How MSMEs, mini factories can help transform Kenya’s manufacturing

Southlands Millers in Langata , Nairobi County in this picture taken on March 13, 2023. 

Photo credit: File | Nation Media Group

The manufacturing sector is crucial for Kenya's economic development. It employs over 350,000 people, second only to the public sector. Yet the sector has faced numerous challenges, including the policy environment, energy costs, and cost and tenor of capital.

Kenya's industrialisation potential has been hampered by these challenges, with the manufacturing contribution to GDP falling from 10 percent in 2011 to 7.6 percent in 2024. The contribution of the sector will likely decrease even further by 2025/2026.

The panacea lies in addressing the challenges discussed above. This is important, but it is not sufficient, more creative strategies are needed.

Last week, I advocated contract manufacturing as a means of transforming the industry. In addition to transforming the sector, Micro, Small, and Medium Enterprises (MSMEs) must also be encouraged to participate in manufacturing.

A promising avenue for revitalising the sector is to assist MSMEs in investing in mini-factories in the 1450 administrative wards.

90 percent of businesses are MSMEs and is the source of 90% of employment. So MSMEs contribute significantly to employment and innovation. For instance, I'm certain that there are posho mills in all the 1450 wards in Kenya. This is the most common evidence of mini-factories. 

In the 1970s and 1980s, Kenya's maize milling industry was largely controlled by a handful of large corporations, delivering maize flour that was omnipresent, even in the most remote villages.

Local posho mills, often run by cooperative societies, struggled with inefficiencies and outdated technology. Fast forward to today, and the landscape has radically shifted. Currently, tier 1 millers hold circa 20 percent of the market share, primarily through supermarkets.

Meanwhile, tier 2 and tier 3 millers dominate with a significant 60 percent share, reflecting a consumer preference for local, more accessible products. Local posho millers account for the remaining 20 percent, underscoring the shift towards localised production.

The success of local maize millers is a testament to the potential of localised production models. If similar strategies can be applied across sectors, Kenya could see mini factories sprout up in all 1,450 administrative wards.

These mini factories would serve to produce a wide array of goods, from soaps to dairy products, toys, and furniture to shoes, nails, mabati’s, and juices, among many others. Mini factories offer significant advantages:

1. Job Creation: These small-scale operations can generate local employment, thus reducing unemployment rates and stimulating economic growth across communities.

2. Cost Efficiency: Manufacturing products closer to consumers reduces transportation costs and thus lowers prices for consumers while increasing profit margins for producers.

3. Diverse Offerings: Local production can lead to a wider variety of goods that are tailored specifically to regional tastes and preferences, enhancing consumer choice.

4. Sustainability: Leveraging local resources fosters environmentally friendly practices while reducing reliance on imported goods.

5. Adaptability: Smaller production units can swiftly respond to changes in market demand, making them more resilient during economic fluctuations.

For MSMEs to realize their potential, strategic government support will be vital. One promising initiative is the County Aggregation and Industrial Parks (CAIPs), designed to provide the infrastructure and resources necessary for small enterprises to flourish.

This support must include reducing bureaucratic hurdles, improving access to finance, and ensuring affordable energy solutions—essential components that can enhance production capabilities. Moreover, integrating MSMEs into formal supply chains will bolster their competitiveness, making them less vulnerable to external shocks.

The government’s commitment to promoting a thriving MSME sector through policy reforms and funding will be crucial in driving this evolution.

In conclusion, the transformation within the maize milling sector is emblematic of a broader shift towards localized production and the empowerment of MSMEs. By fostering an environment conducive to the establishment of mini-factories across administrative wards, Kenya can unlock immense economic benefits, driving sustainable growth that resonates with its citizens.

As Kenya stands on the brink of an industrial renaissance, the successful adaptation of the maize milling model could offer a roadmap for revitalizing its entire economic landscape.

Embracing this opportunity may not only chart a new economic course for the nation but also ensure that the benefits of growth are distributed equitably across all communities—a promise that could redefine the Kenyan experience in the years to come

The writer is a public policy expert and former CEO, Kenya Association of Manufacturers (KAM)

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