Indu dustrial rializatio ion i in Ken enya: a: What Went Wrong and Why? Jac Jacob b Chege, hege, Diana M. M. Ngu Ngui & P Peter r Kimuyu yu L2C – Learning to Compete: Industrial Development and Policy in Africa 24-25 June 2013 UNU-WIDER Conference Helsinki, Finland. June 24, 2013
Background and Outline why the issue? T HE LEVEL OF INDUSTRIALIZATION IN K ENYA IS LESS THAN DESIRABLE YET , AS THIS CONFERENCE NOTES , INDUSTRY MATTERS FOR A COUNTRY ’ S GROWTH Has there been any interventions to stimulate industry in Kenya and if so why didn’t they work? Answer lies in examining: Policies, Structure, Productivity, Issues Outline Evolution of the Industry and Industrial policies Successfulness of the interventions The structure of the industrial sector *Sectoral composition *Manufacturing employment *Manufacturing exports *Size factor Patterns of Industrial Productivity The Industrial Policy Framework and Emerging Policy Issues
How the industrial sector has evolved Industrial sector- Manufacturing (9.44%) *, Mining and Quarrying (0.7%), Building and Construction (4.1%), electricity and water (0.9 %) Except for manufacturing, contribution of others is small but new developments Pre1963-hardly any meaningful manufacturing Limited local capacity- attract FDI (FI Protection Act 1964) & harness indigenous entrepreneurship (KIE 1967, ICDC 1971) Textile mills such as Rivertex, Kicomi and United Cotton Mills (1 st FDI) Food processing industries–bakery products, grain-milling products, vegetable/animal oils and fats, dairy products, canning fruits and vegetables (FDI and joint ventures) Metal industry- few of them before1963 - Kenya United Steel Company, Steel Africa, Mabati Rolling Mills, Insteel, Kaluworks, Galsheet and Doshi (Kenyans of Asian origin) Cement industries- Bamburi, EAPC, Devki and Mombasa Cement (FDI and joint ventures)
Evolution of Policies for industrial development Three major policy regimes: IS, ML & EP Import Substitution (1960s &70’s)-Government direct support and tariff protection of the industry Objectives~ rapid growth, easing BOPs pressures, local capacity, employment creation IS brought mixed results: high rate of industrial growth (8.0 %) + establishment of agro- processing industries Anti-export bias-Inefficiencies- low capacity utilization, no quality premium, high operational costs & high prices Low moment in industrial growth due to limited local demand
Evolution of Policies ….. cont Market Liberalization Polices (1980s) SAP-removal of price controls and liberalization of imports Review of the industrial strategy and structure of incentives (EMRG 1986) SAP led - exposure to international competition near- collapse of the local textile industry in the early 1990s No meaningful export growth • the industrial sector continued to be inward-oriented, excessively import-dependent, capital intensive Private sector not keen to face international competition Govt was slow in removing anti-export barriers
Evolution of Policies for industrial development….. cont Renewed drive for Export Promotion (1990s) • 1991-2: introduction of Forex-Cs • 1992-100 % retention of forex earnings from the non- traditional exports e.g. Manufacturing + horticulture From 1993 -a series of export platforms • Export Promotion Council • Export Compensation Scheme • Manufacturing Under Bond (MUB) • Export Processing Zones (EPZ) [1997] Sessional Papers of 1994 (Recovery and Sustainable Development to the Year 2010 ) & of 1996 (Industrial Transformation to the Year 2020 )
Evolution of Policies ….. cont Export promotion and focus on overall business environment (2002 and beyond) Economic Recovery Strategy for Wealth and Employment Creation- improve macro and business environment (2003) Kenya Vision 2030 - develop a diversified, robust and competitive manufacturing sector (2007) National Industrial Policy - harmonized & coherent industrial policy –not yet launched (2007) Sessional Paper No. 9 of 2012 (the National Industrialization Policy Framework for Kenya 2012-2030)
Successfulness of the interventions Period Policy regime Key policy strategies Industrial developments (successes and failures) 1960- IS 1.Gvt direct support + paper, textiles and garment manufacturing, food processing, 1970s 2. Tariff protection leather tanning and footwear + 8.0 percent - Non-competitive industrial structure (high operational costs and quality challenges) 1980s ML (sap- 1. SAP-removal of price controls +More govt focus on industrial policy eg EMRG driven) 2. Liberalization of foreign -near- collapse of the local industry exchange market -still an inward-oriented, excessively import-dependent, 3. Reduced direct govt invest’ capital intensive -more pressure for mkt liberalization led to second hand & sub-standard goods 1 Forex-Cs & earnings retention 1990s EP + industrial establishments in EPZ particularly textile industries 2. export platforms: EPC, ECS, - opportunistic implementation of the export schemes MUB, EPZ - economic mismanagement depressed the whole economy 3. SPs of 1994 and 199 6 From Medium & long term Planning blueprints 2002 ERSWC (2003- Targeted to improve macro and *improved power supply, increased supply of agricultural 7) business environment products for agro processing, tax reforms and tax incentives *improved sector performance & exports to regional markets *More exports under AGOA -no major shift in manufacturing composition -2008 political violence & global financial crisis slowed growth NIP Create harmonized & coherent -The report is yet to be launched industrial policy Kenya Vision *Flagship projects : SEZ, +infrastructural development is on course e.g. Thika road & 2030 Industrial parks and heavy bypasses investment in infrastructure - Lack of funds for massive investment is a challenge *Focus on niche markets -Managing the political process *selective import substitution ………………….. SP No.9 of *export promotion 2012
Growth and GDP share Patterns of Manufacturing Sector 12 10.8 10.9 10.5 10.4 10.3 10.1 10 9.9 9.7 9.7 9.7 9.9 9.6 10 8 Percent (%) 6.3 6.3 6 4.5 4.5 3.8 4.7 4.7 4 3.5 3.3 2 1.6 1.3 1 0.1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012** Year Contribution to GDP (%) Manufacturing Sector Growth(%) GDP Growth (%)
The Structure of the Industrial Sector Percentage Share of Total Manufacturing Value Added by sub-Sectors 2006 2007 2008 2009 2010 Total food manufacturing 20.37 20.93 19.34 22.57 21.81 Tobacco and beverages 9.04 9.45 9.19 9.68 10.06 Textiles and Clothing 3.25 3.1 2.73 2.18 2.16 Leather and footwear 1.75 1.83 1.67 1.55 1.88 wood and furniture 1.39 1.39 1.43 1.57 1.77 paper and printing 6.51 6.5 6.4 5.15 4.75 Industrial chemicals, paint & soap 1.42 1.4 1.38 1.5 1.59 10.61 10.62 petroleum refineries : oils, Vaseline 15.38 15.32 17.4 Rubber products 1.34 1.24 1 1.12 1.05 Plastic Products 1.93 1.78 1.39 1.61 1.52 Clay and Glass products 1.46 1.51 1.76 2.07 2.04 Metal products 4.58 4.6 4.07 4.2 4.15 Non-metallic Mineral products 11.08 11.41 13.37 15.67 15.46 Transport equipment 1.76 1.61 1.53 1.61 2.02
The Structure ..cont Trend in Percentage Share of Employment by sector 2006 2007 2008 2009 2010 Total food manufacturing 30.68 30.36 30.62 30.62 30.62 Tobacco and beverages 3.55 3.44 3.26 3.26 3.26 Textiles and Clothing 23.48 23.32 23.43 23.43 23.14 Leather and footwear 0.94 1.10 0.99 0.99 0.99 wood and furniture 5.46 5.36 5.39 5.38 5.39 paper and printing 6.66 6.63 6.60 6.60 6.60 Industrial chemicals, paint & soap 5.80 5.77 5.72 5.72 5.72 0.09 0.08 0.09 0.09 0.09 petroleum refineries : oils, Vaseline Rubber products 1.26 1.41 1.41 1.41 1.41 Plastic Products 3.15 3.35 3.27 3.27 3.27 Clay and Glass products 2.58 2.73 2.75 2.75 2.73 Metal products 9.46 9.42 9.52 9.52 9.52 Non-metallic Mineral products 0.90 1.17 1.19 1.19 1.19 Transport equipment 3.57 3.09 3.09 3.09 3.09
The Structure ..cont Manufacturing Exports Top ten industrial products over time in terms of export contribution in US $ Year 2003 2004 2005 2006 2007 2008 2009 2010 Sulphates except of 1 67,283 76,940 127,545 135,108 207,543 217,044 237,029 320,974 Aluminum Machinery & Transport 2 20,339 36,824 52,391 83,337 118,052 123,685 153,251 183,370 Equipments Sodium 3 28,460 64,921 80,179 57,288 86,464 170,851 107,784 91,415 Carbonate 4 Cement 23,517 23,736 38,915 55,462 73,582 93,991 100,797 93,105 Paper and Paper 5 27,565 34,589 41,836 45,164 56,599 52,234 48,898 52,946 Products Textile Yarns 7 21,144 36,843 41,354 45,936 51,083 38,150 39,659 58,862 and Fabrics 6 Printed Matter 51,880 6,913 26,814 31,799 54,306 51,013 59,238 38,233 8 Soap 14,361 20,922 46,011 20,266 29,472 35,703 49,038 55,345 9 Footwear 17,337 21,692 26,573 32,836 48,336 33,920 34,584 40,444 10 Leather 12,107 13,505 21,839 28,408 48,444 42,930 29,028 52,745 Total mnf. 455,679 598,636 614,847 1,170,973 1,493,200 1,560,948 1,612,624 1,758,088 Exports
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