The casual observer would be forgiven for thinking that it has been a bad few months for the manufacturing sector.

The latest Kenya Revenue Authority statistics indicate that manufacturing is no longer the number one source of tax revenue — it has been replaced by financial services. 

This comes on the back of news that manufacturing’s contribution to GDP was down at 7.5 per cent in June 2019, compared with 7.9 per cent for the same period in 2018. 

And at the recent inaugural Kenya Exporter of the Year Awards, much was made of Kenya’s Sh1.1 trillion trade deficit, with the value of goods imported outstripping that of exports by almost threefold. 

Then there is the recent flurry of announcements of impending restructurings, including the loss of many management roles across multinational groups, which will inevitably touch on jobs here in Kenya.

All evidence of a sector in crisis? Not necessarily. Many of the recently announced retrenchments are attributed to the emergence of disruptive technologies and changing consumer preferences – the demise of demand for analogue products in a digital age. 

These developments, however, offer a very real opportunity for Kenya to close its trade deficit and deliver on the government’s manufacturing agenda.

For manufacturers, innovation and the digital revolution allow traditional players to adapt old business models, offering new products and services to new consumer segments.

New technological developments speed up and improve the way innovative products and services are conceived of, produced, accessed and delivered. 

For consumers, digital transformation has heralded a fundamental shift in their preferences and purchasing habits. Social media and other digital platforms now mean that the preferences of Kenyan consumers are evolving at an unprecedented rate.

Clearly, Kenya must compete with international manufacturers on quality and cost, and technology and innovation can help them achieve this.

But the manufacturing sector must now also compete in terms of diversity of product if we are to satisfy consumers with increasingly international tastes.

All this requires significant investment in innovation and digital technologies.

But investment by manufacturers in technology and innovation alone is not sufficient to get the manufacturing back on track.

A recent UK government White Paper on “Regulation for the Fourth Industrial Revolution” identifies six challenges that governments must address to seize the opportunities that innovation presents for their economies.

Three of these challenges that underline my point are, first, we need to be on the front foot in reforming regulation in response to technological innovation; second, we need to ensure that our regulatory system is sufficiently flexible and outcomes-focused to enable innovation to thrive; and third we need to support innovators to navigate the regulatory landscape and comply with regulations.

Lofty ambitions for sure, but Kenya faces more fundamental challenges. More so in respect of the transparency of the regulatory process and predictability of outcomes.

As Kenyan manufacturers review their business models to ensure they are sustainable, the government too must invest in supporting infrastructure; further enhancing the ease of doing business; and, most importantly, developing robust, transparent and predictable regulatory frameworks that are future-fit and encourage, rather than stifle, innovation.

Regulatory reform is an increasingly important source of competitive advantage in the global economy. It is one that we can ill-afford to ignore. — The writer is the CEO of Kenya Association of Manufacturers — [email protected].