The seven pillars of industrialisation

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BY PRADEEP PAUNRANA

Manufacturers are optimistic on their outlook for the sector for the year 2015. We currently contribute 11.3 percent to the country’s Gross Domestic product. But to achieve more growth, we have identified seven priority areas which need to be addressed in order to create an enabling business environment. The first pillar is securing investment.

Manufacturers rely on a stable, balanced and common-sense regulatory environment to create jobs and fuel economic growth. However, the burden of unnecessarily costly and duplicative rules weighs heavily on their ability to grow and create jobs. To secure investment in the manufacturing sector, the government needs to guarantee inventors a stable policy environment, supportive taxation measures, and an investment climate that facilitates the growth of industry.

The second pillar is the securing of markets by building on the ‘Buy Kenya, Build Kenya’ initiative and export competitiveness. In Kenya, exports would enable the country to effectively deal with the fiscal and monetary challenges to reduce current reliance on domestic consumption as a major economic driver.

The open trade policy and export oriented currently adopted by Kenya should be safeguarded and further enhanced through initiatives related to promoting the uptake of local content and the curbing of illicit trade and counterfeits to secure local markets. To grow and diversify Kenyan exports, a review of EAC regulations to expand our export share into the bloc and other regional markets should be undertaken and pending treaties and agreements with other countries should be concluded.

The third pillar that has been identified is securing infrastructure. Energy and Transport are important infrastructural issues that affect the day to day running of a manufacturing firm. While a lot has been done by the current government to increase energy supply and stabilize supply, we acknowledge that, the country is still not energy secure and capacity expansion is not keeping up with demand. Transport on the other hand impacts on cost of goods and services while Water is increasing becoming a concern for businesses in the country due to the risk posed in the future of unavailability of water. As a water scarce country, we cannot continue to ignore this risk.

As a fourth pillar, manufacturers have identified securing constitutional gains. Government has to secure gains to business as outlined in the Constitution of Kenya 2010. Businesses are the main actors in mobilizing and distributing wealth and resources in a county. While devolution was meant to improve service delivery in the country, it has also brought about a number of challenges for Kenyan manufacturers because of the introduction of regulations that are not favourable to businesses by county governments. Manufacturers are now confronted with the issue of double taxation where members are forced to pay similar charges and levies in more than one county which is a trade barrier or trade hindrance.

Securing justice for the economy is the fifth pillar. This will be attained through the judicial system which must not only be impartial, but must be accurate and efficient as well. Judges have a fundamental role to play in dispensing justice and balancing the interests of various stakeholders in commercial disputes. Inaccurate or well-meaning decisions which fail to appreciate the commercial realities and implications will decrease confidence in the legal system and increase uncertainty in economic activity.

Securing security forms the sixth pillar. Until rampant insecurity is arrested, the Kenyan economy will continue to suffer and economic opportunities for our people of Kenya will nosedive. Crime prevention can reduce the long term costs associated with the criminal justice system and the costs of crime, both economic and social, and can achieve a significant return on investment in terms of savings in justice, welfare, healthcare, and the protection of social and human capital. A safe and secure society is an important foundation for the delivery of other key services.

The seventh pillar is securing the future of industry in order to achieve the desired growth in the sector by resolving key challenges that could lead to the rapid and sustainable growth of the sector. By supporting the SME sector, fostering the appropriate education and training for the sector, promoting innovation and focusing on the Agro-processing sector as a catalyst for more manufacturing activity in the country, the sector can see tremendous gains for the future.

In addition, the sector intends to have a strong focus on agro processing this year with a view to increase jobs and contributing significantly to economic development. Agro processing offers immense linkages to other manufacturing sectors and emerging trends already point to the successful development of countries such as China due to the development of their agro processing sectors. Still, Kenya’s agricultural sector has suffered several challenges which have seen the contribution of key crops like cotton, sugar-cane, pyrethrum and sisal among others decline. We need to prop up these sectors as they are the source of raw materials for the manufacturing sector and also strengthen it.

Last week, the World Bank launched the quarterly Economic Update, which put the sector on the spotlight to anchor more growth and point out what needs to be done for a more robust industrial sector. While manufacturing should be the leading sector in terms of contributing to the country’s GDP, the sector is lagging in third place. Growth in the Kenyan manufacturing sector has increased. In 2013, the sector grew at 4.8 percent.

The Finance and Private Sector Development Specialist at the World Bank’s Nairobi office, Ms. Maria Paulina at the launch of the 11th edition of the Economic Update told the forum that the manufacturing sector has been performing poorer than other comparator countries such as Bangladesh, Ethiopia, Tanzania and Vietnam in terms of growth and added that Allocative inefficiencies continue to plague the sector through the underutilisation of labour and capital. Of particular concern is the large productivity dispersion across manufacturing firms within and across sectors raising the question: ‘why do companies that are unproductive continue to survive in a competitive environment?’ This can only point to unresolved challenges in compliance, tax evasion and the sale of illicit of substandard goods. The informal sector also poses a threat to the sector due to increasing obstacles such as non compliance.

She pointed out to ways in which the Government can support the sector through the support of firm entry, enhancing firm level productivity, and by streamlining and reducing regulation and costs of compliance so as to decrease the cost of doing business. She also talked of devolution which is an emerging challenge.

Viewed from a global perspective, the sector has great potential for growth. According to a report on Global Competitiveness released by the World Economic Forum (WEF) in 2014, Kenya remains a factor driven economy that still relies on its natural endowments and a large pool of unskilled labour. Kenya ranks 96 out of 148 countries overall in the Global Competitiveness index. Our performance was greatly dented by the security issues which continue to dog us as earlier stated.

What is interesting to note is that the country’s innovative capacity was ranked at 46. Arguably, the global future of manufacturing lies in innovation and if we could leverage on this, our production capacity is bound to grow especially since a new global consumption pattern is growing in developing countries and in the next few years, Africa’s GDP is supposed to increase due to the production of commodities. Policies should therefore aim at long term goals that support critical enablers for industry such as helping the country access emerging markets and good infrastructure. It is now six years into the Vision 2030 strategy and we need to work harder if industrialisation is to be achieved at all.

Without sounding like a cliché, the manufacturing sector has the potential to grow and become a formidable sector in Africa, however this will only remain a dream if no action is taken to grow the sector. Government has promised to respark the manufacturing sector and industry is pleased at some of the progress made thus far.

Culled from the KAM Manufacturing Priority Agenda 2015.

(The writer is the Chairman of the Kenya Association of Manufacturers and can be reached on [email protected])

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