• by Charles Wachira (nairobi)
• Monday, January 26, 2009
• Inter Press Service

In Kenyan corporate terms, Vimal Shah is a super star. As a testament his fastidious peers here last year bestowed on him the redoubtable title of CEO of the Year.

In addition, the local manufacturing fraternity again turned to him for leadership when they tapped him for the chairpersonship at the Kenya Association of Manufacturers (KAM), an independent and influential umbrella lobby group representative of manufacturers.

But it’s not hard to decode why Vimal, a scion of a third generation Kenyan Hindu family who initially did the mundane job of insurance salesperson, today answers to the peremptory title of business guru.

Back in 1980 Vimal, then aged 21, joined a family business of which the DNA had the hallmarks of a struggler. An injection of funds was then badly needed as the business sat pensively on the cusp of total defeat.

‘‘No bank wanted to assist us. Understandably the scale and amount of collateral and experience they were looking for was lacking. But in 1985 we got support from one guy who was working with the (World Bank’s) International Finance Corporation who told us ‘start small, start from a level where you can get into the market with your available budget and then grow with time’.’’

The rest, as they say, is history.

For as managing director of Bidco Group, a colossal conglomerate operating in Kenya, Tanzania and Uganda, Vimal undoubtedly is the kingpin in the area of manufacturing edible oils in east and central Africa.

That’s why when Vimal turns remonstrative with the Kenyan government, asking it to feel the pulse of the local manufacturing sector, mandarins ought to perspire and outdo each other in addressing what lies in their official in-tray. Failure or procrastination could turn out catastrophic.

‘‘With the exorbitant power rates, Kenyan industries are faced with the grim reality of business closures and possible relocation which will deliver a death blow to the country’s plans for industrialisation,’’ warns Vimal.

Already a pervasive graveyard of idled Kenyan companies as a result of present high power rates exist, including a litany of manufacturing concerns that have since re-located.

An example is Reckitt Benckiser East Africa, a manufacturer of soaps and detergents which closed shop in late 2007, stymied by the increased cost of production.

Authorities here had as early as 2006 seen the red flag. As a knee-jerk reaction, a phantom plan was mooted, heralding a linking up of Kenya’s power grid with that of the continent’s largest economy, South Africa.

While explaining reasons late last year for suspension of the project, the top official in the energy ministry, Patrick Nyoike, explained that among other reasons South Africa was at the time facing an energy crisis.

Said he: ‘‘All our target sources in the south, including South Africa, Zambia and Tanzania, have recently run into supply problems and that could only get worse with our tapping into the pool.’’

Late last month the government announced that it had found an antidote to the scourge of high electricity tariffs: an 800 million dollar budget which will seal an interconnection deal with its geographically big northern neighbour, Ethiopia.

Veritably due to unprecedented economic growth in the past four years, from negative to an annual record-breaking six percent, consumption of electricity has shot up from 3,742 million kilowatt hours in 2002 to 5,155 million kilowatt hours by December 2007, thinning out the supply surplus to a margin of 4.5 percent to traditional margin of 15 percent.

Other factors affecting the supply-side include reliance on erratic hydro power which routinely gets battered during spells of drought; the snail-pace associated with completion of power projects; and multiple levies by the central government.

Among these are the rural electrification levy that stands at five percent of the cost of units consumed and the energy regulatory commission levy at three percent per kilowatt hours plus fuel costs.

Symbolising the dire situation Kenya finds itself in is President Mwai Kibaki joining the fray and instructing the key ministries of finance and energy to review the taxes and levies charged on electricity consumption.

According to Betty Maina, CEO of the Kenya Association of Manufacturers, claiming that production costs in Kenya are among the highest globally would be an understatement since, in her view, energy costs alone constituting over 40 percent of total manufacturing costs.

‘‘Kenya’s products are increasingly finding it difficult to compete with those from other countries, especially Asia, because of the variations in the costs of doing business.

For instance, while Kenyan manufacturers pay between 0.13 dollars and 0.19 dollars per kilowatt of electricity, their competitors in China and India pay the equivalent of between 0.03 dollars and 0.05 dollars per kilowatt of electricity, argues Maina.

Once the deal is executed, Ethiopia will avail 800 megawatts to be shared among four states - namely, Burundi, Kenya, Rwanda and Uganda. The deal runs until 2017.

However, Abdi Awale, a former World Bank consultant, advises that ‘‘Kenya will have to start thinking out of the box and tap unconventional sources of energy to speed up its economic growth.’’

But for Vimal and the manufacturing fraternity, time is of the essence and power rates ought to head south, if Kenya’s dream of emerging as a middle-level economy by 2030, as envisaged by the current administration, will come to pass.

© Inter Press Service (2009) — All Rights Reserved. Original source: Inter Press Service