energy

How Kenya can industrialise in 5 years

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This article first appeared in my weekly column with the Business Daily on June 18, 2017

Manufacturing can play a crucial role in Kenya’s inclusive growth by absorbing large numbers of workers, creating jobs indirectly through forward and backward linkages to agriculture, raising exports and transforming the economy through technological innovation.

It is with this in mind that the Overseas Development Institute and the Kenya Association of Manufacturers coordinated a multi-stakeholder process to determine how the manufacturing sector can create 300,000 jobs and increase the share of manufacturing in GDP to 15 percent in 5 years.

A plan titled ‘10 policy priorities for transforming manufacturing and creating jobs’, has been developed focused on key actions that can be taken to build the manufacturing sector and achieve the aforementioned goals. The plan is rooted in the Kenya Industrial Transformation Programme and the Vision 2030 Manufacturing Agenda targeted at priority sectors of both formal and informal manufacturers (jua kali) as both sectors need support if Kenya is to industrialise equitably.

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(source: http://www.industrialization.go.ke/images/kenya_manufacturing.jpg)

The first issue to address is the business environment in Kenya. While Kenya has moved up 21 places, in its position World Bank’s Ease of Doing Business Rank, considerable constraints exist particularly in dealing with construction permits, paying taxes and registering property. Thus further action is needed to improve the business environment. Additionally, for manufacturing to flourish the country needs a fiscal regime that is more articulated to support the sector. Fiscal policy at both national and county level needs to be more deliberately leveraged to support industrialisation through, for example, developing fiscal incentives that drive investment into manufacturing.

The third action point concerns making land more accessible and affordable. Research by Hass Consult reveals that the price of land in and around Nairobi has increased by a factor of 6.11 to 8.05 since 2007. Aggressive increases in land price dampen investor appetite for investment in manufacturing which tends to be land intense. Thus there is a need to prevent inflationary speculation on land prices, and develop government land banks earmarked for industry.

Energy costs continue to be punitive in the country and make Kenya’s manufacturing sector less competitive than even its East African neighbours. Government efforts need to not only target increasing energy generation but also lower energy prices and increase the quality and consistency of energy to the industrial sector. This should be coupled with a key gap constraining the sector- access to finance. Manufacturing companies, particularly SMEs and informal industry, are undercapitalised and face multiple obstacles to obtaining access to finance. Bespoke financing mechanisms aimed at the sector, such as through an Industrial Development Fund, need to be fast-tracked.

Image result for manufacturing Kenya

(source: https://newsghana.com.gh/wp-content/uploads/2015/01/wpid-manufacturing150115.jpg)

Kenya cannot leverage manufacturing for economic development without creating a more aggressive export push into regional and international markets. Kenya’s exports to the EAC are declining and opportunities such as AGOA can be tapped into more effectively. Additionally, Kenya needs to reorient education policy and skills development towards STEM subjects so that the skills in the labour pool drive the growth of manufacturing.

Finally, overall coordination in the sector is crucial. An agency in government should be created that coordinates all government entities relevant to industrialisation such as agriculture, education and the National Treasury. The private sector also needs to better coordinate particularly along value chains to drive sub-sector growth in a more robust and targeted manner. Finally, there is a need for better coordination between public and private sector through fostering trust and reciprocity to drive industrialisation forward.

Anzetse Were is a development economist; anzetsew@gmail.com

Africa’s Energy Puzzle

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This article first appeared in my weekly column in the Business Daily on February 26, 2017

Last week I had a chance to attend and speak at the Africa Energy Indaba in South Africa. Several themes emerged during the conference that spoke to the need for and potential of the development of energy infrastructure on the continent, as well as the constraints that hold energy development back.

The first was the issue of energy inter-dependence versus energy sovereignty. Should nations seek to be self-sufficient with regards to energy production or should nations collaborate and pool energy resource to service populations across borders? The idea of energy sovereignty is an important part of national security particularly in countries such as Kenya with porous borders and the threat of terrorism looming. Energy sovereignty allows the country to secure all generators of energy for the country and control access in a manner that interdependence would not allow. If Kenya agrees to rely on neighbours for a significant portion of the electricity servicing the country, it has limited room for recourse should power stations be compromised in neighbouring jurisdictions. At the same time, there is a case for inter-dependence and the creation regional sources of energy where countries support each other as needed. For example, Kenya is current facing a crisis in the energy sector, specifically electricity, due to the drought that has led to insufficient power generation from hydro sources. Had Kenya been in a substantive agreement with neighbours, the country would be able to address the crisis in hydro power and draw energy from regional sources.

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(source: http://www.dentons.com/~/media/Images/Website/Background%20Images/Industry%20Sectors/Energy/energy-2.jpg)

Another theme of the conference was approaching energy infrastructure development from a regional perspective. This regional approach to energy infrastructure development seems to already be happening in parts of the continent, particularly Southern Africa. However, formal regional cooperation can only be effected through deliberate planning at the regional level. Regional energy planning has to be methodical and cannot be merely an amalgam of national energy plans of member countries; Africa has found this to be difficult. Another factor constraining regional energy development is the reality that although regional energy plans can be cheaper and more sensible in the long term, getting political buy-in is difficult. Regional energy projects can take years to deliver concrete benefits to member populations; however the politicians leading the creation of such initiatives exist in the bubble of 5-year political cycles. So how can one expect politicians to commit to plans the fruits of which will likely emerge after their tenure? Thus the question then becomes: How can Africa create stable regional bodies that lead and ensure continuity in regional energy development regardless of the politicians in power?

The final theme of the conference was a familiar one: the battle between renewable energy (wind, solar, geothermal and hydro), and non-renewable energy (diesel, coal and nuclear). Both have advantages and disadvantages. The disadvantages of non-renewable sources are that they are pollutants both in extraction and consumption, are finite and some are very expensive. However, they deliver a solid and stable baseload on which other energy sources can build, and technology is making them cleaner and safer. It is not a secret that renewable energy sources have gained popularity in recent times as climate change and global warming have become issues of growing concern. Renewable energy has the advantage of being clean, infinite, easily deployed off-grid in remote areas, and some are becoming affordable. However, the challenge with renewable energy is that it tends to be intermittent and cannot truly provide a baseload. The main renewable that can generate baseload is hydro, but even that is not reliable as Kenya is witnessing during the ongoing drought. Thus what is Africa’s ideal energy mix?

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(source: http://images.huffingtonpost.com/2016-05-20-1463780708-8882424-DoSolarPanelsWorkWhenItsCloudy.jpg)

The concluding position was that each country has to assess its domestic energy sources and create energy development strategies based on their own assets and eventually link these to regional energy assets and development plans.

Anzetse Were is a development economist; anzetsew@gmail.com

The race for Regional Hub status in Eastern Africa

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