Production sharing is best bet to boost industries and create jobs

Travel to many countries in Africa and the global north, suddenly makes any curious person, to realise how lucky we are. We have a proximate location to the Equator and great weather, a coastal link via the Indian Ocean, diverse terrain and communities; and a pool of adaptable, committed and well educated human resources. And, sometimes even scarcity can be a blessing.

The absence of significant deposits of mineral wealth and therefore presence of an inordinately small extractive industry in Kenya may have prevented us from getting trapped in the proverbial ‘oil curse’ that has had many countries in developing world fail to have peace and stability or develop their human resources.

In some parts of Africa (especially in Ethiopia and Rwanda), you recognise ideas and innovations once developed and partially implemented in Kenya, but now in full bloom and with startling results. In the health sector, for instance, the conceptual work on the Community Health Strategy was done in Kenya, but the approach was implemented with great hesitation and still remains an un-resourced intervention in disease prevention.

Ethiopia and Rwanda took this largely Kenyan strategy, adapted and implemented it to achieve great results in community health and associated health indicators including dramatic reduction in maternal mortality and stunted growth in children.

The services sector has experienced dramatic growth in Kenya as a consequence of the country’s comparative advantage, driven by broad use of English in communication, a vast pool of people with ICT skills and unique geo-location that has made Nairobi a regional financial hub. While the services sector provides high-paying jobs to many in Kenya, these jobs are not always location-sensitive, and can easily ship out to any region of the world. 

Further, financial services, almost as a rule, tend to follow regions experiencing great economic growth and wealth-creation; and therefore relocate to be proximal to potential clients. That is why, today, most major banks are either relocating their headquarters or setting up substantive units in China and South East Asia. Therefore, while the services sector presents great opportunities in Kenya today, it is vulnerable and subject to change in location.

The jobs it provides are not relatively secure, long-term employment for the millions joining the labour market in Kenya annually. The most sustainable jobs, though low paying, will be driven by the agricultural, processing and manufacturing industries.

The country’s economy is relatively small in size, (at USD. 98B in GDP), and therefore the local consumption of goods and services cannot appreciably expand and sustain economic growth and job opportunities for millions of youth entering the labour market. The real opportunities then lie in spurring the production of goods and services for the export market. 

Our best bet would be in expanding the current, and developing new, production-sharing opportunities in the agricultural and manufacturing sector. Production-sharing is a partnership that allows investors from the more developed Global North to invest their readily available financial resources into farms or factories in a developing country to produce goods which they export to meet demand in their home or global markets. The developing countries benefit by having greater opportunities for employment, development of external markets for their products and foreign exchange inflows, and in local tax payments for public investments into infrastructure and social services. 

Kenya has had great production-sharing experience in the agricultural (e.g. extensive tea farming in Kericho; horticulture including cut-flower farming in Niavasha and Meru) and manufacturing (in Export Processing Zones/ Special Economic Zones in Nairobi and Machakos) sectors.

While they have employed many, the country is slowly losing ground to Ethiopia. When there was insecurity in Naivaisha in 2013-14, Meru County presented itself as an alternative to those who sought to relocate, but some left Kenya for Ethiopia. Ethiopia has reviewed its foreign investment policy and allowed production sharing to thrive. It has been rewarded with car-assembling plants, leather products manufacturing and flower farming for export; and more are under regulatory review to be set up.

Rwanda is slowly attracting global-conferencing, a regional logistical hub, and Volkswagen has set up an assembly plant. Dutch investors are breaking ground for a $300 million integrated farm in Egypt to produce paediatric powdered milk for export to Russia and Eastern Europe.

Kenya needs to review its investment policy to encourage production-sharing as part of economic growth strategy. It must also develop special economic clusters/zones proximal to generating stations to lower the cost of power to industry and reduce outages that impact production.

The provision of inexpensive and adequate water for production is the other important enabler. And Government must never make the mistake South Africa has made to require foreign investors to sell a substantive proportion of their businesses to local investors. It may be politically attractive, but why would a government want to have its citizens subsidise incoming investors, and who have access to more inexpensive financing?

- Dr William Muraah is a former CECM for Health, Meru County