1. Transforming Kenyan Industry Some Issues
John Page
The Brookings Institution
Supporting Manufacturing in Kenya Roundtable
Nairobi
29 Aug 2016

2. Ending Up Where it Started Industry in Kenya has Stagnated
Manufacturing as a share of GDP has remained virtually constant over the past 30 years.
In 2010 it was 11.2%, only modestly higher than the Africa-wide average of 10%
And well below the value predicted for its level of income.

3. Benchmarking Kenyan Manufacturing

4. Benchmarking Kenyan Manufacturing

5. Industrial Policies and Outcomes
Import substitution
Early success and decline
Structural Adjustment
A short-lived recovery
Investment Climate Reform
Not yet a turning point

6. The Drivers of Industrial Location
The “basics”
Infrastructure and skills
Policies and institutions
Exports
Successful industrialization episodes have been accompanied by export success
Firms in low income countries increase their productivity by exporting
Firm capabilities
The tacit knowledge and working practices that affect both productivity and quality
Capabilities can spill over to other firms through supply chain links
Agglomerations
Industrial clusters confer significant productivity gains
Virtually everything we know about agglomeration economies comes from middle and high income countries

7. Some Indicators of Export Performance

8. Firm Capabilities: Different Neighborhoods Vietnam: Supplier Customer Competitor Kenya: Supplier Customer Competitor

9. A Window of Opportunity
Kenya has a chance to break into the global market for industrial goods
Changes in China
Trade in tasks
Industries without smokestacks
But while some firms are competitive many others are not
This places a premium on policies to raise firm-level productivity
And there are too few firms
This places a premium on attracting competitive firms

10. New Directions for Industrial Policy Investment climate reforms are necessary but not sufficient Exports, geography and capabilities must be linked
Reforming the Investment Climate Agenda
Focus on infrastructure and skills development relevant to industry
Support institutional development for FDI and SEZs
Getting regulatory reform right
Regulatory reform is important but not sufficient
It has detracted from attention to infrastructure and skills
Mounting an “Export Push”
High private costs of entry
Long entry times and low persistence
Kenya has been losing ground
Especially in the EAC
Entering global markets will need an “East Asian style” export push
Broad ownership and effective institutions (leadership from the top)
Policies and institutions affecting trade
Trade related infrastructure and trade logistics

11. New Directions for Industrial Policy Capabilities and Clusters
Building Firm Capabilities
An export push is a major source of capabilities (demanding buyers; repeated relationships)
Build effective FDI agencies
Strengthen domestic value chain relationships
New approaches to management training
Supporting Clusters
Agglomeration economies create a collective action problem
SEZs are a means of creating clusters
Bring Kenya’s SEZs up to world class
Strengthen the links between firms in the SEZ and domestic suppliers/purchasers

12. Some Issues for Discussion
What are the key constraints keeping Kenya from moving from vision to action in implementing the industrialization strategy outlined in Vision 2030?
What are the priority areas for public action to build the basics in public infrastructure and relevant skills?
How can the investment climate agenda be modified to support the private sector more effectively?
What are the regulatory constraints to greater competition in industry?
In view of the priority given to exports in Vision 2030, what are the key policy instruments and institutional innovations needed to mount an export push?
What are the priority public actions needed for building and implementing SEZs and industrial parks?
What institutional innovations will support active FDI promotion?
How can government help build linkages between local and foreign firms?
How can greater policy coherence and coordination in implementation be achieved within government?
What institutional framework is needed to strengthen government consultation and collaboration with the private sector?