17 Mar Africa enters new era of development
Betty C. Maina, Cabinet Secretary, Ministry of Industrialization, Trade and Enterprise Development, discusses key issues linked with the economic growth of the African continent and Kenya and the government’s efforts to support regrowth and mature the country’s industrial ecosystem.
GI: What is your assessment of Africa’s current economy and what does it need to spur further growth?
Since 2000, the African continent has recorded impressive rates of economic growth, largely driven by commodities. In 2017, the share of manufacturing in the total gross domestic product for sub-Saharan Africa was just under 10 percent. In terms of indicators of industrial development such as manufacturing value add and manufacturing exports, Africa is still far behind the rest of the world, even among developing countries. Much of our region’s industrial production remains centered on resource-based manufacturing, accounting for nearly half of the total manufacturing value added in manufactured exports in Africa. Investments in manufacturing have been uneven, with almost 70 percent of the continent’s manufacturing activities concentrated in the four following countries: South Africa, Egypt, Nigeria and Morocco.
Despite these trends, manufacturing in Africa has grown 3.5 percent annually from 2005 to 2014, which is faster than growth in the rest of the world. Countries such as Nigeria and Angola have experienced an increase in output of over 10 percent per year. The value of production in Sub-Saharan Africa has increased from $75 billion in 2005 to more than $130 billion in 2016.
Exports have become increasingly integrated into global value chains. The manufacturing share of exports has increased more rapidly than total output, from about 35.5 percent in 2008 to nearly 49 percent in 2018, with a compound annual growth of over 9.5 percent. Shipments of heavy manufactured goods, such as transport vehicles, appliances, electronics and industrial equipment, expanded by 14 percent during the same period. Additionally, upstream and downstream sectors such as construction and extraction manufacturing are now among the top sectors for investment flows into Africa, accounting for 22 percent of total foreign direct investment before 2020. We are experiencing a gradual shift from extractive sectors to services and manufacturing sectors. Foreign direct investment in manufacturing is becoming diversified in some African countries, such as Ethiopia and Kenya, who are building up their manufacturing business by attracting foreign direct investment from new partners. The African Continental Free Trade Area offers even greater opportunities for countries to widen their access to global supply chains and export high-value goods and services. Currently, exports of manufactured products account for around 45 percent of intra-African exports.
The east African communities are particularly well integrated regional blocks with higher intraregional trade than other areas of Africa — albeit others are catching up. Kenya’s manufacturing output has remained incredibly resilient, with growth from $1.3 billion in 2000 to $7.2 billion in 2019. To support this growth, we are breaking down trade barriers, improving financial structures, building skills and capabilities and investing in public resources, especially for much-needed infrastructure in transport, energy and telecommunications sectors. Africa has long been defined as a needy continent and the object of aid and support from the rest of the world. However, we have come to a different age. We have many young, outward-oriented people looking for partnerships to build enterprises together. We aim to support their ambitions and attract opportunities to grow. The world should stay open and embrace the new Africa. One challenge we saw during the COVID-19 crisis was the propensity of countries to close themselves off from the global system. It is critical we maintain an open global trading system as this will enable Africa to develop into its next stages.
What goals does Kenya’s Ministry of Industrialization, Trade and Enterprise Development have?
The vision of our ministry is to create globally competitive and sustainable industrial and trade enterprise sectors. We pursue this vision by creating an enabling environment through appropriate policy and legal and regulatory frameworks. Our day-to-day work is guided by our national industrialization policy and our national industrial transformative program. We have committed to pursuing an inclusive model of growth for the development of our industries. Our sector has grown significantly. Kenya’s economic growth averaged about 5.7 percent between 2015 and 2019. We have experienced some setbacks due to the global pandemic, but our ministry and government are making steady progress to achieve the development objectives laid out in our Kenya Vision 2030 roadmap. We have constant dialogue with the private sector in Kenya. The Kenya Association of Manufacturers is a valued partner with the government, as is the Kenyan Private Sector Alliance, Kenya National Chamber of Commerce and Industry and different sectoral, industrial and business bodies. They are essential in providing valuable feedback on import policy and transforming policy to raise needed investment and employment in the country.
What impact did the COVID-19 pandemic have on Kenya’s economy?
COVID-19 has had a significant impact on all economies around the world. There have been some domestic supply constraints. There has been a decrease in demand, especially for selective expenditure. There have also been major lapses in international global supply chains. For a country like Kenya that is globally well integrated, this has had an extensive impact on the supply of raw materials, timelines and prices. The supply and demand shocks on both our external and domestic fronts caused economic activity to slow sharply in 2020. Agricultural output surprisingly grew robustly, but manufacturing and many services sectors — especially tourism and education — were severely disrupted and are just now starting to recover.
What has Kenya’s public sector done to lessen the negative impacts of the COVID-19 crisis?
To mitigate the effects of the pandemic, the government responded expeditiously. From April 2020, we instituted monetary and policy measures to preserve macroeconomic and fiscal stability while strengthening the resilience of the economy. To support the private sector, we have been implementing programs to maintain liquidity and cash flow for businesses, including expediting value-added tax refunds, payments of pending bills and measures to increase access to affordable credit with our central bank. We also put in place economic stimulus packages targeting the private sector. We work around enforcement of local procurement, which is spearheaded by our ministry. We also work to domesticate the supply of critical commodities, especially medical related, whether it be personal protective equipment, viral transport media, vaccine syringes and test kits. Because of global disruptions and restrictions of exports caused by the COVID-19 pandemic, it has become critical we build local supply sufficiency.
How has the ministry worked to incentivize foreign direct investment into Kenya?
We have maintained the normal activities of the government in identifying different key sectors and welcoming any interest from foreign investors. However, in the context of the COVID-19 pandemic, there has been a deliberate effort by the government to direct and propose investment in critical medical supplies due to its necessity for resolving health issues. Like many countries, we are exploring vaccine production in Kenya with external partners. We have some critical medical commodities that we are currently producing in the country. E-commerce is also a critical component in maintaining supply in the country, which has also attracted investment.
What is Kenya’s government doing to ease trade with foreign markets?
Kenya has pursued trade liberalization policies over the years. We have signed various trade partnerships and agreements. We believe trade is a powerful catalyst for socioeconomic development. We are one of the most active African countries in terms of international trade organizations, participating in the World Trade Organization, the Common Market for Eastern and Southern Africa and the East African Community. We are a signatory to the African Continental Free Trade Agreement. Through the Economic Partnership Agreement, we trade with Europe and have entered into a trade agreement with the U.K. after Brexit. We are in the process of negotiating a free trade framework with the United States. These external markets are critical markets for Kenya. China and Japan are some of our larger trading partners and destinations for exports. Our long-standing relationships will further enhance the competitiveness of our industry at an enterprise level, provide an opportunity to attract greater investments and modernize and diversify our economy. We are also concentrated on our largest trading partners within the region, especially within East Africa. We are building up our exports into China under the World Trade Organization. We are exploring opportunities to create a deal to reduce impediments and expand trade. We are delighted to be making progress on that front, especially for agricultural goods. We are also exploring trade with Korea. The country is a large importer of coffee, and we want to increase the amount of Kenyan coffee that goes into this market. We are very active in the international trade ecosystem and aim to build up our exports within Africa and the rest of the world.
What impact has the Tokyo International Conference on African Development (TICAD) had on Kenya’s relationship with Japan?
TICAD is all about Japan’s relationship with Africa. It is vital that we take turns hosting the event. It brings purposeful attention to the partnerships between Japan and Africa. The events have facilitated better collaboration and investment in public and private sectors. The private sector in Africa has a crucial role to play in the continent’s economic development, even more so than it did two decades ago. Partnerships with Japan in infrastructure such as the construction of roads, bridges and dams are the most common. There are also pivotal partnerships in the energy sector. As we look to address the challenges of climate change, the next TICAD will provide us an opportunity to facilitate outstanding partnerships between African and Japanese private sectors aligned with our global goals for climate change and the United Nations’ Sustainable Development Goals. We will pay a lot of attention to critical areas, such as infrastructure. Connectivity in Africa is quite weak, and we simply cannot realize intra-African trade without it. Infrastructure is always going to be high on the agenda for Africa. Besides infrastructure, Kenya also requires investment in value addition, especially in our agricultural exports and agro-processing. Agriculture is a critical part of our economy, and we do not want to keep selling only raw commodities. We want to invest heavily in value addition for regional and international markets. We want to focus on partnerships that enhance technological access within the continent and enable us to leapfrog into greater components of the service economy. Kenya is the regional leader in creating a digital ecosystem, but there is more work we can do. The next TICAD event will represent an excellent opportunity to grow our key areas of focus.