Eveready shuts down its three production lines

Batteries Dry manufacturer Eveready East Africa has shut down three production lines, signalling a downturn in production that is likely to be replicated in other manufacturing businesses in Kenya.

Some Kenyan factories such as those making plastics have made their plants idle because of hefty tax measures and escalating cost of raw materials that make it difficult to sustainable margins.

The government imposed a 120 per cent tax on plastic manufacturers at the beginning of January as a measure to protect the environment from degradation. The firms were also ordered to make thicker bags that are biodegradable. Because of the high cost of production some companies have either ceased production or scaled down manufacturing.

The Kenya Association of manufacturers warns that many companies were likely to relocate to neighbouring countries where the cost of production was lower.
 
Reckitt Benckiser, the makers of Dettol, Jik, Harpic and Mortein Doom closed its manufacturing operations in Nairobi and retrenched 37 permanent factory workers and several casual labourers late last year because of high cost of production. Eveready said it was scaling down its production lines because its products were not selling owing to competition from cheap locally assembled batteries.

The firm’s Nakuru based plant which used to produce 12 million batteries every month will now churn out six million dry cells.

Managing Director Steve Smith said Eveready was facing unfair competition from battery manufacturers at the Export Processing Zone (EPZ) which were damping into the local market dry cells meant for export.

According to the Economic survey 2007, output of dry cells dropped by 1.7 per cent in 2006. The survey attributes the failure of the local industry to compete with imports and the fact that a significant number of people are now buying digital devices that do not rely on the traditional battery for power.
 
Some goods manufactured at the EPZ such as batteries have tax exemptions because they are meant to boost Kenya’s export value.

“Some of these batteries are selling at less than the cost of our production because they have been exempted from taxes. They are not meant for the local market and as such they impose unfair competition to Eveready” said Mr. Smith.

In a recent interview, Kioko Mang’eli, the managing director Kenya Bureau of Standards said Eveready was not prepared of competition in an open market pertaining in Kenya.

“We are not afraid of competition. If those companies paid taxes as we do, then battery prices will be more or less equal and as such most people will go for Eveready because we have quality” said Mr Smith.

Because of the idle production units, the company said it will lay off 40 of its staff members next month to save Sh27million every year.

Eveready is facing competition from all corners. The sale  in Kenya of alternative technology and toys which use rechargeable batteries has meant that Eveready’s dry cells are not favourites in the market. But to beat this, the firm has said it will start importing rechargeable batteries to fill the gap and maximize on profits.

Heating zinc prices in the international market are adding to the input cost of Eveready. Zinc accounts for 14 per cent of Eveready’s costs. However, in the last 14 months, prices for the metal have risen by 67.5 per cent, to US$3, 300 per metric tonne, according to Platts, the commodity news service.

Platts is forecasting further Zinc price rises throughout 2007, driven by increased demand for the metal, to reach around US$3, 700 a tonne by year-end.

Rising Zinc prices is a real threat to the company’s profitability since Zinc takes a sizable chunk of Eveready’s total costs. “All battery makers buy zinc from the same international market.