Light manufacturing can spur industrial revolution
By Hosea Kili
Despite an enviable head start in the agribusiness and manufacturing sectors among fast emerging post-independence economies, Kenya has remained stuck in the agrarian-like era as a producer of raw materials.
Despite an enviable head start in the agribusiness and manufacturing sectors among fast emerging post-independence economies, Kenya has remained stuck in the agrarian-like era as a producer of raw materials.
The country is the leading exporter of agricultural produce to the European market, especially of horticultural produce and cut flowers. It is among the top tea producers globally and boasts high quality coffee. But the path to industrialisation has been far from impressive to the point farmers cannot enjoy the benefits of their produce sold in the global market.
Value addition has been minimal. Leather exports, for example, take the form of unprocessed hides and skins. Producers of hides and skins, therefore, only take home a paltry amount yet our finished products play a significant role in the Sh10 trillion global industry.
By selling to other markets without further improvements to products and competitiveness of export commodities, Kenya is trapped in a generation of low-skill, low-value products and services incapable of obtaining a significant share in the highly competitive global trade.
It is hard to blame the farmer. Value addition includes the entire journey through which a product moves physically from the producer to the customer. Most farmers lose their right to value addition at harvest when they sell produce to brokers who then process, package then sell products at highly profitable rates.
Most farmers lack capacity to grow high quality crops, store and transport perishable products and the muscle to create business relationships that efficiently connect the chain to increase productivity and add value to their produce.
Beyond value addition, Kenya imports items that are easy to manufacture such as pencils and bicycles that can be made locally.
But not all is lost. More organisations are increasingly using the value chain approach to increase productivity, competitiveness, entrepreneurship and the growth of small and medium enterprises (SMEs).
SMEs constitute 98 per cent of all businesses, create 30 per cent of jobs annually and contribute three percent to GDP. But more can be done to increase the productivity of the sector, which can grow the competitiveness of agriculture and industrial products. There is still need to modernise and organise the Jua Kali sector into production cooperatives and link industry to core production needs including agriculture.
In East Asia, industrial parks were innovated in Taiwan and spread to Korea and China, which along with India catalysed their shift to industrialisation. Progressive counties have demonstrated that industrial parks with incentives and master plans can cost-effectively create the infrastructure for production. Investors will be more willing to take advantage of reduced production costs, use of local materials that also promote the local economy, aggregated skilled labour, increased economies of scale and readily available support services.
Moving Jua Kali industries into industrial parks can enable them to modernise equipment with higher efficiencies and standards to meet the requirements of the highly-competitive local and global markets. The focus on strengthening Technical and Vocational Training Institutions is critical to ensure a sustained human resource that addresses the current skills gap.
To address local demand, industries should be built on a four-tier system. The government should own 20 per cent to secure ownership of the initiative and guarantee institutional and policy reforms necessary for the enterprise. The role of the government is also to provide land and seed capital for infrastructure development. Incentives are critical to attract strategic investors to take at least 40 per cent of the enterprise.
County and local residents are also key to ownership of the enterprise through cooperatives. Listing of the ownership through the Nairobi Securities Exchange will provide the necessary governance and compliance checks.
Industry will not only result in improved value addition across sectors but also improve access to new markets due to products standardisation. Africa is deemed to be the next frontier for the fourth industrial revolution, which Kenya is taking a lead mainly through digital innovations. But to consolidate its place in the global market, it must embrace value addition and industrialisation.
—The writer is the Managing Director/CEO, CPF Group
