REPUBLIC OF KENYA

MINISTRY OF INDUSTRIALIZATION

NATIONAL INDUSTRIALIZATION POLICY FRAMEWORK FOR KENYA

DATE: 2011-2015

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ACRONYMS AND ABBREVIATIONS ACA AGOA BPO CCK CCM CKD CODA COMESA COTU CMM CQS DFIs EAC ERS FDI FKE FKPM FPEAK GDP ICT ICF IDF IP IPR ISI ISO KAA KAM KCAA KEBS KEPHIS KEPSA KIPI KIRDI Anti Counterfeit Agency African Growth Opportunity Act Business Process Outsourcing Communications Commission of Kenya Coordinate Measuring Machines Complete Knocked Down Cotton Development Authority (CODA) Common Market for East and Southern Africa Central Organization of Trade Unions Coordinate Measuring Machines Common Quality Standards Development Financial Institutions East African Community Economic Recovery Strategy Foreign Direct Investment Federation of Kenya Employers Federation of Kenya Pharmaceutical Manufacturers Fresh Produce Exporters Association of Kenya Gross Domestic Product Information, Communication, and Technology Industrial Consultative Forum Industrial Development Fund Intellectual Property Intellectual Property Rights Import Substitution Industrialization International Organization of Standards Kenya Airports Authority Kenya Association of Manufacturers Kenya Civil Aviation Authority Kenya Bureau of Standards Kenya Plant Health Inspectorate Services Kenya Private Sector Alliance

Kenya Industrial Property Institute Kenya Industrial Research and Development Institute
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KLRC KMA KNAS KNBS KNCC&I KNCPC KNHA KPA KRA KPRL KRB KRBA KRC KURA KV2030 LA M&E MoA MoCDM MoE MEAC MENR MoF MoFA MoFD MoHEST MoI MoL MoLD MoLG MPND MoR MoT MoTR MoWI

Kenya Law Reform Commission Kenya Maritime Authority Kenya National Accreditation Services Kenya National Bureau of Statistics Kenya National Chamber of Commerce and Industry Kenya National Cleaner Production Centre Kenya National Highways Authority Kenya Ports Authority Kenya Revenue Authority Kenya Petroleum Refineries Limited Kenya Roads Board Kenya Rural Boards Authority Kenya Railways Corporation Kenya Urban Roads Authority Kenya Vision 2030 Local Authority Monitoring and Evaluation Ministry of Agriculture Ministry of Cooperative Development and Marketing Ministry of Energy Ministry of East African Community Ministry of Environment and Natural Resources Ministry of Finance Ministry of Foreign Affairs Ministry of Fisheries Development Ministry of Higher Education, Science and Technology Ministry of Industrialization Ministry of Labour Ministry of Livestock Development Ministry of Local Government Ministry of Planning and National Development Ministry of Roads Ministry of Trade Ministry of Transport Ministry of Water and Irrigation
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MSEAK MSMEs MSMIs MW NARC NISF NCSE NCST NEMA NESC NIDC NIP NIMES NMC NTB OP-CO OSH OSHA OTEC OVOP PCK PVC R&D RECP SAPs SEZs SMEs SLO STI TBT TPCSI VA WIPO -

Micro, and Small Enterprises Association of Kenya Micro, Small and Medium Industries

Micro, Small and Medium Enterprises Megawatts National Rainbow Coalition National Industrial Stakeholders Forum National Council for Small Enterprises National Council for Science and Technology National Environmental Management Authority National Economic and Social Council National Industrial Development Commission National Industrialization Policy National Integrated Monitoring and Evaluation System Numerical Machining Complex Non-Tariff Barriers Office of the President, Cabinet Office Occupational Safety and Health Occupational Safety and Health Act Oceanic Thermal Expansion Conversion One Village One Product Productivity Centre of Kenya Polyvinyl Chloride Research and Development Resource Efficient and Cleaner Production Structural Adjustment Programmes Special Economic Zones Small and Medium Enterprises State Law Office Science, Technology and Innovation Technical Barriers to Trade Training and Production Centre for the Shoe Industry Value Addition World Intellectual Property Organization

From the Desk of the Minister It gives me great pleasure to welcome the publication of this new and highly revitalised policy framework to govern our aspiration towards a more robust and useful national Industrialization process in Kenya. It is because the major challenge of the previous years has always been one of more rhetoric than concrete action. This weakness has undoubtedly severely affected the work and expected growth of the industrial sector in Kenya, not to mention that it is also a highly capital intensive sector that requires much more investments. It is with this background in mind that I must greatly commend my Permanent Secretary and his team for engaging what has really been the seventh gear and in record time, coming up with this extremely innovative, exciting and a very practical policy framework. I fully empathise with the aspirations articulated herein whose essence is to unlock the fetters that have inhibited our previous efforts. Chief of this is the apt recognition that positive political will, right from the top is the mortar, without which all other policy decisions come to naught. But we recognise further, that there have also been instances of pure and simple historical apathy towards real Industrialization, coupled, over the years, with an immensely dynamic and fast-changing political and economic environment the world over. The separation of the industrial from the trade sector at the beginning of 2009 did not make matters any easier as it is readily recognised that these two are sub-sectors that highly depend on each other if real industrial growth is to be realised. It behoves us therefore to have an unprecedented sense of urgency if this policy framework is not to join its predecessors in the dustbins of history. As minister responsible for this docket, it is therefore my pledge to keenly follow and ensure that all the eighteen priority sectors identified herein contribute, in however a small way, to our quest for a more robust industrial growth in Kenya. I will be seeking to receive quarterly reports and to work tirelessly in unlocking the well-identified problem areas. I urge all my colleagues in the government to support us in realising the objectives of this venture by giving it a chance so that the promised results can well revolutionise the growth path in our country, and especially, the job-creation challenge. ---------Minister

Foreword, By the Assistant Minister The main thrust of re-conceptualising and revitalising our new National Industrialization Policy (NIP) is to give primacy to all industry players to come together under a new coordination mechanism in order to ensure coherence and better sector delivery. This vision is to be realised through the proposal for the immediate formation of a National Industrial Development Commission (NIDC) as the apex coordination organ, supported interalia, by an Industrial Development Fund (IDF), as some of the key measures aimed at triggering growth and development of the industrial sub-sector in Kenya. We have fully embraced the reality that the aspiration towards full and beneficial Industrialization in Kenya cannot reside in just one ministry: the key infrastructure enablersenergy, roads, rail and airport networks; water, ICT-among others, do actually reside elsewhere and are not always in the exclusive domain of the Ministry. This is why it is vital that in moving forward, we have a mechanism that enables us all work together in order to realise this dream. Neither do we see Industry in the primordial sense of factories and plants, supposedly constructed somewhere in industrial area to which job seekers flock. Our vision is inspired by the notion of industry as the creation of employment through integrated efforts that cut across manufacturing, textiles, mining, quarrying construction-among others, in order to deliver the national aspiration for growth and ensure that there are opportunities right across all the 47 counties created under the new constitution. It is my hope and prayer that during our twin watch, we will shepherd the process of strengthening Industrialization and ensure that it contributes to the much-desired 15 percent of the national GDP.

Hon. Ndiriitu Muriithi Assistant Minister

Preface, By the Permanent Secretary The policy proposals outlined here are a product of much reflection by the sector experts under the overall coordination of the ministry. I thank, most sincerely, the technical officers of the Ministry for their dedication and time already invested in coming up with this document. I also thank my predecessors in the ministry for the foundation they laid in formulating Kenyas Industrial Vision through the many reports and documents that have been consulted in order to come up with the present version. In finalising this document, we have received invaluable comments and much-appreciated in-put from many people, and especially other government ministries. I acknowledge and thank all the Permanent Secretaries who sent us written comments which have extensively been used in coming up with the final draft. I would also wish to acknowledge my ministries senior technical staff who worked tirelessly to come up with the drafts and the various versions that have led to this particular outcome. Lastly, I acknowledge the meticulous professional and peer review editing undertaken on our behalf, by Dr George Outa. I believe we do now have in our hands, an appropriate policy platform to begin an earnest quest for growing each of the eighteen sectors we believe, and have always been believed, to have much potential for Kenya.

Dr Kibicho Karanja; PhD; CBS Permanent Secretary

TABLE OF CONTENTS

ACRONYMS AND ABBREVIATIONS FROM THE DESK OF THE MINISTER FOREWORD, BY THE ASSISTANT MINISTER PREFACE, BY THE PERMANENT SECRETARY EXECUTIVE SUMMARY CHAPTER 1: SETTING THE CONTEXT FOR A REVITALISED NATIONAL INDUSTRIALIZATION POLICY
1.0 Moving Towards Industry as Engine of Economic Growth 1.1A Review of Kenyas Industrial Development Policies from Independence 1.2 Defining Industrialization in Kenyas Contemporary Context 1.3 Problems and Challenges of National Industrialization 1.4 The Industrial Sector and Kenya Vision 2030 1.5 Rationale and Justification for a New National Industrialization Policy 1.6 Vision and Mission of the National Industrialization Policy 1.7 Guiding Principles and Core Values 1.8 Current Goals and Objectives of Kenyas National Industrialization Policy

1 4 5 6 10 12
12 13 18 20 21 22 23 23 25

CHAPTER 2: THE NATIONAL INDUSTRIALIZATION POLICY FRAMEWORK: FOUNDATIONAL PILLARS AND ENABLERS
2.0 the Key Industrial Enablers 2.1 Physical Infrastructure Required for Industrialization 2.2 Energy Requirements for National Industrialization 2.3 Water and Sewerage Systems for Industrialization 2.4 Information and Communication Technologies for Industrialization 2.5 Formation of an Apex Industrial Coordination Institution 2.6 MSMI Growth and Graduation for Industrial Expansion 2.7 Industrial Land and Work Sites 2.8 Standards and Quality Infrastructure 7

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27 27 30 31 32 32 33 34 34

2.9 Intellectual Property Rights 2.10 Governance and the Legal Framework for National Industrialization 2.11 Occupational Safety and Health 2.12 Technical, Production, Managerial and Entrepreneurial skills 2.13 Industrial Research, Development and Innovation 2.14 Industrial Market Access 2.15 Dispersion of Industries in Kenya 2.16 Cleaner Production and Environmental Conservation 2.17 Trade Policy to Support Industrialization

35 36 37 37 38 38 39 40 40

CHAPTER 3: POLICY FRAMEWORK FOR REVITALISING PRIORITY INDUSTRIAL DEVELOPMENT SUB-SECTORS 42

3.0 Identifying the Priority Industrial Development Sub-sectors 3.1 Potential in the Iron and Steel Industry 3.2 Potential in Machine Tools and Spares 3.3 Potential in Agro Machinery and Farm Implements 3.4 Potential in the Automotive and Auto Parts Sub-sector 3.5 Potential in Agro-Processing and Value Addition 3.6 Potential in Wood and Wood Products 3.7 Industrial Potential in Paper and Paper Products 3.8 Industrial Potential in Textile and Clothing 3.9 Potential in Meat and Dairy Products Sub-sector 3.10 Leather and Leather Products Industry 3.11 Electrical and Electronics Sub-sector Sector 3.14 Potential in Kenyas Pharmaceutical Industry 3.15 Potential in Mining and Quarrying 3.16 Potential in the Recycling Materials Industry 3.17 Potential in the Packaging Industry 3.18 Potential in the Petrochemicals Industry 8 42 43 45 46 46 47 48 49 50 51 51 52 54 55 56 56 57

3.19 Potential in the Ceramics Industry 3.20 Potential in the Fish and Fishery Products Industry

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3.22 Conclusion: Prioritising Sector and Policy Measures to Spur Industrial Growth 60

CHAPTER 4: THE INSTITUTIONAL FRAMEWORK FOR IMPLEMENTING THE NATIONAL INDUSTRIAL POLICY
4.0 Case for Better Institutional Coordination of the Industrial Sector 4.1 The National Industrial Development Commission 4.2 Role of Government in National Industrialization 4.3 The Role of the Private Sector 4.4 Universities, Research and Tertiary Institutions 4.5 The Industrial Consultative Forum 4.6 National Industrial Policy Implementation Matrix

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61 62 62 63 63 64 64

CHAPTER 5: FINANCIAL RESOURCE MAPPING, MONITORING AND EVALUATION 66

5.1 The Resource Challenge Facing the Industrial sector 5.2 Domestic Capital Formation 5.3 Foreign Direct Investment 5.4 Capital Markets 5.5 Commercial Bank Credit 5.6 Monitoring and Evaluation of the National Industrial Policy Framework Annex 1: Summary of Critical Policy intervention areas; Issues and Responsibilities Annex 2: Performance Appraisal Framework (M&E) for the NIP 66 66 66 67 67 68

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EXECUTIVE SUMMARY
1. This policy framework is expected to underpin the National Industrialization process

in Kenya over the next foreseeable five years (2011-2015) and beyond. It has been aptly conceptualised as a revitalisation document in order to underscore the fact that it builds on the solid foundation of various other efforts the government has made in the past to craft policy interventions that can propel the country forward in the ongoing quest for industrial growth and development. Key among these documents is the national long-term policy blueprint, the Kenya Vision 2030 with its premium on an average growth rate of 10 per cent per annum and the objective to propel Kenya into a newly industrialised nation with a higher quality of life for its people in a safe and secure environment. The impetus provided by a new constitution promulgated in august 2010, as well as previous efforts to craft Kenyas Industrial Masterplan have all made it critical that a National Industrialization Policy framework that responds more effectively to this need, is crafted in order to ensure that industrialization takes its proper place as the real engine of economic growth in Kenya.
2. The policy document is structured into five chapters, including a context-

setting/introductory chapter one. The chapter provides a brief historical overview of the various efforts made in the past, which unfortunately, did not materialise into a fully-fledged NIP for Kenya. Reference is made to the import substitution and exportled policy orientations that characterised the early years to be followed later by the Structural Adjustment Programmes (SAPs) as well as the various Sessional Papers the government has published in a bid to promote industrialisation since independence. A notable reference in this respect is the 1997, Sessional Paper on Industrialisation Transformation to the year 2020. More recent policy sources have come from both the Economic Recovery Strategy and the Kenya Vision 2030. On the basis of this review, a case has therefore been made for a revitalised National Industrialization Policy (NIP) framework appearing at a momentous point in time. It explains why it has become necessary to invest in a more robust framework and bring on board the various sector stakeholders. The chapter touches on some of the major challenges that require to be overcome and concludes by articulating the Vision, Mission and the core values that will guide this particular NIP.
3. In chapter two, the document elaborates the all-critical enabler, or foundational

pillars-as premised in the Kenya Vision 2030 policy framework. Specific policy proposals are pronounced to ensure decisive actions that can deliver good infrastructure: roads, railways, airports; a reliable oil pipeline as well as Information, Communication Technologies(ICTs)-among others, because they are the basis of successful Industrialization. Quite importantly, the role of an emerging regional market and the need to harmonise certain enabler policy interventions is emphasised as is the need for ensuring an enabling secure environment within the countrys borders as a major investor incentive.
4.

In chapter three, attention is devoted to the priority sub-sectors that are expected to propel national Industrialization. In all, some twenty sub-sectors-led by the steel and iron industries are indicated, along with the policy proposals and options that can
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grow them into meaningful and sustainable sectors in the economic development equation. Other key sectors identified for their waiting include construction and mining as well as the potential in pharmaceutical products development, leather, packaging and other more recent areas such as nanotechnology and green energy.
5. In chapter 4, the document elaborates the institutional framework that is required to

deliver a robust national Industrialization momentum. The most critical proposal is the call to establish a National Industrial Development Commission (NIDC) as an apex institution to be charged with the overall coordination of the industrial sub-sector activities. Needless to say, such an institution has been seen as long-overdue because it is envisaged to bring about coherence and better coordination in a sub-sector where it is readily acknowledged that many activities and programmes cut across many other institutions, ministries and government agencies. The chapter also spells out the roles to be played by various key stakeholders in the industrial sector, including primarily, training and higher learning institutions, the Private Sector and other government agencies, in what should also crystallise into a more robust National Industrials Stakeholders Forum (NISF) where industrial sector issues are raised, considered and dealt with.
6. In chapter five, the document specifies the policy options for resources and resource

mobilisation, including especially the realisation that meaningful industrial sector expansion requires massive and intensive capitalisation. To this end, a domestic capital formation approach is proposed with a specific call to establish an Industrial Development Fund (IDF) to assist investors seeking to establish MSMIs. Lastly, a Performance Appraisal Framework has been included to ensure Monitoring and Evaluation (M&E) of developments and progress in the industrial sub-sector.

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CHAPTER 1:

SETTING THE CONTEXT FOR A REVITALISED NATIONAL INDUSTRIALIZATION POLICY

1.0

Moving Towards Industry as Engine of Economic Growth

This revised and up-dated National Industrialization Policy (NIP) has been prepared at a rather momentous time in Kenyas history. To begin with, the Ministry has taken full cognisance of the fact that, although Kenyas industrial sector is relatively large, it has not been dynamic enough to function as, "an engine of economic growth especially when compared to peer countries and other newly emerging economies. Indeed, the sector has been inward-looking with only limited technological progress, largely reflecting the import-substitution and export-led policy orientations of the past years. There has been lack of a planned program to support the local Small and Medium Engineering Enterprises, which have the potential of growth in the field of Electrical and Mechanical engineering in the region. The countrys stated drive towards a Newly industrialised economy under Kenya Vision 2030, coupled with the new constitutional dispensation that puts emphasis on renewed commitment to economic performance under devolved national governance structure all make it imperative that the industrial sector must equally re-visit its policy framework and its strategic approaches in order to make an effective contribution to national growth. In this regard, the Ministry is set to work closely with other government institutions responsible for the development of the devolution policy framework in order to ensure that attention is given to the right strategies and institutional structures that can facilitate the devolution of Industrialization. Furthermore, the pace of global technological change makes it necessary for Kenya to develop an industrialization policy framework that is capable of responding to the rapidly changing global technological environment. It is further realised that industrialization, agriculture and commerce are the key pillars of wealth creation in any country. As can readily be seen from Figure 1 here below, whereas the agricultural sector has registered remarkable growth, the industrial sectors (comprising manufacturing, construction, mining and the quarrying sub-sectors) share of monetary GDP has remained at just about 14-16% over the last two decades. In addition, the cross-sectoral linkages and coordination that is required to enable the industrial sector be fully operational and capable of unlocking the Kenyan potential makes it imperative that the government reviews and makes policy recommendations that take into account both the sectoral and inter-

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ministerial linkages that will enable the Ministry work together with other ministries in order to deliver the national aspirations for Industrialization.

Figure 1: GDP Contribution of key economic sectors (2005 2009)

1.1 A Review of Kenyas Industrial Development Policies from Independence This policy framework builds upon the various efforts that have been made in the past in an attempt to define Kenyas industrial development path. Any cursory review easily confirms that national efforts targeting industrial development has produced mixed results and that the government has always been prompted to undertake periodic reviews in order to accommodate emerging and new dynamics. In a nutshell, Industrial policies in Kenya can be said to have evolved through three distinct policy orientations, including, the import substitution policy that was embraced soon after independence in 1963, followed thereafter by an export-led policy orientation and ultimately, industrial development policies inspired by the Structural Adjustment Programmes (SAPs) that dominated much of the 1990s. On the other hand, in the 2000 decade, the policies have
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tended to be influenced and based on the governments definition of its policy priorities as spelt out in the two major policy documents of the time: the Economic Recovery Strategy (ERS) for Wealth and Employment Creation (2003-2007) and the Kenya Vision 2030 policy blueprint which also the first major attempt by the Government of Kenya to define its longterm policy for the country.

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1.1.1

The Import Substitution Policy

In the period immediately after independence, Kenya's industrialization efforts were mainly guided by the Import Substitution Industrialization (ISI) strategy. The main objectives of this strategy was to ensure rapid growth of industry, ease balance of payment pressure; increased domestic control of the economy and also generate employment. The ISI advocated domestic production of import substitutes by domestic industries through protection of the infant industries from international competition mainly achieved through quantitative restrictions, import licensing, foreign exchange controls, high tariffs on competing imports and overvalued exchange rates. In general, the ISI policy is credited for the high growth of industries producing consumer products such as textiles and garments; food and beverages as well as tobacco that became leading sectors between 1963 and 1989. The manufacturing sector then grew at an average rate of 8% per year. Nevertheless, it has been noted that the high levels of protection contributed to inefficiencies in the domestic industries which hindered the development of a competitive industrial base. Indeed, the ISI policy was clearly inward looking and biased against exports. The limited size of the domestic market eventually led to a further problem of excess capacity in industry and also meant that competition between firms was mainly confined to the domestic market. Towards the end of the 1970s, there was therefore a general decline of the country's overall economic performance largely driven by the fact that the ISI incentive structure favoured production for the domestic market whose potential was limited. By the mid 1980s, the scope for ISI policy had thus been exhausted due to diminishing domestic opportunities. An attempt was therefore made to change the industrial strategy from import substitution to an export-led one. Due to the heavy protection, the inefficiencies in production and the accumulation of excess capacity, the sector's products failed to penetrate external markets causing severe external imbalances. To remedy the situation, the country embarked on major macro-economic policy changes under the Structural Adjustment Programmes (SAPs). 1.1.2 Structural Adjustment Policies Structural Adjustment Policies (SAPs) were introduced in the early 1980s in order to address the structural rigidities, price instability and the macroeconomic imbalances that had become
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embedded in the economy leading to poor delivery of services by the public sector. The main thrust of the SAPs was the shift from a highly protected domestic market to a more competitive environment that would facilitate increased use of local resources as well as outward oriented policies that would promote employment-creation and export expansion. The main components of SAPs included lifting of quotas and administrative controls, decontrol of prices and import tariffs, tariff reforms, reforming of state corporations, devaluation of exchange' rate 'through liberalization that included financial sector reforms, notably the' lifting of controls on interest rates and credit controls, and cost-sharing in the delivery of social services. The SAPs entailed sharp reduction of protection to industry as limits of import substitution strategy were reached. Whereas the SAPs reduced tariffs and attempted to decontrol prices, the remaining import and price controls interfered with resource allocation by stifling the forces of supply and demand. The industrial sector experienced a major shake-up during this policy regime as trade liberalization measures exposed the previously protected industries to stiff competition. The strategic industries that mainly included those in the textile sector collapsed and impinged negatively on exports while also holding back potential investments. The SAPs did not therefore achieve the envisaged outcome. In fact, the GDP growth rate recorded a negative rate of 0.4% between 1991 and 1992, while per capita GNP fell from US$350 in 1992 to US$270 in 1993, while the real annual growth rate of the manufacturing sector fell from 3.8% to 1.8%. 1.1.3 Export Oriented Policies Kenya adopted an Export-Oriented Industrialization Strategy when the failure of the ISI strategy and SAPs became clear. The strategy offered incentives aimed at encouraging industries to produce for exports. The main objectives of the export-led industrial sector reform programmes were to improve efficiency, stimulate private investment and increase the sector's foreign exchange earnings. The trade liberalization measures also aimed at encouraging production for exports and included the removal of quantitative restrictions, tariff reduction and export promotion, as well as, the establishment of a more flexible exchange rate regimes. By 1993, all administrative controls in international trade including import licensing and foreign exchange controls had been abolished. Export promotion measures introduced included Manufacture Under Bond(MUB); setting up of the Export Processing Zones (EPZ), under which investors enjoyed ten year tax holidays, unrestricted foreign ownership and limited employment of foreigners. Other export-oriented measures
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included duty and VAT exemptions under the Export Promotion Programme Office (EPPO)now referred to as the Tax Remission for Exports Office (TREO). It is to be noted however, that the export-oriented strategy has not by itself created the much anticipated impetus in terms of foreign exchange generation; sustainable economic diversification; enterprise networking and the establishment of linkages with the local enterprises, particularly the Micro, Small and Medium Enterprises (MSMEs).

1.1.4 Sessional paper No.1 of 1986 The Governments development objectives for the year 2000 were recast to include strong agricultural growth based on a strong non-farm informal sector based on strong linkages to agriculture and industry. It was also restructured to ensure a more efficient manufacturing sector which together with agriculture and tourism generates the foreign exchange needed to support growth without excessive reliance on external assistance. More specifically, the Sessional paper called for industry to be restructured over the next 15 years or so to become more productive and attain a rapid growth in order to serve specific industrial goals then identified to include: the expansion and diversification of Kenyas export base; job creation in the informal sector exceeding 4% a year; development on the basis of relatively high and rising productivity; attraction and generation of indigenous Kenyan entrepreneurs and managers, as well as, support and promotion of the development of agriculture and of the rural areas.

1.1.5

Small and Medium Scale Enterprises Sector Policy, 1992

As articulated in the Sessional Paper No. 2 of 1992, the Small and Jua kali Enterprises (JKE) sector was recognised as having an important role to play in job creation. In order to enhance the rapid growth of the sector, the Ministry of the then Commerce and Industry along with the Ministries of Finance; Local Authorities, OVOP and MPND and other relevant Ministries were to collaborate with the private sector, NGOs and community based organizations so as to: develop and renew the legal and regulatory environment for informal sector activities; formulate and develop programmes to improve access to credit and finances; support women and youth involvement in small/medium scale and informal sector through special programmes; encourage strong backward linkages with the manufacturing sector; and, review and harmonize licensing procedures for the informal sector enterprises.
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As it is this effort too has had its limitations and hence the need for continuous policy review

1.1.6 Sessional Paper No.2 of 1997 This Sessional paper was developed to provide a framework within which Government policies will stimulate economic growth and employment creation through the expansion of the industrial sector. This objective has however not been met, largely due to the slow pace of implementation as well as the fact that there were no clear targets and benchmarks. As a consequence the contribution of the manufacturing sector to the GDP appears to have stagnated. The statistics show that the sector grew at an average of 12% in the 1970s; 13% in the 1980s and 1990s then reduced to 10% in the 2000s before standing at 10.5% in 2005. Therefore, in order to achieve the target of being a newly industrialized country as envisaged by this Sessional Paper, the economy was expected to grow at between 8-10% per annum with industry as the dominant sector that was expected to increase its growth rate from 5% to 15% by 2020. This new NIP is therefore a call to build on the positive interventions of the Sessional paper of 1997, address areas of its failure, and take into consideration the rapidly changing global environment and contribute to the achievements of Kenya Vision 2030 targets for the manufacturing sector anticipated at a minimum of 10 percent annually. 1.1.7 the Economic Recovery Strategy for Wealth and Employment Creation The Economic Recovery Strategy (ERS) policy framework that the NARC government unveiled in 2003 identified the review of the aforementioned Sessional Paper No.2 on Industrial transformation, as a prerequisite for preparing an Industrial Master plan. It also recognized the need for a comprehensive trade and industrial policy that will hand in handpropel the growth of the economy. The new NIP should therefore essentially further the aspirations of 'the ERS while also providing a useful link to the Kenya Vision 2030 aspirations and targets. 1.2 Defining Industrialization in Kenyas Contemporary Context The process of national industrialization as understood in this policy context, borrows from the classic encyclopaedic definition: a country's capacity to produce secondary goods and services, which as it were, will ensure the conversion to an order in which industry is dominant. It is therefore, not merely, the construction of plants and factories, but rather the
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,..

integrated and holistic government-wide policy interventions that together secure the enabler environment and putting in place governance and regulatory framework that gives incentives for growth in all sectors of the economy. In general terms, the industrial sector in Kenya can be said to comprise the manufacturing, quarrying and mining as well as construction activities out of which manufacturing alone accounts for approximately two-thirds of the sectors activities. According to the Economic Survey 2010, the contribution of the industrial sector to GDP in 2009 was 9.5% for Manufacturing; 4.4% for Construction and 0.5% for both Mining and Quarrying.

As is readily apparent (see figure 1.2 below), manufacturing activities account for the greatest share of industrial production-output and forms the core of the industrial sector. In fact, for the last five years the manufacturing sector contributed an average of some additional Kshs 5 billion to the GDP on an annual basis. The sector registered a decelerated growth of 2.0 per cent in 2009 against a growth of 3.6 per cent in 2008 while direct employment grew by 0.5 per cent, to 265.3 thousand persons. The mining and quarrying sector registered a decline of 0.8 per cent in 2009 against a growth of 0.9 per cent in 2008. What these figures suggest is that there is great need to conceptualise and implement concrete policy proposal that ensures that such a critical economic sector is well-nurtured to ensure that it makes its rightful contribution to national economic growth and development. Figure 1.2: Value of output (in millions) of the Manufacturing Sector

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1.3

Problems and Challenges of National Industrialization

Currently, the performance and growth of other national economic sectors in Kenya such as agriculture, mining, quarrying, construction and others are not happening as expected due to the slow growth and low support from the manufacturing sector. From a historical perspective there has hardly been any effort in locating national industrialization as a necessary and important political decision to be made at the highest level. Examples abound elsewhere, indicating how decisive political decisions led many countries to pursue extremely rewarding Industrialization policies. Japan for instance took the political decision in the 1960s and despite having no minerals, including oil, has been able to manufacture many high precision products. Furthermore, the absence of what may correctly be seen as an Industrialisation Culture in Kenya has inhibited growth and innovation in the sector. The construction of the railway line in Kenya at the close of the 19 th century, created an opportunity for small enterprises which offered the required engineering services. These enterprises have since matured into highly skilled units using modern technologies. It means that a well-planned policy for developing these units can help in our industrialization program and thus contribute towards the realization of the Kenya Vision 2030 aspirations. A major problem in Kenya has also been the fact that the operational industrial policies are contained in many disparate policy documents including Acts of Parliament, Sessional Papers, development plans and other sectoral policies and strategies some of which have been reviewed in the foregoing sections. The lack of a harmonised and clearly defined National Industrialization Policy (NIP) has therefore negatively affected the process of industrialization and is compounded by the existence of numerous laws; a weak legal framework, as well as, overlapping ministerial mandates, all of which have culminated into an uncoordinated and slow pace of industrialization. It has in fact, led to a scenario where unemployment outstrips wealth creation, resulting into low demand and rapid growth of second-hand (mitumba) business. It is to be observed too, that the industrial sector in Kenya is constrained by ambiguous policies for the charging and payment of royalties, high capital investment and exploration costs as well as high energy costs, environmental concerns and uncertainty over economic quantities of minerals. The sector is mainly agro-based and characterized by relatively low value addition, low employment, low capacity utilization and consequently, low export volumes partly due to weak linkages with other sectors. The intermediate and capital goods
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industries are also relatively underdeveloped, implying that Kenyas manufacturing sector is highly import dependent. The performance of the manufacturing sector has further been affected by low capital injection, use of obsolete technologies and high costs of doing business. The factors that have contributed to the high cost of doing business include; the poor state of physical infrastructure that prevailed for a long time; limited access to finance, limited Research and Development (R&D), poor national institutional framework, as well as, inadequate managerial, technical and entrepreneurial skills. The high cost of doing business has also contributed to the limited local and Foreign Direct Investment (FDI) in the country and the high outflow of investment to the neighbouring countries. In the meantime, it is noted that the construction sector registered the second fastest sectoral growth in 2009 at of 14.1%, compared to 8.2% realised in 2008. It has persistently maintained a robust growth since 2003 and has been instrumental in supporting economic growth in the country. Nevertheless, the sector has been affected by inadequate supply of key local construction materials and over reliance on imported machinery and equipment. It is against the foregoing background that the Ministry has realised that with improved productivity and competitiveness as well as targeted facilitation, the industrial sector would be poised to contribute significantly to accelerated economic growth in Kenya. Furthermore, Kenya is best-placed to take advantage of its strategic leadership position to exploit the opportunities now availed in the EAC region. This policy framework is therefore being formulated in order to contribute to the furtherance of the aspirations of Kenyas quest for industrialization and overall economic development of the country. 1.4 The Industrial Sector and Kenya Vision 2030

The Kenya Vision 2030 Kenyas long-term national policy blueprint correctly places the industrial sector as a potential growth area for the following reasons:
1. It enjoys strong forward and backward linkages with other important economic

sectors such as agriculture and services;

2. It offers high prospects for employment-creation, especially in labour-intensive

industries;
3. It acts as a catalyst for technology transfer and attraction of FDI;

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4. It offers high prospects for deepening Kenyas drive to integrate further into the

regional and global economy; and

5. It provides significant foreign exchange earnings to the Kenya Economy.

In addition, it is clear that any successful local enterprises in the field of technology and engineering creates confidence for attracting both local and Foreign Direct Investment (FDI) as well as technology transfer as it shows the ability of local institutions to work as subcontractors and/ or auxiliary industries. For these reasons and others to be elaborated elsewhere in this document, the development of a new and revitalised policy framework for national Industrialization is in line with the aspirations already identified in the national policy blueprint, i.e. the Kenya Vision 2030. 1.5 Rationale and Justification for a New National Industrialization Policy

As can be readily inferred from the foregoing sections, this policy has been formulated, in part, to provide a stronger and more robust institutional framework within which to synchronize and coordinate the various policies, strategies and activities that underpin Kenyas continuing quest for industrialization. The policy recognises that Kenya is primarily an agricultural-based economy with a fairly skilled human resource base and is also strategically located to serve as a regional industrial hub in East Africa. The country is also endowed with natural resources that can be tapped through Value Addition (VA) for the benefit of the whole country. It is in this context that policy endeavours to address issues affecting the industrial sector, by including prospects for more broad-based strategies that would provide the sector with meaningful opportunities to realize its full potential. The policy provides for a broader engagement framework within which all stakeholders, including the public and private sector; civil society and development partners will contribute and play their respective roles in industrial development. The experience from successful economies seems to indicate that having a coherent National Industrialization Policy is a prerequisite for the advancement of industrial development in any country. For example, Hong Kongs industrialization policy consisted of an FDI strategy and a non-expert technology to SMEs; that is: medium level, rather than top-level expertise being extended to the SMEs in order to nurture them into the growth trajectory. On the other hand, Singapore, Taiwan and Korea had a strong push for specialized high skills/technology industries and sub contracting of SMEs. In turn, Korea focused on giant private
22

conglomerates-led heavy industry and creation of brands. Thailands industrialization was based on the export of primary products and on import substitution policies at home. From these experiences of industrialized countries, the industrial sector can be seen as a key driver for increasing growth rates, generation of sufficient employment opportunities, and fostering Kenyas integration into the global economy. Further, research indicates that most of the rich nations have a thriving industrial sector whereas the poorest countries have agriculture, with very little value addition, as their dominant economic sector. Kenya is, in fact, lucky to have an active agricultural sector which can benefit immensely from industrial activities that can scale up Value Addition and thus make the country self sufficient in its food supplies. Kenya has an abundant intellectual capacity to achieve the vision in technology led industrial growth. This should, in fact, be the primary focus in our industrialization policy. Encouraging the consumption of locally produced industrial goods and services will have a bearing on the road map to the Vision 2030. The pace of industrialization will depend on this policy as well. 1.6 Vision and Mission of the National Industrialization Policy

The Vision of this National Industrialization Policy framework has been considered and agreed as follows: To enable Kenya become a regional leader in industrial growth and development contributing upwards of 15% of the annual national GDP. On the other hand, the Mission is:
To spur industrial economic growth by creating an enabling environment with targeted incentives in priority sectors that promote country-wide dispersal of industries in order to realise equitable economic empowerment for all Kenyans

1.7

Guiding Principles and Core Values

In order to revolutionize the growth of the industrial sector in Kenya, the following guiding principles and core values have been considered and will apply: i. Productivity and competitiveness
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The policy emphasizes increased productivity and competitiveness as one of the key guiding principles for expanding and maintaining the domestic and export markets in a liberalized environment. ii. Market development The policy takes cognizance of the need to diversify and expand markets for industrial value added products. It addresses supply side constraints with regard to product quality, volume and standards. iii. High value addition and diversification The policy recognizes high value addition to the resource endowment as key for optimizing creation of wealth, employment and regional development. It therefore emphasizes on further processing of primary products. iv. Regional dispersion The Policy underscores the need for equitable dispersion of industries throughout the country in order to accelerate the pace of development especially in the marginalized areas.
v.

Technology and innovation The Policy recognizes innovation as central to meeting the rapidly changing consumer tastes and preferences while also boosting productivity and competitiveness of the industrial sector.

vi.

Fair trade practices The policy is expected to create and ensure a level playing field that facilitates fair competition by guarding against infringement of Intellectual Property Rights, and supply of counterfeits and substandard and second hand goods.

vii.

Growth and Graduation of MSMIs The policy underscores the need for enhancing the growth and graduation of MSMIs into large industries that form the bedrock of industrialization.

viii.

Employment Creation This policy focuses on quality and sustainable employment creation.

ix.

Environmental Sustainability
24

The policy recognizes the need to promote sustainable industrial development that upholds environmental protection, management and efficient resource utilization.
x.

Compliance with the New Constitution The policy is well-aligned to the provisions of the constitution and takes into account the constitutional provisions for a devolved structure of government and the particular call to encourage regional dispersal of industries as a basis for equity and empowerment across the nation.

xi.

Education and manpower development The policy recognizes that industrialization can only take place when there is a strong and well trained workforce from all levels of training. 1.8 Current Goals and Objectives of Kenyas National Industrialization Policy

The overall goal of this policy framework is to increase the contribution of the industrial sector to GDP by at least 10 per cent per annum. There are ten (10) specific goals to be achieved in the short term (5 years) as follows: 1. Strengthening local production capacity to increase domestically-manufactured goods by focusing on improving the sectors productivity and value addition by 20 per cent; 2. Raising the share of Kenyan products in the regional market from 7 to 15 per cent. 3. Developing niche products through which Kenya can achieve a global competitive advantage; 4. Increasing the share of Foreign Direct Investment in the industrial sector by 10 per cent; 5. Increasing by 25 per cent, the share of locally produced industrial components and spare parts; 6. Developing at least 2 Special Economic Zones and 5 SME Industrial Parks; 7. Establishing an Industrial Development Fund with a minimum of Kshs. 10 billion for long term financing; 8. Increasing by 20 per cent the share of manufacturing in total MSME Output. 9. Increase the local content of locally manufactured goods for export to at least 60 per cent.

25

10. Increasing the share of industries located outside major urban centres (Nairobi, Mombasa, Kisumu, Nakuru, Eldoret) to 50 per cent. The overall policy proposal is to sustain the growth of the industrial sector and make it the most preferred location for industrial investment in Kenya. In order to realise this objective, a number of policy objectives are to be pursued, including the following:
1. Creating an enabling environment through improved infrastructure for industrial

development;
2. Attracting local and foreign industrial investment, mining and quarrying; 3. Promoting the development of Micro, Small and Medium Industries(MSMIs); 4. Enhancing Value-Addition to Kenyas natural and agricultural resources; 5. Intensifying R&D, innovation and technology adoption for industrial growth and

sustainability;
6. Facilitating the provision of internationally recognized standards, measurement and

conformity assessment solutions;

7. Ensuring protection of Intellectual Property Rights; 8. Ensuring sound policy on counterfeit products and damping is in place; 9. Enhancing access to financial services and markets; 10. Upgrading technical, production and managerial skills for the sector, and; 11. Ensuring the protection of the environment.

In the next chapter, the document elaborates the Ministrys proposed policy framework for realising national industrialization in Kenya for each of the identified and prioritised subsectors. The proposals are expected to undergird the governments implementation of the national Industrialization objective for the next foreseeable five years and even beyond.

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CHAPTER 2: THE NATIONAL INDUSTRIALIZATION POLICY FRAMEWORK: FOUNDATIONAL PILLARS AND ENABLERS 2.0 the Key Industrial Enablers

The policy framework elaborated herein outlines policy measures to be pursued in order to promote a more robust and sustainable industrial development in Kenya. It seeks to address issues affecting industrialization while also rationalizing and streamlining the existing policies and statutes that impede the growth and development of the industrial sector. Among the foundational pillars (or enablers as they have been called), are the physical infrastructure requirements that cover transportation and related logistics, i.e., roads, railways, sea and airports; energy, water and sewerage; a reliable oil pipeline, as well as, the crucial role of ICTs-among others reviewed in this chapter. In addition, this policy document places emphasis on the crucial role of national security as an enabler in its own right and hence the need to ensure its sustainable availability if investments in industrialization is to be guaranteed. It is thus argued that Kenyas industrial competitiveness will only be achieved by building and developing an infrastructure network that is adequate in meeting the industrial needs of the growing economy of Kenya and that the enabling environment is properly nurtured in order to create the required investor confidence. The thrust of the policy proposals herein are therefore designed to ensure that the cost of doing business is drastically reduced; productivity and efficiency of operations enhanced and Kenya turned into the preferred destination for industrial development and investment. 2.1 Physical Infrastructure Required for Industrialization

An effective and appropriate infrastructure is an important key enabler for growth and sustainability of industrialization. It is also critical in lowering the cost of doing business and enhancing competitiveness of the country. Infrastructure generally entails transport and logistics systems, road and rail networks, sea and inland waterways, air transport, energy supply, including a reliable oil pipeline; water and sewerage services; ICT services (fixed, mobile, wireless and satellite telecommunications networks)-among other things as already recognised by KV2030 as critical enablers of the national transformation programme. A brief discussion of each of these infrastructure sub-sectors in the context of Kenyas national industrialisation goals and objectives follows. 2.1.1 Transportation and logistics
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By transportation and logistics, reference is being made to the all-important requirements for a good rail and road network as well as sea and airports and the necessary logistics that ensure fast and efficient transportation of goods to required destinations. An efficient logistical system reduces lead clearance time and costs. Currently, levies are charged at different collection points while roadblocks, weighbridges, and custom clearance points have equally affected the timely flow of industrial inputs and products. In addition, these procedures are not well coordinated between the various agencies that are responsible for them and thus, often, giving way to the problem of corruption.

2.1.2 The Roads Network Road transportation is an essential component for the transportation of raw materials, industrial inputs, finished products and movement of human capital. The existing road network in Kenya is however largely concentrated in a few urban areas, with limited feeder roads to markets and regions with resource endowments, especially those of agro-based raw materials. The inadequate state of the road network causes delays, breakages and high maintenance cost for transport machinery, leading to high costs of doing business. This has resulted, over the years, in the concentration of industries in areas with a good road network thus creating disparities in regional industrial development. It is readily recognised that one of the by-products which can be easily made available locally for the road networks is the street lighting system. Investments in road networks will thus give birth to several local companies which can produce street lighting products. 2.1.3 The Rail Network The role of the railway network in the process of industrialization is to facilitate a cost effective mode of transportation of bulk industrial inputs and finished products. In Kenya the railway network, rolling stocks and locomotives have not been modernized in tandem with economic development of the country ever since it was first constructed between 1897 and 1901 as a project of the colonial government. This has resulted in long turnaround time and diversion of cargo onto the road network thus causing further deterioration and escalating the costs of road maintenance and transportation. From the past experiences with that first railway line, several small workshops were set up all over the country to service the railway system. The development of a modern railway can create industrial growth with skills in electrical and mechanical engineering disciplines becoming very critical. A taskforce to identify the skills needed for the success of this mission and the skills
28

needed to service is therefore an important consideration as is the need to ensure that the education and training for the new graduates is aligned in order to serve this field. 2.1.4 Sea and Inland waterways Sea and inland waterways (Ports) are important links in the transportation of bulk imports and exports. Kenya has a sea port in Mombasa and lake ports along Lake Victoria. However, they face several challenges that include; poor operating systems, insufficient modern equipment, and the inability to maintain the sophisticated equipment that has been installed; the invasion by the water hyacinth which has led to periodic blockage of the lake as well as shallow channels and narrow berths that inhibit navigation and docking of large ships. These inefficiencies have led to delays in clearance and ship turnaround time thereby making importation costs of industrial inputs and export of finished products expensive. Further it has to be appreciated that modern systems today use equipment which has got communication facilities that need highly skilled manpower to sustain and manage. This manpower can be trained in facilities available within the institutions. incentives. 2.1.5 Airports As globalization and regional integration takes hold, the competitiveness of the Kenyan industry is increasingly relying on airports and the aviation infrastructure. Modern and efficient airports facilitate quick delivery of high valued industrial goods and especially the perishable products destined for the European markets. With rising passenger and cargo traffic and the ongoing infrastructure improvements, the importance of airports as economic catalysts cannot be ignored since they cater for the increase in the volume of imports and exports and generally contribute to an efficient movement of human capital. 2.1.6 Policy Imperatives for Improving Industrial Transportation and Logistics Local industries will need to be encouraged to train these talents if the industrialization policy provides for commensurate

In order to inject the required efficiencies and reduce the challenges facing transportation and logistics across all the aforementioned physical infrastructure sub-sectors, the Ministry intends to work with all other stakeholders in order to implement the following policy options:
1. Urgent implementation of the Sessional Paper on Integrated National Transport

Policy (INTP) of November 2010;

29

2. Fast-tracking the expansion, modernization and maintenance of road networks to

areas of existing and high potential for industrial development prioritized in this policy document;
3. Modernizing and expanding the rail network to areas of existing and high potential for

industrial development prioritized in this policy document;

4. Modernizing and expanding Kenyas International airports while also expanding the

local airports network;

5. Prioritizing the expansion and modernization of the existing ports and fast tracking

the development of new ones, and;

6. Harmonizing, streamlining, and automating clearing and forwarding procedures at the

ports. 2.2 Energy Requirements for National Industrialization The Kenya Vision 2030 recognises the role of energy as a critical enabler of national transformation and especially in so far as the aspiration towards industrialization is concerned. For the country to industrialize, adequate and affordable energy supply is a prerequisite. The energy sector mainly comprises of electricity, petroleum and renewable energy (geothermal, wind, solar, biomass). Other potential sources include coal, nuclear, tidal, Oceanic Thermal Expansion Conversion (OTEC) and natural gas. The energy needs under KV2030 is obviously very challenging, and offers important opportunities for the local industries to harness wind, solar and geothermal energy. Furthermore, there will be need for locally manufactured switchgear, automation, motor control panels, power factor correction equipment-among others. Currently the hydro-power generation capacity is only 742MW compared to a demand of 1200MW that is expected to rise to 3011MW by 2018. Hydro-power generation, which is a cheaper source of energy, is unreliable due to the exigencies now created through environment and climatic change. Furthermore, the thermal generation which is used to bridge the short fall is expensive due to high cost of imported fuel. The situation is worsened by high cost of generation, transmission and distribution. There is need therefore, to expand the exploitation of hydro-power generation, coal, nuclear and other renewable energy resources in order to meet the demands of Industrialization. 2.2.1 Policy Statements to Support the provision of Energy for Industrialization

30

As a response to the challenge and requirements of Energy, the Sessional Paper No. 4 of 2004 on Energy will continue to be implemented alongside the following policy interventions that are specific to industrialization:
1. Fast tracking the expansion and diversification of the power generation sources in a

cost effective manner;

2. Separating power feed for industrial consumers from power feed for residential use to

increase reliability especially during times of rationing;

3. Fast tracking provision of electrical energy to areas of existing and high potential for

industrial development prioritized in this Policy document;

4. Providing preferential electricity tariffs for heavy industrial consumers by capping it

at 30% less than the prevailing rates at the short term in key industries prioritized in this Policy document. 2.3 Water and Sewerage Systems for Industrialization

Clean water is one of the most important ingredients in the industrial production processes. Current available water is inadequate for industrial and other domestic uses. Competition for water use has often denied the industry adequate clean water in the required quantities. Due to this competition the current tariff structure is disadvantageous to industrial users therefore making the cost of water to these users very high. As a result of poor sewerage system the cost of waste water management is also very high for industries.

2.3.1

Policy Statements to Improve Water and Sewerage Services for Industrialization

The Ministry, with other relevant stakeholders will pursue the implementation of existing water-related policies that also have a bearing on the growth of the Industrial sector. These include the continued implementation of the Irrigation Master Plan of June 2009 alongside the following policy options that will provide a basis for improvements in the provision of water and sewerage management for industries:
1. Fast tracking the provision of clean and reliable water to areas of existing and high

potential for industrial development prioritized in this policy document;

2. Providing preferential water tariffs for industrial consumers in key industries

prioritized in this Policy document;

3. Promoting Public-Private-Partnerships in the provision of water and waste

management systems, including water harvesting, storage and recycling;

31

4. Providing incentives for construction and fabrication of effluent treatment plants and

solid waste management facilities in industrial areas. 2.4 Information and Communication Technologies for Industrialization

It is now well-known that Information and Communication technologies (ICTs) are at the core of contemporary industrial development and human progress in general. Indeed, ICTs have become a key enabler or ingredient in lowering the cost of doing business. The Ministry recognises the role of ICTs as critical in creating an immense impact on the way services are delivered. Kenya witnessed tremendous growth in this sector in 2009 following the landing of the underground sea fibre optic cable. However, the ICT Sector is still relatively underdeveloped in comparison with emerging and developed economies. With the growth of ICT, power needs will increase as more data centers, cloud computing and registration of BPOs are established to take advantage of the abundant skilled manpower resource in Kenya. Much FDI is anticipated in this sector and local industries producing switchgear and local talent are expected to manage these installations while encouraging other investors to choose Kenya as a key destination in Africa. 2.4.1 Policy statements to enhance ICT infrastructure for industrialization

The Ministry will work other stakeholders to ensure the continued implementation of the National Information and Communications Policy of 2006 and especially in areas related to and touching on national industrial development. Other than the continued implementation of the agreed ICT policies, the Ministry will also pursue a two-pronged policy intervention measure as follows:
1. Fast tracking the provision of ICT infrastructure to areas of existing and high potential

for industrial development as prioritized in this policy document;

2. Promoting the use of ICT in transport and logistics systems, manufacturing processes

and all industrial related activities to enhance cost effectiveness and efficiency. 2.5 Formation of an Apex Industrial Coordination Institution

The success of this NIP framework largely depends on a strong political will and commitment by the top policy-making organs of the government in taking firm decisions regarding the sectors growth and development. This is especially critical because the priorities and focus of other institutions whose mandate cuts across industrial development, and are therefore critical to overall industrial growth in the country, may not have their priorities, necessarily, aligned to those of the industrial sector. In this regard, the Ministry finds it crucial that a
32

vertical, apex institution be created to provide leadership, allocate resources, set targets, oversee, as well as, synchronize the activities of all the different institutions that play a role in the path of Industrialization. The detailed institutional arrangements under the NIDC as well as the linkages with other sectors and institutions are further elaborated in chapter four of this document. 2.5.1 Policy Statements on the formation of an Apex Industrial Coordination Institution The Ministry will pursue the following three-policy options designed to support the establishment of a new institutional framework to assist in the coordination and management of the national industrial development process:
1. Crafting and ensuring the enactment of a National Industrialization Act; 2. Establishment of a National Industrial Development Commission (NIDC); 3. Identifying companies and/or institutions for technology management nuclei in order

to create a culture of excellence in the respective fields of expertise. 2.6 MSMI Growth and Graduation for Industrial Expansion

The MSMI sector is recognised as the foundation of industrial development in most developing and developed countries. Currently, the sector is suffering from many challenges including the lack of access to affordable finance, limited access to markets, lack of infrastructure, a hostile business environment, weak management structures, and lack of access to skilled labour. Many of the past policies were devised from the perspective of large firms and those targeting the sector were fragmented and not effective in the development of the MSMIs.

2.6.1

Policy statements to support MSMI growth and graduation

In order to continue unlocking the potential of MSMIs so that they play their role in contributing to Kenyas industrial development, the following policy measures are to be pursued:
1. Fast tracking the enactment of the Micro and Small Enterprises Bill. 2. Establishment of an Industrial Development Fund (IDF); 3. Development of a National Industrial Incubation Policy 4. Development of a One-Stop-Shop for business registration, licensing and taxation

for MSMIs;
33

5. Mainstreaming the 4K MSE 2030 initiative and CIDC program to support graduation

of MSMIs;
6. Ensuring the alignment and harmonization of all Development Partner-projects and

programs to the Kenya Vision 2030;

7. Advocacy to ensure harmonised coordination of MSMIs activities under one ministry; 8. Formulating a National Industrial Sub-contracting Policy; 9. Benchmarking companies with ethical principles and policies that are conducting

business with goods manufactured locally in the government tendering process as a basis for reducing the proliferation of counterfeit goods. 2.7 Industrial Land and Work Sites

The availability of adequate and accessible industrial land is a crucial factor in the location of industries. The cost of industrial land is quite high owing to speculation and lack of direct government intervention in the provision of industrial land. As already noted, there is also inadequacy of requisite infrastructure in the potential industrial locations, leading to low interest in industrial investment in such areas. The overall consequence of this is that there is inequitable industrial dispersion across all the forty-seven Kenya counties. 2.7.1 Policy Statements to secure provision Industrial land and work sites

The Ministry will pursue the following two policy-options to ensure availability of adequate industrial and work sites across the counties:
1. Work and lobby with other stakeholders to ensure the provision of land for industrial

development in areas of existing and high potential as prioritized in this policy document;
2. Work and lobby with other stakeholders to plan, demarcate, zone and acquire land for

industrial development in every county. 2.8 Standards and Quality Infrastructure

It has to be recognised that the world relies on various standards and technical regulations for their trade-related activities. For Kenyas products to be competitive in the regional and global market, the country must adhere to these standards. Quality infrastructure refers to all aspects of standardization, metrology, testing and quality management, including certification and accreditation. It applies to both public and private institutions and covers the regulatory framework within which they operate. In addition, consumers are increasingly demanding international standardization of production practices and traceability of products for quality,
34

health, safety and full disclosure to ensure consumer protection. But industrialists in Kenya are also faced with challenges of competition from sub-standard and counterfeit goods, illicit goods and many forms of illegal trade. The situation is worsened by lack of, and/or weak implementation of the harmonized standards in the EAC and COMESA region. This makes the playing field rather uneven for the Kenya-based manufacturers. 2.8.1 Policy statements to enhance standards and quality infrastructure

In order, therefore, to enhance standards and quality infrastructure, the following policy measures are to be pursued by the Ministry:
1. Fast track the harmonization and implementation of EAC and COMESA common

quality standards and EAC Anti-Counterfeit Bill;

2. Establish the Kenya National Standards Inspectorate to replace the Anti-Counterfeit

Agency (ACA);
3. Establish the Kenya Intellectual Property and Standards Tribunal by merging ACA,

IPT and Standards Tribunal;

4. Develop a National Quality, Standards and Anti-counterfeit Policy;

The policy will address among others: (i) the responsibilities of importer, exporting countries, shipping lines, clearing and forwarding agents and government agents with respect to sub-standard, counterfeit and illegal goods imported into Kenya; (ii) graduated and progressive standards for local Small Medium Industries; and (iii) Harmonize and streamline levies charged by the regulatory agencies. 2.9 Intellectual Property Rights

An effective Intellectual Property Rights (IPRs) system is an incentive to innovation. Kenya has a legal and institutional framework for administering IPRs and is also affiliated to the World Intellectual Property Organization (WIPO). However, there is lack of a comprehensive National Intellectual Property Policy, coupled with a weak institutional framework and therefore hampering the effectiveness of the IP system. This in itself acts as a disincentive to innovation. At the same time, there is low awareness on the importance of IP registration resulting in loss of revenue and royalties to the innovators and protection of Kenyan products. 2.9.1 Policy Statements to enhance protection of Intellectual Property Rights

The ministry will pursue a three-pronged policy approach to enhance IPR protection in the country. It will therefore:
35

1. Develop and implement a National Intellectual Property Policy 2. Mount campaigns to increase knowledge

and awareness of IPR issues and its

importance to industrial investors;

3. Strengthen the Kenya Industrial Property Institute (KIPI) as well as the Industrial

Property Tribunal, to enhance institutional capacity for protection of IPR and arbitration. 2.10 Governance and the Legal Framework for National Industrialization

The Justice System and dispute resolution mechanisms are important components in supporting commercial activities in any country. In Kenya, these mechanisms have not been as effective as required, leading to the perpetuation of corruption, criminal activities as well as inordinate delays in the determination of industrial and commercial disputes. These shortcomings often lead to increased costs of doing business and therefore a major disincentive to Foreign Direct Investments. Although the government has in recent years tried to deal with some of the challenges facing the business environment, it is to be noted that the process of incorporation of businesses, registration and taxation have remained expensive, long and often cumbersome, especially owing to the fact that it is still largely centralized. In addition, there is no legislation to handle e-trade related litigations. The labour laws with respect to wages are also not necessarily conducive to industrial sector development since the wages and annual increments are not aligned to labour productivity.

2.10.1 Policy Statements to promote good industrial governance The Ministry, in consultation with other stakeholders will pursue the implementation of ongoing judicial reforms as a basis for securing fast and efficient disposal of industrial disputes. It will also pursue the enactment of the revised Companys Act 2010. In addition, the following three-policy options aimed at promoting general good governance and a better legal framework for the sector will be pursued:
1. Advocate and work for fast-tracking of reforms in the legal and judicial systems, in

line with the provisions of the Constitution;

2. Work with other stakeholders in fast-tracking the on-going business regulatory

reforms that are in to support of industrial development;

3. Work with other stakeholders in order to revise the labour laws and incorporate

provisions on labour productivity in industries.

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2.11

Occupational Safety and Health

A safe work place reduces the occurrence of work-related accidents, diseases and insurance claims thus resulting in higher productivity levels and low production costs. In Kenya, the low awareness of the Occupational Safety and Health (OSH) Act of 2007 undermines the safety and health of workers. This has partly contributed to the weak safety culture in the workplace and non compliance with international safety and health standards. Similarly, Workplace policy on HIV/AIDS has not been fully mainstreamed. 2.11.1 Policy statements to enhance Occupational Safety and Health The ministry, in consultation with the relevant stakeholders, will work to increase awareness on the Occupational Safety and Health (OSH) Act of 2007 and will also adopt a two-pronged policy intervention, specified as follows:
1. Fast tracking the development and implementation of the OSH Policy; 2. Mainstreaming HIV/AIDS policy at the workplace, especially for MSMIs.

2.12

Technical, Production, Managerial and Entrepreneurial skills

The development of technical, production and managerial skills is essential for the expansion of the industrial sector. Kenya aims to create a globally competitive and adaptive human resource base to meet the requirements of the Vision 2030. This requires strengthening of linkages between training institutions and industry as well as the development of technical, production and managerial skills in a well-structured and coordinated manner. Vocational and technical training institutions also require modern training facilities to meet the market demands while at the same time an entrepreneurial culture needs to be developed.

2.12. 1 Policy Statements to grow technical, production, managerial and entrepreneurial skills In view of the challenge of insufficient and inadequately skilled Human Resource base, the Ministry will pursue the following policy options: 1. Develop a framework to provide for and enhance continuous linkages between tertiary and vocational training institutions and with industry;
2. Expand and modernize the Kenya Industrial Training Institute (KITI), including other

technical, vocational and entrepreneurial training institutions that are designed to offer artisan, craftsmanship and technician training for industry;
3. Establish entrepreneurial Centres of Excellence for Business Development Services

(BDS) for Micro, Small and Medium industries.

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2.13

Industrial Research, Development and Innovation

Industrial Research and Development (R&D) as well as innovation all play an important role in a modern economy where new knowledge is central in boosting wealth creation, enhancing social welfare, and ensuring product and labour competitiveness. These activities are essential in building innovative capacity of enterprises for increased efficiency and productivity. The limited linkages between industries, research institutions and training institutions; low funding and weak institutional mechanisms for promoting collaborative research have constrained the commercialization of research findings in Kenya. Similarly, there is no structured system of nurturing and promoting technology entrepreneurs (technopreneurs) within the country.

2.13.1 Policy Statements to enhance Industrial Research, Development, and Innovation The Ministry will pursue the following policy measures aimed at enhancing industrial research and development as well as innovation:
1. The development of a policy framework to support commercialization of research

findings;
2. Strengthen the linkages between Universities, polytechnics and other training

institutions in pursuit of a curriculum that supports the national Industrialization process;

3. Formulate mechanisms to facilitate collaboration with the private sector in research,

technology-transfer and development;

4. Strengthen capacity for technology certification by KEBS and subsequent adoption

for mass production to meet market needs;

5. Establish a funding mechanism for Research and Development that will facilitate

innovation as well as the acquisition of strategic and relevant technology for industrial development; 6. Establish an industrial information database. 2.14 Industrial Market Access Markets and the access to them are essential for the development of any industrial sector. Kenya depends on a few traditional markets and export earnings from these markets. However, export earnings have been declining due to increased and sustained competition by similar products. Similarly, Supply Side Constraints that include such factors as the inability to meet standards and the inability to deliver bulk orders on a timely basis have further
38

compounded the problem. There are also the Demand Side Constraints which include tariff escalations and peaks as well as stringent standards and technical regulations which often amount to Technical Barriers of Trade (TBT) and Non-Tariff Barriers (NTBs) such as export quotas, have all contributed to the decline in earnings. 2.14.1 Policy Statements to promote market access for industrialization In order to promote market access for industrial products and therefore increase Kenyas earnings from Industrialization, the Ministry will under this policy framework:
1. Promote the consumption of locally manufactured products in prioritized industrial

sectors;
2. Work with other stakeholders, and especially the Ministry responsible for Finance, to

review the Public Procurement and Disposal Act 2005 in order to give 100% preference to locally manufactured products;
3. Strengthen the negotiation capacity of Kenyan negotiators and also review regional

and bilateral trade arrangements in order to enhance market access for manufactured products. 2.15 Dispersion of Industries in Kenya

For various historical reasons, the manufacturing sector in Kenya has largely been concentrated in few peri-urban and urban areas resulting in disparity and un-equitable regional development. This policy recognises that the different regions of the country are suitable for different types of industrial and manufacturing activities. In order to harness the resources available throughout the country, region-specific industrial and manufacturing clusters need to be developed and nurtured. In doing this, this policy will simultaneously be answering to the crucial constitutional provision that calls for equitable development across the country in light of the newly-introduced devolved structure of government that has divided the country into 47 counties.

39

2.15.1 Policy Statements on Dispersion of Industries As a result of the rather skewed dispersion of industries across the country and the need to also tap into the specific potential of every region, the Ministry proposes to pursue the following policy measures:
1. Fast track the establishment of the Special Economic Zones (SEZs), Industrial Zones

and SME Parks in line with the Kenya Vision 2030;

2. Provide incentives for the establishment and dispersion of industries across the

counties; 3. Promote development of MSMIs in rural areas. 2.16 Cleaner Production and Environmental Conservation

Cleaner production practices in industries and environment conservation are intricately intertwined and need to be integrated for sustainable development. The implementation of Resource Efficient and Cleaner Production (RECP) programs is an integral part of the policies that aim at increasing competitiveness and efficiency of firms as they assist in energy saving, water conservation, pollution control while also ensuring safety of machines, equipment and workers as well as enhancing the image of the firm in national and international arenas.
2.16.1 Policy Statements to promote cleaner production and environmental

conservation In order to ensure conformity with contemporary demands for cleaner production and also adhere to international requirements for environmental protection and conservation, the Ministry will:
1. Promote investment in local manufacturing of resource efficient and cleaner

production equipment, along with other emerging technologies;

2. Develop a National Resource Efficiency and Cleaner Production Policy, and; 3. Work to ensure the mainstreaming of the operations of the Kenya National Cleaner

Production Centre (KNCPC) into the ministry responsible for industrialization. 2.17 Trade Policy to Support Industrialization

The existence and operationalisation of a Trade Policy by any country is meant, largely, to serve as an instrument of industrial development. It should therefore be developed in tandem
40

with the Industrialization policy. The development of specific sector strategies itself offers a pragmatic framework for drawing trade policy considerations into the development of sectoral industrial strategies in a more systematic and better-coordinated manner.

2.17.1 Policy Statements on Trade Policy In order to ensure the close alignment between the national trade policy and its Industrialization counterpart, the Ministrys major policy option will be to seek the alignment between the Trade Policy and that of Industrialization. It is hoped that through collaboration and teamwork across the government ministries/departments handling these two sub-sectors, the Ministry will be able to address outstanding issues relating to tariffs, bi-lateral and multilateral trade policies and thus enhance competitiveness and market access for Kenyas industrial products.

41

CHAPTER 3: POLICY FRAMEWORK FOR REVITALISING PRIORITY INDUSTRIAL DEVELOPMENT SUB-SECTORS 3.0 Identifying the Priority Industrial Development Sub-sectors This policy framework document has identified twenty (20) industrial development subsectors which can be relied upon to spur and invigorate the national Industrialization process. The main objective of this chapter is therefore to spell out and reflect on the policy options that will be pursued in order to unlock and revitalise the potential that lies in each of these sub-sectors and thereby, contribute to national industrial growth and overall economic development. The table 3.1 (herebelow) provide information on general industrial classification in Kenya and their performance in terms of extent of value addition, input productivity, real annual growth of value addition; employment, labour productivity and the number of companies in the country. It is these basic indicators that have been used to select the priority sub-sectors which are as follows: (i) (ii)
(iii)

Iron and Steel Machine tools and spares Agro Machinery and farm implements Agro-Processing

(iv) Automotive and Auto parts industry (v) (vi) Wood and Wood Industries (vii) Paper and Paper Products (viii) Meat and Dairy Products (ix) Leather and Leather Products (x) Electrical and Electronic Products (xi) Mining and Quarrying (xii) Ceramics Industry (xiii) Glass Industry (xiv) Pharmaceuticals Industry (xv) Recycling Materials (xvi) Packaging Industry (xvii)Fish and Fishery products (xviii) Petrochemicals Industry (xix) Green Energy (xx) Biotechnology and Nanotechnology Industries
42

Each of these sub-sectors are reviewed briefly here below, with the corresponding policy statements also outlined as the basis for further action by the ministry and other stakeholders, in seeking to unlock the full potential of each of the sub-sectors.

Table 3.1 : Value-Addition, Productivity and Employment

Fig ure 5 2 (all estab lishm ents) Value ad ition d (2 0 ) 0 5 1 Food Processing 1 1 M eat and Diary 1 2 Canned Veg etab les, Fish, Oils and Fats 1 3 Grain M ill 1 4 Bakery 1 5 Sug and Confectionery ar 1 6 Other food 2 Petroleum and other Chem icals 3N on- M etallic M ineral Prod ucts 4 Beverag and Tob es acco 5 Pap and Pap Prod er er ucts 6M etal Prod ucts 7 Pottery and Glass Prod ucts 8 Printing and Publishing 9 Electrical M achinery 1 Rub 0 ber Prod ucts 1 Textiles 1 1 Leather Prod 2 ucts and Footwear 1 Transport Eq m 3 uip ent 1 Plastic Products 4 1 Clothing 5 1 W 6 ood and Cork Prod ucts 1 Ind 7 ustrial Chem icals 1 Non- Electrical M 8 achinery 1 Furniture and Fixtures 9 2 M 0 iscellaneous M anufactures TOTAL 3 ,4 1 1 6 6063 4773 2 % 5 5 % 4 % Inp ut prod uctivity (2 5 00 ) 2 % 6 2 % 8 2 % 7 2 % 7 2 % 7 2 % 7 1 % 6 3 % 6 1 4 9 % 6 % 8 3 % 5 6 % 9 1 4 9 % 4 % 5 5 % 6 4 % 3 3 % 5 3 % 5 2 % 2 4 % 3 3 % 5 1 7 2 % 5 % 7 5 % 7 7 % 0 7 % 0 4 % 0 Real Annual Growth of Value Add ed (2 0 - 2 0 ) 0 1 0 5 Fig ure 5 3 (larg scale enterp erises) Num er of b Em ploym ent (2 5 00 ) 7 ,1 3 1 8 7 2 ,9 5 8 6 ,5 4 3 % 3 4 % 4 % 3 % 1 % 8 % 1 % 4 5 % 2 % 3 % 4 % 8 % 1 % 3 % 1 % 1 % 1 % 9 1 % 3 % 3 % 5 % 4 % 1 % 1 % 1 % 2 % 1 0 0 % Lab our p rod uctivity Thousand Ksh (2 0 0 5) Num er o b f Com anies p (2 0 ) 0 5 1 8 6 1 8 2 1 1 6 2 4 1 4 7 5 4 5 2 5 2 2 2 5 5 6 6 1 8 6 1 5 3 8 8 1 4 1 9 4 9 4 6 2 3 6 2 2 1 4 6 5 2 2 % 7 3 % 3 % 3 % 4 % 2 % 1 % 2 7 % 4 % 4 % 4 % 9 % 1 % 3 % 1 % 2 % 6 % 1 % 2 % 3 % 8 % 7 % 4 % 1 % 4 % 2 % 1 0 0 %

5 % 1 %

4 0 0 7 7 0 5 2 2

-2 %

11692 9 % 3019 2 % 3329 3 % 2585 2 % 2 ,4 2 1 % 3 7 9 1 ,8 0 1 % 2 8 0 1 ,6 4 1 5 9 % 6 8 ,5 4 5 % 6 1 ,3 3 5 % 4 9 ,5 6 4 % 4 6 ,2 8 3 % 3 2 ,0 1 2 % 3 1 ,0 1 2 % 2 9 ,7 5 2 % 2 2 ,6 5 2 % 2 9 ,5 3 2 % 1 9 ,8 7 2 % 1 8 ,8 8 2 % 1 2 ,2 4 1 % 1 0 ,0 7 1 % 9 3 5 1 % 8 9 7 1 % 1 8 ,0 8 1 % 1 4 9 1 % 2 ,20 00

1 % 3 5 1 ,8 8 0 % 2 7 ,0 0 6 % 1 ,5 4 6 0 7 % 3 ,3 2 0 0 1 % 1 ,5 3 1 1 5 8 % 4 5 ,9 3 8 % 7 7 ,5 9 1 % 1 8 6 ,0 1 1 % 1 ,4 6 7 7 3 % 0 2 6 ,4 8 1 % 6 0 ,2 4 7 % 2 8 ,4 1 7 % 2 8 ,8 7 - 12 % 4 ,3 5 0 6 -2 % 1 6 ,6 9 1 % 5 4 ,5 9 -2 % 6 4 ,9 6 -7 % 9 8 ,9 5 - 26 % 7 0 ,8 6 - 10 % 1 8 ,5 3 1 % 0 1 8 ,1 4 1 % 2 4 ,8 0 -8 % 4 9 ,0 3 5 2 ,8 5 % 16 6

1 9 ,7 0 1 0 ,1 2 2 2 0 7 8 1 6 ,7 4 2 0 ,5 4 1 3 ,2 4 7 7 8 3 5 2 1 4 ,7 0 4 9 9 9 4 9 1 0 ,0 2 6 8 1 8 ,3 6 3 2 8 2 3 5 1 9 1 1 6 2 5 1 4 6 5 3 2 0 0 1 4 9 5 5 0

Source: Extrapolation of data from Central Bureau of Statistics 3.1 Potential in the Iron and Steel Industry The industrialization of any nation is largely dependent on the availability and affordability of iron and steel. It has been established that vast amounts of iron ore reserves exist in several locations in Kenya, including: Meru, Ikutha, Taita, Embu, Lolgorien, Samburu, and Funyula districts. There are also smaller deposits in various parts of Nyanza, Western and Coastal regions including pyritic ores in Bukura area, limonitic ores on Lugulu Hill south of Sio and and goethite ore on Mrima Hill in Kwale. Since the level of steel consumption is considered world over as an indicator of the status of industrial development, it is envisaged that the creation of an iron and steel industry in Kenya will contribute to the enhancement of economic progress, social cohesion and political stability in line with the aspirations of vision 2030. The three basic materials for setting up a steel plant have been identified in the country. The main one is iron ore which is reported to exist in various deposits in Meru, Taita, and other parts of the country including Coast, Eastern, Nyanza Eastern and Rift Valley regions. The work that has been carried out by
43

various interested parties show that the iron ore deposits are very rich in the ore content and figures in excess of 80% have been reported as the quality of the ore. The second main ingredient in iron and steel production is coal which has also been reported to be in Mwingi and Kitui districts. Tests on the coal grades from these areas and the reserve estimates are very encouraging and are deemed to be adequate to support both power generation and iron and steel production. The available data from the work already done reports deposits in excess of 275 million tons and the work of investigations is still continuing. The third main ingredient in the iron and steel production is limestone, which occurs in various parts of the country including Mutomo, Kajiado, Taita, Pokot, Baringo among other areas. The availability of iron and steel products in the country will give Kenya an upper hand within the regional market in iron and steel sector. Steel is a bulky product and is costly to import from far countries. The availability of steel and steel products in the country will create a very strong economy for Kenya. The countries in East and Central Africa will source their steel products from Kenya. It is worth noting in this regard that there is no iron ore processing industry in Africa, save for South Africa. It means that with the strategic location of Kenya, the country stands to benefit greatly from the proposed venture. Indeed, the growth of the steel industry will create a pull effect for the energy sector to supply the necessary switchgear automation panels manufactured locally and services locally as well. This action will encourage training of skilled manpower to sustain the industrial growth. The key industries will be self sufficient in terms of local support in engineering. 3.1.2 Policy Statements to Expand the Iron and Steel Industry In pursuit of the need to grow and expand the potential that is inherent in the iron and steel industry in Kenya, it is proposed that the following policy measures be pursued:
1.

Establish

a sub-committee of the proposed Industrial

Development

Commission to deal exclusively with the development of steel and iron

2.

Rationalize the tariffs and any other anomalies within the industry to ensure

local competitiveness and value addition in the development of down-stream industries, including machine tool industry, forging industry, agro machinery and motor vehicle assembly. 3. Establish the types, location, quantities and qualities of iron, coal and
44

limestone in the country,

4. 5.

Establish a mini-steel plant at the NMC Develop an institutional framework to promote development of iron and steel Establish a coal power generation plant. Impose a ban on export of scrap metal and iron ore Promote stockpiling of the iron ore and limestone while initially exploring

mills industries in the country, within the framework of Kenya Vision 2030
6. 7. 8.

ways of mining the coal and producing the coke 3.2 Potential in Machine Tools and Spares

Machine tools are power-driven machinery and equipment that perform specific actions on materials like metal, wood and plastic. These machines are used for turning, milling, drilling, grinding, water-jet or laser cutting; material forming i.e. stamping, bending and joining as well as work holding i.e. chucks, fixtures and clamps. The machine tool and accessories industry is critical to economic development as it makes possible the existence of virtually every other manufacturing industry. Special tooling such as dies and moulds, is custom designed and made to manufacture specific products, generally in quantity and to desired levels of uniformity, accuracy, inter-changeability and quality. Kenya can in fact become a center of excellence in tools and dye making for the

region. The machine-tool industry is therefore a vital sub-sector of the manufacturing sector,
especially because it is the machine tools which cut and form metal and thus are essential for reproducing the technologies required in an industrial economy. In addition, the sub-sector helps foster innovation in the manufacturing processes and is a major indicator of economic development.

3.2.1 Policy Statements to Grow Machine Tools and Spares Sub-sector In consideration of the foregoing potential within the machine tools and spares sub-sector, the following policy measures will be pursued under this framework:
1. Build manufacturing capacity in Products and Tools design; Machining , Forging,

Forming , Casting and Tool room facilities;

2. Establish a Machine tool Cluster agglomeration of firms with forward and backward

links; 3. Upgrade technical and managerial skills to enable precision engineering

4. Promote incentives to investors in machine tool industry such as tax holiday,

preferential tariff on imported high precision components;

5. Encourage collaboration/manufacturing under license with renowned machine tool

manufacturers.
45

6. Deploy CAD-CAM, manufacturing and CNC technology and encourage

university

students to undertake practical training and working knowledge of soft ware such as Pro-engineering and Solid Works for opportunities in machine tooling and sheet metal works. 3.3 Potential in Agro Machinery and Farm Implements Agricultural machinery may simply be defined as any kind of machinery used on a farm to help in the vocation of farming. The best-known example of this kind is the tractor. Some of the tasks that these machines can perform include soil cultivation, planting, fertilizing and pest control, irrigation, harvesting/post-harvest, hay making, loading and milking. In Kenya, machinery costs are generally high particularly in the maize and wheat production sectors and thus threatening local production and favouring imports. Related machinery costs include costs of ploughing, harrowing, chiselling, planting, spraying, harvesting, shelling and transport to stores. There is thus a case to grow and develop this sub-sector in order to reap the compound savings and simultaneously benefit the agricultural sector.
3.3.1

Policy statements to Grow the Agro Machinery and Farm Inputs Sub-sector

In order to harvest the potential in this sub-sector while also directly complementing the Kenya Vision 2030 aspirations for the agribusiness potential in the country, two main policy options will be pursued under this policy framework:
1. Promotion of the usage of farm energy efficient machines and equipment which

reduce on energy expenses while increasing returns;

2. Working with the Ministry responsible for Finance and other stakeholders to lobby for

the provision of tax exemptions on imported farm machines and implements;

3. Pursuing of joint venture partner who manufactures low cost tractors in order to

support agriculture and agro based industries with a view to germinating other ancillary and sub-contracting SMEs with a potential to expand towards an automotive sector. 3.4 Potential in the Automotive and Auto Parts Sub-sector

The automotive and auto parts industry is a major economic driver and the government should nurture and encourage growth and development of the industry. Motor vehicles, used to transport people and goods are a necessity and part of a well -integrated modern society with far reaching social-economic impact. (Include figures on potential)
46

Most motor vehicles sold in Kenya are imported either as new or second hand with the latter constituting the bulk of the imports. Locally manufactured vehicles are assembled from Completely Knocked Down (CKD) kits with little input of the local content. 3.4.1 Policy Statements on Growing the Automotive and Auto Parts sub-sector In view of the potential in this sector and the central role it plays in the economy, the ministry will undertake the following pleasure measures:
1. Develop a specialized automotive industrial park through Public-Private

Partnerships.
2. Provide incentives to locally assembled vehicles and auto parts manufacturers for

gradual replacement of second hand vehicles with equally-affordable and reliable locally assembled ones;
3. Establish a National Automotive Industry committee to coordinate the industry

and develop the auto motive value chain

4. Rationalize tariffs on imported auto parts that can be competitively made locally

to spur growth;
5. Promote the production of vehicles through joint ventures with an established

vehicle manufacturer, by relocation of their working plant and domesticate within ten years. 3.5 Potential in Agro-Processing and Value Addition

Agriculture is the mainstay of the Kenyan economy and currently represents 24% of the GDP. More than one third of Kenyas agricultural produce is exported and this accounts for 65% of Kenyas total exports. However, it has long been known that most of the exports are in raw or semi-processed form meaning that producers of Kenyan agricultural products do not reap as much benefits as those who process and give value-addition before re-exporting to other destinations. 3.5.1 Policy Statements to Enhance Agro-Processing and Value Addition In order to tap into the potential that lurks in processing Kenyas agricultural products and providing value addition before export, the Ministry will:

47

1. Provide incentives for investment in high value processing of agricultural products

such as tea, coffee, pyrethrum, cotton, nuts, oil crops, hides and skins; gum Arabica, aloe vera and fruit crops such as bananas, pineapples, passion, oranges and mangoes;
2. Promote the local manufacture of agro-processing machinery and equipments such as

tractors, combine harvesters, cotton ginneries, tea picker, juicing and pulping equipment by providing technical information and support from research;
3. Encourage clustering of industries around specific agricultural resources for example

coconut and cashew nut, honey processing as well as fish farming and processing;
4. Promote the processing of biodiesel crops such as sunflower, palm trees, cassava and

jetropha circas.
5. Revive ailing rice mills to be in line with the heavy government investment in the

sub-sector and promote processing and diversification of rice products;

6. Promote further processing of sugar and sugar by-products to enhance the

competitiveness and productivity of the sub-sector; 7. Work with other stakeholders and especially, the Brand Kenya Board (BKB) to emulate best practice from Australia and New Zealand in country branding for agrobased industries. 3.6 Potential in Wood and Wood Products

Wood and wood products constitute an important input to the building and construction sector and also to furniture industry. There has been a long-standing ban on logging in Kenya which has affected the performance of the industries involved while some have closed down. Many SMEs operate within the furniture industry which generates high employment opportunities. This policy framework aims at revitalising this sector through the pursuit of deliberate policy measures.

3.6.1 Policy Statements to Grow the Wood and Wood Products Sub-sector In order to rebuild and revitalise this sub-sector, the ministry will pursue and promote the following policy measures:
1. Encourage the procurement of all furniture consumed in government institutions is

procured from local manufacturers.

2. Strict enforcement of standards in the sector to ensure quality and competitiveness.

3. Promote utilization of wood waste for production of chip boards.

48

4. Allow duty free import of low cost woods and alternative materials for furniture

manufacturing. 3.7 Industrial Potential in Paper and Paper Products

At the moment, Kenya has an integrated pulp mill plant producing paper and paperboard from renewable forest products. However, the country imports coated white lined chipboard and other boards for packaging, newsprint, printing paper and other types of paper. Investment opportunities exist in the production of paper from other raw materials such as bagasse, sisal waste, bamboo, papyrus reed, straw and waste paper.

49

3.7.1 Policy Statements to Grow the Paper and Paper Products Industry In order to unlock the potential in the paper and paper products industry, three policy options will be pursued as follows:
1. Encourage investment in the production of paper, including the use of other raw

materials other than wood;

2. Revive the Pan African Paper Mills Company; 3. Encourage

government institutions to procure paper products from local

manufacturers, except for those that are not locally manufactured 3.8 Industrial Potential in Textile and Clothing
(i) Textiles; covering cotton growing and ginning, fabric manufacture, including

In Kenya, the textile and clothing industry comprises of two main sub-sectors namely: activities such as polymerization, spinning, weaving, knitting and wet processing, and;
(ii) Apparel; which include garments and clothing accessories (labels, buttons, zippers

and packaging) Apparel manufacturing is the most vibrant part of the chain at the moment, largely because AGOA permits imports of fabric from low cost producers in any part of the world. Some of the challenges affecting the sector include, high electricity cost and availability; marketing, especially for non-exporting firms; competition from uncontrolled imports of second-hand clothes; counterfeit textile products and imports that evade duty as well as handicaps in obtaining qualified personnel such as managers and designers.

3.8.1 Policy Statements to Grow the Textiles and Clothing Sub-sector Under this policy framework, the following policies measures are to be pursued:
1. Revive dead textile mills and ginneries in the country; 2. Encourage the setting up of weaving and milling plants through incentives on capital

equipment;
3. Encourage the regional development of textile within the EAC region to maximize on

comparative advantage;
4. Provide competitive prices for cotton farmers, through the Cotton Development

Authority (CoDA), in line with international textile prices;

50

5. Ban, or introduce a levy on the export of cotton lint and; 6. Ban the import of used clothes (mitumba).

3.9

Potential in Meat and Dairy Products Sub-sector

The livestock sector comprises mainly of dairy and meat production; eggs, hides, skins and wool from cows, sheep, goats, poultry and game meat. Kenya has one of the largest dairy industries in sub-Saharan Africa. The Kenyan dairy companies process, package, and/or market dairy products, including fluid, cultured, and solid milk products such as yoghurt, cheese, butter, ghee, condensed and evaporated milk, ice cream and frozen desserts. These products are either produced by partially skimming the whole milk, or by completely skimming it and then adding an appropriate amount of cream back to achieve the desired final fat content.

3.9.1 Policy statements to Grow the Meat and Dairy Products Industry

In order to tap into the full potential of this sub-sector, two major policy options are to be pursued:
1. Enhance the processing, packaging and branding of Kenyan meat and dairy products;

2. Promote exports to regional and global markets for products in the sub-sector. 3.10 Leather and Leather Products Industry

The Kenyan leather industry is a prime agro-based sector with a high potential for economic development and creation of employment opportunities. The industry has strong backward and forward linkages that provide opportunities for value addition using locally sourced raw materials. The leather industry in Kenya is made up of four main sub-sectors: the raw material base (hides and skins); Tanneries, Footwear, and manufacturing of Leather goods. The challenges facing the sector include, low recovery of hides and skins due to poor slaughtering and flaying practices; poor animal husbandry; the export of raw hides and skins; the importation of second hand leather products-among others. 3.10.1 Policy Statements to Grow Leather and Leather Products Industry In order to address some of the afore-mentioned challenges and ensure a steady growth and expansion of this sector, the Ministry will put in place the following policy measures:
1.

Strengthen the Leather Development Council.

51

2.

Revive and mainstream the Training and Production Centre for the Shoe Industry (TPCSI) in order to promote technical capacity in processing of leather products; Strengthen the leather training and incubation programmes in KIRDI and KITI; Ban importation of used leather products, and; Ban the exportation of raw hides and skins. Electrical and Electronics Sub-sector Sector

3. 4.

5. 3.11

The Government of Kenya recognizes the importance of ICT in economic development and has therefore initiated major steps to promote its use. The introduction of the fibre optic cable has greatly enhanced communication which in turn shall spur the development of industries within the sector. 3.11.1 Policy Statements to Grow the Electrical and Electronics Sub-sector In order to advance this cutting edge sub-sector and contribute to the countrys aspirations for growth in the ICT sector, three major policy interventions will be pursued:
1. Establish an assembly plant for Madaraka computers and other ICT accessories as

envisaged in Kenya Vision 2030. 2. Promote investments in the electrical and electronic sector, notably the production of parts, components and sub-assemblies;
3. Encourage international companies to locate their subsidiaries within Kenya and

utilize locally available resources; 4. Take stock of the current capacity in the field of electrical switchgear manufacturing, automation and manufacture of LV and MV switchgears and promote the consumption of locally manufactured switchgear products with the consumers of technology in government parastatals as well as utilities; 5. Identify a list of items with a view to ensuring local manufacture and consumption by local companies; 6. Encourage establishment of training centers and electrical industries to fast tract the transformation of local graduates with practical training in the latest equipment which are used in the capital goods imported by various industries; 7. Offer tax incentives for establishing the training centers which can be certified by DIT in terms of teaching equipment and training staff; 8. Explore policy options to ensure that utilities procure at least 30% 40% of their needs (e.g. cable, LV and MV switchgears, overhead line materials and protection panels from local companies.
52

3.12

Green Energy and Industrial Growth in Kenya

Energy is one of infrastructural enablers of industrialization. Commercial energy in Kenya is currently dominated by petroleum and hydroelectric power. However there exists an immense, unexploited reservoir of geothermal, solar, wind and biomass energy in the country. To this end, the ministry intends to work with other stakeholders in order to grow the potential in Green energy and make a contribution to reducing the cost of power in the country. 3.12.1 Policy Statements to support growth of Green Energy In partnership with other stakeholders already working on the growth of green energy in the country, the ministry will pursue the following two policy options:
1. Promote the manufacture of affordable equipment, (in line with national green

energy policies), including solar panels, windmills, digesters, cookers, refrigerators and micro-hydro generators;
2. Promote energy efficiency by facilitating investments in energy saving

technologies and outlining an efficiency policy for all commercial buildings and industries;
3. Ensure an effective ban on second hand(mitumba) energy components;

4. Promote the generation and usage of bio-fuels, co-generation in sugar and other agro-processing activities. 3.13 Potential in Biotechnology and Nanotechnology Industry

Biotechnology is today used in a variety of primary production needs, in health as well as in industry. Specific industrial applications include the use of biotechnological processes to produce chemicals, plastics and enzymes, as well as, environmental applications such as bioremediation and biosensors and methods to reduce the environmental effects or costs of resource extraction as well as production of biofuels. On the other hand, Nanotechnology (also known simply as nanotech), is a branch of technology that essentially leads to the production of nanoparticles that are today being in many countries in the production of textiles, cosmetics, sunscreens, surface coatings, printing, water treatments and kitchenware. Reports indicate that more than 100 foods have been manufactured, processed, or packaged using nano particles. It is therefore apparent that these two types of modern-day technology

53

can encouraged in Kenya in order to enhance the type and range of our industrial output and competitiveness. 313.1 Policy Statements to grow Biotechnology and Nanotechnology The Ministry will pursue two major policy options inn order to grow these modern-day industrial technology options in Kenya:
1.

Develop initiatives that will attract major investment in bio-and nano-technology research and product development from local and international companies or institutions, and;

2.

Promote industrial skills development for bio-and nano- technologies applications. Potential in Kenyas Pharmaceutical Industry

3.14

The Pharmaceutical industry in Kenya has the potential for growth to meet national and regional demands. It is therefore incumbent upon the government to pursue policies that can help reap this potential further. It is to be noted that the ministries responsible for Health Services have already initiated the formulation of a more detailed, Kenya National Pharmaceutical Policy(KNPP)whose objective, interalia is to encourage local manufacture of essential medicines for self-sufficiency in the domestic market and to promote growth in pharmaceutical exports. 3.14.1 Policy Statements to Augment Growth in the Pharmaceutical Industry In order to tap into the clear potential in the pharmaceutical sub-sector, the Ministry will work closely with the ministries responsible for health in the country as well as with the Federation of Kenya Pharmaceutical Manufacturers (FKPM,) in order to realise the following policy objectives:
1. Promote procurement of locally manufactured pharmaceutical products, and 2. Encourage the use of local raw materials for the manufacture of pharmaceutical

products; 3. Streamline the institutional and legal arrangements governing the pharmaceutical sector;
4. Ensure training of more specialised personnel, to cater for R&D needs; industrial

pharmacy, biotechnology as well as quality control assurance; 5. Encourage technology transfer, especially for the manufacture of generics;
54

6. Initiate knowledge and awareness campaigns to ensure proper understanding of

generic medicines. 3.15 Potential in Mining and Quarrying As already mentioned, Kenya is endowed with various, proven and available natural and mineral resources. Nevertheless, there has been very little exploitation of these resources over the years. The development of the mining and quarrying sector is important as it will support resource based industries such as iron and steel, cement, building and construction; chemical and ornamental industries, among others. The country has economically viable quantities of coal, iron ore, fluorspar, titanium gypsum, limestone, soapstone, gemstones, soda ash, diatomite, lead, gold, silicon oxide and marble among others.

55

3.15.1 Policy Statements to Spur Growth in Mining and Quarrying The national potential in the mining and quarrying sub-sectors will be harnessed through a prudent two-fold policy intervention measure, to include:
1. The promotion of partnerships between County Governments and private investors in

exploration, mining and processing, and;

2. Working with other stakeholders to fast track development of a policy that governs

the exploitation of minerals in the country. 3.16 Potential in the Recycling Materials Industry

Solid waste arising from industrial processing and manufacturing industries, municipal, residential and service waste is a resource that can be tapped into in order to spur industrial growth. The management and disposal of wastes in Kenya is faced with various challenges such as the prevalence of inappropriate modes of transportation, lack of disposal sites, low utilization, poor recycling and treatment technologies as well as requirement of high capital outlays in the event of investment in the sector. 3.16.1 Policy Statements to Grow the Recycling Materials Industry In order to position and fully exploit the potential in the recycling materials industry, two policy measures are to be pursued:
1. The development of a Waste Utilization and Recycling Policy; 2. The promotion of a waste minimization in industry through cleaner production

technologies. 3.17 Potential in the Packaging Industry In general, packaging has three critical functions namely;

The quality of packaging is vital for product penetration and expansion into the local, regional and global markets. protecting the contents, improving convenience of handling and transport as well as describing the contents and sales promotion. 3.17.1 Policy Statements to Grow the Packaging Industry A double-phased policy intervention measure will be pursued in order to grow this sector, as follows:
1. The strengthening of the visibility and functioning of the Kenya Packaging Institute,

and;
2. The introduction of a training curriculum on packaging at selected tertiary institutions.
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3.18

Potential in the Petrochemicals Industry

This industry covers petroleum products, natural gas and petrochemicals. Petroleum products include lubricating oils and refinery products, such as gasoline, kerosene, fuel oils, gas oils, diesel, naphtha, synthetic fibres and bitumen. The petrochemical industry has extensive intra-linkages with downstream activities, as well as other industries. Plastics parts and components as well as products are the preferred materials in view of their superior properties and lower costs, compared with traditional materials, such as paper and metal. The downstream activities mainly involve polymer production for plastics. Kenya therefore needs to position itself for opportunities in the petrochemicals sub-sector by, interalia, the modernization of its oil refinery to take advantage of the imported crude and existing crude oil discovered within the EAC region. 3.18.1 Policy Statements to Grow the Petrochemical Industry The following policy intervention measures have been proposed to help grow the petrochemical industry in Kenya, and will include:
1.

The modernization and expansion of the Kenya Petroleum Refineries Limited (KPRL) in order to enable it process all categories of crude oil and to produce other raw materials that support the industry;

2.

The establishment of R&D programmes devoted to the petrochemical industry, in research institutions and institutions of higher learning, and; Working with selected tertiary institutions to develop a curriculum in petroleum engineering.

3.

3.19

Potential in the Ceramics Industry

There are several ceramic plants in the country currently producing various types of products, including crockery, wall tiles and sanitary ware. The basic raw materials for ceramics silica such as sand, and Kaolin, Kisii Soapstone and quartz are locally available. However, despite the fact that adequate raw materials are available locally, the industry lacks adequate quantitative capacity that can meet the local demand. This gap has tended to be met through imports from various countries. (unavailability of gas/expensive. Prioritized upwards) 3.19.1 Policy Statements to grow the Ceramics Industry

57

There are a number of policy options the government will consider in order to grow and expand the ceramics industry and particularly enable it meet local demand for ceramics. These policy measures will include:
1.

Prioritization of the expansion and modernization of the existing plants and fast- tracking the development of new plants; Promoting partnerships between County Governments and private investors in exploration, mining and processing; The development of a curriculum and training for Ceramics technology in the country and mainstreaming it in selected existing tertiary institutions. 3.20 Potential in the Fish and Fishery Products Industry

2.

3.

This sector contributes about 0.5% to GDP and supports about 80,000 people directly and 800,000 indirectly in 2009 according to the Fisheries Statistical Bulletin of 2010. The sector produced fish worth Kshs. 13 billion in 2009 out of which Kshs. 3.7 billion was exported. The sub-sector is also crucial to food security, including the development of fish ponds which was identified as one of the focus areas under the Economic Stimulus Programme initiated during the financial year 2009/2010. Nevertheless, the sub-sector has been unable to realize its full potential due to inadequate supportive infrastructure, lack of access to credit facilities, lack of adequate and quality fish seeds and feeds; poor technology transfer and stringent sanitary and phyto-sanitary standards (SPS) in export destinations. 3.20.1 Policy Statements to grow the Fish and Fishery Products Industry In order to address the challenges identified in this sector while also ensuring a steady growth and expansion of the fisheries industry sub-sector, the Ministry in collaboration with other stakeholders will put in place the following policy measures:
1. Develop industrial fishing ports and the supportive infrastructure;

2. Encourage clustering of industries engaged in fish production and processing;

3. Provide incentives for investment in the production of value- added fishery

products. 3.21 Potential in the Glass Industry

58

The Glass industry has multiple unique properties that make it suited for Industrial Use. There are five general categories of glass manufacture: flat/sheet glass (windows, picture glass), container glass (bottles and jars), pressed and blown glass (light bulbs, ovenware, medical glass), glass fiber (fiberglass insulation, material reinforcement, optical fibres), and products from purchased glass (assembled products, aquariums, art, mirrors, table tops) Kenya has large deposits of silica sand have been exploited at Kaloleni, Kilifi County. Silica sand, including other chemicals such as soda ash are readily available in the country. The glass industries in Kenya have been growing especially in the area of production of container glass, commonly used in beverage and alcoholic sectors. With the increasing growth of agroprocessing, especially for the manufacture of fruit juice, the demand for container glass has been in the increase with exports increasing from Kshs. 353.8 million in 2001 to Kshs. 1.76 billion in 2008, an increase of about 4 times. However, the manufacture of sheet glass in the country is still undeveloped. Sheet glass is increasing being used in the construction and motor industries. This has resulted into increase in imported sheet glass from Kshs. 10 million in 2001 to Kshs. 26.8 million in 2008. The growth and development of the glass industry has been affected by the factors that include the high cost of energy and unavailability of soda ash. Though being produced in the country, a large proportion of soda ash is being exported. 3.21.1 Policy Statements to grow the on Glass Industry are:

The following policy intervention measures have been proposed to help grow the petrochemical industry in Kenya, and will include: 1. Prioritize the expansion and modernization of the existing industries and fast track the development of new industries through provision of incentives. 2. Provide incentives to the glass industry to facilitate the reduction of energy costs incurred by the sub-sector. 3. Develop curriculum for Glass technology in the country and mainstream it in the existing tertiary institutions. 4. Put in place measures that would discourage the export of raw materials used in the glass industry to facilitate increased local production of especially sheet glass.
59

3.22 Conclusion: Prioritising Sector and Policy Measures to Spur Industrial Growth From the foregoing, it is clearly evident that there are several areas with sufficient potential to truly transform Kenyas industrial standing. Some of these sub-sectors and their respective potentials have been known over many years. What has been lacking has been the political will and determination to put in place appropriate policy measures as well as the requisite action that enables them contribute to national development. Under this framework, the Ministry is therefore determined to ensure that at least none of the eighteen sub-sectors are ignored and that continuous action is taken to ensure that they are revitalised and enabled to participate in the countrys new vision for industrial growth and transformation.

60

CHAPTER 4: THE INSTITUTIONAL FRAMEWORK FOR IMPLEMENTING THE NATIONAL INDUSTRIAL POLICY 4.0 Case for Better Institutional Coordination of the Industrial Sector The existing framework for the development of the industrial sector in Kenya cuts across various institutional arrangements and has resulted in a rather inefficient resource allocation as well noted cases of duplication of responsibilities and efforts. In response to this shortcoming, the Ministry has considered the need for a more robust and well-coordinated institutional framework that is capable of spearheading the process of national industrialization in a new, contemporary and highly competitive global culture. In this regard, the proposed institutional arrangements have been made with three objectives in mind, including:
1.

The need to ensure decentralization while also facilitating the delivery of efficient The need to facilitate Public Private Partnerships (PPPs) in policy formulation and The need to facilitate adequate access to infrastructure for industrial development

and cost effective services;

2.

implementation and ensure the involvement of all stakeholders, and;

3.

It is also to be noted that the institutional framework has been designed to take into consideration the factors that have hindered a more robust industrial growth and development in Kenya. The success of implementation will therefore largely depend on strong political will and commitment by the top policy making organs of the government who are in turn expected to take firm and resolute decisions on the sectors development issues and priorities. In view of these factors, it has been considered that it is necessary to create a vertical, apex institution to be known as the National Industrial Development Commission, (NIDC) that will provide leadership and vision; allocate resources, set targets as well as oversee and synchronize the activities of all the different stakeholders as further elaborated in this chapter. This proposed institutional framework provides for both top-down and bottom-up approach to issues that would arise during the implementation of the policy, and for an all inclusive participation by the public and private sector as well as universities and other research institutions as well as the civil society and other stakeholders. The clear roles, responsibilities, and lines of authority will be established as described herebelow and indicated in figure 4.1 at the end of this chapter. It is further envisaged that this institutional arrangement will facilitate various stakeholders to participate effectively in the manner and
61

style as elaborated and therefore contribute effectively to the vision of the Industrial sector in Kenya. 4.1 The National Industrial Development Commission As already stated, the National Industrial Development Commission (NIDC) is intended to be the top organ responsible for improved coherence and better coordination of the industrial sector in Kenya. It will also be responsible for ensuring the full and timely implementation of the aspirations of this National Industrialization Policy. There will be a chairman responsible for the commission with other membership drawn from relevant and Key Permanent Secretaries as well as other key stakeholders. Overall, the Commission will be expected to perform the following functions:
1.

Generate policy innovations that will accelerate the pace of industrialization; the Government on the strategic industrial development models to pursue in

2. Advice

light of the dynamics in the international business arena;

3.

Through the relevant specialized agencies, direct research on thematic issues Provide routine advice and policy direction on the administration of the Industrial Receive, synthesize and evaluate policy proposals from the Industry Consultative

affecting industrial development and propose appropriate interventions;

4.

Development Fund;
5.

Forum and make appropriate recommendations that can be passed on to the Cabinet. 4.1.1 Role of the NIDC Secretariat

The Secretariat for the NIDC will be housed at the Ministry for the time being responsible for Industrialization. The Ministry, through a Technical Committee working in conjunction with various experts from both the public and the private sector, will undertake research and provide technical inputs for submission to the NIDC. 4.2 Role of Government in National Industrialization The government's overall responsibility will be to provide an enabling policy environment to facilitate the creation of a competitive industrial base that will spur industrialization and investment expansion. This will be done through the following policy measures:

The establishment of an Industrial Development Fund; The maintenance of a stable political and economic climate; The provision of institutional support in the development of competitive products; The provision of administrative and social services;
62

The provision and maintenance of basic infrastructure; The promotion of local and foreign investments; The enhancement of the participation of civil groups and private sector organizations in the decision making process; and The promotion and support for Research and Development activities Strong and effective Judicial system The Cabinet

4.2.1

The Cabinet provides the vision, political leadership and direction for the industrialization policy. It will approve and ratify decisions made at the National Industrial Development Commission (NIDC) and officially conveyed through the minister(s) responsible for the sector. 4.2.2 National Economic and Social Council

The National Economic and Social Council (NESC) is a standing committee comprising of eminent persons with diverse experience, knowledge, and skills that is chaired by the President of the Republic of Kenya. The NESC forums identify, discuss, monitor and assess policy issues on the basis of the prevailing and prospective economic circumstances and trends. It is expected that the Council will provide advice to the National Industrial Development Commission (NIDC) on economic matters related to Industrialization. 4.2.3 Collaborating Ministries and Agencies

The Ministry of Industrialization will continue to work closely with the implementing Ministries, Agencies and Business Associations involved in industrial development. This will be done through consultative forums. 4.3 The Role of the Private Sector

The Private Sector, through its umbrella associations, will be encouraged to mobilize its members to actively participate in deliberation of Sector Working Groups and other consultative forum. 4.4 Universities, Research and Tertiary Institutions Representatives from both public and private universities, research and tertiary institutions will be expected to identify and undertake research for commercialization by industry and

63

transfer of technology issues. They will also form part of the expertise that routinely provide expert knowledge and advice on the course of the national industrialization process. 4.5 The Industrial Consultative Forum It is proposed to establish an Industrial Consultative Forum (ICF) where the industrial sectors stakeholders will deliberate and share on issues concerning policy, emerging industrial issues and other concerns while also giving suggestions on how these matters can be solved. The forum will also act as a focal point for the Secretariat where it can collect and synthesize views for detailed policy consideration and documentation. The Consultative Forum will be designed to address sector specific issues through focused group discussions. 4.6 National Industrial Policy Implementation Matrix The detailed implementation of the industrialization policy will itself be guided by the Implementation Matrix as elaborated further as Annex 1 to this document. It has identified and defined the actions to be undertaken by the respective Ministries, agencies and all other relevant stakeholders. In each case the agency or agencies with most immediate responsibility are specified and a timeframe for implementation given. The actions required are also identified as are the relevant strategic issues and strategies to be adopted.

64

Figure 4.1

National Industrialization: the new Institutional Framework

CABINET

NATIONAL COUNCIL FOR SMALL ENTERPRISES (NCSE)

NATIONAL ECONOMIC AND SOCIAL COUNCIL (NESC)

PRIVATE SECTOR

DEVELOPME NT PARTNERS

UNIVERSITI ES & RESEARCH INSTITUTIO NS SECRETARIAT (MINISTRY OF INDUSTRIALIZATION) COORDINATING MINISTRY

COLLABORATIN G MINISTRIES & AGENCIES

CONSU LTATIVE FORUM

65

CHAPTER 5: FINANCIAL RESOURCE MAPPING, MONITORING AND EVALUATION 5.1 The Resource Challenge Facing the Industrial sector

The realisation of sustainable and meaningful Industrial development in the country requires access to affordable long-term finance and credit facilities. Indeed, accessibility and affordability of financial services is most critical to the acceleration of industrial growth. Though the financial sector in Kenya is relatively well-developed, the limited access to formal financial products and services, particularly for long term financing, has inhibited the competitiveness and growth of the industrial sector. Similarly, the financial institutions insist on collateral; have high interest rate spreads and inflexible securitization. The government through various Development Finance Institutions (DFIs) has focused on stimulating growth in the industrial sector. The role of the DFIs has been to provide loans, equity investment, loan guarantees, venture capital and other financial services to various sectors of the economy. However, over the years, there has been declining funding to these institutions resulting in reduced capital base for lending. The scenario has been worsened by rigid management structures and systems that did not respond to the changing times and trends in the financial sector. It is in view of this situation that this policy framework emphasises that the funds required to spur industrialization can be made available in two main categories, namely investment and credit. Clear strategies on how to make funds available has therefore been proposed in this document, in line with the objectives of this policy. 5.2 Domestic Capital Formation

The material shortage of capital in relation to labour is a principal constraint to industrial growth. It is envisioned that increased capital formation would contribute to more industrial output growth. Gross Capital Formation can be realised across three types of assets, construction, machinery and equipment. A positive correlation exists between capital formation and the industrial production. 5.3 Foreign Direct Investment

Foreign Direct Investment (FDI) contributes to the growth of host economies in many ways including physical capital formation, technology transfer, and human capital formation, stimulation of productivity, augmentation of output, and promotion of foreign trade and improvement of competitiveness of indigenous entrepreneurs. Kenya has witnessed declining
66

FDI in the industrial sector over the recent past. The poor business environment, poor physical infrastructure, insecurity; and governance issues have contributed to low FDI inflows into Kenya and high outflows of investors from Kenya to the neighbouring countries. 5.4 Capital Markets

Capital market development is an important component of financial sector development and supplements the role of the banking system in economic development. Specifically, capital markets assists in price discovery, liquidity provision, reduction in transactions costs, and risk transfer. Capital market constitutes primary (new issues market) and secondary (stock) market. The primary market helps the public and private sector companies in raising finance mainly for their new projects, expansion, modernization, and acquisitions. The secondary market provides liquidity for the financial instruments (equity, preference shares and debentures/bonds) through adequate marketability and price continuity. Despite the provision of incentives by government to promote listing of companies on the stock exchange there has been minimal uptake of the incentive facilities. 5.5 Commercial Bank Credit

Commercial banks are the dominant financial intermediaries in our developing economy. The array of financial institutions play a crucial role in meeting long-term credit needs of the industrial sector. The bank credit is an important source of industrial finance. The cost of finance, however, is still high due to high interest rates, short lending periods, immovable securitization and collateral requirements. This has made access to financing, particularly long term financing to MSMIs unaffordable. 5.5.1 Policy statements on access to finance for industrialization

1. Establish an Industrial Development Fund (IDF). (re-look on sustainability and

DFI growth. Subsidize commercial loans {extension/reduction of interest rate}for industrial development e.g Spain, Belgium etc). Work on how it is to be used. 2. Develop a funding structure to the IDF through a 2% levy of CIF to all imported finished goods; flotation of industrial bonds; public private partnerships; cooperatives; pension funds; insurance schemes and National budgetary allocation. 3. Re-capitalization of DFIs through IDF, national budgetary allocation, and government guarantees to external lines of credit.
4. Increase from 2% to 10% of the National budget to fund activities in the

productive sectors. (Put actual figure for industrialization 0.2% - 1%)

67

5. Fast track the enactment of the insolvency bill to include provisions for protection of sick industries due to external factors that will cover the lenders, creditors and taxation.
6. Provide globally competitive fiscal incentives for new industrial investments and

extend the same fiscal incentives to investors willing to revive dead industries (Treasury to assist with review for extra specific incentives {income tax free}). 7. Provide a framework for establishment of moveable bank - loans security documents to enhance competitiveness in the banking sector. 8. Institute prudent monetary and fiscal policies to sustain the macro-economic stability.

5.6 Monitoring and Evaluation of the National Industrial Policy Framework The Monitoring and Evaluation of this policy framework provides the Government and Stakeholders with an opportunity to learn from past experiences from such programmes, learn the strength and weaknesses of past programmes, improve service delivery, planning and allocating resources and demonstrating results as a part of accountability to stakeholders. An effective monitoring and evaluation system is therefore important for successful implementation of this policy. In consultation with all stakeholders the government will therefore develop M&E systems linked to the National Integrated Monitoring and Evaluation System (NIMES). The M&E will take place at three levels, national, sectoral and enterprise each with clear definition of roles and expected outputs. (i) At the national level the NIDC in collaboration with the Ministry of Industrialization will develop a comprehensive logical framework for the implementation process of the policy. The logical framework will spell out the broad policy objectives, strategic interventions and expected outcomes. It will also contain performance indicators. (ii) Capacity building will be undertaken at the sectoral level to equip NIDC, sectoral committees, thematic groups, and MSMIs association with relevant skills to collect and process timely and reliable data necessary for effective M&E activities. (iii) At beneficiary level, individual industries will be a source of information required for the M&E system, they will be critical in identifying process constraints and suggesting appropriate mitigation measures. Departments
GoK Ministries, and Agencies NIMES

Thematic Groups and SWGs

Private Sector Associations,

68

Individual Industries

A Monitoring and Evaluation matrix, also constituting a Performance Appraisal Framework for the implementation of the National Industrialization Policy is further elaborated as Annex 2 of this document.

(Add page of references? {Check on best practices}) (GENERAL: Check on style of writing for consistency with other policy documents)

69

Policy Intervention Annex 1: Summary 1. Transportation and Logistics (Road, Rail, Sea & Inland, Airports, and transport logistics)

Critical Issues

Policy areas; Issues and Responsibilities of Critical Policy interventionStatements Objective Provide an integrated, efficient, reliable and sustainable transport infrastructure

Policy

Implementing Agency MoT, MoR, KRB, KURA, KNHA, KRBA, KRC, KAA, KCAA, KPA, KAM, Private Sector

2. Energy

Physical infrastructure for Industrialization Inadequate road infrastructure 1. Fast track expansion, contributes to high cost of doing modernization, and maintenance business leading to of road networks to areas of concentration of industries in existing and high potential for urban areas. industrial development prioritized in this Policy Poor and ancient railway document. infrastructure. Obsolete 2. Modernize and expand the locomotives and rolling stock. rail network to areas of existing and high potential for industrial Expansion of airports and air development prioritized in this strips to enable transportation of Policy document. perishable produce from farms 3. Modernize and expand the to industries and export. International airports and local airports network. Poor operational systems at the 4. Prioritize the expansion and sea and lake ports. Insufficient modernization of the existing cargo handling equipment at the ports and fast tracking the ports. Shallow channels and the development of new ports. water hyacinth menace in lake 5. Harmonize, streamline and Victoria. automate clearing and forwarding procedures at the ports. Inadequate and unreliable 1. Fast track the expansion and supply of electricity. diversification of the power generation sources in a cost Over-reliance on hydro power effective manner. and long lead times in 2. Separate power feed for development of energy industrial consumers from power infrastructure. feed for residential use to increase reliability especially High power tariffs. during times of rationing. 3. Fast track provision of electrical energy to areas of existing and high potential for industrial development prioritized in this Policy document. 4. Provide a preferential electricity tariffs for heavy industrial consumers in key industries prioritized in this Policy document. 5. Promote the Public-PrivatePartnerships in generation and distribution of energy. Inadequate water supply for industrial, domestic, livestock and wild life use. Low natural water endowment and degradation of water catchments hence classification of Kenya as a water scarce 1. Fast track the provision of clean and reliable water to areas of existing and high potential for 70 industrial development prioritized in this Policy document. Provide preferential water tariffs for industrial consumers in key

Ensure adequate and affordable energy supply to the industrial sector.

MoE, KIRDI, Universities, Private Sector

3. Water and Sewerage

To increase availability of clean water and improve sanitation.

MoWI, LA, NEMA, Private Sector

2.

Annex 2:
POLICY OBJECTIVE 1)

Performance Appraisal Framework (M&E) for the NIP

ACTIVITIES OUTPUT OUTCOME PERFOMANCE INDICATORS Number of roads constructed and maintained TIME FRAME 5 years RESPONSIBILIT Y MoR, KRB, KURA, KNHA, KRBA, Private Sector

Creating an a) enabling environment through improved infrastructure for industrial development b)

Fast tracking the expansion, modernization and maintenance of road networks to areas of existing and high potential industrial development prioritized in this Policy document.

Adequate and well maintained road network

Increase in use of road transport

Modernizing and expanding of the rail network to areas of existing and high potential industrial development prioritized in this Policy document. Modernizing and expanding of the International airports and expansion of local airports network.

Modern and efficient rail network

Increase in use of rail transport for bulky goods

Percentage of cargo transported by rail.

10 years

MoT, KRC, Private Sector

c)

Modern, secure and expanded airport facilities

Increase in use of air transport for domestic passenger service and transportation of perishable goods Increase in use of sea and lake ports Speed in clearance of goods

Percentage increase in cargo and passenger handling capacity

10 years

MoT, KAA, KCAA, Private Sector

d)

Prioritizing the expansion and modernization of the existing ports and fast tracking the development of new ports. Harmonizing, streamlining and automating clearing and forwarding procedures at the ports. Fast tracking the expansion and diversification of the power generation sources in a cost effective manner.

Modern and efficient sea and lake ports Harmonized, streamlined and automated clearing and forwarding procedures at the ports Additional power generated

Percentage of cargo handled Reduction time in goods clearance

5 years

MoT, KPA, KMA, Private Sector MoT, KPA, KMA, Private Sector

e)

Immediate ly

f)

Reduction in frequency of power cuts

Percentage reduction in transmission losses

5 years

MoE, KIRDI, Universities, Private Sector

71

g)

Separating the power feeders for industrial consumers from power supplied for residential use to increase reliability especially during times of rationing. Fast tracking the provision of energy to areas of existing and high potential industrial development prioritized in this Policy document. Providing preferential electricity tariffs for heavy industrial consumers in key industries prioritized in this Policy document. Promoting the Public-Private-Partnerships in generation and distribution of energy.

Power feeders separated for different users

Reduction in frequency of power cuts

Affordable, reliable and improved supply of energy Number of new power projects

2 years

MoE, KIRDI, Universities, Private Sector MoE, KIRDI, Universities, Private Sector

h)

Energy provided

Increase in use of energy by new industries in areas prioritized by this document Drop in cost in electricity for heavy industrial consumers Increase in number of energy distributors

5 years

i)

Preferential tariffs provided

Affordable, reliable and improved supply of energy Number of distributors

1 year

MoE, KIRDI, Universities, Private Sector MoE, KIRDI, Universities, Private Sector MoWI, LA, NEMA, Private Sector

j)

Public-private-partnerships in energy distribution

6 months

k)

Fast tracking the provision of clean and reliable water to areas of existing and high potential industrial development prioritized

Clean water provided

Increase in number of water projects

Number of new water projects

5 years

l)

in this Policy document. Providing preferential water tariffs for industrial consumers in key industries prioritized in this Policy document. Promoting the Public-Private-Partnerships in provision of water and waste management systems, including water harvesting, storage and recycling. Providing incentives for construction and fabrication of effluent treatment plants and solid waste management facilities in industrial areas. Fast tracking the provision of ICT infrastructure to areas of existing and high

Preferential water tariffs provided

Drop in cost for industrial consumers

Affordable, reliable and improved water suppply

1 year

MoWI, LA, NEMA, Private Sector MoWI, LA, NEMA, Private Sector MoWI, LA, NEMA, Private Sector

m)

Public-private-partnerships formed

Increase in public-privatepartnerships

Number of new water projects under PPP

6 months

n)

Effluent and solid waste management facilities constructed

Increase in volumes of effluent and solid waste management facilities constructed Increase in number of ICT users and level of

Number of new effluent treatment plants and solid waste management

6 months

o)

Accessible and affordable ICT infrastructure

No of ICT users and level of national

2 years

MoIC, ICT, CCK,

72

p)

potential industrial development prioritized in this Policy document. Promoting use of ICT in transport and logistics systems, manufacturing processes and all industrial related activities to enhance cost effectiveness and efficiency. Developing a National Industrialization Act.

connectivity ICT use in transport and logistics Increase in ICT use in transport and logistics

connectivity. Number of new ICT use in transport and logistics systems No of expanded and new industries National Industrial Commission established 1 year MoIC, ICT, CCK,

q)

Well coordinated industrial sector

National Industrialization Act enacted National Industrial Development Commission established Reduction on cost of industrial land

1 year

MoI, SLO, KLRC, OP-CO MoI, SLO, KLRC, OP-CO

r)

Establishing a National Development Commission.

Industrial

Well coordinated industrial sector

1 year

s)

Providing land for industrial development in areas of existing and high potential industrial development prioritized in this Policy document. Planning, demarcating, zoning and acquire land for industrial development in every county. Fast tracking the reforms in the legal and judicial systems in line with the constitution. Fast tracking the business regulatory reforms to support industrial development Revising the labour laws to incorporate labour productivity in industries. Inculcating a culture of compliance with the law. Fast tracking the development and implementation of the OSH Policy. Mainstreaming HIV/AIDS Policy at the workplace especially for MSMIs.

Land for industrial use provided

Number of acres set aside for industrial use

1 year

MoL, MoLG, LA, MOI, Private Sector MoL, MoLG, LA, MOI, Private Sector SLO, MoI

t)

Industrial land set aside

Ease of obtaining industrial land by new investors

Number of industrial zones demarcated

2 years

u)

Relevant bills enacted

Reforms done in the legal and judicial systems in line with the constitution Business regulatory reforms undertaken Reduction in labour disputes Drop in court cases Less work related injuries

Number of bills enacted

5 years

v)

Regulatory bills enacted

Number of licenses, permits reduced Reduced number of disputes Reduced court cases Number of work related court cases Number of MSMIs with HIV/AIDS Policy

1 year

SLO, MoI

w)

Labour laws revised

1 year

SLO, MoI

x) y)

Increased compliance with laws OSH Policy implemented

1 year 1 year

SLO, MoI MOI, MoL, Private sector All Ministries and Government Agencies, Private

z)

HIV/AIDS Policy mainstreamed

Increase in awareness

6 months

73

Sector

2)

Attracting local and foreign industrial investment

a)

Fast tracking the development of Special Economic Zones, Industrial zones and parks in line with Vision 2030.

Special economic Zones, Industrial zones developed

Industries in Special economic Zones, Industrial zones and parks operating

Number of special economic zones, Industrial zones and Parks developed Number of new industries in counties Number of new MSMIs in rural areas Number of new Micro and Small Amount of money in the Industrial Development Fund Number of stable new industries Number of new industries formed Number of contracts

1 year

MOI, MOT

b)

Providing incentives for establishment and dispersion of industries across the counties. Promoting development of MSMIs in rural areas. Fast tracking the enactment of the Micro and Small Enterprise Bill. Establishing Fund. an Industrial Development

Industries dispersed across counties

Increase of number industries in the county Increase in the number of MSMIs in rural areas Increase in the number of MSEs Improvement of capitalization by industries

6 months

MOI, Private Sector MOI, Private Sector MOI, SLO

c)

MSMIs set in rural areas

1 year

5)

Promotion of the development of Micro, Small and Medium Industries (MSMIs)

a)

MSE bill enacted

1 year

b)

Industrial Development Fund developed

6 months

MOI, SLO

c)

Developing a National Industrial Incubation Policy Developing a One-Stop-Shop for business registration, licensing and taxation for MSMIs. Developing a National Industrial Subcontracting Policy. Promoting the usage of locally manufactured products in prioritized industrial sectors in this Policy document. Strengthening the regional and bilateral trade arrangements to enhance market access for manufactured products.

National Industrial Incubation Policy developed One-stop-shop for business registration developed Subcontracting Policy developed

Increased in number of industry incubated Increased number of new industries registration Increase in number of MSMIs Decrease in export of raw materials

1 year

MOI, SLO

d)

1 year

MOI, SLO, KRA,

e)

1 year

MOI, SLO

10) Enhancing value addition to Kenyas natural and agricultural resources

a)

Improved productivity and value chain

Percentage increase in productivity and market share Number of bilateral trade agreements signed

2 years

MoI, MoA, MoLD, MoFD, MENR, MoCDM MoI, MoA, MoLD, MoFD, MENR, MoCDM, MoT

b)

Bilateral trade arrangements established

Volume of product exports increased

Immediate ly

74

c)

13) Intensifying research and development, innovation and technology adoption for industrial growth and sustainability

a)

Aligning the Trade Policy with Industrialization Policy to address issues of tariffs, bi-lateral and multi-lateral trade policies, for enhancing competitiveness and market access for industrial products. Developing a framework for commercializing of research findings

Trade policy aligned to the Industrialization Policy

Volume of product exports increased

Increased market access for Kenyan goods

6 months

MOI, MOT

Improved industrial productivity

Increase in industrial research

Percentage increase in industrial productivity

1 year

MoHEST , KIRDI, NCST, Universities, Private Sector, MOI MoHEST , KIRDI, NCST, Universities, Private Sector, MOI MoHEST , KIRDI, NCST, Universities, Private Sector, MOI MoHEST , KIRDI, NCST, Universities, Private Sector, MOI MoHEST , KIRDI, NCST, Universities, Private Sector, MOI MoHEST , KIRDI, NCST, Universities, Private Sector, MOI KEBS, MOI, MEAC,ACA

b)

Formulating mechanism to facilitate collaboration with the private sector in research, technology and development

Collaboration mechanism formulated

Increase in collaboration

Number of mechanisms formulated

3 months

c)

Strengthening capacity certification and adoption

for

technology

Certification Capacity developed

Increase in number of technology adoption and certification

Number of certification/adoptions

2 years

d)

Establishing a funding mechanism for Research and Development to facilitate innovation, acquisition of strategic and relevant technology for industrial development. Developing industrial incubation policy.

Research funding mechanisms developed

More innovation and industrial research being done

Amount of capital in the Research Fund

2 years

e)

Incubation Policy developed

Increased in number of industry incubated

Number of new stable MSIs

I year

f)

Establishing database.

an

industrial

information

Industrial database established

Increase in industrial productivity

Number of hits for the Industrial information database

2 years

19) Facilitating the provision of

a)

Fast tracking the harmonization and implementation of EAC and COMESA common quality standards.

Quality standards harmonized

Reduction in arbitration cases

Number of common quality standards

1 year

75

internationally recognized standards, measurement and conformity assessment solutions

Developing a National Quality, Standards and Anti-counterfeit Policy. The policy will address among others; (i) the responsibilities of importer, exporting countries, shipping lines, clearing and forwarding agents and government agents with respect to substandard, counterfeit and illegal goods imported into Kenya; (ii) graduated and progressive standards for local Small Medium Industries; and (iii) harmonize and streamline levies charged by the regulatory agencies. c) Strengthening and operationalising the Standards Tribunal to enhance arbitration of violation of quality and standards.

b)

Standards and anti-counterfeits policy formed

Reduction of counterfeit goods in the market

Guidelines for importers, exporters, clearing and forwarding agents with respect to sub-standard, counterfeit and illegal goods imported into Kenya and graduated standards

2 years

KEBS, MOI, MEAC,ACA

Tribunal strengthened

Reduction in the number of appeals after arbitration by IPT Increase in IP related registrations Reduction of IP related disputes Reduction in the number of appeals after arbitration by IPT Increase in capitalization by the DFIs

Number of arbitrations carried by the Tribunal

1 year

IPT, MOI

22) Ensuring protection of Intellectual Property Rights

a)
b)

Developing and implementing a National IP Policy. Increasing the awareness on intellectual property rights Strengthening the Kenya Industrial Property Institute and the Industrial Property Tribunal to enhance institutional capacity for protection of IPR and arbitration. Establishing an Industrial Development Fund (IDF).

IP Policy developed

Number of IP related registrations Number of IP related enquiries Number of new IP related registrations and number of arbitrations Amount of capital in the IDF fund

2 years

MOI,KIPI, KEBS, ACA

Public awareness of IP increased

3 months

c)

KIPI and IPT strengthened

KIPI, IPT, MOI

25) Enhancing access to financial services and markets

a)

IDF established

6 months

MOI, IDB, KIE, MOF

b)

c)

Developing a funding structure to the IDF through a 2% levy of CIF to all imported finished goods; flotation of industrial bonds; public private partnerships; cooperatives; pension funds; insurance schemes and National budgetary allocation. Re-capitalizing of DFIs through IDF, national budgetary allocation, and government guarantees to external lines of

IDF funding structure developed

Increase in productivity by industries

Amount of capital generated

6 months

MOI, IDB, KIE, MOF

DFIs capitalized

Increase in the number of new investors

Amount of money disbursed through DFIs

1 year

MOI, IDB, KIE, MOF

76

credit.

d)

e)

f)

Increasing from 2% to 10% of the National budget to fund activities in the productive sectors. Fast tracking the enactment of the insolvency bill to include provisions for protection of sick industries due to external factors that will cover the lenders, creditors and taxation. Providing fiscal incentives for new industrial investments and extend the same fiscal incentives to investors willing to revive dead industries. Providing a framework for establishment of moveable bank - loans security documents to enhance competitiveness in the banking sector. Instituting prudent monetary and fiscal policies to sustain the macro-economic stability. Developing curriculum in tertiary and vocational training institutions aligned to the industry skills requirements.

National budget raised

Increase in industrial support by the Ministry Increase in the number of sick industries revived Increase in the number of new investors

Number of new projects in the productive sectors Number of Sick industries rescued Number of new investors and revived sick industries Number of securities moved Amount of loans borrowed Enrolment in the tertiary and vocational institutions

3 years

MOI, IDB, KIE, MOF MOI, IDB, KIE, MOF, SLO MOI, IDB, KIE, MOF

Insolvency bill enacted

Immediate ly immediate ly

Incentives provided

g)

Framework for movement for bank securities provided Prudent monetary and fiscal policies instituted Curriculum developed

Ease of movement of bank securities Increase in profits of industrial establishments Increase in enrollment in tertiary institutions

6 months

MOI, IDB, KIE, MOF MOI, IDB, KIE, MOF MOI, MOHEST, DIT, KITI

h)

2 years

33) Upgrading technical, production and managerial skills

a)

1 year

b)

Developing a framework for continuous linkages between tertiary and vocational training institutions, and industry.

Linkages developed

Increase in collaboration between training institutions

Number of linkages between tertiary and vocational training institutions and industry Enrolment in tertiary, Vocational and Entrepreneurship Institutions Number of new MSEs

1 year

MOI, MOHEST, DIT, KITI

c)

Expanding and modernizing technical, vocational and entrepreneurial training institutions offering artisan, craftsmanship and technician training for industry. Establishing entrepreneurial centres of excellence for business development services for Micro, Small and Medium industries.

Modernized and expanded tertiary, vocational and entrepreneurship institutions

Increase in enrollment in tertiary institutions

5 years

MOI, MOHEST, DIT, KITI

d)

Centers for excellence for MSEs developed

Increase in profitability for MSEs

2 years

MOI, MOHEST, DIT, KITI

77

34) Protection of the environment

a)

Promoting investment in local manufacturing of cleaner production equipment along with other emerging technologies. Developing a National Cleaner Production Policy.

Cleaner production promoted

Increase in industries using cleaner production technology Reduction of operating costs of industries

Number of cleaner production equipment manufactured locally Number of firms using cleaner production technologies Operations of the Kenya cleaner Production Center mainstreamed in the Performance contract of the Ministry Drop in price of steel products

Immediate ly

MOI. MEMR, NEMA, Private Sector, KNCPC MOI. MEMR, NEMA, Private Sector, KNCPC MOI. KNCPC

b)

Cleaner Production Policy developed

2 years

c)

Mainstreaming the operation of the Kenya National Cleaner Production Centre into the ministry responsible for industrialization.

Operations of the Kenya cleaner Production Center mainstreamed

Reduction of operating costs of industries

3 years

35) Investments in the priority sectors

a)

Developing the Iron and Steel Industry

1.

b)

Developing the Agro Machinery sector

c)

Manufacture of machine tools and spares

Iron and Steel Development Authority. 2. Tariffs Rationalized. 3. Qualities, types, location, quantities of iron, coal and limestone in the country established. 4. Strategies for the development of iron and steel industry established. 5. An integrated iron and steel plant in the country established 6. Coal power generation plant Established. 7. Export of scrap metal and iron ore banned. 8. Power co-generation using coal established. 1) Energy efficient farm machines and equipment developed 2) Tax exemptions on imported farm machines and implements Capacity built in machine tools and spares

Increase in the number of steel related plants

5 years

MOI,NMC

5 years

MOA, NMC

Increase in locally manufactured machine tools and spares

Reduction in cost of machine tools and spares

5 years

NMC, MOI

78

d) Developing Industry

the

Automotive

and Aircraft

e)

Establishing the Biotechnology nanotechnology Industry

and

1. 2.

f) Undertaking high value Agro-Processing (Tea, Coffee, Pyrethrum, Leather)

3. 4.

5. 6. 7. 8. g) Developing the Green Energy (Generation, Component manufacturing{solar panels, wind mills})

1) Local manufacture of aircraft parts developed 2) Automotive industrial parks developed. 3) incentives to local assemblers and auto parts manufactures developed 4) National Automotive Industry Board formed. 5) A joint venture to assemble locally vehicles with an established vehicle manufacturer by relocation of their working plant and domesticate within ten years developed. Major investment in bio- and nanotechnology research and product development Industrial skills development for bio- and nano- technologies applications developed. Incentives for investment in high value processing of agricultural products provided local manufacture of agroprocessing machinery and equipments such as tractors, combine harvesters, cotton ginneries, tea picker Clustering of industries around specific agricultural resources undertaken. Processing of biodiesel crops undertaken. Rice mills revived. processing of sugar and sugar products to enhanced (i) Solar panels, windmills, digesters, cookers, refrigerators and micro-hydro generators developed locally. (ii) Investments in energy saving technologies established.

Increase in the number of locally

Price of motor vehicle reduction

15 years

MOI, MOT

Increase in investments in bio-and nanotechnology

Number of products developed using bio- and nano-technology

5 years

MOHEST, MOH, MOA, MOI

Increase in exports of agroprocessed products.

Number of new agroprocessed products

2 years

MOA, MOI

Less dependence on the national grid

1) 2)

Number of green energy equipment developed. Number of investments in energy saving

3 years

MOE, MOI

79

technologies

h) Developing the pharmaceutical industry

i) Promote Minerals, mining and extraction (Coal, Iron ore, oke, Fluorspar, Gemstones, Soda Ash, Lead, Gold)

j)

Promote waste recycling

k) Packaging industry

l) Petrochemicals

m) Wood and wood products

7. Rule of procurement of locally manufactured pharmaceutical products enforced, 8. Anti-counterfeit Act 2008, enforced 9. Use local raw materials for the manufacture of pharmaceutical products enforced. (i)Partnerships between County Governments and private investors in exploration, mining and processing developed, (ii) Policy governing the exploitation of minerals in the country developed. 3. Waste Utilization and Recycling Policy developed. 4. Waste minimization in industry through cleaner production technologies adopted. 1) Kenya Packaging Institute strengthened. 2) Training curriculum on packaging introduced at the tertiary institutions. 1) KPRL modernized and expanded. 2) R&D programmes in research institutions and institutions of higher learning established 3) Curriculum in petroleum engineering in tertiary institutions developed. 1) Guidelines for procurement for all furniture consumed in all government institution is procured from local manufacturers developed.

Reduction in cost of pharmaceutical products

Number of locally manufactured drugs

2 years

MOH,MOI, ACA, KEBS

Volumes of minerals mined

Number of investments in the mining sector

2 years

MEMR

More investments in waste recycling

Reduction in pollution in water bodies

3 years

MEMR, MOI, NEMA

More packaging investors

Number of packagings undertaken

4 years

MOI, KPI, KIE

Increase in the number of investors in petrochemicals industry

Amount of petrochemicals produced

5 years

MOE, KPRL, PIEA

Investments in wood and wood products

Number of finished wood products

2 years

MOI, MPW

80

n) Paper and paper products

o)

(i)

p) Meat and meat products

q) Leather and leather products

Strict enforcement of standards in the sector to ensure quality and competitiveness undertaken. 3) Utilization of wood waste for production of chip boards. 1. Investment in the production of paper including use of other raw materials other than wood. 2. Revival of Pan African Paper Mills Limited. Dead textile mills and ginneries in the country revived. (ii) Weaving and milling plants through incentives on capital equipment set up. (iii) Regional development of textile within the EAC region to maximize on comparative advantage established. (iv) Competitive prices for cotton farmers, through the Cotton Development Authority, developed. (v) Export of cotton lint banned. (vi) Import of used clothes banned. (i) The processing, packaging and branding of Kenyan meat and dairy products enhanced. (ii) Exports to regional and global markets for products in the sub-sector promoted. (i) Establish a Leather Development Council that will address the following: (ii) Promote quality and control management in the industry; (iii) Promote value addition to hides and skins; (iv) Promote market diversification and expansion; and (v) Promote research and technology in the leather industry. (vi) The Training and Production

2)

Investments in the paper and paper products

Number of new investments in paper industry

5 years

MOI, PAPM

Increase in cotton price

Number of new investments in textiles

5 years

CDA, EAC, MOI

Increase in investments in the sector

Number of new meat products exported

5 years

MOI, KMC, MOL

Increased investment in the leather sector

Number of new leather products exported

5 years

MOI, KIRDI,MOL

81

(vii)
(viii) (ix) r) Electrical and electronics sector (i) (i) (ii)

Centre for the Shoe Industry (TPCSI) mainstreamed. Leather training and incubation programmes in KIRDI and KITI. Importation of used leather products banned. Exportation of raw hides and skins. An assembly plant for Madaraka computers and other ICT accessories established. production of parts, components and sub-assemblies established; International companies to locate their subsidiaries within Kenya and utilize locally available resources identified.

Increased investment in the sector

Number of electrical and electronic components exported

JKUAT, MOHEST, MOI

82