Manufacturing

Much of Africa is quickly growting into a service economy, but in many cases without an adequately developed manufacturing and conersion industry, which for otherwise poor countirs is not sustainable since they will always export low-priced raw materials and semi-processed goods and import highly priced finished products.

A well developed manufacturing industry is a profound asset for any national economy. In Kenya, for example, the manufacturing industry contributes 11.5% to GDP, and employs just under 15% of the country’s total employment.

Manufactured exports to other African countries account for over 48% of Kenya’s total exports, with 26% of this going to countries within East Africa.

Kenya’s exports to the Eastern Africa market, however, translate to only 7% of the region’s USD 11.4 billion trade value, which points to the enormous potential in the region if the local manufacturing industry can raise its level of competitiveness.

Given the proportion of cost that energy contributes in manufacturing companies, procuring energy at a high price can have a major effect on a manufacturer’s competitiveness.

For example, one unit of electricity power currently costs manufacturers between 18 and 25 US cents, which is over 700% the 3 US cents it costs in the USA, and 150% above the 10 US cents it costs in Egypt.

Kenya has recently discovered commercially viable fossil fuel deposits with initial exploration activity projecting a capacity of close to 2,000 barrels at the Ngamia 1 oil wells in Turkana County, which, along with increased generation of geothermal power and the exploration into nuclear energy it is hoped will bring down the cost of energy, and thereby give local manufacturers a boost.

The high cost of credit in much of Africa has considerably impacted on what local manufacturing companies are able to achieve.

In Kenya, for example, with the Central Bank rate currently at 9.5% a 4% to 5% spread puts commercial bank interest rates at between 12.5% to 14.5%. Previously, commercial bank rates have gone as high as 24%. This has a big impact on long-term financing, on which capital investment in manufacturing depends.

Over the past twenty years, high interest rates, and the uncertainty of expected returns have pushed gross investment in plant and equipment as a proportion of replacement value to less than 6% for over 70% of local manufacturers.

This has had a knock-on effect on the quality, productivity and the overall level of competitiveness that local manufactures are able to achieve.

For many years now, most of Africa has had an overall trade deficit, with Kenya, for example, recording a negative trade balance in excess of USD 89.3 billion in the year 2012. This situation is exacerbated by increased local demand for imported goods, which frequently include cheap, and low quality imports that find acceptance within the poorer populations in the continent.

The absence of a strong domestic market for local manufacturers makes it all the more difficult to compete with imported goods, which large manufacturers in China and elsewhere produce for the global market, and therefore at massively reduced cost.

Quality and capacity constraints, closely related to considerable underinvestment in the local manufacturing industry, continue to put local manufacturers under immense pressure from imported alternatives available in the local market for different market segments.

As Africa opens up to regional and international trade, so does its exposure to regional and international crime escalate.

As at 2011, for example, it was estimated that counterfeiters rob Kenya’s manufacturing industry over KSh. 50 billion (USD 599 million) in revenue, and the government in excess of Ksh. 19 billion (USD 223 million) in unrealized tax revenue.

Though a considerable amount of counterfeit goods is also produced locally, trade in counterfeit has shown to have a close connection to organized crime including drug and human trafficking.

Counterfeiting is criminal and tough anti-counterfeit legislation that would need to have local and regional support is needed to at least mitigate the negative impact it is having on the local manufacturing industry.

Most manufacturing firms in Africa, are family owned and managed and except for the very few that have deliberately worked at strengthening their governance and management structures, most are tightly linked to the life and fortunes of their owners.

This situation quite often impacts on the firms’ growth and development capacity, which in turn impacts on the sustainability of jobs, and the continuity of business.

In the insurance sector, our work has been based on three organisational requirements:

• Strategy

Strategy remains an important consideration for manufacturing operations in the regions we consult, particularly given the pressure that globalisation, and uniquely, the growth of China, has put on manufacturers in developing and other econmies. Depending on the firm's size and complexity of operations, we provide a range of practical approaches to growth and sustainability.

Our SMS solution is particularly suited for growing manufacturing operations that may want to give wholesome consideration of their business strategy.

• Benchmarking

Benchmarking and cluster facilitation is an area that we seek to actively grow within manufacturing firms. Comparative performance management has been known, the world over, to drive individual and collective competitiveness at firm, industry, sector, and even national level. This is an area that manufacturign firms have found a lot to gain from.

• Financial Advisory

Management of a manufacturing operation's financial investment can make a huge difference even where operational efficiency is attained. The structure of the firm's balance sheet, for example, can considerably influence the firm's options as it seeks to fund its growth; just as the various relationships between cost and revenue can influence its profitability.

Our Financial Advisory solutions simplify all this and make decision-making that much easier.

• SMS

Our Success Model Suit (SMS) is ideal for small to medium-sized manufacturing companies, which find comprehensive solutions to their, many times, unstructured advisory requirements.

• Business development

Manufacturing operations and the meeting customer requirements present distinct performance requirements that can sometimes conflict and mitigate overall business performance. Though our work in Business Development, we develop market understanding, on which manufacturing firms can base their product positioning, volume, growth, innovation and many other decisions.

• Learning and development

Progressive manufacturing firms find that our Learning and Development solutions make a big contribution to their ovrall performance. We develop tailored Graduate Development programmes, as well as a range of Management Training programmes which the manufacturing firms we have worked with have found of great value.

• Performance management

Our Performance Management solutions provide comprehensive basis for the following, which are all important in a work environment with diverse operations, as is typical of most manufacturing operations:

• Performance planning
• Performance measurement
• Performance evaluation
• Performance appraisal

We provide several options that firms may consider in developing useful performance management processes; processes that are easy to undertand, easy to use, and easy to link with business objectives.

• Talent management

The diffetent levels at which people join manufacturing firms and specialisms they bring into a largely technical operation present excellent opportunities for long-term career development. This is important for manufacturing firms, as they seek to achieve optimum potential in different teams.

Our clients especially in manufacturing have found that a purposed approach to Talent Management makes a world of a difference.