I am the Chairman of the Finance and Trade Committee of the Central Region Economic Bloc (CEREB).
And in that capacity, I have the privilege of regularly examining much data on the bloc’s economy. We do this to improve our policy making at the county level, but also to inform policy at the national level.
In this age of slogans and promises, just as many are racking their brains about how to combat unemployment in a meaningful way. To them we call manufacturing and industrialization. After all, that is the promise of Vision 2030 – middle income, emerging, democratic country with a high quality of life. But we must go beyond the general vision statements and examine some details. Let’s do this by examining the case of the Central Economic Bloc.
CEREB includes ten counties. You probably know us better by our political nickname – Mt. Kenya. The size of each county’s economy varies from 100 billion to 650 billion shillings, but overall we have a GDP of 2.7 trillion shillings (equivalent to $27 billion). For comparison, this economy is larger than 37 different African countries.
In the middle of last year we had an estimated 670,000 registered small businesses, up 31 percent from 2016. We should of course note that, as at the national level, most micro businesses in the region are unlicensed. I will focus on licensed small businesses because their gross value added per worker is at least 10 times that of unlicensed micro businesses. They therefore have the highest potential to increase both jobs and real wages.
Breaking down further what these small businesses do, 40 percent (265,000) of licensed small businesses are small merchants, shops, or retail services, often with premises of 50 square feet or less. There are 27,200 manufacturing companies in the region. This includes those enterprises categorized as small, medium and large workshops in the business registers maintained by different districts; and small, medium and large industrial plants.
The distribution of the manufacturing companies corresponds closely to the respective size of the district economies. Meru has 5,700 manufacturing companies while Muranga has 985. The corresponding numbers are 8,100 in Nakuru, 589 in Laikipia and 6,040 in Kiambu. If processors of agricultural products were included, the number would be even higher.
What does all this mean and why should we be upset about it? Because the 27,000 manufacturers should produce what the 265,000 retailers sell. And with an economy larger ($27 billion) than Rwanda, Botswana or Mauritius, Mt. Kenya has the critical mass to support rapid expansion of production. And frankly, it doesn’t matter what your political leanings are. The fact of the matter is that by supporting these manufacturers, we will create millions of jobs. Because of this, the governors of Mt. Kenya are working hard to improve market access for these manufacturing companies in the region.
At the technical level, there is currently a discussion about eliminating double distribution costs. Let me illustrate. Davina Engineering in Nanyuki is known for manufacturing high quality shredders. As a licensed business, Davina pays for an annual Sole Proprietorship Permit (SBP) in Laikipia. If Davina drives a few kilometers to Nyeri to sell their chippers to farmers in Kieni, they have to pay for another SBP, now in Nyeri, especially if they drive a branded vehicle (which is better for brand awareness, of course). ). This is repeated in all other counties where Davina sells shredders.
We believe that by eliminating these multiple distribution costs we will make manufacturers like Davina more competitive within the region and beyond. At Laikipia we have taken an interim measure by offering a discount of 50 percent of what manufacturers pay towards these multiple distribution fees.
In addition, individual counties are exploring other policies in their jurisdictions to promote local industry and create jobs. In Laikipia, for example, we have focused on improving access to credit, reducing energy costs and improving physical operating conditions. We have done this by negotiating a Sh3.3 billion stimulus package that provides our licensed small business with appropriately structured financing such as invoice discounting, LPO and asset financing at affordable interest rates of 7-7.5 percent per annum. This is possible due to the interest sharing model we have introduced.
In addition, we grant qualified small companies in the manufacturing industry discounts of up to 40 percent on their energy costs in order to increase their competitiveness, especially compared to manufacturers from the Far East. In smart towns like Oljabet, Rumuruti, Nyahururu and Nanyuki we are expanding production areas that are available for small businesses to use.
Back to the regional picture. The relationship between the small, medium and large workshops themselves offers a wide range of possibilities. The kind of machines for operations like drilling, bending, hemming and spraying that the small workshops need can and must be made by the larger workshops.
In examining the Laikipia data, we found that of the 1,600 manufacturing and agro-processing companies in our innovation program, five companies could be classified as primary manufacturing workshops. They have quite sophisticated and up to date plasma cutting tools, CNC lathes and so on. They are capable of crafting the type of machines that secondary production workshops like Davina Engineering, Sagak Tech, and Mwereri Engineering require. The last three examples are real companies that make shredders, tuk-tuks and grain dryers respectively, targeting mainly farmers in Laikipia and surrounding counties.
But also the workshops of secondary production make machines for the manufacturers of end products, especially for operations such as mixing, bottling, heating and filtering. End product producers mainly process agricultural products into animal feed, beauty and leather products to name a few. In our data, there are five primary production workshops, 43 secondary production workshops, and 1550 end-product manufacturers! This structure is repeated throughout the region.
The examination of the raw material requirements of these companies also reveals great opportunities. Primary production workshops require high-speed steel as they make moving parts. Currently, all high-speed steel used in Kenya is imported.
The secondary production workshops use high quality and various forms of mild steel, most of which can be produced by Kenyan steelmakers. End product producers mainly process agricultural products. Boosting this value chain thus creates growth not only in manufacturing but also in agriculture and the service sector.
It is clear that by supporting these 27,000 manufacturing companies in Mt. Kenya, we will create over a million quality, sustainable jobs within two to three years. This requires not only improving access to credit, reducing energy costs and improving the physical operating environment, but also removing the legal barriers to manufacturing.