Industries opt for Kenya as new hub for regional trade

Multi-national companies operating in Kenya have stepped up expansion plans, lured by the country’s attractiveness as more African nations embrace borderless trade.

British American Tobacco (BAT), Nestle Kenya, Weetabix East Africa Limited, Bata Shoe Company and Cadbury East Africa have announced multi-billion shilling expansion plans in the race to tap new demand in Eastern Africa region and part of North Africa.

The expansion looks set to shore up the contribution of the manufacturing sector to Kenya’s GDP and the share of new jobs in Kenya’s recovering economy in line with the goal to make the country a middle income economy by 2030.

The rising interest in Kenya is linked to the formation of the common market in East Africa, which is expected to create a market of about 126 million people and allow the free movement of factors of production, goods and services among the five member states.

Plans by Southern African Development Community (SADC) EAC and Comesa in 2008 to form a free trade area (FTA) covering more than 527 million people with an estimated combined gross domestic product of about $624 billion have also enhanced Kenya’s appeal to manufacturers as a business hub.

As a result, the multinationals are redrawing their territories, opting to have larger factories to feed different economies a move that has seen Nairobi emerge as a trading hub because of its proximity to a wider market including Central Africa, North Africa and Middle East markets.

This is a departure from earlier trends where multinational companies have either scaled back new investments in their operations in Kenya or moved their manufacturing plants to countries such as Egypt, which had emerged as a low cost producer, preferring to export finished goods back to Kenya.

“It marks a major about-turn for multi-national firms. Kenya’s profile as a hub for the regional markets has brightened with the new integration arrangements that have come through,” Mr Robert Shaw, an independent analyst said.

This has seen Kenya slowly emerge, though at a lower scale, as the third manufacturing destination in Africa after South Africa and Egypt

Some of the firms that have left the Kenyan market in recent years include Reckitt Benckiser, Colgate Palmolive, Johnson & Johnson and Procter & Gamble, which have either transferred or restructured their operations.

Egypt had emerged as the favoured destination for the multinational firms leaving Kenya, but the emerging political instability in the northern Africa country coupled with lack of proximity to central and parts of southern African countries including Malawi, DRC Congo and Zambia, have made it unattractive to investors.

Egypt has used heavy subsidies in the power and petrol products - which costs it $12 billion (Sh960 billion) annually to lure industrialists, but the country is set to withdraw the sweeteners by 2014, according to reports in the Financial Times.

BAT, for instance, has spent more than Sh5 billion in upgrading its Nairobi plant from where it serves about 17 markets within the Common Market for Eastern and Southern Africa and Indian Ocean Islands.

The firm closed its manufacturing plant in Rwanda and Uganda and made the Kenyan plant one of the group’s four strategic factories in Africa and Middle East.

“Kenya remains critical to our operations in terms of its strategic location for supply of our markets,” Ms Julie-Adel-Owino, BAT head of regulatory affairs said.







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