THE 20TH ENGINEERS INTERNATIONAL CONFERENCE 2013,

THE TOM MBOYA LABOUR COLLEGE, KISUMU

WEDNESDAY 8TH TO FRIDAY 10TH MAY 2013.

Kenya’s Industrialization Process; its Status, Challenges and Strategic

Interventions.

MINISTRY OF INDUSTRIALIZATION Facilitating & Promoting Industrialization

DR CYRUS NJIRU, PhD, CBS

Permanent Secretary

CONTEXT -Why Industrialize?• Kenya is primarily an agricultural based economy,

strategically located and is endowed with natural resources that can be tapped through Value Addition (VA) to serve as a regional industrial hub in East Africa.

• The industrial sector is therefore a key driver for increasing economic growth rates, generation of sufficient employment opportunities, and fostering Kenya’s integration into the global economy.

Cont.... 2

Industrialization Policy • Experiences from successful economies indicate that

having a coherent National Industrialization Policy is a prerequisite for the advancement of industrial development in any country.

• Policy provides a broader engagement framework for stakeholders participation - public and private sector; civil society and development partners to contribute and play their respective roles in industrial development.

3

Objectives of the NIP• To transform Kenya into a regional leader in

industrial growth & development;

• To spur industrial economic growth by creating an enabling environment with targeted incentives in priority sectors that promote country-wide dispersal of industries in order to realize equitable economic empowerment for all Kenyans;

• To increase contribution of manufacturing sector to GDP by at least 10 per cent per annum.

4

INDUSTRIALIZATION

• The term "industry" refers mainly to manufacturing activity.

• Agriculture, mining, and most other services are excluded from it.

• However the term "industrialization” means the growth of manufacturing industry.

• It is thus a part of the much broader process of economic development, which involves the raising of standard of living, through a steady increase in the efficiency of factors of production.

Review of Past Policies

• Import Substitution Policy (1970-1980’s)

• Structural Adjustment policies (1980 – 1990’s)

• Export oriented Strategies (1990’s onwards)

• Sessional Paper No. 1 of 1986 on Economic Management for renewed growth

• Sessional Paper No. 2 of 1992 on Small Enterprise and Jua Kali development in Kenya

• Sessional Paper No. 2 of 1997 on Industrial transformation to the year 2020

• Economic Recovery Strategy for Wealth and Employment Creation (2003 – 2007)

Industrial Sector & Vision 2030

Transform Kenya into a newly industrializing, globally competitive middle-income country providing a high quality

of life to all its citizens by the year 2030

Policy developed in the context of Vision 2030, review of past policies, problems & challenges of industrialization, and experiences from successful economies.

Flagship projectsFlagship projects

Economics and impactEconomics and impact

Targets of the Manufacturing Sector Under Vision 20301st MTP targets

• Vision

– To improve competitiveness in manufacturing in order to revolutionise the sector

• Goals– Stimulate additional Ksh ~30bn

increase in GDP by

• Reducing imports in key local industries by 25%

• Growing market share in regional market from 7 % to 15%

• Attracting at least 10 large strategic investors in key agro-processing industries

• Strategy

– Local Production: Defend and restructure key industries that have local raw material availability, but no competitive edge (e.g. sugar, paper)

– Regional Domination: Exploit opportunities to further process imports and capture the “last step” of value addition (e.g. metals, plastics)

– Global Niche: Strategically drive increased level of value addition in niche exports (e.g. agro-processing)

• Develop concept, pilot, and launch 1-2 Special Economic Clusters, focusing on select industries (e.g. agro-processing, building materials), target players, and incentive packages

• Develop concept, pilot, and create at least 5 Small & Medium Enterprise (SME) Industrial Parks

174132

201

2007** 2012 Baseline

27

Additional GDP withstrategy

2012 with Vision 2030

5.7%

+8.8%

CAGR

1.1.

2.2.

Snapshot of High Level Strategy

GDP KSh Billion*

Challenges affecting Industrial Development

Inadequate Institutional framework

Low Value addition &

Diversification

Infrastructure, all including

Industrial land & ICT

Counterfeits and Sub- standards

Low productivity and

competitiveness

Access to affordable long -

term finance.

Limited Industrial Incentives

Low funding for R & D in industrial activities

ENERGENERGYY

Training in Science, Eng. Technology

Lack of harmonized Industrial

policies

Limited sector budgetary

support

Industrial Sector and Vision 2030

Kenya Vision 2030 identified Industrial sector as potential growth area because it:1.Enjoys strong forward and backward linkages with other important economic sectors, such as agriculture and services thereby offering high prospects for strengthening Kenya’s drive to integrate further into the regional and global economy; and2.Offers high prospects for employment-creation, specially in labour-intensive industries;3.Acts as a catalyst for technology transfer, attraction of FDI, & increasing foreign exchange earnings.

10

Specific Objectives

1. Strengthening local production capacity to increase domestically-manufactured goods by focusing on improving the sector’s productivity and value addition by 20 per cent;

2. Raising the share of Kenyan products in the regional market from 7 to 15 per cent.

3. Developing niche products through which Kenya can achieve a global competitive advantage;

Specific Objectives…Cont’d

4. Developing at least 2 Special Economic Zones and 5 SME Industrial Parks;

5. Establishing an Industrial Development Fund with a minimum of Kshs. 10 billion for long-term financing of manufacturing enterprises;

6. Increasing by 20 per cent the share of manufacturing in total MSME Output.

7. Increase the local content of locally manufactured goods for export to at least 60 per cent.

8. Increasing the share of industries located outside major urban centres (Nairobi, Mombasa, Kisumu, Nakuru, Eldoret) to 50 per cent.

Foundation Pillars & Enablers

1. Physical infrastructure and ICT2. MSMI Growth, graduation and expansion3. Industrial land and worksites4. Standards and Quality Infrastructure5. Intellectual Property Rights6. Governance and legal framework7. Occupational safety and health8. Technical, production, managerial and entrepreneurial

skills9. Industrial Research, Development and Innovation10. Industrial Market Access11. Dispersion of Industries in Kenya12. Cleaner production and Environmental Conservation13. Trade policy to support industrialization

Priority subsectors

Wood and Wood Industries

Paper and Paper Products

Meat and Dairy Products

Electrical and Electronic Products

Ceramics Industry Glass Industry Pharmaceuticals Industry

Recycling Materials

Packaging Industry

Fish and Fishery products

Petrochemicals Industry

Green Energy

Biotechnology Nanotechnology

Machine tools and spares

Leather and Leather Products

Agro Machinery and farm implements

Textiles and Clothing

Mining and Quarrying

Automotive and Auto parts

Iron and Steelindustry

Agro-processing &

Value addition

Institutional Framework CABINET CABINET

NATIONAL INDUSTRIAL

DEVELOPMENT COMMISSION

NATIONAL INDUSTRIAL

DEVELOPMENT COMMISSION

UNIVERSITIES, RESEARCH

INSTITUTIONS

UNIVERSITIES, RESEARCH

INSTITUTIONS

COLLABORATING MINISTRIES AND

AGENCIES

COLLABORATING MINISTRIES AND

AGENCIES

SECRETARIAT(MINISTRY OF INDUSTRIALIZATION AND ENTERPRISE DEVELOPMENT)

COORDINATING MINISTRY

SECRETARIAT(MINISTRY OF INDUSTRIALIZATION AND ENTERPRISE DEVELOPMENT)

COORDINATING MINISTRY

CONSULTATIVE FORUMSCONSULTATIVE FORUMS

16

COLLABORATING MINISTRIES AND

AGENCIES

COLLABORATING MINISTRIES AND

AGENCIES

NATIONAL ECONOMIC AND SOCIAL COUNCIL

(NESC)

NATIONAL ECONOMIC AND SOCIAL COUNCIL

(NESC)

NATIONAL COUNCIL FOR SMALL

ENTERPRISES (NCSE)

NATIONAL COUNCIL FOR SMALL

ENTERPRISES (NCSE)

UNIVERSITIES, RESEARCH

INSTITUTIONS

UNIVERSITIES, RESEARCH

INSTITUTIONS

Functions of NIDC1. Generate policy innovations that will accelerate the pace of

industrialization;2. Advice the Government on the strategic industrial development

models to pursue in light of the dynamics in the international business arena;

3. Through the relevant specialized agencies, direct research on thematic issues affecting industrial development and propose appropriate interventions;

4. Provide routine advice and policy direction on the administration of the Industrial Development Fund;

5. Receive, synthesize and evaluate policy proposals from the Industry Consultative Forum and make appropriate recommendations that can be passed on to the Cabinet.

17

Financial Resource Mapping

1. Establish an Industrial Development Fund (IDF) and provide mechanisms to subsidize commercial loans.

2. Develop a funding structure to the IDF through a 2% levy of CIF to all imported finished goods; flotation of industrial bonds; public private partnerships; cooperatives; pension funds; insurance schemes and National budgetary allocation.

3. Re-capitalization of DFIs through IDF, national budgetary allocation, and government guarantees to external lines of credit.

4. Increase from 0.1% to 10% of the National budget to fund activities in the Industrial Sector.

Financial Resource Mapping…Cont’d

5. Fast track the enactment of the insolvency bill to include provisions for protection of ‘sick’ industries due to external factors that will cover the lenders, creditors and taxation.

6. Provide globally competitive fiscal incentives for new industrial investments & revival of ‘dead’ industries.

7. Provide a framework for establishment of moveable bank - loans security documents to enhance competitiveness in the banking sector.

5. Institute prudent monetary and fiscal policies to sustain the macro-economic stability.

SUB-CONTRACTING ARRANGEMENT

Policy Issue Policy Constraint Proposed Policy Intervention by GovernmentAdoption of technology

Low Adoption of technology

• Increase funding to R&D institutions• Invest in reverse engineering technology• Promote business and technology incubation

Standardization Lack of conformity to standards

• Facilitate inter-firm linkages• Sensitize MSME on the need to meet quality

standards• Ensure conformity to standards

Management Poor Management • Encourage enterprises to adopt modern management practices.

Affordable Financing

Inadequate access to finance

• Factor in financing in the Industrialization Fund• Provide for MSME funding in the budgetary

provisions

Research and Development

Low Research and Development

• Factor and increase financing of Research and Development• Facilitate commercialization of research findings

Attitude Negative attitude to inter-linkages

• Initiate mentorship scheme• Sensitize MSMEs on business ethics

Market Challenges on Market access

• Enforce the Anti-counterfeit Act• Negotiate for better market access terms• Enforce other legal provisions on procurement

Infrastructure Poor infrastructure • Collaborate with relevant ministries to develop infrastructure

BUSINESS AND TECHNOLOGY INCUBATION

Policy Issue Policy Constraint Proposed Policy Intervention by Government

Minimize failure rate of MSMEs

High failure rate of

MSMEs

• Embark on entrepreneurship skills• Match the technical and entrepreneurial skills within the

incubation process.

Employment creation

High rate of

unemployment

• Sensitize and re-orient the growing labour force towards the entrepreneurial mindset.

• Business entrepreneurship skills development• Inculcate the business culture in the Kenyan education system

Policy Framework on incubation

Lack of policy Framework on incubation

• harmonize the policy framework for incubation in the country.

Appropriate infrastructure

Lack of appropriate infrastructure

• Embracing PPPs such as Build-Operate and Transfer (BOT)/ Build Operate and Own (BOO) concept.

• Develop world class facilities.

Innovative entrepreneurship

Lack of Innovative entrepreneurship

• put in place a framework for identifying and incubating innovative products and services

Business information advocacy

Lack of business information and advocacy

• Develop awareness aimed at disseminating information on business incubation.

• Facilitate the gathering and dissemination of statistics for use by entrepreneurs

Commercialization of innovations

Limited commercialization of innovations

• Encourage the establishment of research and business development units within the incubators.

• Encourage technology adoption, reverse engineering and transfer through enhancement of incubation facilities.

National Intellectual Property Policy and Strategy (NIPPS)

• The Government acknowledges:– the provision and maintenance of a National Intellectual

Property Policy will encourage development of intellectual creations

• Intellectual property is a product of human creation– IP is therefore born out of three different objects,

• creation of the mind, commerce and `industry or craft.• The Ministry has prepared a National Intellectual

Property Policy and Strategy (NIPPS) – to strengthen the management and administration of the

intellectual property system and to encourage innovation and creativity in Kenya.

22

THANK YOU!