Business / Economy
Saturday, 03 Sep 2016 12:46 EATdkiraka@kenyafreepress.com
Thursday’s news that Sameer Africa is closing its tyre manufacturing factory in Kenya didn’t come as a shock. While the company's notice to the Capital Markets Authority last week that it was indeed closing the factory is bad news for Kenya, it had forewarned the country in June.
The closure of Yana Tyres factory follows two years of posting losses. The company made losses of Sh66.9 million in the year 2014, narrowing the figures to Sh15.6 million in 2015. The tyre manufacturer attributed its decision to the government failure to curb rising import of subsidized and low quality imported tyres.
Sameer replaced Firestone Tyres in November 2005 but has found the tide against it, with the common tax rate agreed by the East Africa Community (Kenya, Uganda and Tanzania) in 2005, which reduced tax on import of new rubber for buses and trucks from 25-30 percent to 10 percent.
The importation of low cost tyres hit Yana hard as it led to an influx of cheap imports from China, India, South Korea, Egypt and South Africa..
Sameer is the most recent company to stop manufacturing in Kenya following mass exit by several other manufacturers in the past that portends doom to Kenya’s manufacturing sector. The companies quote the harsh operating environment caused by prohibitive taxation and high energy costs as the main causes for their departure.
Eveready East Africa, in which Merali is also a majority shareholder, shut down in September 2014, blaming stiff competition from low quality dry cell imports. The company had been in operation in Kenya for 47 years. Approximately 100 people lost their jobs following the closure.
Cadbury, which had been in operation in the country for more than 60 years and had become well known for products such as Cadbury's Cocoa, Cadbury's Drinking Chocolate, Oreo Biscuit and Trident chewing gum, shut in October 2014 in what it termed as "part of a transformational global strategy to reinvent its chain supply." Over 300 people lost their job as a consequence.
Citing the same reasons, other companies to relocate their production lines over the past 10 years include Colgate Palmolive, Unilever, Johnson & Johnson, Procter & Gamble and Reckitt & Benkiser.
Such relocation of manufacturing plants have seen many Kenyans lose their jobs and with the formal employment opportunities thinning with each shift, this is likely to have an adverse effect on Kenya’s economy.
Kenya’s manufacturing scene has companies that specialize in food processing and agricultural companies, mining companies, energy companies. However the most common ones are agri-based industries. For a country grappling with high inflation and poverty, this could be a premonition for disaster, especially considering that university admissions shot up by 40 percent as of 2014.
This means that the number of graduates is swelling while the closure of such companies constricts employment lines, thus keeping the cycle of unemployment going while the cost of living soars.
With corruption rife and the growth of the economy sluggish, many are left in consternation about what the future holds. A recent survey showed that Kenya’s formal sector is stagnating.
Economists blame low purchasing power as the reason for manufacturers leaving the country. Aside from that, they also talk of poor infrastructure as a major reason for the exit as it hinders efficient movement of goods and raw material.
Manufacturing companies provide a chain of job opportunities beyond the company itself. There are suppliers of raw material, marketers, distributors who all depend on this company. When one company closes, this leaves a bigger gap in production than just the loss of employment.
While a company may lay off just 200 of its permanent workers, the trickle-down effect means up to 1,000 livelihoods could be affected by the closure. So as Sameer Africa closes, the public is looking up on the government to offer a semblance of solution to the steady exit of manufacturers in the country.
Kiraka is a student of journalism at the Technical University of Kenya (TUK). His interests are business, politics, sports and media criticism.