I am the chairman of the finance and trade committee of the Central Region Economic Block (CEREB).
And in that capacity I have the privilege of regularly examining a lot of data regarding the block’s economy. We do so in order to improve our policy making at county level, but also to inform policy at national level.
In this season of slogans and many promises, just as many are scratching their heads on how to meaningfully tackle unemployment. To them we say manufacturing and industrialisation. That is after all the promise of Vision 2030 – middle income, industrialising, democratic country, with a high quality of life. But we have to go beyond the broad vision statements and examine some detail. Let us do so by examining the case of the Central Economic Block.
CEREB comprises ten counties. You probably know us better by our political moniker – Mt Kenya. The sizes of the economies of respective counties vary from Sh100b to Sh650b, but collectively we have a combined GDP of Sh2.7 trillion shillings (equivalent to US$ 27 billion). For comparison, that economy is larger than 37 different African countries.
By mid-last year, we had an estimated 670,000 registered small businesses, up 31 per cent from the 2016 level. We should note, of course, that as is the case nationally, most micro businesses in the region are unlicensed. I will focus on licensed small businesses because the gross value added per worker is at least ten times higher among them, as compared to the unlicensed micros. They, therefore, have the highest potential to increase both jobs and real wages.
Disaggregating further in to what these small businesses do, 40 per cent (265,000) of the licensed small businesses are small traders, shops or retail services, often with premises of 50 square feet or less. The region has 27,200 manufacturing enterprises. Included here are those businesses categorised in the business licenses registers maintained by various counties, as small, medium and large size workshops; and small, medium and large industrial plants.
The distribution of manufacturing enterprises resembles closely the respective size of the county economies. Meru has 5,700 manufacturing enterprises, while Muranga has 985. The respective figures are 8,100 in Nakuru, 589 in Laikipia, and 6,040 in Kiambu. If you were to include processors of agricultural produce the number would be higher still.
What does all this mean and why should we be excited about it? Because the 27,000 manufacturers should be producing what the 265,000 retailers are selling. And with an economy bigger in size ($27 billion) than Rwanda, Botswana or Mauritius, Mt Kenya has critical mass to support rapid expansion of manufacturing. And frankly it does not really matter what your political inclinations are. The fact of the matter is that by supporting these manufacturers we shall create millions of jobs. That is why Mt Kenya governors are working hard to improve market access for those manufacturing enterprises within the region.
Discussions, currently at technical level, are exploring eliminating double distribution costs. Let me illustrate. Davina Engineering in Nanyuki is re-known for making high quality chaff-cutters. As a licensed business, Davina pays for an annual single business permit (SBP) in Laikipia. When Davina crosses over a few kilometers to Nyeri to sell their chaff-cutters to farmers in Kieni, they have to pay for another SBP, now in Nyeri, particularly if they are operating with a branded vehicle (which of course is better for brand recognition). This is repeated in all other counties where Davina are selling chaff-cutters.
We believe that by eliminating these multiple distribution costs, we shall make manufacturers like Davina more competitive, within the region and beyond. In Laikipia, we have taken an interim measure of providing a rebate at 50 per cent of what the manufacturers are paying in these multiple distribution fees.
In addition, individual counties are exploring other measures within their jurisdictions to promote domestic industry and create jobs. In Laikipia for example, we have focused on improving access to credit, reducing energy costs, and improving the physical operating environment. We have done so by negotiating a Sh3.3 billion economic stimulus package that provides appropriately structured finance such as invoice discounting, LPO and asset finance, to our licensed small business at affordable rates of 7-7.5 per cent per annum. This is possible because of the interest sharing model that we have put in place.
In addition, we are providing qualifying manufacturing small businesses with rebates of up to 40 per cent of their energy costs to enhance their competitiveness, particularly when pitted against producers from the far east. In smart towns such as Oljabet, Rumuruti, Nyahururu and Nanyuki, we are expanding production spaces available for use by small business.
Back to the regional picture. The relationship between the small, medium and large size workshops itself contains multiple opportunities. The kinds of machines, for operations such as drilling, bending, folding and spraying that the small workshops need can and must be produced by the larger workshops.
In examining the Laikipia data we have found that of the 1,600 manufacturing and agro-processing enterprises in our innovation programme, five enterprises could be classified as primary production workshops. These have fairly sophisticated and up to date plasma cutting tools, CnC lathe machines and so on. They are able to produce the kinds of machines that secondary production workshops such as Davina Engineering, Sagak Tech and Mwereri Engineering need. The latter three examples are real companies that make chaff-cutters, tuk tuks and grain driers respectively, primarily targeting farmers in Laikipia and surrounding counties.
But the secondary production workshops are also making machines for the producers of final products, particularly for operations such as mixing, filling, heating, and filtering. The producers of final products process primarily agricultural produce to make everything from animal feeds, beauty and leather products to name a few. In our data there are five primary production workshops, 43 secondary production workshops and 1550 makers of final products! This structure is repeated across the region.
Examining the raw materials needs of these enterprises also reveals major opportunities. The primary production workshops require high speed steel because they are making moving parts. At the moment all high-speed steel used in Kenya is imported.
The secondary production workshops use high grade and various forms of mild steel, most of which can be produced by Kenya steel makers. The producers of final products are primarily processing agricultural produce. So, firing up this value chain creates growth not just in manufacturing but in agriculture and services.
It is clear that by supporting these 27,000 manufacturing enterprises in Mt Kenya, we will create over one million high quality sustainable jobs within two to three years. To do so requires not just improving access to credit, reducing energy costs, and improving the physical operating environment, but also removing the legal hurdles to manufacturing.