Ethiopia set to become largest manufacturing hub beating Kenya

Ethiopia manufacturing industry has blossomed in recent years due to better industrialization policies from the government and has attracted investors from United Kingdom, Turkey and India who have invested billions of dollars in foreign direct investment (FDI) in the textile and other sectors of the economy while the Kenyan government has not laid out policies to boost its industrialization, leading to a near-stagnation.

As a result, Ethiopia is set to become the largest manufacturing nation in East Africa, beating the regional leader Kenya, as government incentives, such as cheap electricity, tax holidays and cheap land, attract investors in the industry.

Saitoti Torome, Kenya’s Planning Permanent Secretary, during the launch of the Kenya Economic Report in Nairobi last week said that Kenya must improve the industrial sector. If not careful their market will be flooded with goods from Ethiopia.

The Kenyan manufacturing industry employed 287,400 people in formal jobs in the 2014-15 period, an increase from 279,400 jobs in 2013-14. However its contributions to the Gross Domestic Product (GDP) are declining, according to the Kenya Economic Report 2016 that was released by Kenya Institute for Public Policy Research and Analysis (KIPPRI), this month.

The main cause for the decline in Kenya’s manufacturing sector is high production costs and competition from cheap imports from China and India. However, despite the stagnation in the manufacturing sector, World Bank Group estimated that Kenya’s economy will grow at a rate of 5.9 percent this year, rising to 6 percent next year. Ethiopia’s economy is predicted to grow by about 8.1 percent.

Growth in the two east African nations is mainly due to the boom in the infrastructure sector, with both of them undertaking big projects to upgrade roads, air and rail transport besides increasing their energy capacity.

But Kenya, the biggest economy in the East African region, risks being flooded by cheaply manufactured goods from neighboring Ethiopia, which has had a booming manufacturing industry in recent years.