Manufacturing sector shrinks as Ruto regime reverses Kibaki gains

In 2002, the manufacturing sector contributed a paltry two per cent to Kenya’s gross domestic product (GDP), which is a measure of the total value of goods and services produced by the country.

This would momentarily spike to a high of 19 per cent in 2003 owing to a mix of factors, including the confidence of industry in the Narc regime led by President Mwai Kibaki, which had taken over in December 2002.

During the first years of the Narc administration, the sector’s contribution to GDP stabilised at about nine per cent and peaked at 11 per cent in 2011, during the final years of President Kibaki’s tenure.

The decade was marked by optimism, which saw many firms set up while existing companies expanded their operations. It was during this era that many local firms began exploring opportunities outside Kenya as they sought areas of growth.

They were taking their cue from the long-term development plan, Vision 2030, launched by Kibaki in 2008 and aimed at pushing Kenya to middle-income status by 2030. In the Vision, manufacturing was a key pillar, and the government aimed to increase its contribution to GDP to 15 per cent by 2020.

This growth was witnessed in the early years of the Jubilee administration, led by President Uhuru Kenyatta and his then Deputy President, William Ruto.

The years that followed would, however, present challenges to the economy, with confidence among businesses appearing to wane.

The manufacturing sector’s contribution to GDP declined during Uhuru’s tenure, reaching 7.4 per cent in 2021, levels last seen in the pre-Kibaki years.

The sector’s contribution to the economy appeared to begin growing again when, in 2022, it contributed 7.7 per cent to the GDP.

Under President Ruto, the sector’s contribution to GDP has again started to slip, falling to 7.5 per cent in 2023 and further declining to 7.3 per cent in 2024, according to data from the Kenya National Bureau of Statistics (KNBS).

There was grumbling within Kenya Kwanza at the outset of Ruto’s tenure in 2022, with the President and his lieutenants then led by former ally and Deputy President Rigathi Gachagua arguing they had inherited a dilapidated economy. 

Analysts, however, observe that the struggling economy and empty coffers cited by Kenya Kwanza could not be compared to what Narc inherited.

“Kibaki came at a worse time than Ruto,” said Dr Patrick Muinde, an economist.

“He (Kibaki) started from zero. When you look at some of his key policies, you can tell he had understood his assignment.”

Among the issues the Narc administration addressed in the initial years was the lowering of interest rates for Treasury Bills and Bonds, which had previously been exorbitantly high.

This had the effect of forcing banks to lend to businesses and households, as lending to the government was no longer attractive.

“This was a genius intervention—where they deliberately brought interest rates down, and then the banks had to look for lending alternatives, even introducing unsecured loans,” said Muinde, adding that banks at some point began hawking loans to businesses and salaried Kenyans.

The government also created an SME fund of Sh6 billion, channelled through commercial banks at four per cent.

“That meant SMEs could afford credit. The impact of this is that they could expand and create employment,” said Muinde.

The result was growth in the number of jobs created annually, rising from about 400,000 in 2002 to 473,300 in 2004.

Muinde also noted that Kenya Kwanza’s strategy of promoting labour migration as a solution for youth unemployment might not significantly reduce joblessness, arguing that creating a conducive environment within Kenya for firms to set up or expand operations would be a more effective approach.

In 2023, the economy created 848,200 new jobs, according to KNBS, but dropped in 2024 to 782,300. This was short of the one million jobs Kenya Kwanza had promised.

The regime had stated that many of these would be digital jobs, totalling one million over five years.

The government has recently pushed for labour migration and signed bilateral agreements with various governments, including some in the Middle East, where Kenyans have faced challenges, including reports of death from mistreatment.

“The current administration has not made any strategic investments to create employment,” said Muinde, noting that relying on labour migration can only provide limited opportunities for Kenyan youth.

“President Ruto thought he could bypass the issue of unemployment by sending Kenyans to work abroad. A president should create employment for their people within the country. That is his responsibility. The biggest job of a president is creating opportunity for his people.”

President Ruto appears to be taking an entirely different route, failing to put in place supportive policies to nurture industries while focusing on taxing households and businesses.

“When President Ruto took office, it’s quite unfortunate that he didn’t understand the country he had taken over. He may have had the mindset that this is a very rich country and went ahead to cut all stimulus programmes. He cut subsidies and introduced new taxes,” said Muinde.

Muinde contrasts the infrastructure development during Kibaki’s tenure with that under Uhuru and Ruto as DP, and later Ruto as President.

During the Narc administration, local companies were included in infrastructure projects alongside foreign firms, leading to job creation and local capacity building.

“Coming to the Uhuru era, the model was effective in getting projects done. The government would borrow money, hand it to a foreign company, and everything — materials and project experts — would come from abroad,” said Muinde.