By Anthony Mwangi
On 19th October 2022, His Excellency the President presided over a high-level manufacturing summit convened by the Kenya Association of Manufacturers (KAM).
During the event, all stakeholders present agreed that increasing value addition and enhancing production by driving manufacturing growth is a sure way of reviving Kenya’s economy, creating jobs and eradicating poverty. Yet, the industry’s contribution to the GDP has been declining, from 9.3 percent in 2016 to 7.2 percent in 2021 (KNBS, 2022), despite its potential to transform the economy.
Agriculture, the backbone of Kenya’s economy, contributes 22.4 percent to the country’s GDP and creates 40 percent of jobs. However, we still import food worth approximately Ksh200 billion annually. This demonstrates the opportunities that lie in agriculture alone.
In the non-food agro-based value chains, leather and leather products are among the most traded commodities in the world, with their current value estimated at USD129.3 billion (Kenya Leather Development Council 2020). Africa owns 20 percent of the global livestock population but accounts for only four percent of the leather produced. Kenya has the third largest herd of livestock in Africa, behind Ethiopia and Botswana. Currently, most of the leather is exported in raw hides and skins, and a huge percentage is in the form of wet blue and crust, with an export value of about Ksh14 billion. By restructuring the leather industry, reducing production costs, minimizing waste and improving animal husbandry, the sector can generate Ksh120 billion by 2030 from both the domestic and export market.
How can we enhance value addition and production to transform Kenya into Africa’s manufacturing hub? KAM, working closely with the Ministry of Trade, Investment and Industry, has developed the ‘Kenya Manufacturing 20by30’ plan. The plan, guided by four pillars, seeks to increase the manufacturing sector’s contribution to the GDP to from the current 7.2 percent to 20 percent by 2030, and subsequently, transform our economy.
First is driving global competitiveness. Competitiveness is our ability to sustainably produce goods and services for which there is a market – at a price and quality that the market is willing to pay for. The 2020 UNIDO Competitive Industrial Performance (CIP) Index ranks Kenya’s industrial competitiveness at position 115 out of 152. Kenya also ranked poorly in the World Bank’s Ease of Doing Business Index, but collaboration between Government and the business community saw us improve from position 136 in 2014 to 56 in 2019. Improving our competitiveness requires policies and sustainable frameworks that boost production and attract investments. This is because manufacturing is capital-intensive and requires long-term investments, calling for a stable and predictable taxation and regulatory regime.
Second is export-led growth. Manufacturing growth will not be achieved by solely relying on domestic markets. We must shift our focus and understand that with increased globalisation, it is critical that our products and services are competitive in the global marketplace. This calls on Kenya to leverage products where we have a comparative advantage to grow our exports. This will enable us to improve our balance of payments and foreign currency reserves and enhance trade regionally and in the continent. Global supply disruptions also demonstrated the need for nations to reduce overdependence on specific source markets and instead build their own capacities to produce. Herein lies the opportunity for Kenya to benefit from reshoring and to fully take advantage of opportunities in markets where Kenya has duty-free market access.
Third is through industrialising agriculture. When starting with agriculture, we ought to look at the markets we will serve, at what cost, and of which quality. Therefore, the linkage between agriculture and industry is crucial. We need to find solutions to enhance Kenya’s food security through increased productivity and higher value addition and exports. Increasing the productivity of crops that impact our food security will bring down the cost of finished goods, subsequently, lower the cost of living. On the other hand, identifying crops with potential for higher value addition and huge export market opportunities will accelerate growth and hedge us against adverse trade shocks. For example, processing avocadoes to make avocado oil and other extracts, pyrethrum to make ingredients for insecticides, and cotton to make fabric.
Finally, SME Development. SMEs have demonstrated their ingenuity and capacity to meet the country’s needs over the years. We laud Government’s directive to roll out the Hustlers Fund to provide affordable financing to SMEs. It is also critical that the government addresses regulatory and tax concerns affecting the competitiveness and productivity of SMEs. Additionally, SMEs need incentives to enhance their capacity to venture into local, regional, and international markets. KAM continues to drive SME growth through KAM SME Hub, launched in 2019. We continue to provide strategic leadership in supporting Manufacturing SMEs toward inclusive global competitiveness, through advocacy, capacity building, access to finance and market access services.
Realizing Vision 20 by 30 calls for bold, pragmatic decisions to develop and implement transformative industrial policies that will favour the manufacturing sector and attract investors. We look forward to working with Government and development partners to achieve our aspiration for an industrialized Kenya.
The writer is the Chief Executive Officer of Kenya Association of Manufacturers. He can be reached at ceo@kam.co.ke.
