Kenya’s manufacturing sector experienced a slight slowdown in the third quarter of 2024, recording real GDP growth of 2.3 per cent, down from 2.8 per cent in the same period of 2023.
While the sector continued to expand, key challenges emerged, impacting overall performance.
The food subsector remained a significant driver of growth, with sugar production surging significantly. Output rose from 77,686 metric tonnes in Q3 2023 to 231,052.6 metric tonnes in the review period, a substantial increase. This robust performance in sugar production provided a crucial boost to the overall manufacturing sector.
Furthermore, the production of soft drinks experienced a notable expansion of 27.5 per cent, reaching 164,797.3 thousand litres in Q3 2024 compared to 129,204.0 thousand litres in the same period of 2023. Additionally, milk deliveries to processors witnessed a steady increase of 6.5 per cent during the quarter.
However, the growth of the manufacturing sector was tempered by declines in key subsectors. Production of galvanized sheets contracted by 4.2 per cent, falling from 71,722.8 metric tonnes in Q3 2023 to 68,719.5 metric tonnes in the review period.
The cement industry also faced challenges, with production declining by 12.1 per cent from 2,551.0 thousand tonnes in Q3 2023 to 2,242.4 thousand tonnes in Q3 2024.
The assembly of motor vehicles also experienced a marginal decline (0.4 per cent) to 3,262 units in Q3 2024 from 3,275 units in the corresponding quarter of 2023.
Analysis
- Mixed Performance: The manufacturing sector’s performance in Q3 2024 presented a mixed picture. While strong growth in certain subsectors, particularly food and beverages, provided a positive outlook, the decline in key industries like cement and the sluggish performance in motor vehicle assembly raised concerns.
- Sugar Production Surge: The significant increase in sugar production was a notable development, likely driven by factors such as increased demand, improved production processes, or favourable weather conditions.
- Challenges Ahead: The decline in cement production could be attributed to various factors, including weakening construction activity, rising input costs, or increased competition. The motor vehicle assembly sector may be facing challenges related to supply chain disruptions, changing consumer preferences, or economic slowdown.
- Policy Implications: The government and policymakers will need to closely monitor the performance of the manufacturing sector. Strategies to support the growth of key subsectors, address the challenges faced by declining industries, and improve the overall business environment will be crucial to ensure sustained growth and development of the manufacturing sector in Kenya.
According to Kenya Association of Manufacturers CEO Tobias Alando, significantly increasing the manufacturing sector’s contribution to GDP from the current 7.6% to 20% presents a substantial opportunity for the nation.
This growth could potentially lead to the direct creation of 1 million jobs, a significant increase in manufacturing value-added output, and a tripling of government revenue.
“To realize this potential, a stable and predictable policy environment is crucial. Investors base their decisions on the long-term stability of a country’s policies. Sudden or frequent policy changes can disrupt business operations, deter new investment, and hinder the growth of existing enterprises.
A predictable policy framework is essential to attract new investors and foster a thriving environment for existing businesses in the manufacturing sector.
Furthermore, encouraging greater participation in the manufacturing sector is vital to achieving this ambitious target. This necessitates the implementation of targeted policies that incentivize new entrants, support the growth of small and medium-sized enterprises (SMEs), and enhance the sector’s overall competitiveness.”
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