Manufacturers now want power costs slashed by half to Sh10 per kWh from an average of Sh19.86 kWh, to spur industrial growth.
This will help the country achieve its target of 20 per cent contribution to economic growth by the sector.
Currently, the sector contributes a single digit to the country's GDP, which was at 7.2 per cent in 2022.
The reduction in power costs is among recommendations contained in The 2024 Manufacturing Priority Agenda and the Agriculture for Industry Report.
According to the Kenya Association of Manufacturers (KAM), the country has the highest electricity tariffs in the region, with only US coming close.
KAM which launched its report on Wednesday said the high cost of electricity and the quality of supply is impairing the competitiveness of manufacturers in Kenya.
It argues that if the proposed Sh10/kWh is adopted by the government, electricity costs facing manufacturer could reduce to Sh560 million (a 51 per cent reduction).
The association said there has been a rapid increase in the unit electricity cost per kWh charged to manufacturing enterprises.
“Unit electricity cost per kWh charged to a cement manufacturer in Kenya increased from Sh15.8 in January 2021 to Sh25.1 in January 2024, representing a 58.9 per cent increase,” reads part of the report.
Through the industry umbrella body, the sector wants the government to reduce the regulatory burden on manufacturers, promote access to quality, and facilitate affordable and reliable energy.
The association is citing various factors such as expensive Purchase Power Agreements (PPAs), high fuel costs, multiple taxes and levies imposed on electricity bills, forex, VAT, and Fuel Cost Adjustment, among others.
“With average consumption growth of 14 per cent and maintaining revenue neutrality with lower tariffs, the industry will enjoy a cost reduction by Sh2.4 kWh from Sh19.93 for commercial industries and small commercial to Sh17.49,” the report reads.
State Department for Energy PS Alex Wachira said that in efforts to improve the reliability of electricity supply, the government is investing in electricity transmission lines to minimise power outages.
The completed projects include the Athi River Substation, Suswa – Isinya Transmission Line, Ethiopia – Kenya Transmission Line, Olkaria – Narok Transmission Line, Mwingi – Kitui Transmission Line, and Isinya – Namanga Substation.
Addressing the issue of affordability and reliability of electricity is a top priority, he said.
The MPA Report offers a strategic blueprint designed to overcome challenges, capitalise on opportunities, and propel Kenya's manufacturing industry onto the global stage.
In 2022, Kenya's manufacturing sector's GDP contribution was valued at Sh3.18 trillion, and generated 352,000 direct jobs.
To ensure stable and predictable tax policies, KAM said the government should finalise and implement a pro-industry National Tax Policy.
This includes the introduction of a lower VAT rate for raw and intermediate products to reduce the cost of finished goods, ensure that levies, fees, or charges are proposed through the National Treasury and subsequently passed through national and county finance bills and supported by an impact assessment study.
The government should also ensure that all taxes (custom duties, excise duty, levies, VAT) on raw materials are exempted or remitted to exporters and jointly with exporting manufacturers, and develope pre-agreed key performance indicators.