Some Kenyan firms are opting to shift part of their manufacturing abroad in effort to avoid virus disruptions, an industry update shows, raising fears of job cuts as local production chains shorten.
The labour-intensive industry relies on its value chains to keep thousands of people in jobs, with official data indicating that manufacturers had a total of 300,000 workers by end of December.
Findings of a survey by the Kenya Association of Manufacturers (KAM), the sector lobby, suggests three in 100 firms have outsourced some of the production processes as part of mitigating measures to ease input cost pressures.
The lockdown in China has pushed up cost of raw materials and inputs as Kenyan firms turn to alternative markets.
According to the KAM survey on 46 members, 2.8 percent of manufacturers have resorted to shifting some of manufacturing processes overseas as others turn to air freights to reduce lead times.
The report does not disclose countries from which processing is being outsourced.
“A key implication in sourcing of material input from other economies is the time and cost it takes to ship in goods to the country as compared to China,” KAM said via e-mail.
“In addition, there is an indication that the price of material inputs in these alternative sources have been on an upward trend due to increased global demand against reduced supply from China. We are not able to estimate the exact percentage by which the costs have increased as they vary depending on the material and sector.”
About 87 of manufacturers surveyed are exposed to shortage of raw materials due to reduced supply from China, while 47 percent said they are worried about inflated logistical costs because of increased lead time in sourcing from alternative markets.
Overall, 63.9 percent of the respondents have resorted to sourcing materials from alternative source markets such as India, Turkey and Brazil due to supply chain disruption as a result of outbreak of the contagious COVID-19 disease whose epicentre is China.
A third of the manufacturers polled said they were looking at other export destinations other than China, while 16.7 percent have reduced production capacity.
Industry and Trade ministry on Wednesday led talks with industry captains under KAM to assess the impact of the disruption in supply of materials from China on domestic factories and find ways to ease cost pressures as a result of reduced supplies.
This was the second time the ministry was meeting manufacturers over effects of coronavirus after initial talks last week, with indications of weekly meetings going forward.
Business leaders have asked for targeted incentives such as tax breaks to help domestic factories utilise dormant capacity to fill the void created by cut-off of some supplies from China.
“What we will come up with will be in the best interest of our local industry in terms of ensuring we have inputs at best prices possible. But we are not looking to interfere with the market because the market determines a lot of things,” Treasury Principal Secretary Julius Muia told the Business Daily last Friday.