This story line never gets old, around 1960; South Korea was on average poorer than Kenya. Fast forward to the 21st century and the divergent fortunes are equally awe-inspiring as they are acclamatory.
While there are immense factors attributable to the dynamics, what is now evident is that where we lacked in driving our economy forward, South Korea put in industrial economic planning at the fore. Since creation of their Economic Planning Board in 1961, the then largely agricultural nation put long-term work to transform into a modern industrial nation.
Back home, our quest for an industrial renaissance has been work in progress. Our major undoing has been our lack of competitiveness due to high cost of doing business as a result of decades of under-investment in the enablers. With rising costs in traditional manufacturing bases in Asia, nations that have prepared a favorable cost-base to industrial production will be the winners. The Jubilee administration has been keen to make Kenya ready. With massive investments in the energy sector, infrastructure (rail, road and airports), expanding the port of Mombasa and remarkable progress in the ease of doing business, providing access to markets (EU, AGOA, EAC) the stage has been set to take industrialization to the next level.
For instance, the upcoming Naivasha industrial zone is poised to locate industries at the source of clean geothermal power that is green (clean) and at near 50% less cost than it is currently, a critical efficiency enhancer for large manufacturers as well as provide significant scale to produce in our country for the next 50 years. From the onset, the pursuit of an inclusive model of growth that would provide millions of new jobs in the near future has been embedded in the firm belief that the industrial sector through manufacturing would deliver the foundation for these jobs. Into second term, this conviction still holds true. Kenya has been looking at increasing its manufacturing base in absolute terms through building our industries, hugely critical to job creation, economic and export growth and domestic and foreign investment.
With the directive by HE the President that the cost of power reduces by 50% from 10pm to 6am, this is a key plank for manufacturers who need to take advantage to make production more cost effective. Manufacturing has always been critical to both the global and Kenya’s economy. While globally, manufacturing continued to grow, accounting for approximately 16 percent of global GDP and 14 percent of employment by 2015, in Kenya, it had been averaging between 9 and 11 percent of contribution to GDP (despite sustained growth in Manufacturing volumes). Its contribution has been overshadowed by faster growth of more competitive and less mature services sector such as telecommunications, banking and ICT.
In 2015, we launched a 10 year industrialization blueprint aptly dubbed ‘Kenya’s Industrial Transformation Programme (2015-2025).This plan identified five strategic areas hinged on existing comparative advantages. Within the strategy lies 10 opportunities envisioned to increase manufacturing sector jobs to 435,000 additional jobs and at the same time add Kshs. 200-300billion to Kenya’s GDP.
First off, we committed to innovate our global export engines like tea, coffee and horticulture while enhancing leather processing and textile and apparels manufacturing. To boost production and exports, we have focused on addressing pricing regulations on the sale of the exports while looking to attract a 50-100% price premium by marketing the exports through ‘Made in Kenya’ brand internationally. Further, the plan sets out to enhance the contribution of leather industry through development of a dedicated leather industrial city in Machakos county and upgrade leather clusters and cottage industries to supply local and global markets with finished leather. This could net the economy Kshs 15 billion to 20 billion of GDP contribution and 35,000 to 50,000 new jobs. On textile and apparel, the 10 year AGOA extension will guarantee and increase our share in the US market, from Kshs 30 billion to Kshs.100 billion by 2025. We continue to make major headway in this sector that created over 22,000 jobs in the last 4 years.
Secondly, Agriculture: we have not fully taken advantage of the billion dollar global agro-processing market. With only 16 percent of all exported agricultural output in Kenya processed, leveraging on processing opportunities could create an additional 110,000 jobs with Kshs 60 billion in the offing for the economy. Agro-processing is today the second largest export for the Export Processing Zones with huge potential to increase output and create jobs.
Fish processing for example, has capability to create 100,000 jobs in counties surrounding Lake Victoria and plans are underway to attract fish feed manufacturers to trigger this economic lift. We have further identified several value chains catering to high value crops and animal products processing for export. Additionally, our strategic location in Mombasa through the set-up of a food processing hub (“Agropolis”) will in the long term tap into the Kshs. 380 billion food imports into the region as well processing various food crops.
Thirdly, the construction and infrastructure boom is core to Kenya’s GDP and the region. In a Kshs. 6 trillion regional infrastructure market, we have to build on capacity for local firms to profit from this boom by producing specific items that are today imported that blends well with our ambition to build 500,000 new low cost houses.
Fourth, the plan seeks to rejuvenate our non-industrial sectors of Information Technology, Tourism and Wholesale and Retail as high growth markets that will provide additional jobs. Kenya is well positioned to benefit from the estimated Kshs 128 billion IT market by developing into a preferred location for business process and IT outsourcing. Securing markets to trade our manufactured goods goes hand in hand with production and more non-traditional markets must be availed to our investors.
Fifth, it is in our agenda that Small and Medium Enterprises are nurtured to build a thriving entrepreneurial culture in Kenya. A high employment sector, the SME regime could potentially be remodeled along the lines of globally successful SME regimes such as the USA, India, Germany and Turkey where linkages with large companies are entrenched, credit guarantees schemes are present and goods and services are of global standards that enable them to compete with the best in class.
An enabling environment is strategic for Kenya’s transition to higher-value added manufacturing sectors. We have made remarkable progress in this front, ranking 80th position globally (out of 190 countries) up from 136th in 2013 in the World Bank Ease of Doing Business rankings leading to rising investment (FDI) levels of over $2bn by December 2016 up from $350m in 2013. Our target is to be position 50th in the next two years. With new companies locating in Kenya to serve not only our local market but regional and international markets as well, we are signaling to the world that Kenya is ready for business.
The last 4 years have been about laying the foundation for creating a competitive manufacturing base both on infrastructure/cost front as well as on improving business environment. The time is now to put Manufacturing at the centre stage of Kenya’s economic future.
The writer is the Cabinet Secretary for Industry, Trade & Cooperatives