Producers are avoiding state pet sectors as the number of projects increases

The government faces a difficult task in persuading small businesses to invest in sectors key to its economic recovery plan.

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

Data from the Kenya National Bureau of Statistics (KNBS) shows that the vast majority of loans granted to small and medium-sized enterprises in 2023 in the manufacturing sector went to food products, with chemical and chemical products being the least attractive ventures.

Leather and related products and textiles and clothing – key sectors at the heart of President William Ruto’s administration – appear unattractive to small and medium-sized enterprises operating in the manufacturing sector.

Regardless, the amounts given to the manufacturing sector increased over this period, as did the number of projects supported by the state agency responsible for small and medium-sized enterprises.

Data from the KNBS 2024 Economic Survey shows that the amount paid to small and medium-sized enterprises through state agency Kenya Industrial Estates (KIE) increased by P251.9 million during the period.

The highest amount of projects was achieved in the food manufacturing sector, up to Sh150 million and Sh484.2 million.

Chemicals and chemical products had the least number of projects approved by the KIE for financing – three, with an advance payment of Sh7.1 million.

This manufacturing sub-sector was significant in 2020, with 11 projects approved for financing, resulting in advances of Sh61.3 million. This was caused by the production of disinfectants, which were in high demand due to the spread of Covid-19.

Since then, the industry has always seen single-digit projects.

The £484.2 million loan to food SMEs was five times the amount granted to textiles and clothing companies and 19 times the amount for leather and related products.

The KIE approved 49 MSME projects in textiles and apparel which received Sh96.2 million, while only four projects in leather and allied products received Sh25.1 million during the period.

“KIE continued to play its role in promoting small and medium-sized enterprises by financing their development activities. In the year under review, loans granted by KIE to the manufacturing sector increased to £975.9 million from £724.0 million in 2022,” reads the Economic Survey report.

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

Clothing sectors

Kwanza Kenya’s manifesto, which details its grassroots economic transformation program (BETA) approach, places emphasis on the leather and related sectors and the textiles and clothing sector.

The manifesto shows that the leather and related products sector has the potential to become a £120 billion industry, supporting 100,000 jobs.

However, as of 2022, it was a £15 billion industry supporting 17,000 jobs.

“The key challenges are low recovery and quality of hides and skills. It hides regeneration and quality improvement that need to be addressed in feed facilities. Using public procurement to build capacity (uniformed services, school shoes). Create leather industry clusters (Athi River, Narok, Isiolo-Wajir) and secure market linkages and technical support from markets (Italy),” the manifesto reads.

In the case of clothing and textiles mentioned in the manifesto, the document states that there is a huge input industry for export-led industrialization, similar to that driving Southeast Asia.

“We have been pursuing this strategy since the early 1990s, with limited success. Although clothing exports are currently our third largest export, at 65 billion pounds ($4,500 million), employing 50,000 workers, their importance pales in comparison to Bangladesh’s exports of 4.5 trillion pounds ($35 billion), employing four millions of people and accounting for 90 percent of exports.” – reads the manifesto, which manifested the development of the textile industry in the country to the level of world leaders.

The development of these two sectors is expected to increase the manufacturing industry’s share of gross domestic product (GDP) from the current 7.2% to 20% by 2030.

Additionally, the Kenya Association of Manufacturers (KAM) noted that sectors such as those that encourage value addition will have a greater impact on this growth.

According to KAM, small and medium-sized enterprises (SMEs) constitute 80% of enterprises in the manufacturing sector.

KAM in its detailed Manufacturing Priorities Program (MPA) 2024 noted that the country’s focus on the food and beverage sector in the export market will not industrialize it.

As indicated in the just published KNBS Economic Survey 2024, food constitutes the largest number of projects under which KIE provides loans.

However, for KAM these products are “poor country goods” which it argues cannot compete in the world market if exported.

Overall, amounts paid to companies in the manufacturing sector according to the 2024 Economic Survey Report increased to £639 billion in 2023 from £529 billion in 2022.

These amounts include the amounts transferred by KIE.

“Development finance institutions through lending continue to play a significant role in promoting industrial growth and progress. “Total credit approved for the manufacturing sector by both commercial banks and industrial financial institutions increased to £639 billion in 2023 from £528.9 billion in 2022.” – we read in the report.

Financial institutions

The total level of loans approved by industrial financial institutions increased from £1.7 billion in 2022 to £1.9 billion in 2023. Similarly, the number of projects financed by these institutions increased to 362 from 303.

The Kenya Development Corporation (KDC) approved P510 million for production, down from P613.8 million in 2022. “This was partly due to a decline in the number of KDC-funded projects from nine to four,” 2024 Economic Survey. the report says.

The report also shows increased demand for loans from the Development Bank of Kenya, which ordered the institution to approve £384 million across three projects compared to £353 million for the same number of projects in 2022.

“These projects mainly include capital expansion in the production of mattresses, technical gases and printing,” the report reads.