East Africa’s manufacturers hit by costs and imports

For Navalayo Osembo, the “Made in Kenya” tags on the running shoes her company produces are a hard-won source of pride.

“It was an extremely difficult job,” said the founder and chief executive of Enda, Africa’s first professional running shoe manufacturer. “I said, ‘I want to make this product, there’s no infrastructure to make it, there’s no skills to make it.’”

Enda – Swahili for “go” – started making whole shoes in China in 2017. But since then, much of the work has been moved to Kenya. Depending on the model, between 40 and 80 percent of the work is now done in the country, which is home to some of the world’s greatest runners.

But after six successful years – annual production to 24,000 pairs of trainers and 80 direct and 2,500 indirect jobs in Kenya – Osembo is once again considering outsourcing production to China, leaving only design and marketing in Kenya. “I think we can be a Kenyan brand without necessarily being made in Kenya, because the business has to survive,” she explains.

Many countries worldwide have pursued economic development through manufacturing and exporting. In East Africa, for example, Kenya, Ethiopia and Rwanda have all tried to match the approaches of South Korea or Mexico.

However, production has recently declined in many African countries as local producers such as Osembo are overwhelmed by rising costs, infrastructure problems hampering logistics, high energy prices, unreliable power grids, tax and customs charges, as well as cheap Chinese imports.

In Kenya, despite the country’s reputation as a free-running business environment, manufacturing struggles to maintain a transformative rate of growth. As a sector, its share of GDP is almost halved from a peak of 13 percent in 2007 to 7 percent in 2021, according to the World Bank.

Osembo cites high import taxes on deliveries, customs bureaucracy and disruption of the supply chain as reasons for moving production to Asia: “I am such a big supporter of development, but also from a practical perspective I need to be able to meet the global supply of chains to close.”

Rajan Shah, president of the Kenya Association of Manufacturers and of Capwell Industries, a food processor, says that “low competitiveness, regulatory burden and subsequently unpredictability of taxes are probably the top three challenges”.

He says corporate taxes and duties increase production costs by about 45 percent. “If you compare that to other developed economies, that’s probably where they are — but in a developing economy, where we’re still building a middle-income class, it’s high.”

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In some countries, such as Rwanda, where Volkswagen launched the first domestically built car four years ago, production has gained ground. Nevertheless, it still represents only 12 percent of GDP in sub-Saharan Africa, according to data from the World Bank. That is 16 percent in Latin America and 15 percent in South Asia.

However, a growing specialist workforce and a focus on renewable energy offer new benefits. Roam, founded by Swedish entrepreneurs in Kenya, has launched an electric motorcycle and bus made in Nairobi and developed together with Kenyan engineers. For the motorcycle, advanced components, including the powertrain and batteries, are currently imported from China and India, but other parts are made locally.

William Ruto, Kenya’s president-elect, has told the Financial Times that he wants to boost production, especially the textile and leather sectors, as his country currently imports most of the fabrics, including the local ones. kitenge staple, from Asia. “We can produce that in Kenya with our cotton farmers,” he says. “Strong manufacturing also goes along the leather chain – we’re talking all the way from manufacturing through value addition and manufacturing at the very end.”

In Ethiopia, production has been supported since 2016 by a garment sector fueled by state-led investment. To develop a strong textile and leather sector, Ethiopia built industrial parks that could produce at a lower cost. This initially attracted global investors such as PVH Corporation, owner of the Calvin Klein and Tommy Hilfiger brands.

But local inefficiencies and political uncertainty spilled over into production. In November PVH closed a branch in Ethiopia, switch to a local production partnershortly after the country lost duty-free entry to the US due to the conflict in the Tigray region.

“The behavioral response of investors and buyers purchasing in Ethiopia is one of the challenges,” said Ethiopian Industry Minister Melaku Alebel. “Buyers are choosing to place new orders outside of Ethiopia, investors have temporarily scaled back their operations and manufacturers like PVH have left.”

He says the government is negotiating with the US and believes the African continental free trade agreement offers a “new opportunity”. Analysts say it could establish Africa as a global manufacturing center and smooth cross-border trade.

“It’s often cheaper to import from China,” said Landry Signé, a Cameroonian senior fellow at the Brookings Institution’s Africa Growth Initiative. But he adds, “Trade between African countries will help unlock Africa’s manufacturing potential.”