THE WAG: For a truly strong economy, we must have more industries

The bottom has fallen out of tourism. Kenya no longer has pride of place in the international vacation circuit.

I talked to a doctor who works in a private hospital in the South Coast last week and he told me they have had to let some doctors go.

This is doubly sad because we cannot afford to have fewer doctors, particularly with the ratios so skewed.

This latest seizing up of the tourism market makes a wider point about our economy. We should diversify it and make more stuff. Services based on ICT and tourism are unlikely to float all boats into prosperity. Besides, services are prone to shocks.

We concentrate too much on the service industry, worrying about tourism and devoting attention to digital technopolis at the expense of making stuff. The brand “Made in Kenya” is the best chance for a forward-looking economy. 

A country that bases its growth on manufacturing invariably does better than a comparable country trading in services.

No country has managed to achieve a high standard of living solely on trading in services without first establishing a manufacturing backbone.

Services like finance, tourism, and ICT can be shipped out wholesale on a whim. And services tend to be less tradable than goods.

Our prosperity as a nation will be closely tied to our performance in industry. Stuff will not make itself and both the government and the private sector have a role to play.

The task of legislators is to shape an economic future in which manufacturing, particularly in industries in which Kenya has an advantage, is possible.

Kenya’s competitiveness in the manufacturing industry is on the wane. The percentage of jobs in the economy fell between 2008 and 2013. This cannot be put down entirely to increased mechanisation.

Manufacturing accounts for about 10 per cent of our economy and employs about 13 per cent of the labour force, but it is growing much slower than other sectors of the economy. 

At the national level, rather than cut bureaucratic bonds, devolution seems to have entangled companies in it. While labour productivity in companies has plummeted, the cost of labour can only ever go up.

Our protective tariffs are inadequate, and local companies are exposed to unfair competition from foreign ones.

A case in point is the cement industry, where Nigerian investors Nigeria have been allowed to set up shop in the country, particularly in prime locations near the region’s largest coal find.

Coal is essential for firing up cement kilns, and a local company was already at an advanced stage of setting up a factory to exploit Kitui County’s bounty.

Foreign cement companies are not allowed in Nigeria, yet some of the prominent monopolies in that country were reported in the Economist newsweekly to be making 67 per cent profits from a bag of cement.

Letting loose a company that has been allowed to grow fat due to protective policies in Africa’s biggest market is both unfair and unfortunate.

This is particularly galling because Kenyan companies already have the technology to fully exploit the opportunities available.  The cement industy is one in which Kenya is a leader in the region, and we must ensure this continues.

Our goal should be to get our manufacturing industry facing onwards and looking outwards. The ideal situation is to get our companies to spread their footprints in the region.

The domestic market remains small but is growing. Every time a Kenyan manufacturing company launches a successful subsidiary abroad, we should celebrate because the rewards to capital will return to the local owners and more often than not, be spent locally.

We should encourage companies to use more local raw materials by making them cheaper.

We need to help create new business ecology to support our manufacturing industries. That is the only way Kenya can become an upper-middle income country.

Currently, there is a labyrinth of regulations and regulators governing the setting up of business and issuing of licences in the country.

The government has shown its commitment to engineering and building electricity generation. It has shown its willingness to support large infrastructure projects by building roads, and now railways. It should now make it easier for local companies to do business. 

The problem is that in the past, the government has developed plans for industrialisation without adequately liaising with the private sector.

The country’s blueprint for transforming Kenya into a newly industrialising Ccountry (NIC) by the year 2020 was finalised without any input from the Kenya Association of Manufacturers.

The private sector should be more assertive and the government should allow it to lead in deciding matters to do with industrialisation. The sector powers economic growth and the government should partner closely with manufacturers to meet these goals.

The private sector risks its resources, so it should be included in discussions about the future of the manufacturing industry.

A good industrialisation policy will lead to employment opportunities and diversify the economy.