Furniture makers lose exclusive State supply deal

One of the challenges in Kenya is that it is almost impossible to make quality office furniture pieces without using some finished imported components. Photo/FREDRICK ONYANGO

The government is considering doing away with a policy that gives furniture makers exclusive rights to supply State offices, since only a few are capable of doing so.

Industrialisation Secretary John Mosonik said only six companies had qualified for tenders from an initial vetting of potential suppliers in Nairobi, where most had been expected to come from.

The policy which took effect on March 1, mandates all ministries and state agencies to buy only locally made furniture, a move that provides a guaranteed demand from the state — the biggest spender in the economy.

Up to 14 companies — furniture makers and wood suppliers — in Nairobi had been short-listed, according to documents seen by Business Daily.

This means that state agencies in urgent need of furniture will be given the leeway to buy imported furniture in the near term as the government and local manufacturers sort out the teething problems.

“We are not going to sacrifice quality and timely delivery in implementing this policy. We are telling local investors that demand is there and asking them to step up and prove their ability to meet it,” Mr Mosonik said.

He added that in light of the challenges, the empowerment of local manufacturers is now going to be a gradual process, with priority given to those with the capacity to deliver.

In issuing the policy, the government hoped to spur the employment of artisans in the labour intensive carpentry workshops, making it shun the exotic furniture business that is seen as creating comparatively lesser employment opportunities owing to its thin value chain structure.

But the government has had a tough time sifting through potential beneficiaries.

One of the major challenges is that it is almost impossible to make quality furniture pieces for the office environment without using some finished imported components.

In view of this fact, the government has capped the use of the finished foreign components at 20 per cent, which is still a high benchmark according to industry players.

“Most of the components of furniture items assembled locally are imported,” said Firoze Bachu, the managing director of Furniture Elegance.

The situation is complicated further by the fact that firms with an element of manufacturing are also dabbling in imports.

But the biggest threat to the affirmative action is a lack of capital and capacity.

“What the government should have first done is to provide the enabling environment in terms of availing land for workshops, facilitating technology and skills transfer from more developed markets and access to finance,” said an industry source who sought anonymity.

Several furniture dealers surveyed by Business Daily estimated the cost of setting up a modern factory capable of churning out high quality furniture similar to the imported versions at about Sh200 million, a cost that is too high for the sector dominated by small scale businesses.

In an earlier interview, Mr Michael Mwangi of Slims East Africa, a firm dealing in imported furniture, said the policy opens up a significant potential for investing in local furniture, but pointed at the huge capital needed.

“We welcome the move, but since firms that make furniture are essentially small businesses plagued by thin capital, there is need to help in financing the sector so that the necessary machines, the biggest cost items, are in place.”

Similar sentiments were expressed by Rahul Haria, the managing director of Furniture Palace, a major dealer in imported furniture.

Tax imposed

He said the tax imposed on timber and machine imports, among other capital goods, is prohibitive to investors wishing to engage in making furniture.

“If the government zero-rates timber and machine imports, then we can consider venturing into making of furniture as opposed to importing finished pieces.”

Mr Mosonik is, however, optimistic that going forward, the ready demand for firms meeting the criteria will spur investment in local manufacturing.

For now, exotic furniture dealers who were to miss out on State contracts have a window of opportunity to net part of the millions spent annually in the public sector to buy furniture.

The government had earmarked some Sh500 million to buy furniture in the near term to coincide with the new policy.