Manufacturing In Kenya: Features, Challenges And Opportunities - Set

MANUFACTURING IN KENYA A scoping exerciseFIGURE 3 – AVERAGE ANNUAL GROWTH IN THE VALUE OFMANUFACTURING EXPORTS TO THE WORLD, 2005–2014 (%)Source: ODI (2016).As Figure 3 shows, the manufacturing sector in Kenya is growing far slower than those in Ethiopia,Rwanda, Tanzania and Uganda. If this trend continues, other East African countries will begin todominate manufacturing in the region. Further, governments in East Africa seem to be putting morepronounced effort into building manufacturing through the creation of industrial parks (Ethiopia) andmaking land available for manufacturing, particularly labour-intensive manufacturing. Uganda andTanzania are also determinedly positioning themselves as investment destinations for manufacturing inthe region. Kenya does not seem to be echoing this impetus.While Kenya remains an attractive investment destination for manufacturing, other countries areaggressively courting such investment. For example, one interviewee shared that they were working witha client in 2015 looking at setting up a manufacturing plant in either Kenya or Ethiopia. The client endedup choosing Ethiopia because there was too much bureaucracy and corruption in Kenya, as well asgreat difficulty in getting the right information on requirements linked to building manufacturing plants inthe country. Ethiopia was more straightforward in terms of process and ethical issues.The good news from a regional perspective is related to the fact that the East African Community (EAC)is aligning itself as the next global manufacturing destination. Such regional initiatives can be leveragedby the manufacturing sector in Kenya and catalyse its growth. There is clearly room for growth,evidenced in the fact that the combined manufacturing sector in the seven countries in Eastern Africa asa whole is only about one-third the size of the manufacturing sector in Vietnam, which has a populationone-third the size of the seven countries (AfDB, 2014).12.3 GLOBAL DYNAMICS AND MANUFACTURING IN KENYAKey global dynamics that are informing manufacturing in Kenya include the reorientation of the Chineseeconomy from being export-driven to being consumer-driven. Further, the Brookings Institution estimatesthat China will shed about 85 million jobs in manufacturing between 2016 and 2030; this presents an13Burundi, Ethiopia, Kenya, Rwanda, Seychelles, Tanzania and Uganda.

MANUFACTURING IN KENYA A scoping exerciseopportunity for Kenya to absorb these jobs. That said, China still has excess capacity in manufacturingand a great deal of unutilised capacity, and, although wages in China are rising, cheaper labour in Kenyais not nearly as productive. Further, China is automating quickly as labour gets more expensive. Thuseven fewer people will be required in the manufacturing process in China.Second, productivity in manufacturing globally is growing faster than demand in manufacturing, whichmeans the rate of growth at which consumers are buying manufactured products at a global level isslower than that of manufacturing productivity, which will likely lead to an oversupply of manufacturedproducts from a global perspective.Third, low interest rates in other parts of the world, such as Asia, translate to an ability of themanufacturing sector in those countries to access credit at more affordable levels, thereby catalysing thedevelopment of the sector abroad.Additionally, given the level of manufacturing capacity at the global level, particularly in Asia, it will beharder for African countries – Kenya included – to use manufacturing to pull millions out of poverty. Thisis because the manufacturing sector will have to contend with stiff competition from global players.Finally, Brexit is an emerging issue with which Kenya manufacturing will have to contend. One directimpact of Brexit is the depreciation of the British pound. As the value of the pound falls, manufacturedexports to the UK will be more expensive for British consumers, which can negatively inform purchase.Further, if Brexit is linked to a slowdown in the UK economy, Kenya can expect lower levels of foreigndirect investment (FDI) from the UK in general, and this will affect the manufacturing sector as well.However, the positive news is that inputs from the UK will be cheaper.2.4 FORMAL AND INFORMAL SECTORSManufacturing in Kenya is characterised by activity from formal and informal firms. A few large formalenterprises and small and medium-sized enterprises (SMEs) play an important role in manufacturing, asdoes the informal sector. Section 6 looks at the informal sector in more detail.2.5 STRONGEST SUBSECTORSOverall, it should be noted that sector strength is informed by the size of the market, both local andexternal. Some interviewees were of the view that there was insufficient information and data todetermine the strength of the different subsectors. However, other interviewees identified the followingas the strongest subsectors in formal manufacturing: agro-industry (food and beverages), textiles in theExport Processing Zones (EPZs), pharmaceuticals, sectors related to construction, such as cement andmetals, and high-end furniture. According to an interview with a representative of the Kenya Institute ofPublic Policy and Analysis (KIPPRA), in the past five years average growth in real terms inmanufacturing has been at about 3.4%; food and beverages has been growing at about 6% and nonfood has been growing at about 2%. Food and beverages are closely linked to agro-processing.The strongest subsectors in informal manufacturing were identified as furniture-making and metal works.The former was thought to be strong because of the availability of raw materials. The strength of metalworks was linked to the manufacturing of farming-related machinery in rural areas as well as the growthin construction in the country.2.6 WEAKEST SUBSECTORSIn formal manufacturing, sectors identified as the weakest were linked to complex manufacturing, suchas vehicle assembly, electronics and other technology-related manufacturing. Lack of data meant therewas no clear idea as to the weakest subsector in informal manufacturing. There was a general sensethat informal manufacturing outside of furniture and metal works was weak.4

MANUFACTURING IN KENYA A scoping exercise3. KEY ACTORS IN MANUFACTURINGKey actors inform the activity and development of the manufacturing sector. This section lists anddescribes each and how it links to manufacturing.3.1 KEY GOVERNMENT BODIESGovernment ministries, departments and agencies that play an important role in manufacturing in Kenyaare as follows:The Ministry of Industry, Trade and Cooperatives: MITC aims to create an enabling environment for aglobally competitive and sustainable industrial, enterprise and cooperative sector through an appropriatepolicy, legal and regulatory framework. The ministry is currently strongly leading the industrialisationagenda with a focus on textiles, leather and agro-processing.Government energy bodies are responsible for the development, provision, supply and transmission ofelectricity to the manufacturing sector. These include the Ministry of Energy and Petroleum (MoEP), theEnergy Regulatory Commission (ERC), Kenya Electricity Generating Company (KenGen), Kenya Powerand Lighting Company, the Rural Electrification Authority (REA), Kenya Electricity TransmissionCompany (KETRACO), Geothermal Development Company (GDC), Kenya Nuclear Electricity Board(KNEB), Kenya Pipeline Company (KPC), National Oil Corporation of Kenya (NOCK) and the KenyaPetroleum Refinery Ltd.Kenya Revenue Authority (KRA) is responsible for collecting revenue on behalf of the government ofKenya and has a customs services department. This government body currently does not have thecapacity to enforce tax compliance, particularly with regard to informal industry and manufacturing.According to MITC, the most relevant bodies are as follows: The Micro and Small Enterprise Authority (MSEA) has a mandate to promote the developmentof competitive and sustainable micro and small enterprises (MSEs). It aims to spark industrialrevolution by undertaking policy reforms and implementing targeted programmes and activities inthe MSE sector through the following:oooooooocreating a conducive working environment for MSEsenhancing MSEs’ access to marketsproviding suitable facilities and funding for MSEsenhancing entrepreneurial and technical skills in the MSE sectordeveloping and promoting gender equality and the participation and inclusion of vulnerablegroupsestablishing and implementing legal, regulatory and operational mechanisms for the MSEsectorenhancing coordination of sector players and facilitating integration of programmes andactivities relating to MSEsestablishing proper management and mobilisation of financial resourcesThere is a need ensure MSEA interfaces better with the manufacturing sector, particularly theinformal segment. 5The Kenya Institute of Curriculum Development (KICD)’s core function is to conduct researchand develop curricula for all levels of education below university. It also develops print andelectronic curriculum support materials, initiates and conducts curriculum-based research andorganises and conducts in-service and orientation programmes for curriculum implementers. Theinstitution also evaluates, vets and approves the curricula and curriculum support materials forbasic and tertiary education, as well as offering curriculum-based consultancy services in basicand tertiary education and training. The focus for the manufacturing and industry is thedevelopment of a curriculum that meets the skilled labour needs of the sector.

MANUFACTURING IN KENYA A scoping exercise KenInvest is responsible for facilitating the implementation of new investment projects, providingafter care services for existing investments and organising investment promotion activities bothlocally and internationally.Industrial Development Bank Capital (IDBC) has a mandate to provide medium- and long-termfinance and accompanying financial and corporate advisory services to medium- and large-scaleindustrial enterprises; it also provides working capital, machinery and finance.Kenya Industrial Property Institute (KIPI) has a mandate to administer industrial propertyrights, provide technological information and training in industrial property rights and promoteinventiveness and innovation.Kenya Industrial Research and Development Institute (KIRDI) conducts research anddevelopment (R&D) in all industrial and allied technologies, including mechanical, civil,electronics, chemical engineering, energy, environment and commodity technologies.Kenya Bureau of Standards (KEBS) has a mandate to develop and enforce the standards ofindustrial and manufactured products. KEBS’ approval of a product increases its credibility.However, Kenyans still purchases products from the informal sector without the KEBS seal.Brand Kenya Board is tasked with identifying and refining the key attributes of Kenya thatcontribute positively to the country’s image and reputation. Its goal is to enhance thesecharacteristics and create an authentic, credible brand for the country that establishes itsuniqueness in the global arena. There is a need to work with Brand Kenya to better incorporatemanufactured goods as a key part of the Kenyan brand.The Export Processing Zone Authority (EPZA) is responsible for attracting and retainingexport-oriented investments and trade and issues licences for companies directly involved inexport-oriented business activities in manufacturing or processingKenya Industrial Estates Limited (KIE) seeks to facilitate the development and incubation ofmicro, small and medium-sized enterprises (MSMEs) countrywide by establishing industrialparks, providing credit and business development services in a sustainable mannerThe Export Promotion Council (EPC) promotes and diversifies Kenyan exports and providesinformation on potential market opportunities.Kenya Accreditation Services (KENAS) is charged with the provision of accreditation servicesthat promote fair trade, health and safety as well as protection of the environment. Accreditationservices include certification bodies, inspection bodies and laboratories (testing, calibration,medical/clinical, veterinary). For manufacturing and industry, the focus is to ensure activity in thesector is properly accredited.Kenya National Trading Corporation (KNTC) is wholly owned by the government throughMITC. It has specific objectives, the most important of which is promoting and growing wholesaleand retail trade through its distribution network. KNTC can be leveraged to distributemanufactured products.Kenya Institute for Public Policy Research and Analysis (KIPPRA) conducts research andanalysis on public policy issues with the goal of providing advice to policy-makers. It has aProductive Sector Division under which manufacturing falls.Other important bodies are as follows: Kenya National Bureau of Statistics (KNBS) is the principal agency of the government forcollecting, analysing and disseminating statistical data in Kenya.The National Treasury determines policies that affect the sector, such as tax policies.The Ministry of EAC, Labour and Social Protection promotes trade and investment in the EACand EAC market integration.Kenya Ports Authority informs on the entry and exit of goods in Kenya.Other relevant ministries, departments and agencies are: 6The National Economic and Social Council (NESC) is an advisory body to the government onpolicies required to accelerate social and economic development of the country.

MANUFACTURING IN KENYA A scoping exercise The National Industrial Training Authority (NITA) deals with management and supervisorytraining, apprenticeship training, craft training, technician training (skills upgrading), NationalIndustrial Attachment Programmes and curriculum development for industry.Kenya Plant Health Inspectorate Service (KEPHIS) is a government parastatal responsible forassuring the quality of agricultural inputs and produce; it is closely linked to agro-industry.The Pest Control Products Board aims to provide an efficient and effective regulatory servicefor the importation, exportation, manufacture, distribution, transportation, sale, disposal and safeuse of pest control products and to mitigate potential harmful effects on the environmentThe Industrial and Commercial Development Corporation (ICDC) has a mandate of providingfinance and equity capital for expansion and development of new and existing medium-sizedprivate sector industrial and commercial enterprises in Kenya.3.2 KEY MANUFACTURING FIRMSAccording to interviewees, key firms in the sector are those in food and beverages, as well as FastMoving Consumer Goods (FMCG) manufacturers. According to Africa Business magazine,manufactures in Kenya that featured on the list of the biggest firms in East Africa were as follows, inorder from the largest.East African Breweries Ltd (EABL) is East Africa's largest alcohol beverage company. In July 2016,EABL recorded a 7% profit growth for the financial year ending 30 June 2016, at KES 10.3 billioncompared with KES 9.5 billion in the previous financial period. The largest shareholder of EABL isDiageo Plc. EABL's primary listing is on the Nairobi Securities Exchange (NSE), and it is cross-listed onthe Uganda Securities Exchange (USE) and the Dar es Salaam Stock Exchange (DSE). In terms ofownership, the majority is held by Diageo & Associate Companies (50.03%) then others via NSE, USEand DSE (49.97%). Member companies th

key challenges in the manufacturing sector (e.g. skills, management, infrastructure, macro policy, political economy, investment climate, which ones are perceived to be greatest) key opportunities moving forward with a focus on management, financing and addressing informality We interviewed: