THE KENYAN FURNITURE SECTOR October 2015
Table of contents 1. Motivation and methodology 2. Global & regional market 3. Kenya market and value chain 4. Constraints to competitiveness 5. Recommendations
Lack of sectoral data meant extensive surveying needed to complement official sources Region
3
Number of questionnaires Furniture training providers
Timber trade and furniture materials
Jua Kali furniture (training needs asessment)
Formal furniture firms
Furniture outlets
20 5 6 5 5 10 4 5 5 5 7
10 3 1 1 1 1 1 1 1 3 0
15 2 2 2 2 2 4 2 0 1 3
15 1 1 1 1 5 1 1 2 3 1
5 1 1 1 1 1 1 1 0 0 1
4 2 1 2 1 1 2 2 1 0 1
69 14 12 12 11 20 13 12 09 12 13
5
1
1
1
0
0
08
10 8 0 0
4 3 1 1
4 2 0 0
0 6 0 0
1 1 0 0
0 0 0 0
18 19 1 1
100
33
42
39
15
17
244
Jua Kali furniture manufacture rs Nairobi Nyeri Embu Meru Machakos Eldoret Kitale Kakamega Thika Kiambu Nakuru TaitaTaveta Kisumu Mombasa Kirinyaga Muranga Total Source: Creapo
Total
Key stakeholders
Stage
Overview of the Kenyan furniture value chain
4
Forestry
Timber harvesting and transport
Timber processing
Timber trade
Saw milling Forest land / plantations
Timber merchants
Plywood
Timber processors
MDF particle board Hardboard
Timber traders
Furniture industry
Formal manufacturers and traders Informal sector (‘Jua Kali’)
Furniture Furniture outlets outlets
Independent furniture chains and outlets
Technological advances and decreased trading costs have lowered furniture prices and opened markets up to foreign competition Global furniture market -
Global furniture production amounts to US$480bn
-
Emerging markets represent high growth rates of consumption
African furniture market -
Production is local, except for North and
East African furniture market USD1.2billion sold, of which c. 20% is imported Growth is driven by the urban population and
-
South Africa
purchasing power African regional furniture sales (USDm) 4,000
Production
Exports
Size of East African furniture markets (2013) 600
Imports
Import 500 USD million
3,000
2,000
400 300 200
1,000 100 0
0 Northern
(1,000)
5
Source: CSIL and Creapo
Western
Central
Eastern
Southern
Local production
Kenyan manufacturing has been growing rapidly to meet rising demand, but imports are growing faster -
Urbanization, housing and office construction drives growth
-
Industry is inward-oriented, with $23m of exports
-
Imports competes head to head with formal furniture manufacturers: same distribution networks and sell to the same market The formal sector employs c. 9,000-10,000 people; Jua Kali sector employs 115,000 people
Historical evolution of the Kenyan furniture sales $496m
500
2009-2013 CAGR = 10%
$66m
300
200
Imports 2009-2013 CAGR = 24% Formal sector 2009-2013 CAGR = 8%
100
$270m
0 2009
700
Jua Kali 2009-2013 CAGR = 10%
$337m USD million
800 $160m
400
2010
Formal industry (less exports)
6
Forecast Kenyan furniture sales
2011 Imports
2012
500
$496m
400
$728m
2013-2018 CAGR = 8%
Bedroom furniture
300 Office furniture
200 100
Upholstered furniture
2013
Jua Kali industry
Source: KNBS, Global Research & Development Services, Creapo
Growth will largely be driven by kitchen and bedroom furniture and wooden seating
600 USD million
-
0 2013
2018
Imports are growing quickly, but starting from a very low base Value of Kenyan imports (USDm) 80
$66m
Import CAGR (2009-2013) = 24% USD million
60
40
$28m
20
0 2009
2010
2011
2012
2013
Kenyan furniture market size by product type (2013) 120
USD million
100
Imported Locally produced
80 60 40 20 0 Upholstered
7
Office
Bedroom
Mattresses & supports
Source: Global Research & Development Services, Creapo Note: Misc. furniture includes bamboo, rattan, cane, bedding articles, non-specified furniture
Misc. furniture
Wood seats
Kitchen
Other seats & parts
Fundamental structural and operational issues along the value chain underpin the sub-optimal competitiveness of the industry Constrained input supply raises costs and lowers quality of manufacturing
Limited skills & poor production facilities
Limited access to markets
Limited engagement and collaboration between different stakeholders 8
Domestic timber is insufficient and imported timber is subject to unnecessary import licenses -
Demand for timber is almost double local supply
-
Lack of information on local timber demand and supply undermines longer term sustainability
-
KFS Board has conflicts of interests – produces and sells timber, and issues import licenses
-
Timber import licenses make bringing sawn timber into Kenya costly and complicated
Kenya has a significant wood deficit
Million m3/a
42
24
Total demand
9
16.6
Source: KFS and Creapo
Industrial wood harvested for fuel
1.4
Industrial wood Average annual deficit harvested for furniture
Limited inputs, structural issues and import duties undermine the efficiency and output quality of processed wood sector The sawmill industry is highly fragmented, due to input supply uncertainty, which restricts the scale at which sawmills can operate -
Most saw mill firms have not invested in
Number of registered and licensed sawmills in Kenya 800 700
Number of firms
Sawn timber
-
600 500 400 300 200
equipment in the last few decades
100 0 Small
Medium
Large
Wood-based panels
Size characteristic of sawmills
-
Few players and very little competition (four companies control production)
-
600
Industry is protected by a 25% import
500
duty
400
The oligopolistic structure undermines
300
the quality and quantity of locally produced outputs and creates room for price inflation
10
Indicative economics of plywood manufacturing: Kenya vs Finland (USD/m3)
Source: KFS and Creapo
Finland Kenya
200 100 0 Log delivered at mill
Log cost/m3 of plywood
Ex-mill price of plywood
Outdated production facilities, lack of skilled workers, and limited relevant training result in low productivity and mixed quality Outdated equipment and technology FORMAL FURNITURE PRODUCERS JUA KALI ENTITIES
-
Lack of investment in technology & facilities for serial production Furniture produced on piece-by-piece basis
-
Fragmented, with small entities competing against each other Range of products is narrow (limited by available tools)
Lack of skilled workers and availability of relevant training
-
Limited supply of relevant programs
-
Limited enrollment
-
Training levy has counter-productive impact
Value added per worker per yr
11
Source: Creapo with input from industry stakeholders
Formal sector
Jua Kali sector
USD 2,300
USD 609
Kenyan manufacturing costs are materially higher (~22%) than those of competitors Desk (1,500) size with panel legs (USD) 60
Kenya vs China : Cost difference
50 8.5 0.8 2.6
USD
40
8.6 3.6
7.7
4.4
2.1
7.0
4.4
2.4
9.7 30
10.7
5.5
8.9
7.3 20
Overheads Machine time
Machine time (67%) Labor (52%)
Labor
Other input materials 33%
10
29.5
24.5
23.3
19.6
Other input materials Particle board
0 Kenya
12
Overheads 22%
South Africa
Malaysia
Source: Creapo with input from industry stakeholders
China
Particle board 50% Total cost difference 22%
Kenyan are increasingly shopping at malls and supermarket chains, where imports dominate Access to markets -
FORMAL FURNITURE PRODUCERS
-
-
JUA KALI ENTITIES
-
Domestically, large retail sources large volumes of standardized pieces, not piece-by-piece Regionally, border procedures and roads discourage it (most exports go to South Sudan, Somalia and Tanzania) Internationally to developed markets, typically requires certification of wood origin‌ so that buyers are sure wood was grown sustainably.
Limited access to formal retail outlets because products lack standardization, volume and quality assurances Limited collaboration amongst Jua Kali players to market and sell products jointly Rising costs of raw materials makes hand crafted furniture an expensive alternative for customers
In recent years the value of Chinese and Malaysian unit import prices to Kenya have been increasing 16,000
Unit values of upholstered chairs
6,000
Unit values of wood office furniture -
KSH/Unit
KSH/Unit
12,000 8,000 4,000
4,000
Quality, style, design and prices of import furniture have been moving up market
2,000
China to Kenya
13
0 2008 Source: KNBS and Creapo
2009
2010
2011
2012
2013
0
Malaysia to Kenya 2008
2009
2010
2011
2012
2013
Limited industry communication, coordination and collaboration undermines the potential of the furniture sector Fragmented stakeholder engagement across the furniture industry value chain
-
Very little outsourcing between the formal and informal sectors
-
Restricted scope for outsourcing and specialization among companies (limiting serial production)
-
No voice vis-Ă -vis Government
-
Limited leadership and cooperation for sector-wide improvements
-
No central body responsible for collecting information on demand and supply dynamics
14
Recommendations
Tackle supply-side constraints
Enhance access to domestic and regional markets
Improve productivity and innovation among manufacturers
Enhance institutional collaboration 1 5
Tackle supply-side constraints to enable formal and informal producers to increase production and quality •
Lay the foundations for a sustainable forestry sector that is able to meet Kenya’s demand for timber
•
Eliminate import licenses for timber and reduce import duties for intermediate products
•
Promote regional trade agreements to facilitate and increase timber imports
•
Improve the efficiency of the furniture inputs supply sector, and enhance the quality of their products
• 16
Promote input standardization
Enhance access to domestic and regional markets and induce greater demand for Kenyan furniture products •
Promote regional trade agreements
•
Improve the transparency and implementation of Build Kenya, Buy Kenya public procurement initiative
•
Ensure smooth border logistics and transport to promote exports
•
Push exports of Kenyan specialty products (eg. “Ethnic rustic” pieces) in key international markets
• 17
Facilitate Jua Kali access to formal markets
Improve productivity and innovation of manufacturers to enable them to upgrade design, quality, and volumes 1•
Establish a Kenyan Center for Excellence as a platform to provide relevant industry training and (in the longer-term), co-ordination of R&D
•
Rethink training levy
•
Set up prototyping facilities
•
Provide incentives to upgrade technology and expand manufacturing facilities to move towards serial production
•
Increase access to finance
•
Enhance the collaboration and productivity of Jua Kali entities via clustering
18
Enhance institutional collaboration and support in the furniture industry to foster linkages among stakeholders •
Improve stakeholder collaboration across the industry via the establishment of an Industry Association, which will 1) foster linkages and encourage dialogue between stakeholders, 2) put forward a unified industry voice,
1
3) implement a marketing and branding program to promote distinguished high-end Kenyan furniture styles 4) Collect furniture industry statistics •
19
Develop a strategic regional framework to assist in national county implementation