The Kenyan manufacturing sector serves as a vital pillar in the nation’s economy, playing a significant role in employment, income generation, and export earnings. However, persistent challenges, particularly the high cost of electricity, impede the sector’s growth and competitiveness.
According to data published in the International Energy Agency’s Electricity Market Report Africa 2023, Kenyan manufacturers contend with electricity tariffs among the highest in Africa, averaging USD 0.16 per kilowatt-hour (kWh). This surpasses the tariffs in East African countries like Ethiopia (USD 0.05/kWh) and Tanzania (USD 0.08/kWh), as well as other African exporting nations such as South Africa and Egypt (USD 0.03/kWh).
The elevated cost of electricity directly impacts Kenyan manufacturers’ profitability, constituting up to 30.0% of their total production costs. This renders them less competitive in domestic and international markets, hindering investments in new technologies, production expansion, and job creation.
Various factors contribute to the high electricity costs in Kenya. Notably, the reliance on costly thermal power generation, constituting over 60.0% of the country’s electricity mix, poses a challenge. Thermal power plants heavily depend on imported fossil fuels, subject to global price fluctuations and currency depreciation. Additionally, high costs associated with Independent Power Producer (IPP) contracts, signed during periods of elevated fuel prices with long-term fixed tariffs, further complicate the situation.
Inefficiencies in the energy distribution system, such as energy theft and distribution losses, also contribute to the overall cost of electricity, estimated to result in losses of up to 20.0% of the generated electricity.
The consequences of these high electricity costs for Kenyan manufacturers are extensive, leading to reduced competitiveness, market share losses, lower profits, and potential business closures. The discouragement of investments in new technologies and operational expansion limits the sector’s growth potential and job creation. Moreover, the increased electricity costs are transferred to consumers through higher prices for goods and services, disproportionately affecting low-income households.
