Kenya’s vision is to be a middle-income, industrialising country with a high quality of life by 2030. With four years to go, progress has been mixed.
At $2,000 per capita, we are low middle income, a democracy (flawed according to some), but we are not industrialising. The share of manufacturing in GDP dropped to 7.6 percent in 2023, from 11 percent in 2012. We could yet turn our fortunes around. With the Central Region Economic Bloc (Cereb) as an example, here is how.
Cereb has 10 counties. Popularly known by the political moniker 'Mt Kenya', the region’s GDP is Sh3.36 trillion, an economy larger than 37 different African nations.
By 2022, the region had an estimated 670,000 licensed small businesses, up 31 percent from the 2016 level. They have great potential for more jobs and higher real wages. The gross value added per worker in licensed small firms is at least 10 times higher compared to staff in unlicensed micros.
About 40 percent (265,000) of these businesses are traders, shops or retail outlets. Another 27,200 are manufacturing enterprises. In the single business permit registers, they appear as small, medium and large size workshops and small, medium and large industrial plants.
The distribution of manufacturing companies mirrors the respective size of the county economies.
Meru has 5,700 goods makers, while Murang'a has 985, Nakuru 8,100, Laikipia 589, and Kiambu 6,040. And this does not include processors of agricultural produce.
The clear opportunity is for the 27,000 manufacturers to produce what the 265,000 retailers are selling. And with an economy bigger in size than Rwanda, Botswana, and Mauritius, Mt Kenya has critical mass to support rapid expansion of manufacturing, particularly if it serves agriculture, the largest sector.
Sadly though, efforts by the region’s governors to improve market access for the manufacturing enterprises have stalled alongside a promised economic blueprint.
The market access discussions focused on eliminating multiple distribution costs. Let me illustrate. Davina Engineering in Nanyuki makes high-quality chaff-cutters. They pay an annual single business permit (SBP) in Laikipia.
When Davina crosses over to sell in Kieni, two kilometres away, they have to pay distribution fees. This is repeated in all other counties where Davina is selling chaff-cutters.
Eliminating these multiple distribution costs will make manufacturers such as Davina more competitive, within the region and beyond. A number of counties have taken additional steps to support manufacturers with access to credit and rebates to bring down energy costs.
Before County Aggregation and Industrial Parks, Murang'a and Laikipia were improving smart towns to encourage privately provided production spaces for small business.
The relationship between the small, medium and large size workshops itself contains multiple opportunities. Machines for drilling, bending, folding and spraying that the small workshops need, can be produced by the larger workshops.
Examining the Laikipia data, I found that of the 1,600 manufacturing and agro-processing enterprises in the county innovation programme, five could be classified as large primary production workshops, with sophisticated and up to date plasma cutting tools, CnC lathe machines and so on.
They are able to produce the kinds of machines and tools that secondary production workshops such as Davina Engineering, Sagak Tech and Mwereri Engineering need. The latter make chaff-cutters, tuk tuks and grain driers respectively, for farmers in Laikipia and surrounding counties.
Secondary production workshops are also making mixing, filling, heating, and filtering machines for the producers of final products. The producers of final products are processing agricultural produce to make everything from animal feeds, beauty and leather products.
So, firing up these value chain creates growth not just in manufacturing but in agriculture and services. In the Laikipia data there are five primary production workshops, 43 secondary production workshops and 1,550 makers of final products! This structure is repeated across the region.
The raw materials needs of these enterprises also reveal major opportunities. The primary production workshops require high speed steel because they are making machines with moving parts.
Existing Kenyan steel mills can manufacture high-speed steel, but it is currently imported, as the mills say demand is too low to justify local production. The secondary production workshops use high grade and various forms of mild steel, most of which are produced by Kenya steel makers.
Supporting manufacturing enterprises requires not just improving access to credit, reducing energy costs, and improving the physical operating environment, but also removing the legal hurdles to making products.
These hurdles include legal preferences given to imported machinery and equipment over Kenya made, and a lopsided standards regime that favours established manufacturers in foreign countries.
The writer is the Chairman of Kenya Revenue Authority (KRA). Email: [email protected]
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