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High cost of Kenyan labour, power pushing up production costs

A Dubai-based textile company manufacturing in Kenya says the high cost of power and enhanced minimum wage have raised the cost of production and their products may be out-priced in the market. United Aryan, which has been operating in Kenya for the last 16 years, is not happy to pay higher energy tariffs/wages as against countries such as Ethiopia, Rwanda, Malawi and Egypt where the cost of labour is much cheaper. The minimum wage in Kenya is Sh13,475 and forecast to rise to Sh15,372 this year if recommendations, by the Central Organisation of Trade Union secretary-general Francis Atwoli, to the Federation of Kenya Employers is ratified.

United Aryan’s founder and chairman Pankaj Bedi says manufacturing sector in Kenya has a huge potential for growth unlike other countries in East African region. The only challenge they are facing at the moment is the high cost of power and high wages which have left them struggling to meet production costs.

Kenya also charges organisations around $0.15 per kilowatt an hour when taxes and other levies are incorporated, which also makes business uncompetitive as against Ethiopia where manufacturers pay about 0.4 (Sh4.14) per kilowatt hour. Bedi says a number of companies will prefer setting up their operations in Ethiopia because the cost of power, land and labour is cheaper.

Products in Kenya can only remain competitive if electricity tariffs are charged at $ 0.7 (Sh7) per kilowatt hour, he said. Should the situation persist, companies planning to set up bases in Africa will prefer operating in countries where the cost of power and labour is relatively cheaper. The laid back performance of the sector has been seen as the reason Kenya failed to achieve the targeted sustainable annual 10 per cent growth in GDP from 2010 as envisioned in the Vision 20130 plans.