Opinion & Analysis

How Kenya can industrialise in a few years

Jua kali artisans at work in their sheds at Kibuye Market, Kisumu. Manufacturing companies, particularly SMEs and informal industry, are undercapitalised. PHOTO | TOM OTIENO | NMG
Jua kali artisans at work in their sheds at Kibuye Market, Kisumu. Manufacturing companies, particularly SMEs and informal industry, are undercapitalised. PHOTO | TOM OTIENO | NMG 

Manufacturing can play a crucial role in Kenya’s inclusive growth by absorbing large numbers of workers, creating jobs indirectly through forward and backward linkages to agriculture, raising exports and transforming the economy through technological innovation.

It is with this in mind that the Overseas Development Institute and the Kenya Association of Manufacturers coordinated a multi-stakeholder process to determine how the sector can create 300,000 jobs and increase the share of manufacturing in GDP to 15 per cent in five years.

A plan titled ‘10 policy priorities for transforming manufacturing and creating jobs’, has been developed focused on key actions that can be taken to build the sector and achieve the aforementioned goals.

It is rooted in the Kenya Industrial Transformation Programme and the Vision 2030 Manufacturing Agenda targeted at priority sectors of both formal and informal manufacturers (jua kali) as both sectors need support if Kenya is to industrialise equitably.

The first issue to address is the business environment. While Kenya has moved up 21 places in its position on World Bank’s Ease of Doing Business Rank, considerable constraints exist particularly in dealing with construction permits, paying taxes and registering property. Thus further action is needed to improve the business environment.

Additionally, for manufacturing to flourish the country needs a fiscal regime that is more articulated to support the sector.

Fiscal policy at both national and county level needs to be more deliberately leveraged to support industrialisation through, for example, developing fiscal incentives that drive investment into manufacturing.

The third action point concerns making land more accessible and affordable. Research by Hass Consult reveals that the price of land in and around Nairobi has increased by a factor of 6.11 to 8.05 since 2007.

Aggressive increases in land price dampen investor appetite. Thus there is a need to prevent inflationary speculation on land prices, and develop government land banks earmarked for industry.

Energy costs continue to be punitive and make Kenya’s manufacturing sector less competitive than even its East African neighbours.

State efforts need to not only target increasing energy generation but also lower energy prices and increase the quality and consistency of energy to the sector.

This should be coupled with a key gap constraining the sector—access to finance. Manufacturing companies, particularly SMEs and informal industry, are undercapitalised and face multiple obstacles to obtaining access to finance.

Bespoke financing mechanisms aimed at the sector, such as through an Industrial Development Fund, need to be fast-tracked.

Kenya cannot leverage manufacturing for economic development without creating a more aggressive export push into regional and international markets. Exports to the EAC are declining and opportunities such as Agoa can be tapped into more effectively.

Additionally, Kenya needs to reorient education policy and skills development towards science subjects so that the skills in the labour pool drive the growth of manufacturing.

Finally, overall coordination in the sector is crucial. An agency in government should be created that coordinates all government entities relevant to industrialisation such as agriculture, education and the National Treasury.

The private sector also needs to better coordinate particularly along value chains to drive sub-sector growth in a more robust and targeted manner.

Also there is a need for better coordination between public and private sector through fostering trust and reciprocity to drive industrialisation forward.