Use local content to grow industry

Manufacturing

Propping up small businesses is not enough if the larger manufacturing enterprises are not supported to expand.

Photo credit: Shutterstock

What you need to know:

  • The Kenya Local Content Mechanism Policy Project seeks to achieve perfect competition, job creation and economic growth for Kenya. 
  • The project will empower local manufacturers and suppliers by introducing a percentage cap on the amount of non-Kenyan imports.

Political talk of revolutionising the economy and transforming the country into a middle class society by empowering hustlers, micro and small businesses is positive IF this is not just political exhaust fumes. But propping up “small” businesses is not enough if the larger manufacturing enterprises now howling in distress are not supported to recover and expand.

But this critical fact is given very peripheral placement in the manifestoes of the leading presidential candidates, although it was one of President Uhuru Kenyatta’s Big 4 Agenda items. The fact that it was not successfully executed does not mean that the vision and effort so far expended is worthless.

The urgency to refocus on this issue is intense. According to a recent World Bank report, Kenya has to create at least 900,000 jobs annually between now and 2025 to absorb the high number of youths joining the job market. The report, ‘Kenya Social Protection and Job Programmes Public Expenditure Review’, says nine million individuals are expected to enter the labour force between 2015 and 2025, further pushing up unemployment, which stood at 14 per cent in 2020.

The Kenya National Bureau of Statistics 2021 report shows Kenya’s manufacturing sector contracted by 0.1 per cent in 2020 as compared to a 2.5 per cent growth in 2019, and blames Covid-19 for this.
Kenya’s lack of unique manufacturing and industrialisation advantages is also a significant drawback. A March 2020 KAM survey showed that eight in 10 factories in Kenya (82.16 per cent) rely on China for supply of materials and intermediate goods.

Non-Kenyan imports

These statistics highlight why the manufacturing sector’s contribution to GDP has frozen at below 10 per cent over the last decade and is nowhere near the 15 per cent contribution anticipated under the Big 4 Agenda. One way out of this impasse is the legislation and implementation of a Local Content Mechanism to enforce the use of specific percentages of local content in goods manufactured for sale in Kenya. 

I have on several occasions made reference to this proposal generated by the Global Institute of Management (GIM), at their cost, and positively received by the Ministry of Industrialisation and Enterprise Development, who promised to support the proposal. Sadly,  there has not been much movement, with suspicions of sabotage from foreign industries that stand threatened.

The Kenya Local Content Mechanism Policy Project seeks to achieve perfect competition, job creation and economic growth for Kenya. 

The project will empower local manufacturers and suppliers by introducing a percentage cap on the amount of non-Kenyan imports in terms of five schedules of products – Household goods, Bicycles and Motorcycles, Motor vehicles and Spare parts, Light industrial and Agricultural mechanised equipment and Heavy equipment.

The proposal sketches out the rollout over a 10 year period – a perfect fit with the period the next government should be in power. The model’s success is well documented elsewhere. The advanced success economies of Hong Kong, Taiwan, South Korea and Singapore is one example of the impact of the local content law enforcement if there is a stable business environment, investment in people and exporting success.

Sustainable growth

Between1960 and 1980, these countries recorded a 7.5 per cent increase in annual GDP attributed to effective implementation of the local content mechanism. They emphasized rapid growth through industrialisation, building their own manufacturing bases and reducing heavy reliance on imports.

South Africa’s Motor Industry Development Program is the other example. It introduced the first in a series of local content programmes in 1961 and gradually increased local content requirements over time. Considerable diversified development took place under this protective regime. As a direct consequence of local content enforcement, a thriving motor industry exists that employs hundreds of thousands of people.

Our Local Content Mechanism Project proposal aims to follow these examples. It identifies five implementation schedules in which household goods contain 30 per cent local content, bicycles and motorcycles up to 25; motor vehicles and spare parts up to 20 per cent; light industrial and agricultural mechanised equipment up to 25 per cent; and heavy equipment up to 15 per cent. A Local Content Act, an Investment Charter and a Local Content Blueprint should anchor the enforcement of the project.

The promise of proven success in implementing a local content strategy should be a strong lure to any government looking for pillars on which to anchor tangible and sustainable growth. Here is a cost-effective proposal that exists right down to an implementation matrix. The outgoing government has pussyfooted around it, losing precious time. The new government must not allow any more dust to gather on this eminently worthwhile proposal.

The writer, a former Editor-in-Chief of Nation Media Group, is now consulting. [email protected]; @TMshindi

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