Dynamic Effect of Electricity Cost on Manufacturing Sector Growth in Kenya.

Manufacturing has been argued to play an important role in socioeconomic transformation, yet the sector in Kenya reports sluggish growth rate. This raises concern on its transformation capacity in the country. Literature suggest that high electricity tariffs are impediments to manufacturing activities. However, studies on electricity costs and manufacturing nexus largely ignored African countries, Kenya included. This explains the empirical gap, which motivated the need for this study and selection of electricity cost as its main variable. The analysis sought to examine the dynamic effect of electricity costs on manufacturing sector growth in Kenya. An energy augmented Solow framework underpinned this study, which relied on annual time series data from Kenya National Bureau of Statistics spanning 1965 to 2024. Its parameters were estimated using Autoregressive Distributed Lag model and Error Correction Mechanism. Findings revealed that elasticity of current long run electricity cost was (π= -0.0870, p value 0.0222) and short run was (⏀= -0.0870, p value 0.0005). This implies growth in electricity cost had a negative effect on the sector growth in the short run and current year in the long run. The study concluded that Kenya’s high electricity tariffs erode competitiveness of the manufacturing sector and supress its growth. These revelations led the analysis to suggest for urgent implementation of cost reflective sector competitive tariffs in Kenya to offset the drag already done on the sector’s growth.