TRALAC - Trade Law Centre

Kenya: 'State should go beyond the obvious to grow local firms'

Saturday, 11 July 2015 Published: | MBATAU WA NGAI

Source: The Standard (Kenya)

Kenyans’ celebrations that 20 companies will invest about Sh8 billion in the textiles industry after US President Barack Obama’s recent renewal of the Africa Growth and Opportunity Act (Agoa) should be laced with a fair measure of realism.

This is because past governments failed to help farmers take advantage of the opportunities. The result is that apart from the poorly paid factory employees and largely foreign investors, no one else makes much money.

The hope, therefore, is that the current government — led by some of the country’s best minds such as Industrialisation and Enterprise Development Minister Adan Mohammed — will take Kenya further on the road to reaping the benefits Agoa that was started with the aim of assisting the continent to industrialise.

Unfortunately, the companies benefiting from the programme are drawn from Asia with India, Sri Lanka and Bangladesh leading the way. China, too, is preparing to join the bandwagon. It is hard to understand why the government, through its various agencies that annually gobble up public funds such as Kenya Industrial Estates, cannot help local entrepreneurs get into the business.

Ideally, the Government could do this by borrowing from its own recently launched Enterprise Kenya whose mandate is to anchor Kenya start-ups through the growth phase and see them through the take-off stage where they can then take their products to market and stand on their own.

According to Information, Communications and Technology Authority (ICTA), Chief Executive Officer, Mr Victor Kyalo, this will be done through the Government and the private sector buying a stake in these companies to provide them with finance, technical know-how and managerial expertise they might need to take them to the next level.

The government would then exit once these companies are able to stand on their feet through the growth and enterprise markets, allowing them to list. This would have the added advantage of giving Kenyan investors a chance to be part of the country’s projected economic growth.

Added incentives

The borrowing ideas from Enterprise Kenya cannot be over-emphasized especially in view of the South Korean government’s pledge to help Kenya achieve her development goals through the establishment of Special Economic Zones (SEZs). The South Koreans’ offer is significant because they are promising to share knowledge, modern technology and industrial policy development which industrialised countries have usually withheld from developing countries in a bid to hold on to their competitive advantages.

The danger of carrying on business as usual is that these SEZs would largely benefit foreign companies bent on taking advantage of economic opportunities opening in the East and Central Africa region and under Agoa leaving the locals with slim pickings from programmes and projects meant for them.

Understandably, these projects and processes will take time and it would be foolhardy for the Government to hold-up foreign investors until it fixes the nuts and bolts in its own house.

The low lying fruit for the Government, however, would be for it to launch policies that would encourage these foreign investors –especially in the textiles industry — to buy the bulk of their raw materials locally. The national government could do this in concert with counties in cotton growing regions.

The fact that these regions are usually arid and semi-arid and there is little productive agricultural activity should be an added incentive for these local leaders. At the very least, this would draw these marginalised Kenyans back into the cash economy as producers and not just as consumers; a situation that impoverishes them further.

The incentive for the national government is that the cotton seeds would go into cooking oil production and save the country an estimated Sh50 billion in foreign exchange that is spent annually to import the raw materials.

Yet another beneficiary would be the local animal-feeds production industry which also spends huge sums of money importing raw materials from Uganda and Tanzania.

The result is that dairy farmers’ profits are squeezed between the cost of animal feeds and the price milk processors are willing to pay without pricing their produce from the reach of the mass market—the only place where they can get the expected returns on investment.

 

 

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