Can CS Mohamed increase manufacturing to 15 per cent of GDP?

As a share of the economy, the manufacturing sector has remained below 10 per cent since 2015. This was the first time since 1975. This statistic should keep policymakers awake all night.

One statistics in the Kenya National Bureau of Statistics 2018 Economic Survey should alarm us.

 As a share of the economy, the manufacturing sector has remained below 10 per cent since 2015. This was the first time since 1975. This statistic should keep policymakers awake all night.

The only saving grace is that the share of private sector employment in the manufacturing sector remains above 13 per cent. But even this news is a signal of stagnation or decline in productivity in the manufacturing sector.

Despite maintaining the same share of employment, the proportionate value of output in the sector is declining. This is a sign of decreasing productivity. 

Sustainable job creation through an expansion of the manufacturing sector is a key pillar of President Kenyatta’s Big Four agenda. However, the trend since 2015 appears to be heading in the wrong direction. Instead of industrialising, we are effectively de-industrialising prematurely. For the last three years manufacturing has successively decreased in significance for our national economy. 

What is alarming is that this was not due to the 2017 electoral cycle. The decline started more than two years earlier. This calls for a fundamental re-thinking of what is making it difficult for manufacturing to take off. 

To a casual observer, it would seem that over the last decade, the government has been doing the right things to promote manufacturing. Under the Kibaki-Raila government, we invested a lot of money in road construction.

Since 2013 the government has allocated significant resources for power generation and supply. In addition, Kenya has steadily risen up the World Bank’s doing of business rankings, in part due to a reduction in the regulatory burden faced by businesses. Combined, these developments ought to have produced an environment that is conducive to a rapid growth of the manufacturing sector. 

So what explains the decline? At the macro-level, the primary driver of this secular decline of the relative importance of the manufacturing sector is that other sectors – particularly the services and fast-moving consumer goods sectors – have been growing at a much faster pace.

Much of the growth in these sectors appears to have been driven by exports and loans, and not through local manufacturing and productivity gains. In other words, we are importing a lot of what we consume, and spend a lot more time to produce the little that we manufacture here at home. This has to change. And the onus is on Cabinet Secretary Adan Mohamed. 

Under the current cabinet structure, the three most important Cabinet Secretaries ought to be Henry Rotich at Treasury, James Macharia at Transport, Infrastructure, Housing, and Urban Development and Adan Mohamed at Industry, Trade, and Cooperatives. In addition to Health, these are the ministries that lie at the core of Kenyatta’s Big Four agenda.