The manufacturing sector is a key pillar of Kenya’s economy. This sector plays a crucial role in economic development, serving as the main driver of industrialization, export growth, and job growth. For many years, the Kenyan government has been actively attempting to revitalize the manufacturing sector through policy reforms and infrastructure development. However, despite the government’s interventions, the sector has stagnated at around 7.0 percent of the country’s GDP.
Key reasons for the stagnation include ineffective regulations, skills gap, lack of innovation, outdated technology, low productivity, and increased global competition. Supply chain disruptions, including insufficient access to raw materials and inadequate infrastructure, also pose a significant challenge. Moreover, Kenya’s economy still relies on the export of raw materials and goods, such as tea and coffee, instead of high-value manufactured products.
Kenya could revitalize the manufacturing sector and increase higher-value-added exports by adopting the following measures.
Invest in the energy sector
The ability of the Kenyan economy to revitalize the manufacturing sector in the recent past has been hindered by the high cost of electricity. According to a recent study on energy tariffs across 230 countries by Cable.co.uk, the average electricity price in Kenya is approximately US$0.161 (Ksh 20.82 based on the current exchange rate). In contrast, Tanzania’s electricity rates are lower at just 0.069 (Ksh. 9.03) per kWh. China, the world’s famous factory, has a significantly lower average electricity cost of around $0.084 per kWh. The high electricity cost limits Kenya’s competitiveness as a manufacturing hub. As such, the government should focus on increasing the capacity of the power system through increased investment in renewable energy, such as solar and wind.
Invest in strategic research and development (R&D)
Supporting investment in R&D will enable local manufacturers to develop advanced technologies, enhancing their ability to innovate products, services, processes, and business models. This allows manufacturers to better compete with foreign companies in local and domestic markets. While providing incentives to encourage R&D can be helpful, they should be coupled with clear policies to facilitate the commercialization of new concepts.
Kenya has several public organizations that play a critical role in supporting R&D, including the National Research Fund (NRF) and Kenya Industrial Research and Development Initiatives. However, the country lags in science, technology, and innovation (STI) when compared to developed countries. The country needs an aggressive national R&D program to drive innovation and revolutionize the manufacturing sector. We need to transition from the “catch-up” innovation system, which focuses on adopting foreign technologies, to a more creative approach that prioritizes the development of original technologies and higher value-added products.
Moreover, the government and industry should focus on developing tech fields such as artificial intelligence, semiconductors, electronics, automobiles, and energy technologies.
Substantial and strategic investments in education
Human development has a favorable effect on the manufacturing sector’s growth as it directly impacts innovation, productivity, and competitiveness. Countries like South Korea and Singapore achieved their remarkable economic transformation from impoverished nations to global economic powerhouses through strategic investments in education. It is inconceivable that thousands of children, especially from poor households and rural areas, fail to complete high school.
Thus, the Kenyan government should invest in education, particularly in the fields of science, technology, engineering, and mathematics (STEM). We should prioritize universal access to quality and free primary and high school education. A significant proportion of the national budget should be consistently allocated to education, ensuring the education system aligns with the needs of the evolving labor market. All primary and high schools should have sufficient physical and material resources. Additionally, the government should invest in universities to produce high-skilled professionals for high-tech industries. By investing substantially in education, the country can cultivate a highly educated and skilled population, which in turn contributes to the manufacturing sector’s economic growth.
Bolster the supply chain
Shortage of raw materials and critical inputs can hinder manufacturers’ operations, leading to slow growth, reduced hiring, or even closures. To strengthen the supply chain, it is important to ensure manufacturers have consistent access to materials. The government should collaborate with the private sector to ensure the sustainability of the supply chain. This includes strategic investment in the supply chain by supporting supplies, securing mineral sources, and advanced technological innovation.
Also, the government should actively participate in facilitating the resilience of supply chains, particularly by promoting investment in technological innovation. Technologies such as blockchain, AI, and cloud-based solutions providers ‘ enhanced ability to monitor suppliers in real-time. Such innovation can be used to gather more comprehensive data to prevent supply chain disruptions.
Develop diverse manufacturing bases
Currently, Kenya’s manufacturing sector has a relatively narrow base as it is heavily reliant on a few areas, including agro-processing, textiles, and leather products, a trend that needs to change. To expand our manufacturing base, the government must increase its role in coordinating industrial development and ensure a predictable environment. Also, we need to actively target foreign direct investments that align with our industrial policy, focusing on investors who not only bring capital but also technology, expertise, and access to global markets.
Support small and medium-sized manufacturers
Large manufacturers have dominated recent discussions about supporting the manufacturing sector. However, supporting SMEs would lift the country’s manufacturing output, especially for low-consumer products. Thus, government policies aimed at revitalizing Kenya’s manufacturing sector should prioritize helping SMEs expand their businesses. We should focus on sectors with high potential for growth and value addition, including leather, edible oils, textiles, and apparel.
Take advantage of global value chain reconfiguration
Global value chains are being reconfigured, as economies focus on reducing costs and building resilience. The reconfiguration is disrupting traditional competitive advantages and creating opportunities for new manufacturing hubs to emerge. For Kenya, this offers a unique opportunity to expand the manufacturing sector and enhance its economic development through increased participation in global value chains. Kenya should focus on industries with existing comparative advantages or high potential for growth and value addition, including the leather industry, and textiles, and clothing.
In summary, revitalizing Kenyan manufacturing requires multiple interventions, including investing in education, supporting SME manufacturers, increasing the capacity of the power system, and expanding the manufacturing base. Also, increased support for research and development (R&D) is crucial in improving innovation, quality, and efficiency in manufacturing firms.
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