[Column] Anthony Mwangi: How Kenyan manufacturing sector can contribute 20 per cent to the GDP by 2030
On 19th October 2022, President William Ruto 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% in 2016 to 7.2% in 2021 (KNBS, 2022), despite its potential to transform the economy.
Agriculture, the backbone of Kenya’s economy, contributes 22.4% to the country’s GDP and creates 40% of jobs. However, we still import food worth Kes 200 billion annually. Suffice it to say that the Agri-based manufacturing sector contributes circa 48% of the total manufacturing contribution to the GDP, estimated at 7.2% or Kes 1 trillion in absolute terms. This demonstrates the opportunities that lie in agriculture alone. The subsidy on fertilizer will increase the total productivity from the current 8bags/acres to 15bags/acre for Maize.
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% of the global livestock population but accounts for only 4% 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 Kes 14 billion. By restructuring the leather industry, reducing production costs, minimizing waste and improving animal husbandry, the sector can generate Kes 120 billion by 2030 from both the domestic and export market. From KAM analysis, this will create jobs from 17,000 to 100,000, of which 70% will be in the informal Micro & Small Businesses. This is the same story across hundreds of value-chain opportunities awaiting Kenyans with the right policy environment. Simply put, we are seating on gold mines but lack both knowledge and willingness to mine it.
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 a plan dubbed “Kenya Manufacturing 20by30”. This a plan to increase the manufacturing sector’s contribution to the GDP to from 7.2% in 2022 to 20% per cent by 2030. The plan is guided by 4 pillars, which, if implemented, shall 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 through Government interventions, with assistance from the private sector, it improved 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 sector 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. Some of these include the 21 trillion GDP USA market, 17.9 trillion GDP EU economy, $2.7 Trillion GDP UK economy, $305 billion GDP EAC economy, $768 GDP COMESA economy and Africa’s $2.7 trillion GDP economy.
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 Kenya Manufacturing 20by30 calls for bold, pragmatic decisions to develop and implement transformative industrial policies that will favour the local manufacturing sector and attract investors. We look forward to working with Government and development partners to achieve our aspiration for an industrialized Kenya.