Energy Consumption and Performance of Manufacturing Sector in Kenya
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Date
2022
Authors
Edwin, Gwaro Ototo
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Kenya's manufacturing sector contributes 70% of the industrial sector production with the
combined contribution of construction, building and quarrying outputs to the remaining 30%.
Energy plays critical role in manufacturing. The use of energy in industry affects every single
citizen directly through the cost of goods and services, the quality of manufactured products, the
strength of the economy, and the availability of jobs. It is utilized on production process thus
efficient consumption of energy reduces the cost of doing business. Kenya Vision 2030 Economic
Development Plan recognizes the manufacturing sector, as one of the fundamental pillars of
sustainable annual GDP growth of 10%. Manufacturing stands tall as a key pillar in the Big Four
Development Agenda by the National Government of Kenya, where manufacturing is seen to be
the key to unlocking the success of the other development goals, namely: Universal Healthcare,
Affordable Housing, and Food Security. The premises to increase the share of the manufacturing
sector to GDP from an approximate existing 8.5% to a projected 15%according to the goals of the
Big 4 Agenda. Numerous problems, however, hinder the results as shown by the decline in the
sector from 9.6% in 2011 to 9.2% in 2012. The Kenyan manufacturing companies spent about
40% of the production overhead on energy leading to increased cost of operation thereby
negatively affecting their overall performance. The purpose of this study therefore, was to
investigate the effect of energy consumption on performance of manufacturing in Kenya. The
study's specific objectives were to determine effect of renewable energy consumption on
performance of manufacturing sector in Kenya and to determine effect of non-renewable energy
consumption on performance of manufacturing sector in Kenya. The research project employed a
non-experimental research design to evaluate economic models. The research utilized secondary
data sources to gather relevant information to achieve our analysis aim and address the research
gap while employing a multivariate time series regression model. The study used annual timeseries
data from the period 1980 to 2019. All relevant time-series tests were performed. The
findings revealed that energy consumption had both bidirectional positive effects to manufacturing
performance in Kenya. The findings also revealed that there was cointegration and therefore,
existed a long run relationship between the manufacturing performance and energy consumption.
The study therefore, concluded that in an energy efficiency nation and in a well-developed energy
market, manufacturing form thrives and the country product competitiveness increases. In the long
run, the speed of cointegration is divergence hence no equilibrium thus implying volatility and
instability of the energy market affecting energy consumption. Based on the findings and the
conclusions, the study recommends smoothening of energy consumption caused by renewable
energy instability through deployment and investment of storage technology especially during
excess energy supply and smart grid system to regulate supply and demand at point of metering.
Description
A Research Project Submitted to the School of Business,Economics and Tourism in Partial Fulfillment of the Requirement for the Award of Master of Economics (International Trade And Finance) of Kenyatta University
Keywords
Energy Consumption, Performance, Manufacturing Sector, Kenya