Utilisation of industrial capacity and employment promotion in Kenya's manufacturing sector

Abstract

The need for faster rates of growth of both output and employment In Kenya strongly calls for a fuller utilisation of the existing capacity of the industrial sector. It is generally known that there is widespread underutilisation of capacity in the manufacturing sector of the economy. The major aims of this study was to evaluate the feasibility and desirability of increasing capacity utilisation in the industrial sector in Kenya. The study attempted to do this by evaluating some of the methods and measurements used in estimating the level of capacity utilisation. It was expected that capacity utilisation would be significantly affected by the level of labour productivity, labour intensity,market concentration, competing imports, change in output stocks and the level of profitability. The major findings of the study are that (a) increase in labour productivity increases the level of capacity utilisation in beverages and tobacco, textile and clothing, leather and leather products industries. (b) market concentration and labour intensity are Insignificant factors in determining the level of capacity utilisation in Kenya's manufacturing industries over time. (c) the effects of competing imports gives a mixture of results industrial groups over time. (d) change in output stocks and the level of profitability have no significant impact on the level of capacity utilisation over time. From our regression analysis using student's t-statistic values and the coefficient of determination, no clear case emerges for any policy bias towards capacity utilisation in Kenya's manufacturing sector. This inconclusiveness may be due to possible multicollineurity between some of the variables such as labour productivity and market concentration and also due to the type and quality of available data. Nevertheless, the estimates made in this study suggest that employment and output could be expanded considerably if fuller capacity utilisation was achieved. The conclusion is drawn that capacity utilisation policy must be an integrated combination of measures including tax rates being linked to the number of production shifts and external trade taxes and subsidies to promote a greater substitution of local materials for presently foreign produced intermediate inputs.