Is Industrialisation the answer to Kenya’s Economic Problems?

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This article first appeared in my weekly column with Business Daily on Apri1 19, 2015

Industrialisation is often touted as the answer to development in Kenya and Africa as a whole. Industrialisation here refers to the process in which a country transforms itself from a society based on primarily agricultural and natural resource extraction into one based on manufacturing of goods.

There is already indication that the government is grappling with the issue of industrialisation as seen in a proposal, made a few weeks ago, to end the importation of second-hand clothes and vehicles. The argument is that imports should be curtailed in order to foster industrialisation in the East African Community (EAC).

This is import-substitution industrialisation, which is essentially a trade and economic policy which advocates replacing foreign imports with domestic production premised on the notion that the region should attempt to reduce its foreign dependency through local production of industrialised products.

17148876-abstract-word-cloud-for-import-substitution-industrialization-with-related-tags-and-termsThis has been a dominant theme in development economics targeting mass poverty and increasing productivity within a given country or region. It is an inward-looking economic theory focused on bringing developing countries into the prosperity of industrialised nations.In all fairness, this position makes sense in some ways; the intention of ushering in development and self-sufficiency by moving beyond agriculture and natural resource extraction through subsidising vital industries is laudable.

As it stands, non-industrialised countries such as Kenya are dependent on industrialised ones because they have no alternative but to buy manufactured goods which lead to a vicious cycle. Further, industrialisation can be a useful link between rural and urban areas where the outputs of one feeds into the inputs of the other. Successful industrialisation also relies on efficient and functional transport and communications systems. Industrialisation can also lead to creation of better links between rural and urban areas as well as improve transport and communications.

It can also improve Kenya’s export profile, which is a trade deficit country. Indeed, Kenya recorded a trade deficit of Sh86,484 million in January 2015 alone. Industrialisation can also play an important role in creating products which meet domestic needs can be exported to earn forex.

trade_deficit_generic_mediumIn terms of function, industrialisation forces companies to compete with international competitors in terms of quality and price. At the moment EAC governments are seeking to facilitate industrialisation by banning imports of second-hand goods. The upside to this is that it allows new industries the time and space to get their formula right. Yet a ban on imports means that inefficiencies and sub-standard goods will be allowed to flourish, limiting choice and forcing consumers to buy expensive goods of potentially low quality.

Not only is this against the poor but it can also lead to industrialisation supported by protectionist government policy which can cultivate a culture of mediocrity. Industrialisation also poses additional challenges such as whether Kenya has the following: a variety of raw materials to produce finished goods, a constant supply of affordable energy, a large number of engineers, a dependable supply of both skilled and unskilled workers as well as capital goods and money for investment.

Further, the creation of by-products and waste has to be carefully managed to avoid chronic, dangerous pollution from becoming the norm. As Kenya eyes industrialisation as a catalyst for economic development, a cost-benefit analysis must be done to determine how it can be structured to spur sustainable development.

Ms Were is a development economist. anzetsew@gmail.com, twitter: @anzetse

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