Look around your house. It has utensils, furniture, food and commodities like sugar, salt, cabbages and other things. To save on costs, how come you do not make these things at your home? Probably you do not have the knowhow to make them.
Plus the time needed to make all these things. That’s why you have to buy from strangers outside. But where do you get the money that you use to buy these things that are now in your house?
That depends on what product or skill you possess. If you have such a unique skill set or products that you have at home are popular with people, you will be in great demand outside, get lots of money and hence accumulate more sufurias, sofa sets and TVs in your house.
Take the example of a doctor. Everyone needs to be treated. Hence everyone needs someone who can treat them and vice versa. If your skills sets or products have low demand, you will have less money in your pocket and your house will have fewer items.
Now, use the above logic, extrapolate and extend it to a country point of view.
A country cannot make all things it requires. It has to trade with other countries to acquire these things. But it has also to have its own goods and services to sell to other countries to get money that will enable it buy the imports. Those goods and services that it sells needs to fetch premium prices otherwise it will not fetch premium dollars for buying the imports.
That was the logic of Adams Smith Seminal book Wealth of Nations that expounded the theory of absolute advantage in international trade.
And indeed that's the Kenya's conundrum. That it imports more than it exports. That its exports do not fetch premium value as compared to the prices of its imports. That Kenya exports raw commodities that do not create sufficient employment or fetch good prices.
For example, Kenya exports coffee in raw form. Compare with tea — it is largely value - added and hence the higher prices that accrue to farmers comparatively. Kenyan avocado tends to be in raw form. If Kenya would go a step further and add value.
A keen look at the Kenya export business uncovers little benefits that accrue locally. Kenya Export Processing Zones mainly deal with clothing. The cotton that is processed into the cloths tends to be imported. In that value chain, the country will occupy low skilled positions with top echelons of such businesses being populated by expatriates.
Therefore, to reap maximum benefits of export industry, Kenya needs to rejig its strategy towards sectors that it has absolute advantages vis-a-vis other countries. And probably that lies in agro processing sector.
A focus towards the agro processing sector can have several benefits. First, Kenya remains a largely agricultural country. Think of the sisal belt in Coast and Nyanza; sorghum in Tharaka Nithi and Nyanza; tea, coffee, avocado, nuts in Mt Kenya; and animal husbandry in Eastern, North Eastern and Rift Valley. Think of a Kenya where all these things are added value and processed.
How farmers’ incomes would rise and many jobs created in Kenyan towns!
However and unfortunately, there are many impediments for the growth of this sector but this article will pick four: land, energy, taxes or government bureaucracies and labour.
Land where agroprocessing entities can establish their work is very expensive in Kenya. A two acre plot near Nairobi Railway Station (one needs to save on transportation costs) would cost at least Sh100 million.
But land is not the core business of an agrobusiness industrialist — why spend Sh100 million in buying land as opposed to use the same amount to ship value adding machinery? It is very difficult for the government to push land prices down since this is a free market but it can attempt. It can increase the amount of land that is available in the market by relocating some of its superfluous installations in strategic areas (for example, State House can move to Machakos or Kamiti prisons taken to Isiolo) and such lands given to industrialists .
It can establish economic zones near strategic transport hubs. The potential of Mombasa and other coastal towns have never been fully realised.
Most prosperous cities in the world tend to be coastal towns for a reason. The government should establish economic zones in such places where land is cheaply available to industrialists in strategic sectors.
That is what China did in the early 1980s. Civic education needs to be carried to inform on investing less in land. Investing in land creates no employment- most Kenyans own idle and unoccupied plots. They are all waiting for the plots to appreciate and sell or bequeath their children. Investing in stocks provide annual dividends and cheap capital (as opposed to bank loans) to companies that create employment.
Kenya Power energy is too expensive. The national government has a policy of subsidising production — this should probably start with targeted energy subsidies for industrialists.
Taxes and government bureaucracy of all nature (licences and approvals by county and national governments) impede the growth of the export sector. They should be cut and made seamless. Take for instance tax refunds by Kenya Revenue Authority.
They take forever. And the Judiciary should treat legal disputes in the industrial sector in a special manner; hasten dispute resolution and make them more efficient. There is no reason why a contract dispute should last more than five years in court. Probably summary proceedings should apply.
Probably the government should reform the Civil Procedure Act and give special treatment to cases that arise in this sector and provide for expedited dispute resolution procedure.
Finally, labour in Kenya is expensive and for a good reason. The country is experiencing inflation and labour prices have to rise in an effort to beat inflation. Our laws have also set standards that inherently make labour expensive.
But the irony of all this is that Kenya has a huge unemployed labour that is only looking for a chance to contribute to the growth of the nation. The starting point should be making Kenya’s labour market flexible and free by rejigging the laws.
- Dr Kangata is the Governor of Murang’a County. Email: [email protected]