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Manufacturing Priority Agenda 2017
DRIVING INDUSTRIAL TRANSFORMATION FOR JOB CREATION AND INCLUSIVE ECONOMIC GROWTH
Pillar OnePolicy, Legal and
Regulatory Reforms
• Ensure macroeconomic andfiscalpoliciespredictability
• CreateaLegalandRegulatory framework for industrial transformation
• SupportManufacturing under aDevolvedSystem
• FacilitateRegionaland International TradeSystems
Pillar TwoLevelplayingfieldfor manufacturing
in Kenya
• Fightillicittrade,contrabandandsubstandardgoods
• FormalisetheInformal Economy
• Curbthesurgeindumping
• StrengthentheprotectionoftheIntellectualPropertyRights(IPRs)
• MakeSEZsandEPZsFavourableforDomesticExportsDevelopment
Pillar ThreeCompetitiveLocal
Manufacturing Sector
• Promotetaxationthatencourageslocalcompetitiveproduction
• Streamlineregulatoryrequirements to ease compliance
• Reduceimportclearance time and costs for raw materials andindustrialinputs
• Promoteaccesstoquality,affordableandreliableenergy
• PromotePromptPaymentCulture
• EnhanceAccesstoLand
• EnhanceAccesstoWaterandSanitationfor industrial use
• TimelyInfrastructurerehabilitationanddevelopment
Pillar FourMake Kenya a
manufacturinghubforExports
• DevelopaNationalExportsDevelopmentStrategy
• Establishexportsdevelopmentlongtermfinancing
• ExpandRegionalandInternational Markets
• TargetedpromotionofForeignDirectInvestment(FDI)
Pillar FiveSecuringthefuture
of Industry
• AlignKenyaTradeandIndustrial Policies to FiscalPolicies
• Accesstoaffordablelongtermfinancingfor manufacturing investments
• Supportingskills-basedjobcreationagenda
• Innovationandtechnicalupgrade
• SupportthegrowthofSmallandMediumEnterprises(SMEs)
DRIVING INDUSTRIAL TRANSFORMATION FOR JOB CREATION AND INCLUSIVE ECONOMIC GROWTH
ContributiontoKenyanGDP
InternationalTradeandForeignExchangeearnings
ContributiontoJobCreation
ConsumerbenefitsofManufacturing
Promote sustainable and inclusive industrialization (Green growth, SDG 9 and Agenda 2063 of the African Union)
1
TABLE OF CONTENTSForewordAbbreviations
MPA 2017: DRIVING INDUSTRIAL TRANSFORMATION FOR JOB CREATION AND INCLUSIVE ECONOMIC GROWTH 2017 Environmental Analysis and Economic Outlook
• ExternalEnvironmentandGlobalIndustry• KenyaEconomicOutlook
THE PERFORMANCE AND IMPORTANCE OF THE MANUFACTURING SECTOR TO THE ECONOMY • Introduction• Vision2030andtheKenyaIndustrialTransformationProgramme• KeyHighlightsoftheKAMBusinessDevelopmentPlan,2017-2019• ManufacturingSubSectorsinKenya• ManufacturingSectorOutput• ContributiontoKenyanGrossdomesticproduct(GDP)• DomesticandForeignDirectInvestmentsinManufacturing• ValueadditionbytheManufacturingSector• ContributiontoJobCreation• TradeandForeignexchangeearnings–tradeandimportanceoftradeinbringinginexport• ConsumerbenefitsofManufacturing• ContributiontoPublicFinance• Contributionofmanufacturingsectortoregionalintegration
PILLARS TO SUPPORT INDUSTRIAL TRANSFORMATION FOR JOB CREATION AND INCLUSIVE ECONOMIC GROWTH
Pillar One: Policy, Legal and Regulatory Reforms • Ensuremacroeconomicandfiscalpoliciespredictability• CreateaLegalandRegulatoryframeworkforindustrialtransformation• SupportManufacturingunderaDevolvedSystem• FacilitateRegionalandInternationalTradeSystems
Pillar Two: Level playing field for manufacturing in Kenya • Fightillicittrade,contrabandandsubstandardgoods• FormalisetheInformalEconomy• Curbthesurgeindumping• StrengthentheprotectionoftheIntellectualPropertyRights(IPRs)• MakeSEZsandEPZsFavourableforDomesticExportsDevelopment
Pillar Three: Competitive Local Manufacturing Sector • Promotetaxationthatencourageslocalcompetitiveproduction• Streamlineregulatoryrequirementstoeasecompliance• Reduceimportclearancetimeandcostsforrawmaterialsandindustrialinputs• Promoteaccesstoquality,affordableandreliableenergy• PromotePromptPaymentCulture• EnhanceAccesstoLand• EnhanceAccesstoWaterandSanitationforindustrialuse• TimelyInfrastructurerehabilitationanddevelopment
2
Pillar Four: Make Kenya a manufacturing hub for Exports• DevelopaNationalExportsDevelopmentStrategy• Establishexportsdevelopmentlongtermfinancing• ExpandRegionalandInternationalMarkets• TargetedpromotionofForeignDirectInvestment(FDI)
Pillar Five: Securing the future of Industry• AlignKenyaTradeandIndustrialPoliciestoFiscalPolicies• Accesstoaffordablelongtermfinancingformanufacturinginvestments• Supportingskills-basedjobcreationagenda• Innovationandtechnicalupgrade• SupportthegrowthofSmallandMediumEnterprises(SMEs)
SPOTLIGHT: Promote sustainable and inclusive industrialization (Green growth, SDG 9 and Agenda 2063 of the African Union)
REFERENCES
3
ForewordInthepast,economicgrowthforcountrieshasbeenviewedasarushtoreachacertaingoalwithoutmuchconsiderationfortheprocess.Theproblemswroughtbythistypeofhastenedapproach has had a negative impact onmeaningful growth and any visions of economicsustainability. The setbacks have been detrimental, resulting in continued joblessness,environmentalpollutionandanincreasedgapineconomicequality.
Thepost2015SustainableDevelopmentGoals(SDGs)areawakeupcalltothefactthatthematerialwell-beingofanationcannotbesought in isolationandthatdevelopmenthastobeattheserviceofthecitizensofone’scountry.TheSDGGoalno.9inparticularaddressesitselftoindustry,inparticular,themanufacturingsectorcallingforinclusiveandsustainableindustrialisationofcountries.Therefore,the2017ManufacturingPriorityAgenda(MPA),seeksnotjusttoadvocateforbetterregulationsforbusiness,butratherforstrategicpoliciesthatwilladdressissuesofinclusivegrowthandeconomicstabilityforthenation.KAM’sstrategicfocusforthebusinessdevelopmentperiod2017-2019istodriveindustrialtransformation.Westronglybelieveindustrializationofourcountryshouldbeapriorityforallcitizens,withaviewtodrivethecreationofwealthandproductivejobs.KAMwillcontinuetoprovidestrategicadvocacytosupportthecountry’stransformationintoanewlyindustrializedeconomy.
ThisisthereasonforthemeundertakenintheMPA2017of‘DrivingIndustrialTransformationForJobCreationandInclusiveEconomicGrowth’withinourusualactivities,wewouldliketoensurethatnooneisleftoutasweindustrialiseandthatoureffortstoindustrialisearesustainable.
Top on ourAgenda this year is the need for a regulatory policy framework that addresses the concerns of themanufacturingsector.Wewouldliketoseeboththenationalandsubnationalgovernmentsaddresstheissuesraisedsofarwithregardtonationalpolicies,countyrevenuelaws,leviesandcharges.
Thesecondpillarcallsforgovernmenttomaximisedomesticbenefitsformanufacturersbyaddressingfactorsthatupset the levelplayingfield forsectorplayers.The thirdpillaraddressesways inwhich thesectorcan increase itsproductive activitiesby looking into inputs andother factors of production.The fourthpillar addresses theneedto deepen integration in global value chains through exports.The development of human capital, technologicalprocessesandSmallMediumEnterprises(SMEs)isaddressedinthefifthpillar.OurfocusontheSMEsectorisdirectedtowardsensuringthatWomenandYouthBusinessesareprioritised.Todothis,thegovernmenthasto incorporatevocationaltrainingintheeducationalcurriculumsoastoawakeninterestinthemanufacturingsectoratanearlyageandamongstwomenwhoareunderrepresentedinthesector.Toconclude,KAMalignsitsagendatoSDGgoalno.9,andAgenda2063oftheAfricanUnionbothofwhichcallforsustainableandinclusiveindustrialisation.
We acknowledge the great efforts led by government towards creating a suitable environment for both localbusinessesandinvestorstothrive.Inparticular,welaudKenya’sforayintothe100-markterritoryintheEaseofDoingBusinessIndexandtheforwardmarch,bytwopositions,intheGlobalCompetitivenessIndex.ThatKenyawasranked96thinthe2016-201indexandnumber3worldwideinthemostreformedcountriesisnosmallfeat.
Being an election year the above achievementneednot beunderminedby any relateddisruptions. Elections aresupposedtobeaprocessandnotadeterrenttoourcurrentdemocraticprogress.Henceasthebusinesscommunity,wewouldliketoseeashowofleadershipfromboththeoppositionandcurrentgovernmentinguidingapeacefulandtransparenttransition.Wearetokennthatthisyeardemonstratestotheworldandmostlytoourcitizensthattheleadershipofthiscountryprioritiseslong-termgrowthandstabilityoverdaytodaypolitics.
IwishtothanktheKAMBoardandallmembersforcontinuedsupportandinitiativesthathavemadeadifferencein strengthening institutional leadership towards theadvancementof themanufacturing sectoragenda inKenya.Ourmembers invaluable contributions is highly appreciated. Finally on behalf of KAM leadership,we extend ourappreciationtotheGovernmentofKenyawhohavecontinuallygivenusanopportunitytodialogueandasaresult,KAM contributions to industrial transformation has been immense.Our gratitude also goes to the developmentpartnersandallthestakeholderswhohavealsogiventheirtimeandeffortstowardstheindustrializationvisionforKenya.
Flora Mutahi,Chairlady, Kenya Association of Manufacturers
4
Oureconomyneedsalargenumberofnewnon-agriculturaljobstodiversify,tocutpovertysharply,andtoemployouryoungpeople.Withoutastrongmanufacturingsector,ourchancesoffinding
manymorenon-agriculturaljobsarelow.
H.E President Uhuru Kenyatta, CGH, PresidentandCommanderinChiefoftheDefenceForcesoftheRepublicofKenya
-9thDecember,2014
5
PrefaceSince1959,whenKenyaAssociationofManufacturers(KAM)wasformed,weasanassociationhave sought todevelop theKenyanmanufacturingbypushingoutward the fringesof thesectortonewproductiveareasandactivities.Wehavegrownfromasmallcluboflike-mindedmanufacturerswithacommonvisiontoapowerfulvoiceforthesectorinthiscountry.Ourrole has evolvedover time to champion theoverall goals outlined in 2008by theKenyangovernmentinVision2030whichseekstoturnournationintoanindustrialisednation.Kenyaseekstobeahighermiddleincomeeconomydrivenbyindustrialtransformation.
Thejourneytothisvision isstillunderwayaswecometoaclosewiththesecondMediumTermPlan(MTPII)thisyearandpreparetotransitiontoanotherphaseofdevelopment in2018withMTPIII.Wearecognisantoftheneednotonlytoaccelerateoureffortsbuttodosoinaperceptivemanner.TheKenyaIndustrialTransformationprogramme(KITP),inwhosedevelopmentKAMplayedanotablerole,providesforaroadmaptoenhancemanufacturingandvalueaddition,tostimulateexportsandsubsequentlytransformoureconomy.Amongthe key areas of focus ismanufacturing sector’s transformation, infrastructure expansion,enhancinglocalcontent,longtermfinanceaccess,SMEsexpansiontorisingstarsintheregionandimprovementofthemanufacturingsectorinvestmentenvironment.
Inthisindustrialdevelopmentprocess,KAMaimstobeaknowledgesuppliertoaworldclassmanufacturingsector.Ourobjectiveistooutlinethekeystrategicobjectiveswhichwillleadtothestructuraltransformationofthiscountryfromanagrobasedeconomyintoanindustrialone.Theseobjectiveshavebeendevelopedintofivepillarsandarederivedfromthetopmostchallengesthatmanufacturersfacedailyandwhich,ifresolved,couldleadtofastergrowth.Ourapproachisevidencebasedandfocusedonlyonviableinterventions.
However,wearenotjustkeentoattaineconomicgrowthbutwearefocusedonseeingthatthisgrowthisinclusiveandsustainable.InlinewiththeSustainableDevelopmentGoals(SDGs)wearecommittedtotheinclusionofwomenandyouththroughthedevelopmentoftheSMEsector.ThisdesireiscapturedinourthemeforthisyearandalsoinourfocusontheSDGno.9intheentiredocument.
TheManufacturingPriorityAgendaisourannualtakeonthesestrategicpolicyactionsparticularlyasweheadintoelections lateronthisyearandpartiespreparetheirmanifestos. It is importantforboththecurrentand incominggovernment to lookatour recommendationsandaddress theconcernsof thesector ifweare tocontinueonthegrowthtrajectorywehaveundertaken.
Finally,IwishtothanktheteamatthePolicyResearchandAdvocacyunitthatwasinvolvedinpreparingthisdocumentfortheirvaluable insights,aswellasallKAMstaffwhohavegiventheircommitmenttowardstheachievementofthesegoals.Aswemove forward,asKAMsecretariat,weseek toachieveexcellence inmeetingtheneedsofourmembersandmoreso,forourbelovedcountry.
Phyllis WakiagaChief Executive Officer
6
ABBREVIATIONSACA AntiCounterfeitAuthority
ADR AlternativeDisputeResolution
AGOA AfricanGrowthandOpportunityAct
AU AfricanUnion
CET CommonExternalTariff
CFTA ContinentalFreeTradeAreaAgreement
COMESA CommonMarketforEasternandSouthernAfrica
CRA CommissionforRevenueAllocation
DRC DemocraticRepublicofCongo
EAC EastAfricanCommunity
EACHQ EastAfricanCommunityHeadquarters
EACMA EastAfricanCommunityManagementAct
EPZ ExportPromotionZones
ES EnterpriseSurvey
EU EuropeanUnion
FDI FinancialDirectInvestment
FTA FreeTradeAreaAgreement
GDP GrossDomesticProduct
GMO GeneticallyModifiedOrganisms
HCDA HorticulturalCropsDevelopmentAuthority
IBEC IntergovernmentalBudgetandEconomicCouncil
ICT InformationandCommunicationTechnology
IDF ImportDeclarationFee
IPOA IndependentPolicingOversightAuthority
KAM Kenya Association of Manufacturers
KARI KenyaAgriculturalResearchInstitute
KCB KenyaCopyrightBoard
KEBS KenyaBureauofStandards
KEPHIS KenyaPlantHealthInspectorateService
KIPI KenyaIndustrialPropertyInstitute
KITP Kenya Industrial Transformation Programme
7
KNBS KenyaNationalBureauofStatistics
KRA KenyaRevenueAuthority
Ksh KenyaShilling
KWS KenyaWildlifeService
LAPPSET LamuPortandSouthSudanEthiopiaTransport
MSMEs Micro,SmallandMediumEnterprise
MTP II Medium Term Plan II
MITC MinistryofIndustryTradeandCooperatives
MW Megawatts
NACOSTI NationalCommissionforScience,TechnologyandInnovation
NEMA NationalEnvironmentManagementAuthority
NLC NationalLandCommission
NRICs NonResourceIntensiveCountries
NSSF NationalSocialSecurityFund
R&D ResearchandDevelopment
SADC SouthernAfricanDevelopmentCommunity
SCT SingleCustomsTerritory
SDGs SustainableDevelopmentGoals
SEZ SpecialEconomicZones
SME SmallMediumsizedEnterprises
SSA SubSaharanAfrica
STI Science,TechnologyandInnovation
TFDA TanzaniaFoodsandDrugsAuthority
TFTA TripartiteFreeTradeAgreement
TVETA TechnicalandVocationalEducationandTrainingAuthority
UAE UnitedArabEmirates
UK UnitedKingdom
US UnitedStates
USD UnitedStatesDollars
VAT ValueAddedTax
WDI WorldDevelopmentIndicators
WEF WorldEconomicForum
WRMA WaterResourceManagementAuthority
8
2017 Environmental Analysis and Economic Outlook External Environment and Global Industry Global economic growth in 2017 is expected to be muted with a projected growth of 3.4%. ThisismainlyattributedtodepresseddemandbyadvancedeconomiesanduncertaintywithregardtotheBrexitvotewhichisexpectedtohavewidereachingeffectsparticularlyinEUstates.
Sub Saharan Africa (SSA) economies have been experiencing a slowdown asynchronous with global growth incontrasttopreviouscycles.Theperformanceoftheseeconomieswillbestructure-basedsinceNonResourceIntensiveCountries(NRICs)areexpectedtoperformbetterthanResourceIntensiveCountriesasthecommoditypriceslumpcontinuesinto2017.
SSAperformancein2016wasaffectedbypoorgrowthinthreeeconomiessusceptibletocommodityshocks,namelyAngola,SouthAfricaandNigeria.Thelargesizeoftheeconomiesdepressedthecontinentalaveragegrowthrate.OilexportgrowthinSSAshrunkby1.7%in2016leadingtoa(GrossDomesticProduct)GDPerosionofupto30%insomeoilexportingnations.Thisresultedininflationandexchangeratedepreciationinthesecountries.WearethereforelikelytoseedoubledigitinflationinsomeSSAcountrieswhichisexpectedtoaffectthepooranderoderealincome.
However,in2017,theoilmarketandnon-fuelcommoditieslikemetalsandagriculturalcommoditiesareexpectedtoimprovemarginally.Againstthisbackdrop,SSA growth is expected to be 2.9% in 2017 up from 1.4% projected for 2016asNigeria’srecessionends.Theslightincreaseingrowthisstillinsharpcontrasttothehugegrowthratesofthepast15years’experienceintheregion.
Kenya Economic OutlookKenya’s economic performance is projected to lie between 5.5% and 6% in 2017andexpectationsarehighthatthisgrowthtrendofover5.5%willcontinueoverthemidtermasshowninchart1.ThoughthisfallsshortoftheMTPIIexpectationsforadoubledigiteconomicgrowthrateofover10percent,theoutlookisoptimistic.Kenya’sgrowthstoodto5.7%inquarterthreeof2016slowingdownfromthatof6.2%inquartertwo.Kenya’sPMI–anindicatorusedtoforecastfutureGDPgrowth–asshowninchart2indicatesthatgrowthinquarterfourwillnotvarysignificantlyfromthe2016quarterthreegrowthrateandthatthiswilllikelytobringdowntheoverallgrowthratefor2016.Economicgrowthin2016wasdrivenmainlybyprivateconsumptionandgovernmentspendingwhichshouldcontinueinto2017asthegovernmentexpenditureoninfrastructureandenergydevelopmentisexpectedtocontinue.
Chart 1: Real GDP Growth
SSARealGDP SSAForecast
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2010 2011 2012 20162013 20172014 20212015
KenyaRealGDP KenyaForecast
Source:IMF
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Chart 2: Kenya PMI
Source:CFCStanbic/Markit
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Headline Inflation has largely been contained within government policy parameters of 5% in themedium term.However,anoticeable increasewasobservedsinceMarch2016asa resultofpoor rainfallwhich in turn led toanincreaseinFoodInflation.Despitethis, inflation rates in 2016 performed much better than in 2015 and are expected to remain within policy limits in 2017asdepictedinchart3.
Chart 3: Inflation In 2016 - Kenya Inflation Rate (MoM)
0
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USDOLLAR STGPOUND EURO
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Source:KNBS,CBK
Exchange Rate:Theshilling remained largelystable in2016against theUSdollarandtheEurobutstrengthenedagainstthepoundduetotheU.KBrexitdecision.AsanimportanttradingpartnerforKenya,thedepreciationofthepoundislikelytoaffectthevalueofKenyanexportsingoodsandservicesnegatively.Forecastsfor2017pittheshillingtothedollarat105.6bytheyearend.Theshillinghashelditsownagainstregionalcurrencies.
Chart 4: Exchange Rate against Major Currencies in 2016
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Theamendmentofthe2015BankingActassentedtobythePresidentinAugust2016hascertainramificationsfortheeconomyandwillaffectcredittotheprivatesector.Theamendmentpeggedinterestratesto4.5%abovetheCentralBankRate(CBR)andintroducedaminimumrateofinterestondeposits.Interestrateshavesincedropped,butnottothelowlevelsanticipated.ThenormalyieldcurveinChart6inclinestothelikelihoodofincreasinginterestrates.Thecapisboundtoslowdownlendingifbanksfeelthattheycan’tpriceloansaccordingtorisk.Thoughtherelationshipbetweenprivatesectorcreditandeconomicgrowth isnot tooclear, therehavebeenfears thatsettingafloor forinterestratesmayactuallyhampereconomicgrowth.
Chart 5: Lending to the Manufacturing Sector - 2016 Credit Manufacturting (Ksh Billion)
Manufacturing
1
268.8
277.1280.4
275.5
297.9296.4
294.3292.1
287.5285.4
282.8
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Ksh
s B
illio
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279.8 280.1
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296.6
Source:CBK
In2016,thecentralbankcuttheCBRby150basispointsto10.0%.In2017,theMonetaryPolicyCommittee(MPC)isexpectedtomaintaintheCBRgiventheinterestratecapandthe91dayT-billhittingalowof7.1%.
Inthelastfewyears,thegovernmenthasworkedtowardsimprovingthebusinessenvironmentinthecountryandin2016,Kenyabreachedthe100markintheEaseofDoingBusinessIndex.ItalsoimprovedbytwopointsintheGlobalCompetitivenessIndextorank96.Theimprovedclimatewillaffordbusinessesasoundecosysteminwhichtooperate.Two internationalRatingagencies,StandardandPoor’sandMoody’s,bothhaveastableoutlookforKenya,whileFitchhasanegativerating.
Onthepoliticalfront,KenyawillholdelectionsinAugust2017.Economicgrowthhasbeennotedtoslowdowninthreeoutoffivepastelectionyears,thoughtheeconomygrewin2013,thelastelectionyear.Withthemanyuncertaintiesattendanttosuchyearswhatwillmostlikelyhappenisthatsectorssensitivetosecuritysuchastourismwillbeaffectedaspotentialvisitorswaitforthelaterpartoftheyeartovisit.Investorsarealsolikelytoholdoffpouringtheirmoneyintotheeconomytilltheresultsareannounced.The2017electionsthereforeintroduceanelementofuncertaintyinanotherwiseoptimisticeconomicoutlook.
12
Chart 6: The Yield Curve - Kenya Government Bonds
Source:Highcharts.com
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THE PERFORMANCE AND IMPORTANCE OF THE MANUFACTURING SECTOR TO THE ECONOMY Introduction ThemanufacturingsectorhasbeeninexistenceinKenyasincepre-colonialtimesespeciallytheironindustrywhichprovidedimplementstobothpastoralistsandforagriculturaluse.However,withthebuildingoftherailwayin1896,themanufacturingindustryasweknowittoday,begantodevelop.Thesectorcurrentlyconsistsofabout3700firmswhichKAMclassifiesinto14sectors.
Vision 2030 and Kenya Industrial Transformation Programme (KITP)Kenya’s industrialisation is mapped out in two key policy documents; Vision 2030 and the Kenya IndustrialTransformationProgramme(KITP).
Vision2030isthelongtermplanforthedevelopmentofthecountrywhichincludesvariousprojectstobeundertakensothatKenyacanbeindustrialisedbytheyear2030.Theplanisdividedintofiveyeartermplans.Industrialisationprojectsfallundertheeconomicpillarandthegoalistoattainandsustainoureconomicgrowthat10percent.
KITPhasitsfoundationinVision2030butfocusesonthemanufacturingsector.ItgoesintothedetailsofhowKenyacancreateonemillionjobsandmultiplycurrentdomesticandForeignDirectInvestment(FDI)fivefoldandincreasethecontributionofmanufacturingto15percentofGDPthroughtheexploitationofalreadyexistingopportunities.Toachievethis,thegovernmentseekstocreateanindustrialdevelopmentfundtoprovidelongtermfinancingforindustry.
Key Highlights of the KAM Business Development Plan, 2017-2019 KAM’sStrategicintentforthenextthreeyearswasagreeduponbytheKAMBoardin2016andiscloselyalignedtoattainingtheaimsofvision2030andKITP.Ithasfivekeygoalsasfollows;
1.Drivingindustrialgrowthtorealize15%contributionofManufacturingSectortoGDPby2019
2.Supportingskillbasedjobcreationagendaandincreasingthemanufacturingsectorjobsgrowthby33%
3.Enhancingmarketaccessforproductslocallyandgloballytogrowexportsby33%in2019
4.Retainingandrecruitingabroadmembershipbase,and;
5.Operationalexcellencetoinpart,enhanceinstitutionalstrengtheningandsustainability.
14
Contribution to Kenya’s Gross Domestic Product (GDP)GrowthintheKenyanmanufacturingsectorinthelastoneyearhasbeenonadownwardtrajectory,withthegrowthrateof1.9percentinthelastquarterof2016beingthesectorsworstperformancesince2015whenthecountrygrewat3.5%.AsshowninChart1,thisperformanceisalsoslowerthanthecountry’soveralleconomicgrowthrateandthedecelerationisatoddswithKenya’splantoindustrialiseby2030.ItalsofallsshortofthetargetsetintheMTPII(2012-2017)forthesectortogrowby8.7%.Thesectorcontributed10.3%toGDPin2015.
Chart 7: A Comparison of Kenya’s Economic and Manufacturing Growth
Source:KNBS
When compared to other rapidly industrialising nations, Kenya’smanufacturing sector growth rate is the lowest.VietnamhasgrownatitshighesteverrateinthelastfiveyearsbutitstillfallsshortofEthiopiawhichgrewat15.8%.
Chart 8: Manufacturing amongst peer countries - Manufacturing Growth and Comparator Countries
Source:WDI
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ManufacturingvalueadditioninKenyaisfaroutstrippedbyvalueadditioninothersectorsparticularlytheservicessector.ItisalsoanindicatorofthefactthatKenya’seconomyisnotexperiencingthestructuralchangeawayfromagricultural based activities to broader economic activities wheremanufacturing plays a larger role.Though thegrowthoftheservicesectorisapositivefactor,itsetsaworryingtrendforthecountryintermsofemploymentasitcouldleadtoJoblesseconomicgrowthwhichisunsustainableinthelongterm.Manufacturingonthehandtendstobelabourintensive.
Chart 9: Value Addition by sector in Kenya
Source:WDI
Manufacturing Sub Sectors in Kenya ManufacturingisoneofthelargestsectorsinKenyacontributing10.5%toGDPin2015.StilltheagriculturalsectorcontributedmosttoGDPwith30%.
Chart 10: Sector contribution to GDP In Kenya
Source:KNBS
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Agriculture,valueadded(constant2010US$)Manufacturing,valueadded(constant2010US$)
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Agriculture, Forestry&Fishing,30%
OtherSectors,32%
Manufacturing, 10%
InformationandTechnology, 1%
Real Estate, 8%
FinanceandactivitiesInsurance,7%
WholesaleandRetailtrade;Repairs 7%
Construction,5%
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Withinthemanufacturingsector,theFoodsub-sectoristhelargestsectorcontributingover50%oftotaloutputwhencombinedwiththebeverageandtobaccosubsectors.Manufacturingfirmssourcecriticalinputfromtheagriculturaleconomyanditishardlysurprisingthatthisisthelargestsubsector.
ItiscloselyfollowedcloselybyTextilesandApparel,chemicalsandfabricatedmetalsubsectorswhichcombinedmakeup30percentofthemanufacturing.
Chart 11: Breakdown of Sub sector contribution to Kenya
Manufacturing Sector OutputThesectorcomprisesofanestimated3,700manufacturersandmanufacturingoutputhasgrownbyover50%since2010.
Chart 12: Manufacturing Output in Kenya
Source:KNBS
2010 2011 2012 2013 2014 20151,200,000
1,300,000 1,258,527
ManufacturingOutputatBasicPrices
1,821,833
1,986,733
1,737,699
1,619,6221,580,775
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FabricatedMetal,7%Printing and Media,4%
RubberandPlastic,5%
NonMetallicMinerals,4%
BasicMetals,2%
Paper,2%BasicPharmaceuticals,1%
Textile & Apparels,8%
Leather,1%
WoodandCork,2%
Machinery&Equipment,0%
TransportEquipment,2%
Furniture,3%
OtherManufacturing,3%
Other,9%
FoodProducts,43%
Beverage&Tobacco,8%
Chemicals,7%
Ksh
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Contribution to Job CreationEmploymentinthesectorrosefrom287,400personsin2014to295,400personsin2015,anincreaseof2.7percent.Employeecompensationbythemanufacturingsectorhasdoubledsince2010increasingby30percentfrom2014to2015.
Chart 13: Employee Compensation by the Manufacturing Sector in Kenya
Source:KNBS
Value addition in the Manufacturing Sector Valueadditioninthemanufacturingsectorhasalmostdoubledsince2010.
Chart 14: Manufacturing Value Addition
Source:KNBS
80
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2014
2015
2015
Ksh
s M
illio
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s M
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Domestic and Foreign Direct Investments in Manufacturing Oneofthekeyaimsofthemanufacturingsectoristoattractbothforeignanddirectdomesticinvestment.ProvisionalfiguresfromKenyaNationalBureauofStatistics(KNBS)showthatfinancialinstitutionsandcommercialbanksinthecountryapprovedatotalof251manufacturingprojectsin2015worthKshs291billion.Thiswasdoubletheamountapprovedin2014.
Accordingtothe2016WorldInvestmentReports,“Kenyaisbecomingafavouredbusinesshub,notonlyforoilandgasexplorationbutalsoformanufacturingexports,aswellasconsumergoodsandservices.”1KenyahasbeenworkingtowardsattractingmoreFDIbyallowing100%foreignownershipforcompanieslistedinthestockexchangeandiscurrentlyimplementingtheSEZAct2015soastoofferinvestmentincentivessuchastaxbenefitsandworkpermitsforskilledforeignemployees.Asaresult,Volkswagenre-openeditsvehicleproductionplantinKenyawhileToyota(Japan)hasalsoannouncedplanstoexpandinKenya.Inthelasttwoyears,122FDIprojectsareestimatedtohavecreated13,200jobs.
Chart 15: Greenfield FDI Projects in Kenya
1 World Investment Report 2016
Source:WorldInvestmentReport
Chart 16: Kenya FDI, Net inflows as a share of GDP
3,500
4,000 120
3,000
100
2,50080
2,000 60
1,50040
1,000
20500
0020102009 2011 2012 2013 2014 2015
Value,WorldasInvestors Number,WorldasInvestors
Mill
ion
USD
Num
ber o
f pro
ject
s
Foreigndirectinvestment,netinflows(%ofGDP)
2010200920080
0.5
1
1.5
Perc
enta
ge
2
2.5
2011 2012 2013 2014 2015
Source:WDI
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Consumer benefits of ManufacturingManufacturing reduces Importdependencybyprovidingcheapandqualitygoods for local consumersboth in thecountryand in theEAC region.Without themanufacturing sector, consumerswouldnotbeable toaffordcertainproductsandconsumer’spurchasingpowerwouldbemuchlower.Manufacturingalsoprovideslocalalternativestocertainproductsofferingalternativesmoresuitedto localneeds.Themultipliereffectofthemanufacturingsectormeansthatmanyothersectorsrelyonlocallymanufacturedgoodsinordertothrivesincethemanufacturingsectorisalsoaconsumerofinputsandrawmaterialsfromothersectors.
International Trade and Foreign Exchange earningsManufacturingcontributesabout25%ofallforeignexchangeearningsexcludingremittances.2Thesectoristhereforeimportantfortradeinthecountryastradeinmanufacturedgoodscreatesemploymentandhelpstobringinmuchneeded foreign exchangewhile offsetting the tradebalance as shown in the table below.Kenya’s biggest exportmarketistheAfricancontinentfollowedcloselybytheEuropeanUnion.
Chart 17: Trade Balance in Kenya
Exports
Imports
Tradebalance
2011 2012 2013 2014 2015
-25,000,000
-20,000,000
-15,000,000
-10,000,000
-5,000,000
USDThousand
0
5,000,000
10,000,000
Source:ITC
Chart 18: Kenyan Exports by Destination
2 Horticultural and Tea Exports excluded from computation of manufacturing exports
France
Norway
HongKong,China
SaudiArabia
Japan
China
AfghanistanIta
lyIndia
Rwanda
RussianFederation
Germany
Tanzania,UnitedRepublicof
Egypt
Pakistan
UnitedKingdom
Zambia
Netherlands
Uganda
UnitedStatesofAmerica
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
USD
Tho
usan
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Valueexportedin2015(USDthousand)
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Contribution to Public FinanceIntheFY2014/2015,Excisedutymadeup13%ofallcollectedtaxeswhile importdutymadeup8%.Excisedutyismainly collected frommanufacturingentities though importersdopaya certainpercentofexcise tax. ImportsofcapitalgoodswhichformcriticalinputsforthemanufacturingsectorattractDutyandotherleviessuchastheRailwayDevelopmentFundwhichcontributemorethantheKshs32billioninitiallyprojectedfortheStandardGaugeRailway.
Contribution of manufacturing sector to regional integration Themanufacturingsectorfostersregionalintegrationsincetheplayersinthissectorhavetolookforexternalmarketsandhowtoaccessthem.TheEACregionoffersKenyanmanufacturersamarketof145millionpeopleandintegrationtocreateonecommonmarketcanonlybebeneficialtopartnerstatesiftheirmanufacturedgoodscanbeexportedwithintheregion.
IntheEACregion,Kenya’smanufacturingsectorcontributesthehighesttototaloutput(GDP)intheEAC.However,thiscontributionhasdecreasedforallcountriesintheregionsince2006showingadeclineofthemanufacturingsectorregionwide.Thechartalsoindicatesthattheeconomicstructureoftheseeconomiesisnotchanging.Thiscouldbeasignofdecreasingvalueadditioninproductiveactivities.
Chart 19: Manufacturing Value Addition as a Share of GDP in EAC countries
2000
2006
2003
2009
2013
2001
2007
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2005
2011
2015
0
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Perc
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Kenya Burundi Uganda Tanzania Rwanda
Source:INDSTAT
If thechartabove iscomparedtothechartbelow,Kenyaappearstohavemorecapacity forproductionthanforexportsasonly36%percentof itsexportsweremanufactured in2013.Thiscouldbetheresultofvariousfactorswhichneedtobestudiedsoastodeterminehowtoincreasemanufacturedexportsfromtheregion.
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Chart 20: Manufacturing Exports as a Share of Total Exports in the EAC
Source:WDI
Industrial Capacity and Manufactured Export Capacity Kenyaleadsinregion’spartnerstatesintermsofindustrialcapacitytoproduceasisillustratedinchartbelowandthiscapacityhasbeengrowingsteadilyovertheyears.ItisthereforethemostindustrialisednationintheEACregion.
Chart 21: MVA per Capita in the EAC
2000
2001
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KenyaKENManufacturersexports(%ofmerchandiseexports)
RwandaRWAManufacturersexports(%ofmerchandiseexports)
BurundiBDIManufacturersexports(%ofmerchandiseexports)
TanzaniaTZAManufacturersexports(%ofmerchandiseexports)
UgandaUGAManufacturersexports(%ofmerchandiseexports)
2008
2012
2005
MVA
per
cap
ita
(Cur
rent
US$
)
2009
2013
2006
2010
2014
2007
2011
2015
160
140
120
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80
60
40
20
0
Kenya Tanzania Burundi Rwanda Uganda
Source:WDI
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Italsoleadsinamongstpartnerstatesittermsofthevaluecompaniescontributeintermsofexports.However,unlikeinindustrialproduction,Kenya’smanufacturedexportscapacityhasfallenslightlyoverthelastyearsduetoamongotherstosluggishgrowthinthemanufacturingsector,tariffsandnontariffbarrierswithinandbeyondborders.
Chart 22: Manufactured Exports per Capita in the EAC (Current US$)
Source:WDI
Allinall,Kenyaneedstocontinueincreasingitstradeandindustrialcompetitivenessbyexploitingthepotentialthatexistswithintheregion.Kenyacanalsoleverageonitsleadingpositionintermsofindustrialandtradecapacities.
2010 2001 20120
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KEN
TZABDI
RWAUGA
2008 2009 2010 2011 2012 2013 2014
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Kenya
TanzaniaBurundi
Rwanda
Uganda
Source:WDI
Still, theEAC isabigmarket forKenya’sexporteventhoughthesharehasdeclined fromover25percent to23.4percentin2014.
Chart 23: Kenya’s Exports to the EAC
2010 2001
Perc
ent
20120
5
10
15
20
25
30
2013 2014
East African Community(EAC)Aggregation
Tanzania,UnitedRepublicof
BurundiRwandaUganda
Source:WDI
TheshareofGFCFtoGDPparameterrefersto investments intofixedcapitalfrombothprivateandpublicsourcesasashareofGDPandisusefulasaproxytogiveanindicationofacountry’sproductionability.TanzaniaisthebestperformeramongstallEACcountries,implyingastrongabilitytoattractcapitalwhileKenyalagsbehindmostoftheothercountries.Thefluctuationscouldpointtootherexternalfactorswhichaffectitsabilitytoattractcapital,suchaspoliticalstability.
Chart 24: Gross Fixed Capital Formation as a Share of GDP
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Pillars of Inclusive and Sustainable Industrial GrowthPillar One - Policy, Legal and Regulatory Reforms Objective:CreateahealthyManufacturingEcosystemthroughSoundRegulationImprovecompetitiveness in the localmanufacturingsectorbycreatingabusiness friendlyecosystem.Thiscanbeachievedbyenactingandimplementingpoliciesandlegislationandpolicythatsupportthegrowthofthesector.
Challenge:Themanufacturingsectorisaffectedbypooranddisparatepoliciesandregulationsbothattheregional,nationalandsub-nationallevelwhichhavecontributedgreatlytoitsgradualdecline.Thesectorcanonlythriveinafacilitativebusinessatmosphere.
Evidence (Indicators):
• Surgeindevolutionleviesandcharges• Littlestakeholderinvolvementindraftingoflawsthataffectindustries• Overlappingregulationsandinstitutions
InstrumentsEnsure the predictability of Macroeconomic and fiscal policies Interest rates and exchange rates are known to affect themanufacturing sector particularly the ability to attractfinance,thecostofborrowingandthevalueofreturnsfrommanufacturedexports.Highfiscaldeficitsanddebt-to-GDPratioalsoresultinhighertaxationforthesector.Macroeconomicstabilityisthereforekeytothegrowthofthesector.Inthepast,thecountryhasexperiencedvolatileperiodsforcingtheCentralbanktoraiseinterestratestocurbinflationarypressureswhicherodenationaloutput.
Macroeconomic factors inKenyaareaffected toa certainextentbypolitical factors and in this electionyear, thegovernment should curb unnecessary expenditure, rein in inflation and ensure that the elections are carried outpeacefullysoastosafeguardtheeconomy.
Support Manufacturing under a Devolved SystemSubnationalgovernmentswereintroducedinthe2010constitutiontobringservicesclosertothepeopleregardlessof political vagaries.The vision of inclusive and shared economic growth that led to devolution is admirable andpraiseworthybutthetransitiontothesystemhasnotbeeneasysincecountiesaremandatedtoregulatebusinessaccordingtoarticle209oftheconstitution.
Themajorchallengeshavebeenthelackofpropercountylawstoregulatebusinesswithinthecountyandoverarchingnationallawstoguidecountiesontradeandindustrialmatters.Thishasledtothecollectionofunlawfulleviesandwhatistantamounttodoubletaxationasmultiplecountieschargebusinessesthesamefeescollectedelsewherebyothercounties,parastatalsorregulatorybodiesparticularlywhengoodsmovefromonecountytoanother.
Counties also collect fees and charges without proffering the requisite services to businesses. Counties need toacknowledge that improving service delivery is the key to attracting investment in the county andwork towardsenhancing offer on issues such as roads, garbage collection, access towater etc.They also enact legislation andintroduce punitive levieswithout adequate stakeholder engagement. It is important for the national governmentharmonisethedisparatepoliciesinplaceatthecountylevelthroughaproperpolicyframework.
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Create a Legal and Regulatory framework for industrial transformationCurrentemergingpracticeswithregardtolegislationaffectingmanufacturers isthat lawsareenactedwithouttheantecedentdevelopmentofoverarchingpolicies.Thismeansthattheoperatingenvironmentisnotcapturedandlawsarepreparedwithoutanyreflectiononwhatisonthegroundduetoalackofimpactassesments.
Theraftofexistingpoliciesiscontradictoryandconfusinginnature.Toooftenregulationsaredraftedorenforcedinahaphazardmannerwithtotaldisregardoftherealitiesonthebusinesssector.Suchregulationsafterwardshavetoundergoseveraliterationsbeforetheycanactuallybeimplemented.
Eliminate Corruption Thegovernmentneedstobeabletodetectcorruptionwhenitoccursandthisrequiresstrongauditingmechanisms.Corruptionandbadmanagementpracticeseatintothenation’s’wealth,channellingmoneyawayfrompublicprojects.Countlessstudieshaveshownthathighlevelsofcorruptioncaninterruptinvestment,restricttrade,reduceeconomicgrowthanddistortthefactsandfiguresassociatedwithGovernmentspending.Corruptionalsoharmsthechancesofsuccessforsmallandmediumenterprisesandithasbeendemonstratedthataroundtheworld,smallbusinessespaymorethantwiceasmuchoftheirearningsaslargercompanies,limitingtheirabilitytogrowandcreatejobs.3
Corruptindividualsshouldbepunishedtothefullextentofthelaw.Agreaterauditingcapacitybygovernmentcontrolbodies and stiffer penalties for corruption, particularly in high profile cases,would set clear examples thatwouldencouragepublictrustandparticipationinrootingoutcorruptpractices.ThemovebyChiefJusticeDavidMaragatohastenproceduresforcorruptionandeconomiccrimescasesiscommendable.
Efficient Commercial Dispute ResolutionEfficientcommercialdisputeresolutionhasmanybenefitsandcourtsareessentialforbusinessastheyinterprettherulesofthemarketandprotecteconomicrights.Efficiencyincommercialdisputeresolutionnotonlyentailseffectivecourts,butmoreimportantly,theestablishmentofAlternativeDisputeResolution(ADR)Mechanismsintoregulatorybodies.ADRmechanismsofferfasterandcheapermechanismstoaddressdisputesinacontextofconfidentialityandneutralitythatisindifferenttothelaw,cultureorpracticeandtheydonotblockeventualrecoursetocourtsincaseofchallenges.
Maintain momentum to ensure implementation and usefulness of the Business Court Users Committee (BCUC)ThejudiciaryengagementwiththeprivatesectorwascementedwhentheBusinessCourtUsersCommittee(BCUC)waslaunchedinlate2015.Theaimoftheistoprovideaforumforprivatesectorandthejudiciarytodiscusswaysinwhichcommercialcasescanbeadjudicatedinafastandwellinformedmanner.Thereisaneedforcontinuousreviewmeetingstoensurethatjudicialprocessesaresensitivetothetimeboundnatureofbusinessactivities.Thiscanbedonebyclearingupthebacklogofbusinessrelatedcases,automatingpaymentprocessesandeliminatingdelaysinprosecutingcases.
Harmonise Regional and International Trade Systems Regional integration is important for the localmanufacturing sector. However, certain regional policies have theeffectofhamperingmarketaccessforourexportsandshouldbereviewed.Internationally,Kenyahasanumberofagreementswithsupporttraderelationswithothernations.Itisimportantforthecountrytofasttracksomeoftheseagreementsforbettermarketaccess.
3 Corruption Watch, http://www.corruptionwatch.org.za/content/about-us-0 retrieved on 23 January 23, 2015
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Intervention Areas
Policies • Enactanationalpolicyonpublicparticipation
Regulations • Push for the enactment and implementation of the key county revenue laws developedtogetherwithkeybusinessassociationstofacilitatemanufacturinge.g.publicparticipationbill,tradelicensingbills,revenueadministrationbill,propertyandratingbillandfinancebills.
• The Attorney General should expedite the gazettement of the advisory by the transitionauthoritysoastoregulateintercountytrade
• Counties should implement the requirementsof theStatutory InstrumentsAct 2013 so thatimpactassessmentsaredonebeforeanybusinessrelatedlegislationispassed
• ReviewtheVATActandExciseAct rates inaccordancewithKAMproposals tosupport localmanufacturers
• ImplementtheBriberyAct2016• FinaliseandimplementmeasuresoutlinedinthePPOAcodeofEthics• PassthefollowingEACbills-EACindustrialisationbill,EACAnticounterfeitbillandtheTradeRemediesbill
• AmendtheCustomsManagementActandRegulations• HoldCommonMarketProtocolConsultations• PrioritisetheEACTraderegulations
Incentives/ Disincentives
• Reviewandreduceintercountyfees,chargesandlevies• Reviewparallelfeesandratechargedbybothcountiesandparastatalsforthesameservice• Resolve outstanding issues related to duplicative branding and advertising charges across
counties• Reviewexcisedutyleviedonthebeveragesandexcisedutyrates• OfferincentivesforfirmsthatsignuptoandadheretotheKenyaCodeofEthics• Stiffpenaltiesforcompaniesengagingincorruption• Fast track judicial processes through automation of payments (E-payments via Mpesa orEcitizen)forservicestoreduce
• HarmonisationofDomesticTaxesi.e.nExciseandVATacrosstheRegionbusinesslosses• FinaliseandPasstheEACDraftRegulationsforMotorvehicleAssemblyandTrucks• ApprovetheNationalAutomotivePolicywhichgivesguidelinesonhowtheNationalAutomotiveCouncilshouldoperate
• Incentivise companies to comply with the stipulations of the PPOA code of ethics and therequirementsoftheBriberyAct2016
• Througharegulationbill,EasemovementofbusinesspersonsintheEACthroughacommonbusinessvisaforEACandtheTripartiteregion
Information • EACCtocarryoutsensitisationontheBriberyAct2016•OrganiseBusinessEthicsandIntegrityComplianceTrainingsforprivatesector• Auditcountyperformanceonbusinessfacilitationto improvecompetitivenessbyrollingoutthesubnationaleaseofdoingbusinessreporttoall47counties
• Continueengagementswithcountiessothattheycanpassfriendlybusinessrelatedbillsandwiththeduediligence,considerationsandconsultationwithallstakeholders
• PublishtheEACIndustrialCompetitivenessReport• Sensitisation forNTSA,KENAS,KEBs,KRAandTIITonMotor transportandManufacturingdonebytheMotorVehicleSector
• RealDataoncapacityutilisationintheManufacturingSector• PPOAtocarryoutsensitisationontheprocurementregulations
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Public Ownership
• StrengthentheIntergovernmentalBudgetandEconomicCouncil• EstablishAlternativeDisputeResolutionMechanism(ADR)withinallregulatorybodies•MakeiteasierforCountiestoestablishPPPsasanalternativesourceofrevenuesoastoreduceleviesandchargesonbusiness
• GovernmentagenciessuchasCRA,IGTRC,CAF,COGtoaddresscountytaxation• ApproveandestablishtheNationalAutomotiveCouncil
Key StakeholdersCountyGovernments,NationalGovernment,Parastatals,theJudiciary,COG,CAF.
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Pillar Two: Level playing field for manufacturing in KenyaObjective: MaximiseDomesticBenefitsforlocalfirmsCompetition requires a level playing field for all actors andwithout it localmanufacturers are not able to gain acompetitiveedge.
Challenge: Varioushindrancesexistinthedomesticmarketwhichmakeitdifficultformanufacturingfirmstogrow.Onlybycreatingalevelplayingfieldcanlocalmanufacturingfirmsgainacompetitiveadvantage.
Evidence (Indicators):
• Proliferationofsubstandardgoodsinthemarket• IncreaseinImportsandReductionofexports• DelaysatCustomsforexportorientedgoods
Agenda Fight illicit trade, contraband and substandard goods Theproductionandsaleofcounterfeitgoodsisaglobal,multi-billiondollarproblemandcounterfeitgoodsaccountfornearly10percentofworldwidetrade.KenyanmanufacturersloseoverKsh.30billion(US$42million)annuallyduetocounterfeitproducts.AccordingtoastudyconductedbyKenyaAssociationofManufacturersin2012todeterminetheseverityoftradeincounterfeitgoodsinKenya,conductedonfivekeysectorswithfastmovingconsumerproducts,itwasestablishedthatmanufacturersloseabout40%oftheirmarketsharetocounterfeiters
Thesecurityrisksposedbyillicittradeisserious.Organizedcrimenetworksexploitnewtechnology,differencesamongnationalregulatoryregimesandlinksbetweentheglobaleconomic,financeandtransportationsystemsfortheirowngain.Theyusetheprofitstofundothercriminalactivitiessuchasdrugtrafficking,peoplesmugglingandrobbery.
Lawenforcementagenciesshouldtakeatougherstandagainstcounterfeitersandthatstanceultimatelyhastobebackedupby relevantand comprehensive local laws.There is need for improved interagency coordination in thefightagainstillicitgoodsasthemandatetoenforceisvestedwithvariousagenciesincludingtheKenyaPolice,KenyaRevenueAuthority,AntiCounterfeitAgency,KenyaBureauofStandards,KenyaPlantHealthInspectorateServices,KenyaCopyrightBoard,KenyaWildlifeServices,PharmacyandPoisonsBoardandPublicHealthOfficers.
Curb the surge in dumping One of the biggest fears that localmanufacturers face is competition from foreign firms that tend to be heavilysupportedindustriesrenderingthelocalmarketsuncompetitive.Sometimesthesefirmsengageinpredatorypricingsothatsomeoftheimportedproductsinthesectorsareacquiredattheexpenseofgrowthofthelocalindustry.Othertimes,thecompetitivenessofthesefirmsisheavilysupportedbyWTOillegalsubsidies.
Worldwide,thesteelsectorhasbeenaffectedbyanoverabundanceofSteelinChinawhichtheworld’slargestproducerofsteel.ThisglobalglutwascausedbythedeclineoftheconstructionindustryintheeastAsiancountry.Thetextilessectorissimilarlyafflicted.
ThegovernmentneedstohaverecoursetoWTOremediescurbdumpinginthecountry.Thiscallsforcapacitybuildingandtheuseofappropriateregulatoryinstruments.
Accord Preference to Local content in Government ProcurementThe‘BuyKenya,BuildKenya’policyneedstobeimplementedbytheCabinetsothatitcaninformallgovernmentpurchasingdecisionsandpreferencecanbegivenforlocallymanufacturersgoods.Inlarge,infrastructureprojects,localmanufacturersshouldbe involvedfromtheprojectdesignstagesothattheycanupgradetheir facilitiesandcapacitiestoproducegoodstotherequiredstandardsandquality.
PPDAActandRegulationsthatnowallowforlocalpreferenceshouldalsobelookedintotosealloopholesthatallowprocurementagentstogivecontractstoforeignfirms.Theyshouldalsobestipulationsforsubcontractingtolargefirms.Formalmonitoringmechanismsaswellasperiodicreportingofunderperformanceincontractingarecritical.
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Strengthen the Protection of the Intellectual Property Rights (IPRs)Copyrightbasedorcreativeindustriesincludeawidespectrumofmanufacturingindustriesthatcontributetooveralleconomicgrowth.Manylocalmanufacturersfallundertwocategoriesofinterdependentcopyrightbasedindustrieswhoseactivitiescreateinstrumentsusedinthepromotionofcopyrightedworksandpartialcopyright-basedindustrieswhereonlyaportionoftheirworkiscopyrighted.AsKenyaseekstotransformitselfintoanindustrialandinnovationhub,moreawarenessoftheneedtoprotectintellectualpropertyisnecessaryparticularlyamongstSMEs.
Formalise the Informal Economy
Inmarkets tightly regulated throughamongothers licensing,overregulationcanbedeterrent to formalisation. Infact,“Mostentrepreneursandtheself-employedareamenabletoandwouldwelcomeeffortstoreducebarrierstoregistration.”4 Businessregistrationcanopendoorstoaccessbenefitsavailableintheeconomy,notablyaccesstocapitalorothersupportingservicesforSMEs,legalenforcementofpropertyrights,taxbreaksandincentives.
Make SEZs and EPZs Favourable for the development of Domestic Exports With the introductionofSEZs, in addition toEPZsmany incentiveswill beoffered to investorswho locate there.However, it is important toalsoextend incentives to localmanufacturersoutsidebothSEZsandEPZsso that theincentivesarenotdetrimentaltolocalproducerswhofeelthatothercountriesareexploitingloopholestoexportEPZproductstoKenya.Thiswouldalsoensurelevelplayingfieldas20%ofEPZexportsareallowedtodomesticeconomy.
Intervention Areas
Regulations • HarmoniseIPRlawsacrossEACpartnerstatessothatEACbecomesasingleIPTerritoryandisrecognisedassuchforeaseofenforcement
• DevelopLocalcontentrequirementsandreviewthe PublicProcurementandAssetDisposalAct,2015toincorporatethem
• ApprovetheBuyKenya,BuildKenyaPolicy• DevelopandenactaTradeRemediesBill• InstitutePoliciestoensuretheefficientprocessingofVATrefunds
Incentives/Disincentives
• HighlyPunitivefinesandjailtermsforthoseIPRoffenders• ExtendEPZandSEZlikeincentivestodomesticproducers• Offersubsidiestostrategicsectors(e.g.steel)withstronglinkages•Offer protection and safeguards against dumping for local Industries such as theSteel and
Textiles sector • Granttaxincentivesforfirmstostrengthenbackwardlinkage
Information • FinalisetheStudyontheEACIPRRegimeinordertoharmoniseIPRlawsintheEAC• CreateAwarenessfortheSGRPhaseIIandhavethegovernmentprocurealllocallyavailableproductsparticularlySteelandCementfromlocalmanufacturers
• Clusterfacilitation• Carryoutawarenesscampaignsforconsumersoncounterfeitsandillicittrade• Developmajorawarenesscampaignstosupportlocalindustry• CreateanEACPatentRegistrationOfficeforregistrationofpatentsandtrademarks• HoldawarenessseminarsforthenewintroductionsintheCompetitionAmendmentBill2016
Public Ownership
• EnforcethePublicprocurementofdomesticgoodswithingovernmententities
Key StakeholdersGovernmentprocuremententities,KIPI,KIRDI,MDAs.
4 UN Paper
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Pillar Three: Competitive Local ManufacturingObjective:IncreaseProductiveActivitiessothatfirmsincreasetheiroutput
Challenge:ThecostofinputsinKenyaisveryhighmakingKenyanmanufacturinguncompetitive.Ifthiscontinuesitcouldheraldacompetitivenesscrisis.Onlybyrelookingatthefactorsofproductionandmakingthemcheaperandmoreavailablecanthecompetitivenesscrisisbeaverted.
Evidence (Indicators):
• PendingVATrefunds• Latepaymentstomanufacturersfromlocalretailers• Highenergycostscomparedtoneighbouringcountries• HighcostandunavailabilityofLandformanufacturingactivities• IncreasingbusinessrisksassociatedwithWaterscarcity•MarketaccessissuesforAgriculturalInputs
AgendaPromote taxation that encourages local competitive productionAn effective and efficient tax regime can boost employment, investment, and productivity which in turn wouldaccelerateeconomicdevelopment.Fiscalincentivesareneededtofacilitatevalueaddedexports.
VAT refundsLateVAT refunds shift theTax burden from consumption into production.The issue of outstandingVAT refundsstillremainsabigpainformanufacturerswholookforwardtotheexpeditiouspaymentoftherefunds.KRAowesmanufacturersbillionofshillingsinunpaidrefundswhichhasresultedinseriouscashflowissuesinthesector.Asalastresort,manufacturersareforcedtogetintodebttokeepoperations.Thisleadsthemtoincurlossesastheyarerequiredtopayhighinterestratesonloanstokeepafloat.
Elimination of IDF and RDLWiththeintroductionofPre-ExportVerificationofConformity(PVOC)forexportstoKenya,theImportDeclarationFee(IDF)shouldhavebeentotallyeliminatedsinceitduplicatestheIDF.TheRailwayDevelopmentLevy(RDL)wasalsointroducedtemporarilytoraiseafixedfeeforthebuildingoftheSGR.ThesetwochargesshouldbedoneawaywithcompletelyastheyareduplicitousinnatureandtheymakeKenyangoodsnon-competitive.
Facilitate business compliance with regulation StreamliningthebusinessregulatoryenvironmentinKenyafurthertodevolutionwouldenhancecompliance.Thereisneedforsustenanceofbusiness regulatoryenvironment reformsundertaken.Withthenewdevolvedsystemofgovernment, thenationalgovernmentshouldcreateanationalpolicyand legislationtoharmonizethecriteria forintroductionandapplicationofnewfeesandchargesthataffectbusiness.Thiswouldalsoensureharmonizedandcoordinatedinstitutionalarrangementthatcurbsduplicationandmultipletaxation.
Promote Prompt payment cultureManufacturersformpartofalargesupplychaininwhichmoneyisconstantlymoving.Inorderforbusinesstothrive,cashflowisnecessaryasthecostofborrowingeatsintoprofits.AlatepaymentcultureisverydamagingparticularlytoSMEssinceeverybusinessunlocksitsvaluebykeepingmoneymoving.
Thegovernmentcanpromotearesponsiblepaymentcultureas latepaymentsforcecompaniestoturntodebttofinance theirproductiveactivities.This is anareawhere thegovernment can leadbyexample, subjecting itsownprocurementtothehigheststandard.
Reduce Import clearance Time and costs for raw materials and Industrial InputsKenyaneedstocontinuallyimproveportinfrastructure,customsprocessesandthecapacitytotrackandtracefreightgoods.Thiswillimproveefficiencyofportorairportsupplychainsreducecostsandsavetimeforimprovedefficiency
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oftradeinmanufacturing.AccordingtotheWorldBankDoingBusinessreport2015,importtimeandcostarebindingconstraintsthatmakeKenyaadifficultcountryfortradingacrossborders.5
ImplementingtheWTOtradefacilitationagreement,inpart,shouldprovidethemomentumtoaddressthesebarriers.Thegovernmentneedstodefineanagendaforitsimplementation,andensurethatotherEACcountriesfollowsuit.
Address Factors of Production for Competitive Manufacturing• Promote Access to quality, affordable and reliable energy InSeptember 2014, the country switched to geothermal generation and this lead to lower fuel cost charges andreducedelectricitycoststoconsumers.Thefallingpriceofcrudeoilworldwideinthelasttwoyearshascontributedtolowerenergycosts.
Kenya’stariffs,atanaverageofUS¢15/kWhforindustrialconsumersstillremainhighinthisregionincomparisontoourneighbourswhichhasledtoKenya’sindustrialsectorremaininguncompetitive.AninvestorseekingcheaperenergycostismorelikelytomovetheinvestmenttoneighbouringcountriesandsellmanufacturedgoodstoKenya.Thereisthereforeneedtorelookattheelectricitytariffstructurewithabroaderviewtodeliberatelybringthepricesdown.With Ethiopia, Egypt, andUganda electricity tariffs currently atUS¢ 4/kWh,US¢ 6/kWh andUS¢ 12/kWhrespectivelywhileTanzaniahadtheirtariffreviewedtoUS¢14/kWhandSouthAfrica’stariffisUS¢9/kWh,WhatthenmakesKenya’stariffsoexpensive?
Grantedthegovernmenthasdonealottoworkontheenergysituationinthecountry.Withamajorcomponentoftheenergymixbeingfromrenewablesources,thecostofenergyinKenyahassincedroppedfromUS¢18.7/kWhtothecurrentUSc15/KWh.Investorsarecomfortablewithstabletariffregimewheretheycanhavesteadyforecastsforbusinessrevenues.Tariffpricesshouldthereforebestableandpredictable.
OtherusefulinterventionsthattheserviceprovidercouldlookintoisaTimeOfUsemeteringwhichwouldintroduceanighttimeoranoffpeaktariffandencourage24hourproductionbyindustry.
• Enhance Access to Water and Sanitation for Industrial UseThereisademanddeficitproblemwheredemandismorethansupply.Oneofthewaysofaddressingthisshortfallintheshorttermistolookcarryoutwaterauditsinordertocurtailconsumptionwaste.Anotherwayistorethinktheexpansionofwatersources.
KAMbelievesthatthecurrentsituationcallsfortheimplementationoftheWaterAct2016whichwasassentedtoinSeptember2016tostreamlinewatermanagementinthecountry.
• Enhance Access to Land Land,isabasicfactorofproductionanditremainsanimportantcomponentforthemanufacturingsectorespeciallyAgroBasedindustries.ForAgroProcessors,whomakeupthelargestvalue-addsectorinKenya,landisanessentialinput.Asmoreandmorelocallyownedagro-processingindustriestakeshape,thereisneedtoensurethatthereiscertaintyonlandownership.
• Address the Agricultural Supply Chain and InputsFortheagroprocessingsectortogrow,thesupplyhastomeetdemand.Howeverthevagariesofarainfedagriculturalsystemmakesupplyerraticandthistendstohaveaneffectonagroprocessingfirms.Valueadditionshouldalsobeencouragedsoastonetinmoremoneyforgoodssoldoverseas.
• Green Growth and Sustainable DevelopmentClimate change is the new frontier on the sustainable development front. The African continent is particularlyvulnerabletotheadverseeffectsofclimatechangedespiteitslowcarbonemissionsduetoitsgeographicalposition,reliabilityonagriculture,thelackofmitigatingmeasuresandadaptivecapacity.KenyaisalsoatadisadvantagelikemostotherAfricancountriesbutinthelastfewyears,hasworkedtowardscomingupwithaclimatechangeactionplanevenastheeffectsofclimatechangesweepitslandscape.Withoutthepropermeasuresinplace,manufacturingcouldfaceadebilitatingblowshouldclimatechangedestroytheagriculturalsectoronwhichthesectorreliesonsoheavily.
Sustainabledevelopmentthereforeneedstotakeintoaccountgreengrowthandclimatechangeadaptationmeasurestosafeguardthecountryagainstthesethreats.
5 2016 Doing Business retrieved on January 2015 http://www.doingbusiness.org/data/exploreeconomies/kenya#trading-across-borders
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•Timely Infrastructure rehabilitation and Development WhilethecountryundertakeshugeinfrastructureprojectssuchastheStandardGaugeRailwayandenergydevelopmentprojects,itwouldbeusefulforboththenationalgovernmentandcountiestolookintoexistinginfrastructuretoensurethatitisrehabilitated.Manufacturersrelyheavilyontheexistingroadnetworksandissuessuchastrafficcauseuntoldlossestothesectorduetodelays.Accessroads,drainage,Sewagetreatmentetcareallissuesthataffectfactoriesinvariousindustrialareasandtheseshouldbelookedinto.
Intervention Areas
Policies • DevelopNationalpolicyandLegislationonharmonizationofcountyPoliciesandlegislationsonfeesandcharges.
Regulations • Simplificationofbusinessstart-upprocedures• ImposeExport-bansforunprocessedrawmaterialstoencouragelocalvalueaddition• ImposeImportbansandquotasforfinishedgoodssoastostopdumping• ImplementtheWaterAct2016andcreateregulationsforWaterConservation• Developanationalwaterpolicy• AssenttotheEnergyBill2015• CreateaLegislativeFrameworkforPromptPayment• ReviewuncompetitiveExciseDutyandVATratesforthemanufacturers• EliminatetheRailwayDevelopmentLevyandtheImportDeclarationFees• ClearupthebacklogofVATrefundsaccruedafter2013• StartprocessingVATrefundsefficientlytobepaidwithin60days• ImplementtheNationalClimateChangePolicyFramework• Validatecountyactionplansoncleanenergy• ImplementtheClimateChangeActbyestablishingvariousbodiessuchas theClimateChangeCouncil
• ReviewHarmoniseNCA,CountyandNEMAleviesrelatedtoBuildingandConstructiontoavoiddoubletaxationandoverregulation
• HavetheBuildingCodeenforcedattheMinistryofInfrastructureandhousing• EffectthePresident’sdecreetoremovetheOSlevy
Incentives • RecogniseIndustriesexcellinginEnergyManagement•Offerstartupfinanceformanufacturingentities• OffermanufacturingfirmsCapitalexpendituregrantsorpreferentialloans•OfferIncometaxexemptions• SetuplandbanksforIndustrialuse•Offerincentivesforwaterandwastewateraudits• IncentiviseenergyauditstoreduceGHG• EstablishanIndustrialDevelopmentBank•OfferLoanguaranteestoSMEs• IncentivisecommercialbankstoprovidelowrateloanstargetingmanufacturersandSMEs• PromoteSelfRegulationforManufacturersonEnvironmentalIssues•OfferManufacturersquality,reliableandcosteffectiveenergy•OfferaTimeofUsetariffforelectricity• Facilitateprearrivalclearanceforrawmaterialsusedinmanufacturing• ApplytheGreenClimateChangeFund• Recognisethecertificationmarkforresponsiblecare• HoldCleanEnvironmentAwardsCeremony
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Information • Entrepreneurshiptrainingprograms• Providemarketintelligenceonthemanufacturingsector• LaunchInvestmentpromotioncampaigns• Technologyextensionandtransferservices• HoldIndustrialtradefairs• CreateAwarenessontheNationalClimateChangePolicyFramework• HoldCleanEnergyAwarenessForumsinpartnershipwithNEMA,MinistryofEnergy&PetroleumandothercivilsocietiesandCountyGovernments
• CarryoutfeasibilitystudiesfornewventuresintheIndustrialsector• OfferCapacitybuildingonenergy,waterandwastewaterauditsandonWatermanagement• CreateAwareness on the EnergyManagement Regulations 2012 and on theConservation of
Water• HoldSeminarsonthenewPVOCregulations formanufacturersandclearingagents,ElectricalandE-wasteManagementforIndustry,
Public Ownership
• Createstateowneddevelopmentbanks• Publicinfrastructureinvestments
Key StakeholdersWRMA,KenyaPower,ERC,NEMA,TheNationalTreasury,AllregulatoryInstitutions.
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Pillar Four: Make Kenya a manufacturing hub for ExportsObjective:PromoteIndustrialExportsanddeepenGlobalMarketIntegrationIncreaseKenya’sengagementinglobaltrade,internationalinvestmentandwithmultinationalenterprises.
Challenge:Highcostofproduction,Non-TariffBarriers,Balanceofpayments,limitednationalresources,smallandlimitedaccesstodomesticmarkets.
Evidence (Indicators):
• Kenya’sdecliningshareofvalueaddedexportsintheEAC• Kenya’sinsignificantimpactinworldglobaltrade(Kenya’sshareofglobaltradeisonly0.03%)• Lackofexportsdevelopmentfiscalincentivesandfinancing
AgendaDevelop a National Exports Development Strategy Kenyanexportscomprisemainlyofprimaryagriculturalexportswithlittletonovalueaddition.Inordertopromotemorevalueaddition,particularlyinagroprocessing,anationalexportsdevelopmentstrategyisimperativetopowermoreexportsandreduceourtradebalance.ThisstrategyshouldbecloselyalignedtootherexistingframeworkssuchasKITPandIndustrialpoliciesandwilllaydownastrategyforthecountrytoexportmore.
SMEsinparticularneedthesupportofthegovernmentintermsofquality,standards,accesstomarketsandfinanceinordertoattaintheirtruepotentialandsuchastrategywillbemostbeneficialtothem.
Establish exports development long term financingInordertocompeteagainstotherregionalcountriesintheEACandCOMESAregionalblocs,Kenyaneedstoestablishawaytofinanceexports.CountriessuchasEgyptalreadyhaveanexportdevelopmentfundwhichwecannotcompeteagainstandwhichhasprovedverysuccessful.In2016,EgyptdecreaseditsimportsbyUSD7billionandincreaseditsexportsbyUSD1billion.
Withoutanexportsdevelopmentfund,Kenyacannoteffectivelysupportitsnationalexportsdevelopmentstrategysuccessfullynothopetorealiseanimportsubstitutionstrategy.TheefficientandquickverificationofVATrefundswillalsogoalongwaytoensuringexportsarenotjeopardised.
Expand Regional and International Markets Bilateral and Plurilateral negotiationsKenyahasanumberof tradenegotiations thatare stillpendingconclusionsuchas theSpecialStatusAgreementwithEthiopia,theTripartiteFreeTradeArea(TFTA),theratificationoftheEconomicPartnershipAgreement,andtheremovaloftraderestrictionsbetweenKenyaandNigeria.
RegionalIntegrationisstillongoingintheEastAfricanCommunityaspartnerstatesmoveforwardtowardsacommonmarket.
Access to EAC MarketsThe EAC is Kenya’s biggestmarket and as such problems such as Non-tariff barriers, harmonisation of the EACCommonExternalTariffframeworkandothertaxessuchasExciseandVATetc.,allneedtobetackledurgentlyin2017.SinglemarketsareattractivetoinvestorsHarmonisationofrules,regulationsandtaxesreducesnon-tariffbarriers.
Doubletaxationagreements(DTAs)withSouthAfricaneedtobeconcludedwhiletheDTAwithMauritius,ataxhaven,re-examinedtoensurethatKenyaisnotlosingoutondomesticrevenue.
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Targeted promotion of Foreign Direct Investment (FDI)Through theSEZACT 2015, Kenya has the proper framework to attractmore foreign direct investment into thecountry.Thishowevercallsforthegovernmenttotargettherightcompaniesandinvestors,createopportunitiesfortheseinvestors,setupthefacilitiesasasoftlandingforinvestorsandofferincentivesforsuchcompaniestosetupheresuchaslowwagecosts.InordertopositionKenyaasanFDIdestination,thecountryshouldtargetexportorientedFDIandensurethetransferoftechnologyandskillsthroughbusinesspartnershipsandsubcontractingwithlocalfirms.
Intervention Areas
Regulations • Implement theSEZACT2015so that free tradezones, industrialparks, freeports, ICTparksagriculturalzones,touristandrecreationalareasbusinessserviceparksandlivestockzoneareestablishedinthecountry
• ReviewtheEACdutyremissionregulations2008andpartFoftheCustomsunionprotocoltofomentintra-regionaltrade
• FinalisethereviewoftheEACCommonExternalTariffandreviewthesensitive listofgoods,staysofapplicationandexemptionsregimewithintheEAC
• EnsureUniformityof• Developthe25standardsprioritisingthemosttradeablegoods• ReviewtheEACRulesofOrigin• RatificationofEPAbyall5partnerstatesbyJanuary2017• ContinueContinentalFTAnegotiations• ConcludeTFTAnegotiationsandratifytheagreement• DeveloptheNationalExportDevelopmentStrategy• AmendtheEliminationofNon-tariffBarrierstoTradeBill
Incentives •OfferExportsFinanceforlocalfirms• Uniformity in the implementation of the Single Customs Territory since Tanzania’simplementationisslightlydifferentfromthatoftheotherpartnersstates
• ReduceComplaintsrelatedtovaluationandclassificationofImportsandexportsspecificallyformanufacturersandclearingagentsastheyarenotclearonhowtodoit
• Fast track the elimination of the current 18NonTariff Barriers in the EAC through strongerIntegrationmechanisms
Information • CampaignstoattractinvestorsinKenyanSEZs• InformManufacturersandSMEsaboutSEZsandtheopportunitiesthatexist• OrganiseTradeSeminarsforManufacturers• CarryoutInvestmentCampaignstoattractforeigninvestorsintothecountryandhowtosetupintheSEZs
• Train manufacturers, particularly SMEs on international certification, labelling and qualitystandardssothatexportsmettherequirementofexportdestinations
• Createawarenessonrequirementsforpermitsandpassesapplications• HoldTradeMissions• HoldSeminarsonIndustrialSparepartsandEACdutyremission,HarmonisationofStandards,TechnicalBarrierstoTrade,Customs,MarineCargoInsurance
• HoldamanufacturingExpo• HoldsensitisationseminarsonAGOAVisaApplications
Public Ownership
• PublicProcurementfromSEZfirms• PublicinfrastructuredevelopmentinSEZs
Key StakeholdersEAC,COMESA,SADC,EuropeanUnion,EPC,MinistryofIndustryTradeandCooperatives,NationalTreasury,CBK.
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Pillar Five: Securing the future of IndustryObjective:GenerateProductiveEmploymentAchieveemployment-intensivegrowththroughthegenerationofemploymentopportunitiesinproductivesectors.
Challenge:Growth isnotgeneratingverymanyproductiveemploymentopportunities.Majorityof thepopulationarepoorbecausetheyarebasedininformalemployment.Skillstaughtininstitutionsdonotmatchskillsrequiredbyindustry.ManufacturingFirmsarealsonotasproductiveastheycouldbe.
Evidence (Indicators):
• Servicefirmsaremoreproductivethanmanufacturingfirms• Labourmisallocationinmanufacturingfirms• Technologicalgapsinthemanufacturingsector• ThelargeproductivitygapinKenyanfirms• Exportingfirmsaremoreproductivethannon-exportingfirms
Agenda Align Kenyan Trade and Industrial Policies to Fiscal policies CoherenceinpolicyisneededinKenyanTrade,IndustrialandFiscalpoliciesasthethreepoliciesdon’ttalktoeachotherinKenya.Areviewofourtradeandindustrialpoliciesshouldbedrivenbyaconcernforourneedsandsmallbutattainabletargets.
Access to affordable long term financing for manufacturing investments WhileKenyamanagedtoattractmoreFDIinvestmentsin2015thanin2014,existingmanufacturingfirmsfinditdifficulttoaccesslongtermcredittoexpandorsetuptheirplants.Itisimportantformanufacturerstohavealternativestobankloans,overdraftsandothercripplingdebtinstrumentswhicharedrivenbytheprofitconcernsofthelenders.
Domestic revenue mobilisation by encouraging people to increase their savings can generate revenue for themanufacturing sector. So far very few manufacturing companies are registered on the Nairobi Stock Exchangewhichmeansthatmanycompaniesareunabletoaccesscapitalfromthepublic.TheestablishmentofanIndustrialDevelopmentFundproposedbyKAMandnowintroducedintothetheKenyaIndustrialTransformationProgrammeshouldbe implemented. Such a fundwould allow the establishmentofmanufacturing enterprises and allow thepromotionofKenyanexports.
Support skills-based job creation agenda Authorities,academicsandteachersmuststepupeffortstoensurethathighereducationmeetstherequirementsofindustry.Thegovernmentshouldreviewcurriculatobedemanddrivenandbetteradaptedtoindustrialneeds.Schooladministrators should pursue innovative approaches to stimulate the interaction between students and industryduringtheirperiodofstudycombinedwithproblembasedlearningbringinginproblemsfromthe“outsideworld”.
TheprivatesectorhasexpresseditsinterestinsupportinginitiativestoestablishIndustryapprenticeshipprogramswhereuniversityandtechnicalschoolgraduatesarerecruitedintoindustryandtrained.Moreinvestmentstoscienceandtechnology,researchanddevelopmentandvocationaltrainingarealsoneeded.Further,establishmentofstronglinkages between tertiary institutions and industry would enhance production of competent and market readygraduates.Thegovernment should put particular emphasis on strengtheningNational polytechnics and technicalinstitutes by emulating best practice educational models inGermany. National polytechnics and other technicaltraininginstitutesalsoneedtohavetheirinfrastructureandcurriculaupgradedinordertomeettheneedsofindustry.KAM already supports government in these initiatives and currently runs the KAM Manufacturing Academy topromotethedevelopmentoftechnicalskillsandiscurrentlydevelopingaTVETapprenticeshipprogramtoencouragemanufacturing firms to take on students fromTVET institutions on internship programs so as to promote thedevelopmentofskillswhileundergoingtraining.
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Foment Innovation and technical upgradeInthisage,technologicaldevelopmentsarechangingtheglobalmanufacturinglandscapesorapidlythatit ishardfordevelopingcountriestokeepup. Itwillbedifficult forKenyato industrialisewithouttechnologicalgrowth.Forexample, the 2016 Industrial Development Report estimates that developing nations could earn $0.81 trillion to$1.86trillionperyear throughtheadoptionof the InternetofThings technology.Kenyastands to lose ifprogressinthisaspectisnotmadeingoodtime.Technologyisimportantforthemanufacturingsectorbecauseit increasesproductivity,sometimesexponentiallyandkeepscostsdownandleadstobetterproductsthatcancompete.Itcanalso lead to theproductionofnicheproducts.Because it isdifficult tomeasure technologyadoptionanduse, theindicatorsusedareproxieswhichcangiveanindicationofthestateofcertaindevelopments.
Kenyaalreadyhasinplacetheinstitutionalframeworkrequiredtosupportinnovationandtechnicalupgrades.However,itisimportanttoimplementtheScience,TechnologyandInnovationActof2013andtolookforotherwaysforlocalartisanstolearnfromglobaltechnologysuchassendingstudentsabroad,invitingmultinationalcompaniestosetuplocallyandengagingininternationalexchangesthatcanresultinmoreaccesstonewtechnologyandinnovation.TheuseofICTwillfurtheropenuptheseopportunitiestolearnanddosomethingnew.
Support the growth of Small and Medium Enterprises (SMEs)Many thriving developed nations have a well-developed SMEs that specialise in niche manufacturing and hightechnology activities.These small firms offer specialised services to larger companies and support to their coremanufacturingactivities.Thisisbecauseinsuchnations,backwardandforwardlinkagesarewelldevelopedandallowSMEstotakeadvantageofthespillovereffectsofinteractingwithbiggerandmoredevelopedfirms.
Kenya’sdataonbackwardandforwardlinkagesshowsthelackofsuchlinkagesinmostmanufacturingsubsectorsexcept in the Agricultural sector and the Food and Beverage subsectors, which are key sectors for agro basedeconomies.OurmanufacturingintensityisalsolowbecausemostmanufacturingfirmsinKenyaarelowtechnologyindustrieswitha few falling intomedium-highandmedium- lowcategories. These two factorsare important foracountry todevelop its industrialcapacitiesbecause they touchon theability toabsorbandusenewtechnologythroughskillstransfer.
KenyacangrowitsSMEsbycreating linkagesanddevelopingasubcontractingframeworktodevelopsmallfirms.Byofferingtradefinancetoyoungpeopleandwomen,thegovernmentcancanalsoencouragethesegroupstostartsmallenterprisesinmanufacturingwhichinturncancreatejobsandofferemployment.
Intervention Areas
Regulations • Implementation of the Competence Based Education and Training (CBET) within traininginstitutionwithintheTVETACT2013
• FDIemploymentquotas• Formalisationregulations•Mandatoryeducationrequirements• Business-startupregulations
Incentives • Job-hiringincentives• Cashgrantsforstart-ups• SME-specificinstrumentsandcreditguaranteefacilities• Preferentiallendingforlabor-intensiveactivities• Taxexemptionsforjobhiresorsalaries• Trainingvouchers• Subsidizedapprenticeshipprograms• LandbanksforSMEs
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Information • FormationofSectorSkillsCouncils• Jobmatchingdatabanks• Trainingfortheself-employedandmicroenterprisesinbusinessliteracy• Informationonemploymentintensiveapproachestoproduction• 3Dprinting(DisruptiveTechnology)seminars• SMEsensitisationForumsonstandardsandmarketdevelopment• PopulariseTVETEducationandTrainingthroughSkillsShows
Public Ownership
• Government-runtrainingcentresspecialisingintechnicalmanufacturingskillssuchaswelding,plumbing,fitting,turning,moulding,casting,boileroperationsandplantmaintenance.
• Publicworksprograms• Publicprocurementbasedonemploymentgeneration• Cooperation between Industry and education institutions to ensure thatCompetence BasedEducationandTraining(CBET)
• IndustryinvolvementintheCurriculumDevelopmentofOccupationalStandards
Key StakeholdersIPOA,Counties,MinistryofIndustryTradeandCooperatives,MinistryofEducation,NITA,TVETA.
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Focus on promoting sustainable and inclusive industrialization Ashighlightedbyourthemeandwithinourpillars,KenyaAssociationofManufacturersintendstofocusonpromotingsustainableandinclusiveindustrialisation.ThisalignstheMPA2017totheSDG 11 and Agenda 2063 of the Africa Unionparticularlyonissuesrelatingtothegrowthofthemanufacturingsector,supportingSMEs,greengrowthandtheencouragingwomenandyouthtosetupmanufacturingenterprises.
ThestipulationsofSDG11whichwehavehighlightedarecontainedin5keypointswhicharemainlycoveredinPillar5whichlookstothefutureofthesector.
Agenda2063isthecontinentalblueprintwhichwasdevelopedin2013andlookstoattainsevenaspirationsin50years.Oneoftheseaspirationsis‘anAfricawhosedevelopmentispeopledriven,relyingonthepotentialofferedbypeople,especially its women and youth and caring for children.’Under this aspiration,Agenda 2063 targets that ‘YoungAfricanmenandwomenwillbethepathbreakersoftheAfricanknowledgesocietyandwillcontributesignificantlytoinnovationandentrepreneurship.Thecreativity,energyandinnovationofAfrica’syouthshallbethedrivingforcebehind the continent’s political, social, cultural and economic transformation.’The agenda has as one of its keyflagshipprojecttheContinentalFreeTradeArea(CFTA)andthoughIndustrialisationisnotcoveredexplicitlyintheAgenda,thereareplanstocreateregionalmanufacturinghubsanduseICTforinnovationinthemanufacturingsector.
ThetransformativeshiftsoftheSDGsandtheaspirationsofAgenda2063havebeenadoptedbytheKenyaAssociationofManufacturersparticularlyinPillarFiveandarewovenintoourstrategicvisiontoensurethatwehaveasustainableandinclusivemanufacturingsectorthatcreatesjobsforwomenandtheyouth.
Inparticular,wehavedevelopedanSMEadvisorycenterandarecurrentlyworkingonmentorshipprogramsforSMEcompaniesbybigcompaniesandsubcontractingprojectssothatmorecollaboration isachievedbetweenbigandsmallmanufacturingfirms.WearealsoworkingonaTechnicalandVocationalEducationandTraining(TVET)programtoofferinternshipstoyoungpeopleinthemanufacturingsector.
ThegovernmentofKenyaaccordspreference towomenandyoungpeople in its procurement so that 30%of itsprocurementgoestothesegroups.KAMfullysupportsthisinitiativeandwouldliketoseemoredoneintheseareastoreachouttothefutureofmanufacturing.
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SUSTAINABLE DEVELOPMENT GOAL 9Buildresilientinfrastructure,promoteinclusiveandsustainableindustrializationandfosterinnovation.
9.1Developquality,reliable,sustainableandresilientinfrastructure,includingregionalandtransborderinfrastructure,tosupporteconomicdevelopmentandhumanwell-being,withafocusonaffordableandequitableaccessforall
9.2Promoteinclusiveandsustainableindustrializationand,by2030,significantlyraiseindustry’sshareofemploymentandgrossdomesticproduct,inlinewithnationalcircumstances,anddoubleitsshareinleastdevelopedcountries
9.3Increasetheaccessofsmall-scaleindustrialandotherenterprises,inparticularindevelopingcountries,tofinancialservices,includingaffordablecredit,andtheirintegrationintovaluechainsandmarkets
9.4By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-useefficiencyandgreateradoptionofcleanandenvironmentallysoundtechnologiesandindustrialprocesses,withallcountriestakingactioninaccordancewiththeirrespectivecapabilities
9.5Enhancescientificresearch,upgradethetechnologicalcapabilitiesofindustrialsectorsinallcountries,inparticulardevelopingcountries,including,by2030,encouraginginnovationandsubstantiallyincreasingthenumberofresearchanddevelopmentworkersper1millionpeopleandpublicandprivateresearchanddevelopmentspending
9.aFacilitatesustainableandresilient infrastructuredevelopment indevelopingcountriesthroughenhancedfinancial,technologicalandtechnicalsupporttoAfricancountries,leastdevelopedcountries,landlockeddevelopingcountriesandsmallislanddevelopingStates
9.bSupportdomestictechnologydevelopment,researchandinnovationindevelopingcountries,includingbyensuringaconducivepolicyenvironmentfor,interalia,industrialdiversificationandvalueadditiontocommodities
9.cSignificantly increase access to information and communications technology and strive to provide universal andaffordableaccesstotheInternetinleastdevelopedcountriesby2020.
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CentralBankofKenya(2016).OctoberMonthlyEconomicReview.
EconomicSurvey(2016).KenyaNationalBureauofStatistics.
GoK(2013).NationalClimateChangeActionPlan2013-2017,RepublicofKenya,Nairobi.
KenyaIndustrialTransformationProgramme(2015).MinistryofIndustrialisationandEnterpriseDevelopment.
SecondMillenniumTermPlan (2013).TransformingKenya:PathwaytoDevolution,Socio-EconomicDevelopment,EquityandNationalUnity.GovernmentoftheRepublicofKenya.
StatisticalAbstract(2016).KenyaNationalBureauofStatistics.
United Nations (2016). The Sustainable Development Goals Report retrieved from http://unstats.un.org/sdgs/report/2016/The%20Sustainable%20Development%20Goals%20Report%202016.pdf
WorldBank(2016).AFirm-levelProductivityDiagnosticforKenya’sManufacturingAndServicesSector.
WorldBank(2016).KenyaEconomicUpdate:BeyondResilience.IncreasingProductivityofPublicInvestments.
WorldInvestmentReport(2016).
Who we areEstablishedin1959,KenyaAssociationofManufacturers(KAM)isthelargestmanufacturingassociationinKenyarepresentingsmallandlargemanufacturersalikeineveryindustrialsector.KAMistheconsistentvoiceofthesectorandtheleadingadvocateforapolicyagendathathelpsmanufacturerstocreatejobsandcompetebothwithinKenya,regionallyandglobally.
Our Vision Tobeaworldclassbusinessmembershiporganisationeffectivelydeliveringservicestoitsmemberswherevertheyoperate
Our MissionTopromotecompetitivelocalmanufacturinginaliberalisedmarket
©2017.AllRightsReserved
ApublicationoftheKenyaAssociationofManufacturers(KAM)
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Kenya Association of Manufacturers15MwanziRoad,WestlandsBox30225–00100,NairobiKenya
Phone:+254(020)2324817,(20)2166657Fax:+254(020)3200030www.kam.co.keTwitter:@KAM_kenyaFacebook:www.facebook.com/KenyaAssociationOfManufacturers
