Kenya's High Business Cost Boon for Ethiopia

By Martin Mwita

Kenya faces stiff competition from Ethiopia in attracting manufacturers despite the former's higher ranking in the World Bank's Ease of Doing Business 2016 report, according to the chamber of commerce and manufacturer's association officials.

The Kenya National Chamber of Commerce and Industry and the Kenya Association of Manufacturers said Ethiopia has positioned itself as an attractive investment destination for manufactures due to affordable electricity.

Despite Kenya's ranking at position 108 out of 189 countries in the report, compared to Ethiopia's position 146, it also beats Kenya in dealing with construction permits and is placed at position 73 compared to Kenya's 149.

Ethiopia is also ranked better at position 84 when it comes to enforcing contracts compared to Kenya's position 102.

This, the two bodies said, poses a challenge to Kenya whose manufacturing sector is weighed down by high operations costs - including taxes, labour and high transport.

The high cost of capital also discourages investors from setting up new plants and slows down the growth of Small and Medium Enterprises.

"Ethiopia is certainly proving a very competitive neighbour and their population size first of all is a very compelling one for investors. Ethiopia has low cost of energy and we really have to up our game to make sure that we become attractive," KNCCI chairman Kiprono Kittony said in an interview.

According to the KAM, the manufacturing base has stagnated at 11 per cent of the country's GDP for the past 10 years with a decrease in exports.

"Some of the main issues that cause this stagnation are attributed to infrastructure and market access. There is need for immediate intervention if we are to attract investors to our country," said KAM chief executive Phyllis Wakiaga.

According to KAM, it takes 16 days for exporters from Kenya to access the Tanzania market as a result of "poor infrastructure and cumbersome administrative processes at transit points".

The association has also blamed county governments of multiple taxes which discourages manufacturers keen on setting up base in various counties.

"This is where the shoe pinches for the local manufacturer and major reforms in this area are required," Wakiaga said.

She said an influx of counterfeit products, illicit imports and dumping of goods in the local market also pose a major challenge to Kenyan manufactures.