Lack of competition in Kenya has seen inefficient large manufacturers remain in the market leading to high cost of goods and slow growth of the sector, said World Bank.

World Bank data shows that the gap in labour productivity between an employee in the most efficient company and the least efficient within the same sector was as wide as Sh22,000 annually.

Annual labour productivity is calculated as the value of goods produced by labour within a year.

“Surprisingly those less productive are staying in the market,” said Maria Paulina, an analyst at World Bank.

The bank noted Kenyan companies participating in the international market through exports had a higher mortality rate due to their uncompetitiveness attributable to inefficiencies.

Kenya firms were found to have the second-lowest survival rate of exporters among a group of countries that included those of East African Community, South Africa and Nicaragua.

Kenya Association of Manufacturers (KAM) said it was aware of the distorted competition in the market, which helped the inefficient companies to exist.

“We are aware they exist and persist because people can get away with it. This market rewards low productivity firms,” said Betty Maina, the chief executive of KAM.

She noted attempts to entrench efficiency in energy use by manufacturers had received low participation despite most producers citing electricity as a major cost.

280,000 workers

KAM also noted the winning of State contracts was also likely to keep inefficient firms afloat especially when the tendering process was not transparent.

Manufacturing sector growth is lagging behind economic growth with the sector recording an average of 4.3 per cent growth in the four years to 2013 compared to economy expansion averaging 6.2 per cent in the same period.

The World Bank said the sector, which currently employees approximately 280,000, has potential to provide more job opportunities and contribute more to economic growth.

Manufacturers interviewed by the bank cited competition from the informal sector, which operated in a less regulated environment, as their main challenge.

Corruption and access to funds became more pressing concerns to the manufacturers in the years between 2007 and 2013. Electricity, transportation, crime and theft became less important constraints for the sector over the same period.

Source: Business Daily

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