Missteps and missed opportunities: Kenya’s industrialisation saga

The liberalisation of the market saw an influx of very cheap clothes imported mainly from the US and Europe, which led to the downfall of the local textile industry in the early 1990s. In the 1980s the textile industry was Kenya’s leading manufacturing activity, employing about 30% of the labour force in the manufacturing sector.

Such collapses hindered investment in
 those industries, with dramatic results. Between 1991 and 1992, for example, the real annual growth rate of the manufacturing sector fell from 3.8% to a mere 1.2%, according to the World Bank.

New president, new policy

New hope for Kenyan industry emerged in 2003, when Mwai Kibaki took over from Daniel arap Moi, who had been Kenya’s president for 24 years. Kibaki soon unveiled the Economic Recovery Strategy for Wealth Creation and Employment (ERS). He hoped the plan would provide an environment for private enterprise to drive industrialisation. The ERS sought to improve infrastructure by increasing financial investment in roads, privatising railway operations and re-implementing infrastructure development plans that had been dropped under the previous government. It aimed to ensure that the rule of law was enforced.

While Kenya’s annual economic growth has since jumped from 0.5% in 2002 to an average of more than 5%, it is the burgeoning communications, financial services and retail sectors that have contributed to growth, not industry, according to the KNBS.

Two main reasons for this latest failure to stimulate industrial growth were also partly responsible for the failure of the export-promotion policies in the 1990s. First, policies have often been contradictory. For instance, in the early 1990s monetary strategy sidelined new export promotion programmes by targeting inflation and allowing extremely high interest rates on treasury bills. This made credit unaffordable to the private sector and manufacturing businesses – particularly small and medium-sized – struggled to expand.

The second main reason for the failure has been high-level corruption and mismanagement. In 2005 the Centre for Governance and Development, a Nairobi-based non-profit research and policy firm, found that between 1992 and 2003, state-owned corporations – including the Kenya Ports Authority, the Kenya Railways Corporation and the Agricultural Finance Corporation – had “lost” more than $630m.

The post-Moi governments, for all their rhetoric about stamping out corruption, have not been sleaze-free. In 2003 several key ministers in Kibaki’s government were implicated in the notorious Anglo Leasing tender scandal in which state contracts worth hundreds of millions of dollars were awarded to non-existent firms. In 2005 John Githongo, a journalist given a government post specifically to fight corruption, resigned, citing frustration with carrying out his job. Githongo later accused several top-level ministers of fraud.

On the flipside, however, several moribund parastatals, such as the Kenya Meat Commission and the New Kenya Co-operative Creameries, have not only recovered, but have turned profitable.

Kenya is taking steps to remove these barriers to industrial growth. The country’s new constitution limits the number of ministries and defines their roles. In addition, the country is privatising state-owned corporations and has merged regulatory bodies to increase efficiency and reduce corruption.

Back in Nairobi’s industrial zone, a 250m-long strip of pitch-black tarmac stands out from the surrounding roads. Chogoria Road, once so badly potholed that it resembled the surface of Mars, now glints smoothly in the blazing Nairobi sun. Aside from fixing the road, the Nairobi City Council has also moved the car mechanics into lots off the road and set up kiosks for entrepreneurs to peddle spare parts.

Chogoria Road shows that it is possible for the industrial zone on the ground to match its promise on the map. Sustained political will and gritty efforts like this one need to be applied on a national level to make sure that industrial plans take root and grow, and do not remain good intentions neatly bound in policy documents.

This article was first published by Good Governance Africa.