Bandits, Time Horizons and a Blueprint for Kenya’s Industrialisation

Last Updated 6 months ago by Kenya Engineer

A new industrialisation blueprint for Kenya outlines a five-point strategy that aims to make the country a manufacturing and industrial export centre in the coming years. The blueprint outlining a path to Kenya’s industrialisation is laudable because it actually plots a path to industrialisation for Kenya to take in order to achieve key developmental goals. By industrialising, Kenya’s position in East Africa will remain supreme. 

By developing this blueprint, Kenya’s government officials have signalled their commitment to Kenya’s long-term success and development; in other words Kenya’s “time horizon” and its ability to attract foreign direct investment (FDI). Yet questions remain regarding implementation of the blueprint. Worryingly, the presence of bandits – a political science term generally reserved for autocrats – in the form of democratically-elected officials may yet hijack the laudable goal of Kenya’s industrialisation.

Capitalizing on Kenya’s Advantages and Addressing Weaknesses

Kenya’s industrialisation blueprint was released in late 2015 by the Ministry of Industrialization and Enterprise Development in partnership with the Kenya Private Sector Alliance (KEPSA). By implementing the blueprint, Kenya’s government and other key stakeholders will attempt to expand Kenya’s economy from an export-led and import-substitution policy regime to one that has developed industries. It aims to grow a strong manufacturing sector in Kenya and an economy that will make Kenya Africa’s next industrial power.

There is no doubt that Kenya sits in an enviable position when it comes to prospects for industrialisation as well as continuing to attract large amounts of FDI. It is the fifth-largest economy in sub-Saharan Africa and a well-educated labour force.  Kenya is the most industrialised country in East and Central Africa. Kenya’s financial services, banks and mobile money services are robust and developed. Its information technology capabilities are the envy of not only East Africa but the world. Kenya’s infrastructure is also the most advanced in the region. Lastly, Kenya is rich in agricultural resources and is called home by some of the most innovative entrepreneurs globally. By mapping out the vision and classifying specific sectors, Kenya’s government hopes to capitalize on Kenya’s natural advantages and build capacity in key areas, sectors and regions of the country.

A crucial recommendation of the blueprint is for Kenya to leverage its reputation for positive effects. Globally, Kenya is known as the regional hub for trade and finance in East Africa and the natural entry point to the region. The country has a market-based economy with a liberalized foreign trade policy and a good track record when it comes to property rights and attracting FDI. Kenya should also use its competitive cost structure (70 per cent cost advantage over the United Kingdom and 50 per cent over South Africa), strong English speaking population, advanced IT and communications infrastructure and proximity to outsourcing markets to gain a vital edge over its competitors. These steps are projected to earn Kenya US$ 200 million in GDP and create an additional 45,000 jobs.

Yet Kenya also has systemic problems that the blueprint attempts to address. For example, despite Kenya’s enviable position in the region, its manufacturing sector has remained stagnant at 11 per cent of GDP for the past decade. As a result, the number of formal jobs in manufacturing has grown at just 7 per cent, per annum from 2010-2014. Kenya’s exports have remained at a mere 15 per cent of GDP, while imports have risen to 40 per cent of GDP. This has created an unenviable situation leading to trade imbalances, a weaker Kenyan shilling and pressure for increased inflation. As Kenya’s blueprint repeatedly highlights, these issues can only be solved by energizing the industrial sector and making Kenya a destination industrial hub for the region, Africa and the wider Indian Ocean basin.

The Blueprint’s Five Pillars

The blueprint receives inspiration from the Economic Pillar, one of three pillars central to goals outlined in Kenya’s Vision 2030. Vision 2030 aims to create a robust, diversified, competitive and industrialized Kenya within 15 years and will be driven through the application of five key pillars that focus on building Kenya’s significant strengths.

Pillar one calls for the growth of Kenya’s export engines and focuses on tea, coffee, agro-processing, horticulture, textiles and leather. It is hoped that a focus on these crucial sectors will increase Kenya’s manufacturing to over 15 per cent of GDP, per annum.

Pillar two focuses on Kenya’s development as a food processing hub through growing Kenya’s ability to agro-process imports. It also calls for expansion in fish processing, particularly on Kenya’s coast.  By doing so, the blueprint aims to create over 1 million jobs.

Pillar three will attempt to build local content for resource and infrastructure investments, thereby increasing foreign direct investment (FDI) five times from its current level. It will do so primarily by focusing on the oil and gas sector as well as the construction and materials services sectors in Kenya.

Pillar four will assist in the implementation of policies that will increase the ease of doing business in Kenya, thereby enhancing the non-industrial jobs sector (IT, tourism, wholesale and retail sectors).

Lastly, pillar five calls for the development of Kenyan small and medium enterprise (SME) sector through supporting rising stars and capacity-building through the establishment of model factories.

Kenya’s blueprint will be put into action in June 2016 with the creation of a local processing hub at Mombasa’s Dongo Kundu special economic zone (SEZ). Following this, another hub will be created at the one million-acre Galana-Kulalu irrigation scheme.

Kenya’s Blueprint, Time Horizons and Attracting FDI

The blueprint is important for many reasons. For example, in political science terms, the industrialisation blueprint demonstrates Kenya’s commitment to “time horizons.” Using international political economy theories, scholars have argued that regimes, democratic or autocratic, are often interested in attracting FDI. FDI is particularly important to industrialising countries such as Kenya since it provides foreign capital, high technologies, advanced managing skills and new jobs. Because of the importance of FDI, political scientists have put considerable effort into studying the political circumstances that favour foreign investment and correspondingly, how countries like Kenya can attract more FDI.

As the political scientist Chungshik Moon noted, “Foreign investors decide when and where to invest. Even if host governments have a strong motivation to attract foreign assets, they need to reassure foreign capital owners their assets will be protected. Hence, providing institutions that promote credibility is necessary to attract FDI.”

Kenya’s rollout of the industrialisation blueprint comes at a time when investment in Kenya and Kenya’s overall economic picture appear a bit shaky. Kenya’s Treasury recently cut the economic growth forecast for 2015 to as low as 5.8 per cent after a series of deadly militant attacks hurt Kenya’s tourism industry, the country’s second-biggest foreign-currency earner. Agriculture is also expected to be dealt a blow by heavier than usual rains because of the El Nino weather phenomenon.

This is precisely why “time horizons” are so important in terms of Kenya’s and other would-be industrialising states’ efforts to attract FDI and move to the next stage of development. Time horizons assist democratic or autocratic governments in convincing the outside world that they are interested in the longevity of their rule and therefore in the stability and growth of their respective states’ economies. By publishing an industrialisation blueprint, Kenya’s government has again confirmed its commitment to the long-term growth and stability of Kenya.

Stationary and Roving Bandits and Kenya’s Future

However, publishing a blueprint is one thing. Implementing it is another. A high degree of oversight is essential to success, and the implementation and results of the industrialisation blueprint will reportedly be driven and monitored by the newly-formed Ministerial Delivery Unit with direct oversight from the Presidency. This is also good news. The bad news is that Kenya’s democratically-elected government officials are behaving like bandits. Heavy, dark clouds of corruption seems to float over every budget, business deal and government office. A recently published official audit demonstrated that only one per cent of Kenya government spending and a quarter of the entire US$ 16 billion budget was accounted for properly. Corruption and sleaze allegations in Kenya have become international news and could have a dilatory effect on FDI inflows to Kenya.

The view from outside and inside Kenya is that some, many or most of Kenya’s powerbrokers and officials are bandits. In his seminal political science work, Mancur Olson showed how time horizons shape autocrats’ interests, political performances, and incentives to develop institutions. Olson presented the concept of a “stationary bandit,” which he described as an autocrat who expects to reap revenues for a long time from their position of power. Therefore, these stationary bandits have an incentive not to predate on their subjects. Instead they may choose to limit taxation and protect the properties of their citizens. This stationary bandit is in sharp contrast to the “roving bandit” who does not have a long time horizon and, accordingly, engages in more immediate taxation and predatory behaviour – to include looting government coffers and stealing land. By doing so, these roving bandits reduce the incentives of those in the private sector to make long-term investments. FDI also drops off.

Interestingly, Olson was writing about bandits who are autocrats. Kenya’s politicians are not autocrats; they are democratically-elected leaders. Yet their behaviour sounds surprisingly like the bandits described above by Olson. As the situation worsens, the fear is that Kenya’s “stationary bandits” may turn into “roving bandits,” pillaging the country, gutting its resources and assets, and losing any sense of time horizons. If this occurs, FDI will dry up. But Kenya will also never reach the goals set in both Kenya’s Vision 2030 and the blueprint for industrialisation. Let us hope that this dark day never arrives.

References

Berg, Achim, et al. (2015, April). Sourcing in a volatile world: The East Africa opportunity. McKinsey & Company.

Kenya’s industrial Transformation Programme. (2015, July).  Ministry of Industrialization and Enterprise Development. Retrieved from http://www.industrialization.go.ke/index.php/downloads/282-kenya-s-industrial-transformation-programme

Kimenyi, Mwangi S. and Kibe, Josephine (2014, January 6). Africa’s Powerhouse. Brookings. Retrieved from http://www.brookings.edu/research/opinions/2013/12/30-kenya-economy-kimenyi.

McConnell, Tristan (2015, August 2). Corruption in Kenya ‘worse than ever’ says veteran campaigner. Business Insider. Retrieved from http://www.businessinsider.com/afp-corruption-in-kenya-worse-than-ever-says-veteran-campaigner-2015-8.

Moon, C. (2015). Foreign direct investment, commitment institutions, and time horizon: how some autocrats do better than others. International Studies Quarterly.

Nyaga, Beth. (2015, September 16). Kenya unveils blueprint to revive industrial and manufacturing sector. KBC. Retrieved from http://www.kbc.co.ke/kenya-unveils-blueprint-to-revive-industrial-and-manufacturing-sector/.

Olson, Mancur. (1993) Dictatorship, Democracy, and Development. The American Political Science Review 87 (3): 567–576.

Slowing economy to spark rise in short-term interest rates. (2015, November 23). The Standard. Retrieved from http://www.standardmedia.co.ke/business/article/2000183264/slowing-economy-to-spark-rise-in-short-term-interest-rates

Wakiaga, Phyillis. (2015, September 19). Kenya launches ambitious plan for industrial transformation to realise Vision 2030. The East African. Retrieved from http://www.theeastafrican.co.ke/OpEd/comment/Kenya-launches-ambitious-plan-for-industrial-transformation/-/434750/2877306/-/iu5s3az/-/index.html.

Wang’ombe, Hannah. (2015, October 13). Kenya’s future lies in industrialisation. Daily Nation. Retrieved from http://www.nation.co.ke/oped/Opinion/Kenyas-future-lies-in-industrialisation/-/440808/2910216/-/30b55k/-/index.html.