SEZ

How to develop light manufacturing in Kenya

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This article first appeared in my weekly column with the Business Daily on June 11, 2017

Last week I attended a meeting organised by the Overseas Development Institute (ODI), the Africa Centre for Economic Transformation (ACET) and the Government of Ethiopia aimed at analysing and sharing lessons on the development of light manufacturing in Africa.

The development of light manufacturing is an important part of Kenya’s plan for industrialisation as articulated in the Kenya Industrial Transformation Programme (KITP) developed by the Ministry of Industry. The Special Advisor to the Prime Minister of Ethiopia, Arkebe Oqubay, made some interesting points about key features of light manufacturing of which countries should be cognisant as they implement industrialisation plans.

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(source: http://www.fanabc.com/english/media/k2/items/cache/d9fc17f32b375e9eeed63a6c2d3200a4_XL.jpg?t=1410776827)

The first is no secret; light manufacturing is labour intensive. This feature makes light manufacturing attractive for African countries as an entry point into industrialisation as it has the ability to absorb large pools of labour. While this is attractive, it seems to me that it can create considerable pressure to rapidly skill up a relatively low skilled labour pool. Human and technical resources have to directed to a young and inexperienced labour pool in order to develop a sector with high labour productivity and high profit-making potential. Clearly it can be done, but has to be well thought out with clear links to education policy.

The second point made was that countries cannot implement a light manufacturing strategy without addressing issues in agriculture. Whether it is textiles and apparel, leather and leather products, or food and beverages (F&B) manufacturing, agricultural inputs are crucial. In this sense Kenya faces a conundrum because certain segments of the agricultural sector such as tea, horticulture and floriculture are highly productive, but the rest of the sector wallows in poor productivity and considerable inefficiencies. It is no secret that textile and apparel firms in the EPZs in Kenya import their fabric from abroad, a factor that dampens the ability of this value chain to be an even bigger employer and income earner for Kenyans. The leather value chain in the country is also sub-par and the production capacity for domestic agricultural input into F&B manufacturing is lacklustre. What is clear is that Kenya cannot make serious forays into light manufacturing until the issues in the agricultural sector and value chains are fundamentally addressed.

The final point Oqubay made was that the sector should be export-oriented if scale is to be achieved in a manner that restructures the economy. Insights from ODI on this issue point to the importance of conducive trade rules and trade facilitation measures that lower trade costs both in terms of accessing inputs and export markets. If manufacturers cannot get the inputs they require and reach target export markets, the sector cannot effectively scale.

Other factors important in industrial policy, as pointed out by ODI, is collaboration and coordination between public and private sector in a manner that creates consensus on the strategic direction of the sector and country at large. When coupled with effective investment facilitation, SEZ creation/industry cluster development, and infrastructure development, it creates an environment where light industry can take off.

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(source: https://mpoverello.files.wordpress.com/2014/07/bagamoyosez_zps9cd0561d.png)

Kenya can build on the successes being registered in infrastructure development and expedite the creation of SEZs, learning from countries like Ethiopia. However, the country needs a sharper focus on improving agricultural productivity, a more coherent skills development strategy, vastly improve investment facilitation and more effectively encourage public-private dialogue on the development of light manufacturing in the country.

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

 

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