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Manufacturing
Overview
The manufacturing sector showed good performance in 2005. The manufacturing sector grew from 4.5% in 2004 to 5% in 2005 with the value of output in this sector rising by 12.8% from a revised value of Kshs 445.1billion in 2004 to kshs 502.1 billion in 2005. The manufacturing sector contributed 10.5% to the country’s GDP in 2005 compared to 9.9% contribution to GDP in 2004.
 
The sub-sectors that recorded remarkable growth included plastics, construction, tobacco, textiles industries respectively among others. The plastic manufacturing industry grew by 25.9 per cent in 2005. Production of plastic bottles increased by 19.2 per cent in 2005. Increases were also recorded in the production of PVC pipes with a registered growth of 17.3 per cent. The construction industry grew by 7.2% in 2005 compared to 4.0% in 2004. This growth is attributed to the increased activities in the housing sub sector, road construction and rehabilitation of and completion of stalled Government projects. The building and construction industry accounted for 7.2% of the country’s GDP in 2005. The metallic products sub-sector grew by 3.8 per cent in the review period. The transport and communications sub sector which utilises products from the manufacturing particularly cement, iron and steel among others contributed 8.3% of Kenya’s GDP in 2005. Sale from the Export Processing Zones (EPZs) accounted for 4.7 per cent of total turnover in the manufacturing sector in 2005 mainly due to increased domestic sales. Employment in EPZs accounted for 15.7 per cent of total employment in the manufacturing sector in 2005.
 
The good performance can partly be attributed to a stable macro economic environment that prevailed during the year, tax exemption on some imports for intermediate use and enforcement of anti-dumping measures in the EAC and the COMESA regions improved access to credit and increase in export demand particularly within the EAC and COMESA markets.
 
The key inputs into the manufacturing sector such as electricity and fuel consumption as well as imports of intermediate inputs particularly machinery and chemical products recorded significant growth in 2005. The aggregate cumulative private investment rose to KSh 17,637 million in 2005 from Kshs 17,012 million in 2004.

The above table indicates that there was a general increase in export index for most of the exportable manufactured products. The price indices for manufactured goods grew by 42.4% in 2005
 
Manufactured Exports
The following constitute export products from the key sub-sectors in the manufacturing industry
  • Maize and wheat flours
  • Sugar confectionery
  • Margarine
  • Beer made form malt
  • Tobacco manufactures
  • Fluorspar
  • Soda Ash
  • Pyrethrum Extract
  • Petroleum products
  • Animal and Vegetable oils
  • Medicinal and Pharmaceutical products
  • Essential oils
  • Insecticides and Fungicides
  • Wood Manufactures
  • Paper and paperboard
  • Cement
  • Iron and Steel, wire products (Nails, screws, nuts etc)
  • Articles of Plastic
 
The export destinations for majority of the above products are destined for the East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) markets mainly owing to proximity, preferential treatment, reconstruction activities and a relatively well developed manufacturing industry in Kenya compared to immediate neighbours.

Manufacturing of garments at one of EPZ firms

Background of the sector

In the 1980s the sector was very vibrant. It grew rapidly to become the second largest employer after the civil service. The growth was driven by closed market policies, which led to effective rates of protection. However in the 1990s there was market liberalization, which resulted in an influx of cheap textile products and garments from other countries. This was the genesis of the decline in this sector.

However the situation in textiles and garments started changing for the better when the African Growth and Opportunity Act (AGOA) was signed into law on 18th May 2000. It was meant to encourage market forces in African countries by offering these countries the most preferential access to the US market available outside of free trade agreements. The Act covers some 6,400 items, including textiles & garments. The AGOA Acceleration Act (AGOA 111), which became law on 12th July 2004, extended this preferential access until September 30th 2015. It also extends the third country fabric provision to September 2007.

Within two years of qualifying for the African Growth and Opportunity Act (AGOA), Kenya’s exports of clothing and investment in the textile sector have experienced remarkable growth. There is a cotton-textile-apparel supply chain in place, the apparel part of it thriving and competitive. Currently the cotton production is insufficient and the capacity to produce high quality fabric is lacking but plans are underway to inject more government funding into the cotton sector to revive it. In the meantime the option for sourcing fabric remains a good solution to substitute the local production.
 
The impact of AGOA can be seen in the fact that textile exports have risen from USD 30 million in 2000 to USD 261 million in 2004. Between January and August 2005 the exports worth USD 180 million have been exported.

Exportable products in the textiles sector
The main product categories of textiles and garments that are produced in Kenya are:
  • Clothing and accessories
  • Household and Furnishing Textiles
  • Textile fibres, fabrics and speciality textiles
  • Hand-woven products
 
 
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