Industry and manufacturing sectors have become increasingly important to the Kenyan economy, and has been reflected by an increasing GDP per capita. Industrial activity, concentrated around the three largest urban centers, Nairobi, Mombasa, and Kisumu, is dominated by foodprocessing industries such as grain milling, beer production, and sugarcane crushing, and the fabrication of consumer goods, such as vehicles from kits. Kenya also has an oil refinery that processes imported crude petroleum into petroleum products, mainly for the domestic market.
A substantial and expanding informal sector engages in small-scale manufacturing of household goods, motor-vehicle parts, and farm implements. About half of the investment in the industrial sector is foreign, with the United Kingdom providing half. The United States is the second largest investor. The manufacturing sector grew by 4.4 per cent in 2010 compared to a marginal growth of 1.3 per cent in 2009. This growth is mainly attributed to favourable tax policies, including the removal of duty on capital equipment and some raw materials, increased credit to the manufacturing sector and increased availability of raw agricultural materials and growth in the regional market.
The industrial sector’s share of GDP (Gross Domestic Product) has remained at about 15-16 per cent over the past five years. Manufacturing accounts for the greatest share of industrial production and forms the core of industry in the country. Besides its contribution to employment generation, manufacturing is one of the leading foreign exchange earners, accounting for 34 per cent of the total export earnings in 2007. The role of the manufacturing sector in the Kenya Vision 2030 is to support the country’s socio-economic development agenda by creating jobs, generating wealth, and attracting both local and Foreign Direct Investments (FDI). In addition, the sector will still be expected to contribute towards the realisation of the Millennium Development Goals.
The overall goal of the manufacturing sector, as envisaged in the Medium Term Plan (2008-2012) is to increase the sector’s contribution to Gross Domestic Product (GDP) by at least 10 per cent per annum. This is to be achieved by pursuing four key objectives, namely: strengthening production capacity and local content of domestically-manufactured goods; increasing the generation and utilisation of Research and Development (R&D) results; raising the share of products in the regional market from seven to 15 per cent; and developing niche products for existing and new markets.
Value addition and product diversification
Most local industries are still engaged in the production of a limited range of products with limited scope of value-addition and diversification. The ministry is encouraging value addition and product diversification in the entire production chain among industries in Kenya. There has been progress in agriculture, especially in tea and coffee, where branding of local products has began. In 2010, the Coffee Board of Kenya launched an initiative to start branding local coffee targeted at the international market.
Micro, small and medium enterprises
Micro, Small and Medium enterprises (MSMEs) form the base of entrepreneurial development in Kenya and are the ‘seed bed’ for inculcating an entrepreneurial culture while also supporting rural industrialisation. To encourage the development of innovative and resilient industries for sustaining the country’s competitive advantage the following specific activities are being undertaken:
- Identification of sites for industrial parks and special economic zones
- Development of industrial parks, special economic zones and industrial clusters
- Facilitation of the simplification and decentralisation of the registration, licensing and taxation regimes
- Facilitation and coordination of the development and implementation of programmes and initiatives for business incubation and start-ups
- Creation of new incentives for rural industrialisation.
Vision 2030 further recognises the crucial role of micro, small and medium enterprises in overall industrial development and thus lays emphasis on the development of industrial parks for MSMIs in five Kenyan towns, namely: Kisumu, Mombasa, Eldoret, Nakuru and Nairobi, to spur industrial growth. The vision also proposes the development of two special economic zones/industrial clusters in Kisumu and Mombasa.
The Assistance to Micro and Small Enterprises Programme [ASMEP] is a government initiative in support of the micro and small enterprises in Kenya. The programme is funded by the European Commission [EC]. The programme took effect from the September 26, 2007 to be implemented over a five-year period. The Ministry of Trade is the principal ASMEP host institution, and acts on behalf of the National Authorising Officer in providing overall management and supervision for the programme. ASMEP supports the development of Micro and Small enterprises through:
- Institutional and capacity building of business associations and other non-state actors (NSAs) involved in promoting and developing MSEs, business development service providers, and micro institutions.
- Dissemination of business information through support to business information centres or other similar initiatives.
- Specific sectoral support targeted, primarily, at agro-processing, packaging and value addition, mainly in the horticulture and fisheries sectors.
Small and Medium Enterprises
The SME make a key sector in the economy and the government and private sector have increased their focus on them. There have been a number of efforts to increase creation of new businesses, which reward best businesses and give incubation to the winning ideas.
Jitihada, the Kenya National Business Plan Competition for Micro-Small and Medium Enterprises (MSME) Competition funded by the World Bank, was launched in 2009 to increase productivity and employment in the micro, small and medium enterprises sector in Kenya. JITIHADA Business Plan Competition is a national initiative of the Micro Small and Medium Enterprises (MSME) Competitiveness Project of the Ministry of Industrialisation. The competition seeks to identify growthoriented and innovative business ideas that can be nurtured into viable and sustainable enterprises in order to create wealth for businesses and increase employment opportunities for the people of Kenya.
JITIHADA was successfully implemented in 2009. JITHADA II, running for twelve months from June 2011 to July 2012, focuses on the value addition chain and places emphasis on entrepreneurs who take raw materials and turn them into a better, more customised products or services. JITIHADA II Business Plan competition is being implemented by a three-partner consortium consisting of the Kenya Institute of Management (KIM), TechoServe/ Kenya and the Jomo Kenyatta University of Agriculture and Technology/Institute for Human Resource Development (JKUAT/IHRD). This phase targets entrepreneurs in all the manufacturing sectors of the economy in Kenya’s eight provinces.
The Top 100 Survey
The Top 100 mid-sized companies Survey (‘Top 100 Survey’) is an initiative of KPMG East Africa and the Nation Media Group. The Survey seeks to identify East Africa’s fastest growing medium sized companies to showcase business excellence and highlight some of the most successful entrepreneurship stories. It celebrates entrepreneurs who have contributed to wealth and job creation in the region.
The Ministry of Youth Affairs and Sports in partnership with Enablis Entrepreneurial Network East Africa runs a National Business Plan Competition dubbed Chora Bizna “Enablis LaunchPad”. This is designed to stimulate and celebrate entrepreneurship, provide inspiration and support young individual entrepreneurs in setting up businesses. This competition aims to turn great ideas into thriving sustainable businesses.
Some of the sectors that registered growth include beverages, clothing, wood and cork products and non-metallic mineral products. The fluctuations of the shilling, counterfeits and competition from cheap imports are the major challenges to manufacturing. In 2009, the Anti-Counterfeits Bill was passed to give regulating authorities more power, and now the Kenya Anti-Counterfeits Authority is operational. Manufacturing has picked up over the past few years. The sector’s contribution to formal wage employment stands at 13.6 per cent.
Special Economic Zones
Their establishment was approved by the Cabinet in 2009 to phase out export processing zones. The policy change will also transform the Export Processing Zones Authority into the Special Economic Zones Authority. The programme is anchored on Vision 2030, which envisions establishment of free trade zones, business process outsourcing and free ports. Special Economic Zones include more activities than in the current EPZs and the establishment of agricultural parks, industrial parks, science and technology parks for the development and production of information technology software and hardware products. Other activities include tourism and recreational parks, business incubators and regional headquarters. Line ministries are spearheading the establishment of the first free trade zone corridor, stretching from Nairobi to Mombasa. The corridor will be known as the Athi Basin Industrial Corridor.
The alcoholic manufacturing sector has recorded more growth. East African Breweries, Kenya’s biggest beer producer, expanded its market and re-launched its Tusker brand in a lean bottle and introduced more niche’ market drinks. Keroche Breweries, Kenya’s second largest brewer, launched the Summit beer and a line of spirits. The firm invested more than Kshs100 million ($1.2 million) to expand its bottling plant in Naivasha. The Alcoholic Drinks Control Act (commonly known as the Mututho Laws), passed by MPs in 2010, has limited the drinking hours in Kenya. By restricting operating hours for general bars to between 5 p.m. and 11 p.m. and allowing nightclubs to open only between 7 p.m. and 3 a.m, it cut drinking volumes for bar owners and thus brewers. Early 2011, SABMiller returned to Kenya by acquiring Crown Foods, which bottles Keringet water, and started distributing its brands in November 2011. This will add to competition in the beer market.
Pan Paper re-opened
Webuye-based Pan African Paper Mills, which shut down in February 2009 due to unpaid power bills and bank loans, was re-opened months later in November 2010. Short-term lenders Barclays Bank, KCB, Bank of Baroda and Ecobank had appointed a joint receiver to manage the factory after the Kenya Power Company disconnected electricity over a Kshs100 million ($1.2 million) power bill. The paper mill owed KCB Kshs689 million ($8.1 million), Barclays Bank Kshs331 million ($3.9 million), Bank of Baroda Kshs200 million ($2.4 million) , Eco- Bank Kshs47.5 million ($558,824) and Development Bank of Kenya Kshs67 million ($788,235). The Government pumped in more than Kshs1 billion ($11.8 million) to pay outstanding electricity bills and salaries. This shows the Government’s commitment to keeping labour-intensive factories in business.