanks to a lopsided arrangement.
  3. Rising cost of LNG. Egypt currently produces enough LNG for its own needs but unless it charges market price to its citizens, there will continue to be wastage. They need to invest in conversion plants otherwise the LNG will continue being exported to Israel instead of local consumption. These plants do not come cheap!
Kenya needs to prepare herself to become the next 'African' manufacturing hub. ICT & finance are important but farming & manufacturing underpin a country's wealth in the long-term. See China & India as examples.

What next?

Population

Kenya needs to REDUCE the population growth. Silly arguments like it's unafrican to count how many kids one has, some chap with a beard said go forth & multiply like rabbits, today's kids are tomorrow's consumers, etc.

The argument that "today's kids are tomorrow's consumers" is a circular argument. Who is going to feed, clothe, medicate & educate the kids TODAY? If one cannot feed, clothe, medicate & educate the kids TODAY then they will probably die early [wasting resources], turn into criminals [read Freakonomics or read about the Mungiki] or worse. We need professionals & entrepreneurs NOT more unskilled workers!

Kenya is a food-deficient country & needs the (consistent) MINIMUM food production to catch up to the 43 million BEFORE growing the population.

Energy

Develop multiple sources of energy. I am glad Kenya has started exploiting renewable geothermal & wind resources. The oil find is a so-so. It should be a bonus not a core pillar of energy sufficiency. Kenya needs to encourage the use of solar electricity & hybrid vehicles. 

Do not subsidize energy consumption or the same problems Egypt faces will bite Kenya in the future. Try to mitigate extreme price volatility but avoid price controls.

Infrastructure

All sort of infrastructure development is needed. Private money is available as long as the 'rights' of firms/investors are protected. Shoot-to-kill thieves who steal/damage transformers & cables. Punish polluters. Digitize the land records. Improve the efficiencies of the courts.

Let builders innovate or use new technologies. Some will fail but that is OK. It does not mean authorities allow shoddy construction but allow builders to 'think different'.

Kenya has the ability to become a manufacturing base for COMESA. At the minimum, an alternate to Egypt & South Africa as an 'assembler' but that allows Kenyans to develop new skills.

China, India, South Africa & Egypt are facing cost pressures and are exporting 'cheap' manufacturing elsewhere. Instead of letting Thailand, Vietnam or Pakistan take over our 'natural' markets (COMESA) we need to be ahead of them. Kenya needs to push for Double Taxation Agreements with all COMESA  (& beyond) countries. Kenya needs to tighten its belt on 'conspicuous consumption' & build roads, railways & airports that makes us the HUB of East & Central Africa.




3 comments:

Anonymous said...

Firms such as Cadbury's and colgate pamolive are leaving Kenya to set up manufacturing plants in Egypt."Low cost of electricity & transport of raw material"they say. clearly they neeed to Re-strategize.

N.Imara

Anonymous said...

Over time science has proven that with scarcity comes innovation. Most of Kenyan land is underutilized agriculturally and we tend to focus on doing things we are not good at. For example, why do we focus on growing maize when we can import it cheaper from America? We need to focus on maximizing our abilities and right now we need leaders who will push for us to produce what we can do cheaper than any country and export as much as possible in exchange for maize.

Our biggest handicap is our inability to harness our synergy and bureaucratic overhead. We need a government whose main focus will be job creation and expansion of startup ideas. Tech industry may be fun, but its contribution to real jobs for ordinary people is insignificant. Manufacturing and agriculture are where mass jobs lay and thats where we need to focus. On the other hand, we also need a competitor to KPLC, that monopoly is fraught with inefficiency and wastage.

Ay1m

Anderson said...

Over time science has proven that with scarcity comes innovation. Most of Kenyan land is underutilized agriculturally and we tend to focus on doing things we are not good at. For example, why do we focus on growing maize when we can import it cheaper from America? We need to focus on maximizing our abilities and right now we need leaders who will push for us to produce what we can do cheaper than any country and export as much as possible in exchange for maize. Our biggest handicap is our inability to harness our synergy and bureaucratic overhead. We need a government whose main focus will be job creation and expansion of startup ideas. Tech industry may be fun, but its contribution to real jobs for ordinary people is insignificant. Manufacturing and agriculture are where mass jobs lay and thats where we need to focus. On the other hand, we also need a competitor to KPLC, that monopoly is fraught with inefficiency and wastage. Ay1m