President Uhuru Kenyatta addressing delegates during the Kenya - Ethiopia -Business Forum at Intercontinetal hotel,Nairobi Jun 27 2016.Photo/PSCU
President Uhuru Kenyatta addressing delegates during the Kenya – Ethiopia -Business Forum at Intercontinetal hotel,Nairobi Jun 27 2016.Photo/PSCU 

It is expensive to start and run a manufacturing factory in Kenya compared to at least 28 other African countries, a new study shows.

The study, by the Centre for Global Development, rates labor and capital costs per worker as top reasons for the country’s unattractiveness.

As per its findings, the labor cost per Kenyan worker is Sh218, 725 compared with Bangladesh where it is Sh86, 230 and Sh93, 872 in Ethiopia.

The researchers have found out that Ethiopia, already leading the way as Africa’s 21st century center for manufacturing, has the best likelihood of being the “New China”.

With labor costs rising faster than gains in productivity, and with the strengthening of their local currencies, large manufacturing firms have started exploring opportunities for production in the country.

Other reasons attributed to the high factory running costs include a lack of infrastructure such as transport networks, low levels of education and unstable electricity.

“This can get worse with poor policy structures,” one of the researchers, Alan Gelb, said in the report.

It analysed 5,500 firms in 29 countries, comparing labor and capital costs, productivity and efficiency of manufacturing in Sub Saharan Africa with similar countries outside Africa, in particular Bangladesh.

The capital cost per Kenyan worker is nearly Sh1.01 million compared to Bangladesh where the cost stands at Sh113, 597.

As a middle income country, the report found out that Kenya has a higher GDP per capita of Sh115, 249 versus Bangladesh which stands at Sh88, 089.

Low income Senegal GDP per capital stands at Sh80.034 which is twice as expensive as Bangladesh in terms of labor and capital costs.

Generally, the overall cost of running small African firms had a 39 per cent premium over comparative firms elsewhere while medium and large firms were around 50 per cent more expensive.

The high cost of labour in Kenya is despite a recent report Human development Index which reported that at least four in every 10 Kenyans are jobless.

The report, released in May this year, noted that Kenya was leading the unemployment rate in East Africa with atleast 39.1 per cent.

Tanzania came second with 24 per cent, Ethiopia at 21.6 per cent, Uganda at 18.1 per cent and Rwanda at 17.1 per cent.

Following the above findings, the report concludes that Africa does not intend to embark on a leading the global market on manufacturing.

“The results described in this research confirm that lower-income Africa, including countries that have come to be thought of as leaders in development, has high manufacturing labor costs relative to GDP as well as high capital costs relative to low-income comparators. Labor in middle-income Africa is also very expensive relative to comparator middle income countries. Re-balancing the comparators through a simple synthetic control and adjusting for demographic differences does not change these conclusion.” The report states.

SOURCE    –   The Star, Kenya