What party manifestos say on industrialisation in Kenya
The rising wages in Asia, the rebalancing underway in China, and the strong growth in Africa provide a window of opportunity for Kenya to expand its capabilities and global presence in export-oriented and labour-intensive manufacturing in the next 20 to 30 years.
But the performance of the Kenyan manufacturing sector has been weak, accounting for 9.2 per cent of GDP in 2016. Several decades ago, Kenya had a substantial industrial sector by regional standards, but its East African neighbours have been catching up in recent years.
Decisive and comprehensive action is required to reverse the decline, double manufacturing production and employment, and increase the share of manufacturing to 15 per cent of GDP in the next five years.
With this in mind, the Overseas Development Institute (ODI) and Kenya Association of Manufacturers (KAM) developed a 10-point policy plan to transform Kenyan manufacturing and create jobs.
These 10 points, based on close co-operation among a range of stakeholders, aim to inform pre-election debates and can also be used by the new government to implement a more focused and effective industrialisation strategy.
There are analyses of the manifestos of the three main political parties in the coming elections to determine the extent to which they support manufacturing in Kenya and the region.
The manifestos of the Jubilee Party, the National Super Alliance (Nasa) and the Third Way Alliance were launched at the end of June 2017.
All three parties emphasise industrialisation as central to economic transformation in general terms – which is encouraging. Nasa is emphasising innovative initiatives and especially the small and medium enterprises and informal sector; Jubilee and the Third Way are more specific in their recommendations.
There are notable similarities with the 10 policy priorities in the KAM-ODI booklet. First, all three parties prioritise addressing either general or specific aspects of the business environment. The Third Way commits to addressing the counterfeit goods menace.
Second, all three want to enforce a fiscal regime that is predictable and fair, and emphasise fair taxation.
Jubilee discusses the action point on devolution. It proposes the KAM-ODI action point on land banks and Nasa and the Third Way, industrial parks, which need land.
The Third Way pledges to work with county governments to set aside land for industrial parks, offering a practical way to implement the KAM-ODI action point on securing land for special economic zones (SEZs) and industrial parks.
The feasibility of these points will be linked to issues surrounding acrimony over land titles and cost of relocating populations from the said pieces of land. For example, an SEZ was due to be set up in the western part of the country but had to be scrapped as an agreement could not be reached on what land could be used due to claims of title on the piece of land.
Thus all parties will have to undergo a thorough land audit in the areas the government intends to develop industrial parks and SEZs and begin with areas where there is clear land title that is not contested.
In terms of energy, Nasa discusses the need for an energy policy. Jubilee highlights the need for lower electricity tariffs for industrial usage and the Third Way calls for liberalisation of the energy sector and revisions to electricity billing and pricing to reduce the cost of electricity for the manufacturing sector.
Nasa and Jubilee highlight the need for investment in electricity infrastructure. Jubilee also emphasises green energy and, in similar vein, Nasa and the Third Way focus on ramping-up clean and renewable power generation.
What most of the manifestos are not clear on is how they will reduce the cost of energy in the country. For example, Kenya needs a reduction of five US cents per kilowatt hour that would bring its cost closer to Tanzania’s. It is only the Third Way that states they will tackle the cost of energy issues by liberalising the energy sector and revising electricity billing and pricing.
Funding and credit
However, an additional problem with energy in Kenya is power outages; Kenya has more power outages than Uganda, Rwanda and Ethiopia. None of the manifestos are clear on how this will be addressed. All three manifestos are vague on the type of reforms and investments needed to address inefficiencies and incentivise investment in power transmission and distribution.
All three parties suggest the establishment of industrial funds or development banks specifically for industrialisation, such as an export-import bank (Jubilee and the Third Way) or a co-operative fund for agro-processing (Nasa). But none of the parties place strong emphasis on suggestions for financial sector development.
Similarly, the three manifestos do not give attention to foreign direct investment to promote industrialisation. While these plans sound feasible, the implementation of these financing schemes will determine uptake by the private sector. Ideally, the funds should offer financing, perhaps at concessionary rates.
The most important factor, however, is that the funds need to be patient so that private sector has time to use the capital effectively and generate returns over a realistic period of time. Yet the manifestos are not very clear on how financing to the sector will be structured.
Jubilee comes closest to specifics, stating that they seek to provide long-term credit funded by long-term bonds; yet one wonders why this strategy has not already been deployed. Further, none of the parties places emphasis on financial sector development or how to promote FDI to support industrialisation.
On skills, Nasa and the Third Way highlight the importance of general education, while Jubilee prioritises nurturing a globally-competitive workforce to power industrialisation.
Nasa and Jubilee stress linkages between universities and the rest of society, although Jubilee seems clearest on this and explicitly mentions the need to develop formal linkages between the private sector, academia and the government.
Currently, there is a sizeable gap between what is taught to students and what the job market requires.
Therefore, if curricula are not significantly revised and linked to a push to encourage students to take up science, technology, engineering and maths subjects, any partnerships with academia may not be fruitful in terms of creating a labour force with skills required for industrialisation.
Jubilee’s pledge to promote the study of science, technology, engineering and maths but again, one wonders this has not already been done. Both the Nasa and Third Way manifestos do not contain specifics on which subject areas to target for educational improvement.
Nasa and Jubilee highlight the role of a fit-for-purpose civil service to support industrialisation. Nasa stresses the need to reduce contractors’ cost of doing business with government, streamline procurement, prompt processing of payments and inculcating zero tolerance to corruption.
Jubilee wants a truly fit-for-purpose public service, and mentions the importance of reducing waste, dealing with procurement and rationalising the public sector wage bill. The Third Way has a narrower focus on measures to combat corruption.
This element will likely prove to be the most difficult to implement as Kenya has notoriously been unable to hold those implicated in corruption scandals to account.
Thus, it is dubious as to whether any of the parties have the political will required to implement this element of the manifestos.
The Third Way manifesto places strong emphasis on developing value chains in priority manufacturing sectors, including agro-processing, textiles and leather; but some of the Alliance’s proposals to support value chain development are quite protectionist in nature.
The Nasa and Jubilee also mention value chains, with the former's manifesto emphasising synergies and linkages amongst enterprises.
The issue of value chains is closely linked to agriculture and what has become clear over the first iteration of devolution is that agriculture seems to be neglected by both county and national governments in terms of budget allocations.
According to the International Budget Partnership, national government allocated the sector as follows: 2 per cent in 2015/16, 1.3 per cent in 2016/2017 and 1.8 per cent in 2017/18.
As the IBP points out, the Maputo Declaration 2003 calls for allocation of at least 10 per cent of total national budget towards agriculture. The average expenditure on agriculture in Africa is 4.5 per cent; Kenya’s national allocations are clearly sub-par.
Thus, for the value chain manifesto declarations to work, there is need to more robust allocations to agriculture at national and county level and better co-ordination between the two levels of government. Again, one of the manifestos articulate how they would make this happen.
In the context of the EAC, the push for exports in the KAM-ODI booklet is important. Both Nasa and Jubilee press for better market access, Nasa for SMEs in particular.
Improving and/or maintaining market access in the EAC is an important element of the Nasa and Jubilee manifestos, aligning well with the KAM-SET call for an export push.
Jubilee focuses on expanding Kenya’s access to the US market in textiles, whereas Nasa emphasises market access for MSEs. In contrast, improving access to markets for Kenyan exports is not prioritised in the Third Way Alliance manifesto.
To be clear, access to EAC for manufactured goods is riddled with problems. Total exports from Kenya the EAC registered a 4 per cent decline in 2016 to Ksh121.7 billion, with exports to Uganda and Rwanda falling by 9.3 per cent and 2.5 per cent respectively.
Further, opportunities offered by the EAC’s integrated market has institutional and regulatory barriers to trade such as such as Customs clearance, standards and certification, rules of origin, licences and permits, truck inspections and language barriers.
None of the manifestos address these issues. Further, the entry of China and India into the regional market has eroded Kenya’s EAC market share from 9 per cent in 2009 to just 7 per cent by 2013.
The World Bank claims that Kenya’s trade performance is declining quickly due to an influx of goods from China into Uganda and Tanzania, which are major export destinations for Kenya.
In the manifestos it is not clear how EAC market access issues will be addressed. Jubilee and Nasa make general statements about Kenya’s role within the EAC, but there is little detail in either manifesto of specific measures or priorities to support access for Kenyan goods in the EAC market.
The Third Way’s does not make any reference to Kenya’s role in a regional context.
Anzetse Were is a development economist. This article was republished on her blog.
10 policy priorities to transform manufacturing and create jobs in Kenya
The Kenyan manufacturing sector has the potential to transform the Kenyan economy and kick-start a process of industrialisation that could create hundreds of thousands of jobs and improve livelihoods across the country. However, to make this a reality by 2022, it will take a concerted and coordinated effort by both government and the private sector.
Kenya has a number of great strengths, such as its geographical position in the region, its resilience and vibrant informal economy. Nonetheless, there are significant hurdles to overcome in the areas of land ownership, access to long-term finance, the business environment and access to reliable energy sources, to name just a few, if these strengths are to be fully capitalised upon in the quest for an industrialised national economy.
Developed by SET in partnership with the Kenya Association of Manufacturers (KAM), this policy briefing by Anzetse Were, Dirk Willem te Velde and Gituro Wainaina addresses Kenya’s current economic predicament and makes the case for political and financial investment in manufacturing. The central 10-point policy plan lays out seven policies and regulations that should be enacted to create an environment in which the sector can flourish, and three further suggestions for how to implement them in practice.
Download the policy brief: Ten policy priorities for transforming manufacturing and creating jobs in Kenya (PDF, 2.1 MB)