LEVERAGE & NATIONAL DEVELOPMENT

This article can also be found at www.kijanajoe.wordpress.com

Leverage.....A word that in some people may invoke the image of a suited and booted
Wall Street type who uses others money to make lots of money for himself by controlling
a large investment while reducing his personal risk exposure to a bare minimum.

While leveraged investments, buyouts etc are a reality of our times, leverage is not
exclusive to the fat cats on Wall Street, Dalal Street, Bay Street, Kimathi Street or the
zillion other streets around the world where big money is used to buy and sell companies
or parts thereof. Leverage is not necessarily exclusive to finance but could be used in
political, economic, military or personal situations to gain maximum desired mileage.

I started thinking about leverage during Christmas when I went to a big box store with
my better half for boxing week shopping. I was thinking that she would be happy with a
dress or two but….boy was I wrong!!!!!!!! The big box store was offering deep cuts on
many products and to make matters worse the “clearance items” were interspersed all
over the store leading to a treasure hunt experience (for the enthusiastic shoppers like my
wife). We spent over two enjoyable hours (enjoyable for my better half…I found it
excruciating) romping aisle to aisle.
She ended up buying about a year’s quota of clothing. My wife is financially more
shrewd and prudent than I am. She leveraged the boxing week sale to cut her yearly
expenditure on clothing!!!!
If she had bought the same clothes over the course of the year at regular prices we would
have probably spent twice as much money.
The big box store leveraged the festive season and the accompanying shopping mania to
get rid of its old inventory and created a treasure hunt experience that enthusiastic
shoppers would cherish for a long time (thus leading to more frequent visits to the store
in the hopes of unearthing treasure…. This increases the likelihood of impulse
purchases).

I started thinking of all situations in the context of national development where leverage
was used to elicit gain. I also thought of situations where failure to leverage situations led
to missed opportunities. Finally, I started to think of how leverage could be used to
accelerate economic development in Kenya and the upliftment of the poor.

India (the country to which I trace my heritage & where I went to university) & Kenya
(the country that three generations of my family have considered home) provided the
perfect basis to compare & contemplate the impact of leverage on national development.

India
India is a rising economic power. Today, Indian industry has gone global e.g. The Tata
group has bought Corus Steel, Jaguar, Land Rover & Tetley , Essar Steel has bought
Algoma and a series of other global acquisitions has put Indian industry in the global
limelight. A lot of credit for the strong Indian economy is given to the economic reforms
initiated by Manmohan Singh when he was finance minister. While this is mostly true, I
am of the belief that India’s leverage of its huge market and the political climate of the
cold war provided the foundation for growth. Below I illustrate cases where leverage has
helped further India’s national development. There will probably be cases where India
has failed to leverage to its advantage. For this article I will stick to India’s successful
uses of leverage so that in the Kenyan context it will be easier to envisage the missed
opportunities of the past, potential opportunities of the future and mull over a strategy
that may help the industrialization effort in the globalized environment .

Indian Auto Industry

When I first landed in India to pursue my university education, I was shocked, appalled
and disappointed with the Ambassador. Ambassador was a car of British origin made in
India.
It was as ugly as ugly could get and had a very simple interior and instrument cluster. I
could not fathom why the powerful political czars of the country would prefer to
commute in this car rather than the Mercedes Benz. Surely, they could import a few
Mercedes Benz’s and BMW’s for themselves!!! But as they say beauty is in the eyes of
the beholder. The Indians forced by restriction of importation fell in love with the best
available car in the market (even though it was a “hag” in my then juvenile opinion). The
political czars…already in love with their seats in parliament dared not travel in imported
cars lest they alienate the voters.

It is only later, I was to understand the mentality of the Indian establishment. The country
was driven by a policy of “self sufficiency” that was laid down by Nehru right after
independence. Actually it went much earlier when Mahatma Gandhi called for the
boycott of foreign clothes and the use of Khadi (Indian home spun clothes). The British
had suppressed Indian industry and were supplying clothes made in Manchester, England
to India. The Indian political leaders of the time felt that a country could only be truly
independent if it was 100% self sufficient in all its needs. That line of thinking would be
scoffed at and ridiculed in today’s globalized world. Ironically India is a country that is
today benefiting enormously from globalization. However, I personally believe that the
industrial infrastructure that was built during the socialist days is the foundation on which
India is today experiencing tremendous growth. Without the firm and solid industrial
foundation India may not have become the formidable economic power house it is today.
It is true that the economic reforms initiated by Manmohan Singh in the 1990s did help
India grow tremendously. But it grew on a solid industrial foundation. Without that
foundation the growth may not have been so spectacular. The reforms resulted in
exponential growth mainly because of the existing industrial foundation at the time. In
addition the Indians were prudent enough not to give in to IMF and World Bank
prescribed medicines. India leveraged its existing infrastructure and the lure of its huge
market to insist that foreign investors initially get into joint ventures with local industries.
The existing distribution networks of the local partners helped the foreign investors and
the local partners benefited from technological leaps through “transfers of technology”.
This is where the Ambassador comes in. The story of the auto industry in India represents
the change in India.
The Ambassador was initially built by the Birla group in India under license from a
British firm. Later when the car was being discontinued by the British, the Birlas bought
the whole assembly line and tooling from the British firm. Thus the Ambassador was
being made lock, stock and barrel in India. It had become 100% Indian. The Indian
government protected the Ambassador from foreign competition and set an example by
making it the official car in which all government functionaries including the prime
minister and president traveled in. It was the symbol of pre-reform India…striving
towards self sufficiency even with outdated technology.
Later in the 1980s the Indian government went into joint venture with Suzuki to
manufacture Maruti cars. Suzuki was given solid targets and the car was to be
indigenized in a phased manner such that a significant value of the car was to be Indian.
That meant manufacturing many of the parts in India. Also a significant portion of
technology transfer was to take place. Since the Indian auto industry was technologically
3 decades old, Suzuki faced challenges in sourcing parts in India and the Indian auto
ancillary industry had to catch up to modern technology. Somehow the challenges were
overcome and the end result was that India’s insistence on local production of all parts
led to development of a full fledged auto industry and associated ancillary industries.
Now, car makers like GM, Ford, Hyundai and Mercedes Benz make cars in India and
more importantly a significant portion of the value of the cars they produce is Indian.
The first fully Indian engineered car was the Tata Indica by Tata motors which previously
made commercial vehicles and SUVs (in partnership with Mercedes). Now Tata motors
have come up with the world’s cheapest car (The Tata Nano) and bought Jaguar, Land
Rover and Daewoo Commercial Vehicle Company.
India leveraged the foreign investments it received in the auto industry to ensure it gained
maximum benefit. In exchange for getting access to India’s huge market, Suzuki and
others had to transfer technology and help develop the auto ancillary industries. This not
only helped to increase industrial growth and maximize employment, but also helped in
creating technological leaps and developing local engineering expertise in the auto sector.
The engineering expertise developed would later aide India in developing its own
models.

HANSIBA
Hansiba is a brand of embroidered cloth that is sold in the international market. You will
be thinking…..so what? There are hundreds of cloth brands around the world.

What makes Hansiba stand out is that it is a global brand whose entire supply chain is
managed by about 3000 women in rural India. SEWA (an NGO) started the Hansiba
initiative. They convinced the rural women to market their craft. SEWA got designers
from India’s National Institute of Fashion Technology and National Institute of Design to
work with the rural women and come up with designs that would have mass appeal.
Also by blending the different embroidery patterns of various rural communities’ new
designs were innovated.
Today, with global tie ups the brand is being sold in many western countries. About 65 %
of the sales go the rural women who are the main shareholders of the Self Employed
Women’s Association (SEWA) Trade Facilitation Center.

Thus by leveraging the traditional skills of the rural women and the contemporary design
knowledge of designers from India’s premier fashion and design institutes, a global brand
was created that has not only uplifted rural women from the crutches of poverty but also
empowered them. Of course the losers in this are probably the middlemen who used to
exploit the illiterate women. But it is only by getting fair price for the producers at the
grassroots that true economic progress can be made.

COMMENTRY
The cold war provided a perfect opportunity for developing countries to leverage the
prevailing international political environment to industrialize. The IMF and World Bank
did not breathe fire on the poor of the world and they could choose economic models that
suited their developmental needs even if it meant protectionism or socialism. The
superpowers paranoid that the non aligned movement countries may lean towards the
opposite side bent backwards to please the leaders of the third world (including propping
up despots and dictators). India leveraged the cold war and the ensuing political
environment to protect its industry and industrialize at a rapid rate. The industrial
infrastructure and the large number of technical institutions built (to aide
industrialization) in the cold war era are the foundations on which the post reform India
has flourished. The knowledge industry in particular the IT industry has been growing
and the resource base that it depends on (its people) graduate from the technical
institutions that were built before the Manmohan Singh reforms

Kenya
Kenya has had its own successes and failures. However, despite the relative peace and
stability Kenya has experienced since independence, lack of strategic vision and failure to
consistently leverage has led to missed opportunities especially in the quest to make
Kenya an industrialized nation.

Again, to illustrate my case, I will start by focusing on the auto industry.

Auto Industry
Kenya once had a thriving auto assembly industry. Completely knocked down kits
(CKD’s) would be imported and cars assembled using cheap Kenyan labor. Very little
local content was used. I know that windshields and tires were made in Nairobi. Apart
from that most of the value of the car was imported. Also no significant technology
transfer took place. Later when cheap refurbished cars from Dubai started being
imported, the Kenyan auto industry suffered and the manufacturers cried foul. I have no
pity for them what so ever (after all they failed to strive towards value addition when they
had the opportunity). Trucks and buses are still being assembled in Kenya and their
bodies are being fabricated in Kenya. Some of the commercial vehicles have about 50 %
local content (Does not mean much since the main juice like the engines are still
imported). Local knowledge of engine design and manufacture of engines would have
been invaluable in the quest to create a truly Kenyan car.
However, had the government leveraged the cold war era to force the manufacturers to
help develop a full fledged local auto parts industry, and transfer technology to Kenya the
story may well have been different. If worst came to worst, the Soviets or their allies like
Czechoslovakia could have been invited to set up shop (in partnership with the
government) and help develop the auto industry in Kenya (even though the East bloc cars
sucked). That would have made the Americans and Japanese sit up and act. Given the
small East African market, the auto manufacturers could have been forced through local
content laws to limit the number of models assembled in order to make local production
of parts more economically feasible.

In 1986 President Moi did initiate the Nyayo car project in order to make a Kenyan car.
However, it miserably failed. Many reasons float around. Some say corruption killed the
Nyayo car, others say it was not viable… and the rumor mills abound. It is said that
Mitsubishi was contacted to be joint partners in commercializing the Nyayo car, but they
were not interested.
Pushing aside the rumors, I think the project would have still failed because of the timing.

In 1986, the soviets were already in trouble and the cold war was going to end in a few
years time. Soon the World Bank and IMF were going to start breathing fire on poor
nations to liberalize their economies. The days of protectionist policies were about to
come to an end (I believe protectionism is important in the infant stages of an industry).
East Africa did not have a huge market that could have been leveraged to entice
Mitsubishi or any other big auto maker to help Kenya develop the auto industry. They
would rather just make the cars in Japan and sell them to Kenyans. Going alone in the
commercialization of the Nyayo pioneer car would have required huge investments that
may not have been possible at the time.
Thus the failure to leverage the cold war era to fully develop the auto industry has cost
Kenya heavily in terms of missed opportunities…. ….
 Thousands of direct and indirect jobs that a fully fledged Kenyan auto industry
could have potentially created.
 A technical knowledgebase and an industrial base on which technological
innovations or industries like machinery manufacturing could have sprung up.

The AGOA Boom

Years back when the United States signed into law the AGOA act (African Growth and
Opportunity Act); there was a rush of foreign investors (specifically in the garment
industry) to Kenya. Through AGOA the United States gave preferential treatment to
imports from African countries. While installing equipment at the spanking new garment
factories I gathered from the client engineers that cotton & cloth were being imported
from Tanzania. I wondered why the government did not leverage the sudden growth in
the garment industry to revive the once thriving but then dead cotton growing industry in
Nyanza province. More jobs and hence more wealth would have been created by reviving
the cotton growing and the textile industry. Apart from the jobs at the garment factories,
Kenyan farmers would have benefited, the transport industry would have benefited due to
transportation of cotton from Nyanza province to Nairobi and possibly other industries
like the cotton seed oil extraction industry could have been revived. The net result of this
would have been –
1) More jobs created (through indirect job creation).
2) More wealth retained in the country. Since the factories operating in the export
processing zones did not have to pay tax and could repatriate 100% of their
earnings, the only wealth that would have stayed in the country would have been
the salaries they paid to their staff and other expenses like cost of power, cost of
raw materials etc. Since cotton was being imported from Tanzania, that portion of
wealth was lost along with the wealth that would have been created due to
ancillary industries benefiting from the cotton growing activity.

Finally the government did wake up and spoke of reviving the cotton industry. By then
some of the garment factories had already established supply chain relationships with
Tanzania. I since lost touch and don’t know how successful the government was in
reviving the cotton industry. I do hope they were successful and the foreign investments
due to AGOA are being leveraged for maximum long term benefit to the country.

However, there are successes too that ought to be mentioned and celebrated.

Agriculture and Horticulture

Kenya is blessed with fertile soil, favorable climate, an industrious population and a
perfect geographic location. Direct flights to Europe are only eight hours long. This is
short enough to enable transportation of perishable items like vegetables and flowers.
Kenya has leveraged its geographic location and easy access to the European market to
become a hub of horticultural exports. Everyday various vegetables and fruits from the
farms of Kenya are exported to Europe. Flowers grown in Kenya are also exported to
Europe.

Though Kenya has leveraged its strengths to develop the horticulture industry, much
more can be done.
Unlike vegetable growing, the flower industry is dominated by large foreign companies.
The ordinary Kenyan farmer with a small scale holding does not benefit from flower
growing. A system that encourages out growers and assists the small scale farmers to
gain access to this lucrative trade needs to be thought out. May be setting up of
cooperatives to assist the small scale farmers is the answer. The point is that leverage
must be used to maximize Kenya’s benefit. Foreign companies take the profits back to
their home countries. Kenyans farmers will use their profits in Kenya!!!!
Therefore it is important to go beyond job creation to entrepreneurship development. And
this entrepreneurship development has to go right to the grassroots.
Sand Dams
At the risk of being compared to shylock, I would like to state that some of the greatest
opportunities for leverage come in the midst of desperation. If the desperation is
leveraged in a noble way to enhance national development at the grassroots, leverage no
longer becomes a dirty word.

Sand dams can be built in arid areas where there are short spurts of rainfall. They collect
water and store them for use during the dry spells. Some NGOs like “Excellent”
operating in Kenya have been leveraging the need for such dams by cutting deals with
local communities whereby the local community volunteers to provide the necessary
labor to build the dams while the NGOs provide the technical expertise and also in the
process teach the local community how to build such dams. Last year (2009) I saw a
video clip on NTV regarding the drought in Kibwezi district. The Hindu council of
Kenya did not give out food and other aid. Instead, it cut a deal whereby the local women
were employed to dig dams (these were not sand dams but large pits to collect rain
water). They would dig 50ft by 20 ft sections and get some money for it.
The benefits of leveraging in such a manner are-
1) Rural infrastructure is built using labor from the communities that will ultimately
benefit from the infrastructure. Where communities volunteer the cost of building
the infrastructure reduces thereby giving more bang for the buck.
2) Skills for building such infrastructure are transferred to the local communities.
3) The dams would collect rain water and could be used for domestic and
agricultural purposes hence improving the living conditions of the rural
communities.
4) By bringing water to the people, near the people, the time spent by women in
making long treks to fetch water is reduced. The time saved could be used in other
economically useful activities like making handicrafts for sale or agriculture.
5) Most importantly these programs empower people. They have the potential of
bringing about paradigm shifts in peoples outlook. It reminds people of the spirit
of Harambee, and gives them a sense of confidence that they can help themselves
if they work collectively for their common good rather then wait for the
government to act. Also the neighboring communities may see the benefits that
the dams are bringing and act to build such infrastructure for themselves.

Hence leveraging needs of communities to build rural infrastructure and empower

people has certainly helped in improving the lot of many in some of Kenya’s rural
communities. Unlike aid, this improvement is for the long term.

As a side note: Do you see the similarity between the Kibwezi dam project and the
Hansiba initiative? In both cases it is the women who have stepped forward to help
themselves and their communities. I guess women are more responsible and forward
looking than us men folk.
COMMENTRY

Post cold war, IMF/World Bank prescribed liberalization policies would help open the
floodgates of imports into Kenya to the detriment of Kenyan industry. Kenya should have
more vigorously refused to take IMF/ World Bank prescribed pills and instead opted for a
phased liberalization program like India that would have bought Kenyan industry some
time to modernize and become more competitive by imbibing best practices from around
the world.

Also, if right from independence up to the end of the cold war, the government had
strategically leveraged the international political environment (and its membership to the
non aligned movement) to not only rapidly industrialize Kenya but also build a technical
knowledgebase (by forming technical alliances with both the West bloc and the East
bloc) Kenya would have had a more solid foundation to spur growth post liberalization.
The cold war and the protectionist policies it allowed could have been used to rapidly
industrialize the country (with help from both sides of the cold war), maximize economic
and technological self sufficiency in all areas through vertical integration, technology
transfer and human resource development.

Note: Kenya did industrialize more than its immediate neighbors, and its economic
growth up to the late 1980s was impressive. However much more could have been
done in terms of leveraging the cold war era to industrialize and build a formidable
Kenyan technical knowledgebase. Even today, some private companies for some
unfathomable reason rely heavily on expatriate technical experts and management
professionals. These expatriates leave for better prospects or return to their respective
countries only to be replaced by other expatriates. True Kenya may need foreign
technical experts and management professionals in certain areas, but their presence
ought to be leveraged to develop local expertise. People from different cultures tend
to think differently and it is important to tap into the thought processes, skills and
experiences of the expatriate professionals with the aim of further enhancing the
development of local expertise. For some reason this has not been a common practice
and opportunities to tap from the expatriates and enhance the development of local
expertise have been squandered.

IN FUTURE

Looking forward, I think there is still opportunity to leverage and attain Kenya’s goal
of not only becoming an industrialized country by 2030 but also attain exponential
economic growth and improve the quality of life in the rural areas.

1) The laying of the underwater fiber optic cable.

The submarine fiber optic cable being laid along the east coast of Africa by Seacom
has finally reached Mombasa. This presents the greatest opportunity of the century.
The building of the railway line opened up Kenya to colonization. The creation of a
country wide fiber optic network providing fast and cheap broadband connection can
open up the world to Kenya. The days of the slow satellite connection are coming to
an end.
Kenya can leverage fast and cheap broadband connection to

 Create a business process outsourcing industry. A fast internet connection

coupled with the English speaking population and low labor costs can be
utilized to develop call centers and back office operations. Kenya can
compete with the likes of India and become the destination of choice for
the business process outsourcing industry.
 Create a knowledge based industry. If the government, private industry
and educational institutes make concerted efforts to develop software
development skills in the country, the fast broadband connections can be
used to create a software industry. Internet based entrepreneurs can spring
up all across the country…from Kisumu to Mombasa and take advantage
of the global market to sell software products and applications.
 Improve quality of life and productivity. Envisage the following…..
The government installs dedicated computers in fishing communities. The
fishermen get real time satellite data using the fast broadband connection
on whereabouts there are large shoals of fish in the sea. The fishermen
head straight there and catch lots of fish. Then they get SMS on their cell
phones on where they can get the highest rates for their catch. They head
straight to those markets from the sea and get fair value for their produce.
Not only can productivity be improved but returns for the producers can
be maximized.
 Education can greatly benefit from the internet. Access to cheap
broadband will enable Kenyans from all walks of life to avail to the
enormous knowledge in the virtual world.
Also government departments can create databases and websites with
information on best practices, skills and lessons learnt. For example the
agricultural ministry could have a centralized knowledge base on
agricultural practices like “how to build a biogas plant” to “how to make
organic fertilizer using vermiculture”. Field officers can access this
information using the fast broadband connection and share the knowledge
with the farmers in their areas.
Here’s another idea. Using wireless internet broadcast from a base station
in a township “roaming” schools for the children of pastoralist
communities could be created. The teachers could be stationed in nearest
major township while the pastoralist children could be roaming around
tending cattle in the day and studying at night using cheap laptops (Of
course they would need some sort of mobile battery power).
 Leveraging the fiber optic network and cheap and fast internet connections
to educate, improve productivity, improve quality of life, improve
efficiency and create jobs and entrepreneurs can take Kenya to new level.

2) Strategy to encourage Industrial and Human Resource Development

True, we don’t live in the cold war era and cannot create cocoons around
ourselves any longer. The globalized economy is a reality and the protectionist
days are past us.
The question arises that in such a globalized environment how can Kenya attract
investment and leverage it to encourage vertical integration, technology transfer
and human resource development?
Kenya or for that matter East Africa is not a large enough market to entice foreign
investors to transfer technology and indulge in vertical integration. Even Kenyan
investors may not find it economically feasible to indulge in vertical integration.

Let us pause for a moment and realign our thoughts -

 Kenya, Uganda and Tanzania combined may not be big enough
markets but surely COMESA is a big market (about 400 million
people). Going beyond COMESA, the entire global market can be
tapped if there is a will at the political and business levels. Active
encouragement ought to be provided to ensure that that every
manufacturer or service provider thinks of tapping into the
COMESA, the European, Asian and American markets rather than
just the Kenyan or East African market.
 Sure industrialization can be accelerated through vertical
integration. But due to the small volume of sales of the final
assembled products it may not be economical to locally
manufacture components as long as the target market remains the
local manufacturers who use the components in their products.
However, if in addition to the local manufactures, the target market
was increased to include all industrial consumers of the component
in Africa, Asia, Europe and the Americas it may become feasible
to vertically integrate. Now with the global market as the target the
only question that remains is how to entice investors to assist in
vertical integration.
 Industrialization for industrialization’s sake is no longer good
enough. For Kenya to lead and prosper in the long run employment
generation in itself is not enough (though it is extremely
important). Not only does Kenya have to build world class
expertise but Kenyan global enterprises have to be built that are
based on Kenyan entrepreneurial, technical and managerial
expertise. Research and development along with innovation has to
be actively encouraged. An active learning culture has to be
encouraged in industries with a view of developing Kenyan talent
 in all spheres. Given the right opportunities and an enabling
environment, a formidable pool of globally competitive Kenyan
expertise in the scientific, technical, managerial and
entrepreneurial spheres can be developed.

One possible way of encouraging vertical integration and human resource

development is through a well thought out incentive structure. If a dynamic
taxation structure that provides for tax breaks based on certain scorecards is
implemented then there would be incentives for companies to vertically integrate,
export and actively develop human resources by implementing training and
mentorship programs.

The scorecard I envisage would be an amalgamation of several scorecards.

 A scorecard that measures contribution to vertical integration, technology
transfer & local content in manufactured products.
 A score card that measures human resource development. The scorecard
should measure various faucets of human resource development. This
would encourage companies to
o Tie up with local universities and colleges to
provide co-op work experience, and hire new
graduates.
o Provide training to employees to further develop
their skills.
o Mentoring by experienced professionals.
Mentoring goes beyond training someone to do
his or her job. Mentoring should include
development of the person as a whole. This
would include not only training the person as far
as his or her job is concerned but in addition
work on developing his or her leadership skills
and other technical and business skills that
would enable the person to grow and contribute
more and more to the organization. This is a
tough one as most employers see employer-
employee relationships as one ways streets. The
employee does his job and the employer pays
him or her to do it!!!! Also employees keep
moving to better jobs in today’s fluid work
environment. But by providing a tax break
incentive the company owners may enforce
mentorship programs within companies to
facilitate mentoring of junior
graduates/professionals by more experienced
professionals.
 o Tie up with Kenyan researchers to develop
products.
o Implementation of best practices from around
the world.
o Active involvement of all ranks in continuous
improvement projects.

 A scorecard that gives tax breaks depending on the “net national value”.
Net national value would mean that value of a product that is “Kenyan”. If
a product’s value is 100 shillings and 50 percent of it consists of imported
material than its net national value would be 50 shillings.
For the products that are sold in the Kenyan market, a scorecard based on
the net national value could be used to give tax incentives in order to
encourage import substitution and value addition through vertical
integration.
For products that are sold in the export market, a scorecard based on the
net export value (same as net national value except to be used for exported
products) could be used to give tax incentives in order to encourage use of
locally manufactured materials. In order to encourage exports, the tax
incentives given for net export value could be made much higher than
those given for portion of the products sold in the local market.
Importing components, assembling them and selling the assembled
product would have a low net national/export value compared to selling
assembled products that use 50% local content components & 50%
imported content components. Exporting the products would result in
greater tax benefits than just selling them in the local market.

Let us take a hypothetical example. A company X sets up shop to

manufacture components that are used by a local manufacturer Y. The
local manufacturer Y currently imports those components. Now X will
supply Y with the components. No other company had previously been
making those components in the country. To manufacture those
components locally, technology transfer had to take place.
Based on company X’s contribution to vertical integration and technology
transfer (as measured by some sort of standardized methodology), it would
be entitled to some percentage of corporate tax concession for a period of
say 6 years.

Company Y would be entitled to additional tax benefits for using the

locally produced component due to the higher net national value of their
products. They would also be entitled to some benefits for supporting
vertical integration by buying components from company X.

Now let us say company X uses 30% local value in making its product.
Say it exports 50% of its production. It would be entitled to a tax
concession based on a score that measures the “net export value” (30% of
gross export value) for the portion of production that is exported. It would
also be entitled to a tax concession based on a score that measures the “net
national value” for the portion of production that is sold locally.
Now since company X is contributing to vertical integration by being the
first to manufacture the components in Kenya , it could be made eligible to
claim tax breaks based on score that assumes 100% net national/export
value for a couple of years (in order to lure investors initially and give
them time to settle down). After the stipulated grace period company X
should only be able to claim annual tax breaks on a score that measures
actual net national/export value thereby giving them an incentive to further
indulge in vertical integration or use local products in their manufacture.

Now let us tackle the human resource development angle.

If company X puts into place a mentorship program whereby junior

professionals are paired with experienced professionals for mentorship it
may be eligible for some points on the scorecard. The success of its
mentorship program over time could result in increased tax benefits. For
example if the mentored junior professionals take on greater
responsibilities in the organization and in turn mentor other junior
professionals.
Also if regular free workshops/forums are held to develop skills within the
community in which the company X operates , the company should be
eligible for tax breaks. The workshops and forums should impart skills and
develop capabilities within the community. The skills being imparted to
the community could be anything from basic computing knowledge to the
development of leadership and project management skills.
Also if company X provided co-op work experience for university and
college students, it should gain some points on the human development
scorecard.
If company X joins hands with Kenyan universities and researchers to
innovate and produce new technologies and products, this ought to be
rewarded with points on the human resource development scorecard as
such alliances with institutes of higher learning foster a culture of
innovation, research and development.

The amalgamation of the vertical integration, local content, technology

transfer, export and human development scorecards should translate to
generous tax benefits for companies and lure potential investors to invest
in value added industries.

Thus by giving very generous tax breaks based on a scorecard that gauges
vertical integration/local content, encourages value added exports and
human resource development existing and future investments could be
leveraged not only to accelerate industrialization, but to create a highly
skilled and formidable human resource base. This human resource base
would ultimately help Kenya create world scale enterprises.

The above system is just a random thought of mine. It may not be entirely
practical and I am sure it has the potential of making the lives of
accountants’ hell. The point I am trying to make is that “leverage” should
always be part of the thought process when laying down policies or doing
anything that would have a positive effect on national development.
 The policy makers should think of how they can leverage
situations or policies to accelerate national development in the long
run.
 Engineers and other technical people should think of ways to
leverage existing technologies to benefit people at the grassroots.
 Industrialists and entrepreneurs should think of how they can
leverage the potential of their existing employees and enable them
to innovate, grow and further enhance the competitiveness and
growth potential of their companies while at the same time helping
to develop Kenya’s human resource base into a formidable
competitive force that will help develop world class Kenyan
organizations.

CONCLUSION

These are just a few reflections on how leverage has been and can be used
for national development. All major economies of the world do leverage
their positions to elicit gain. Kenya should do the same. The next century
belongs to those countries that not only have the industrial infrastructure
but excellent human resources that can adapt and change to the fluid and
dynamic world seamlessly. Therefore Kenya must leverage strategically
so that not only does Kenya industrialize but undergoes technological
leaps and at the same time develops a human resource base that is world
class in all aspects.

However, first and foremost the scourge of corruption must be dealt a

heavy blow and integrity and trust be restored before any measures to
leverage will have any significant positive effect.