manufacturing industry in kenya

21 May 2008

Round Table Presentation on the Manufacturing Industry in Kenya

Evans Osano

Peter Kiuluku

Henry Njuguna

Lucas Turuka

2Agenda

Introduction

Manufacturing Sector in Kenya Evans Osano

HPO Model in Kenya Evans Osano

Leather Industry Peter Kiuluku

Construction Industry Henry Njuguna

Packaging Industry Lucas Turuka

3Introduction- Economic Background

30.939.734.0Population (M)

363415845Per Capita Income (US$)

6.5%7.3%7.0%Growth in GDP

11.216.229.3GDP (US$ Bn)

UgandaTanzaniaKenya

East Africa.(with Rwanda & Burundi)

Economy US$65 billion

Population 120 million

4Introduction- Economic Background

Largest economy in East Africa with GDP of US$30 billion

Economic growth has picked up in last 5 years to 7% in 2007

Prudent monetary & fiscal policy more stable macroeconomic conditions

35.334.734.0Population (M)

860845670Per Capita Income (US)

2.4%7.0%6.1%Growth in GDP

30.329.322.8GDP (US$ Bn)

2008*20072006

* IMF Projection

5Introduction - Kenya- External Trade

Imports mostly Machinery & Transport Equipment

Imports from UAE (16%-oil)

China share growing but less than 8%.

Imports Exports

Exports mostly agriculture products..but manufacturing has significant share

Destination of exports largely to Africa (45%)

Uganda & Tanzania account for 20% of exports

Netherlands accounts for 8% of Kenyas exports and 1.5% of importsNetherlands accounts for 8% of Kenyas exports and 1.5% of imports

6Kenya Manufacturing Sector

Manufacturing a significant contributor to Economy:

10% of GDP 12.5% of Exports 13% of formal

employment

There are 2,308 firms in the sector

87% are active Majority Kenyan

owned

Sectors Contribution to GDP

Agriculture

26%

Transport &

Communication

11%

Government Others

12%

Others

29%

Trade

9%

Building &

Construction

3%

Manufacturing

10%

Source: Central Bank of Kenya and Kenya Association of Manufacturers

7Agro-Processing Sector

421 firms registered

Accounts for 70% of manufacturingproduction turnover

18.4% of export earnings.

Food products contribute 73% of the production turnover in the sub-sector.

Number of Agro-processing Industries 2004

14

16

14

100

55

102

121

Bakery Products

Food Products (Tea, coffee, spices)

Grain mills

Vegetables and animal oils and fats

Dairy products

Canning fruits & vegetables

Others

Source: Kenya Association of Manufacturers

8Manufacturing Sector GDP 2003-2006

Manufacturing Sector GDP 2003-2006

95

100

105

110

115

120

125

2003 2004 2005 2006

G

D

P

(

K

s

h

b

n

)

5%

6%

7%

8%

9%

10%

11%

%

o

f

G

D

P

GDP Growth

Source: Central Bank of Kenya and Kenya Association of Manufacturers

9Manufacturing - Structure & Performance

245.82,320Totals

16%7.9221Other Manuf products

1%3.149Electrical & Electronics

1%3.275Motor Vehicle Assembly

5%3.236Pharmaceutical & Medical Equip

2%8.6173Plastics & Rubber

14%12.089Building & Construction

12%12.2165Chemical & Allied

1%14.1162Timber & Products

2%16.3144Paper and Paperboard

8%18.8271Leather products & footwear

17%20.7258Metal & Allied

4%42.6255Textiles & Garments

18%83.1422Food, Beverages & Tobacco

% of Manuf

Export

earnings

Employment

000

No. of firms

2002

Sub sector

10

Doing Business Indicators 2007

109

35

100

104

83

115

160

151

170

95

130

Tanzania

48

119

141

55

158

122

163

11

81

114

118

Uganda

76Closing a Business107Enforcing Contracts148Trading Across Boarders154Paying Taxes83Protecting Investors13Getting Credit114Registering Property66Employing Workers9Dealing with Licenses

112Starting a Business

72Ease of Doing BusinessKenyaIndicator

Kenya ranked as top 10 reforming country in 2007 in Doing Business ReportKenya ranked as top 10 reforming country in 2007 in Doing Business Report

11

HPO Factors

Evans Osano

12

HPO* in Manufacturing Industry in Kenya

Which factors distinguish an excellent performing African manufacturing organization from a mediocre performing African manufacturing organization.

Do these factors differ between the Food, Beverages & Tobacco and Metal &Allied industries?

To determine the factors that make an African manufacturing organization excellent.

Provide a blueprint and roadmap for less performing organizations in Africa to improve in a focused way.

Study Purpose

* Organizations which produce extraordinary results that extend beyond customer service and shareholder value on a sustainable basis are referred to as High Performance Organizations (HPOs).

* Organizations which produce extraordinary results that extend beyond customer service and shareholder value on a sustainable basis are referred to as High Performance Organizations (HPOs).

13

HPO - Research Design

Identification of under

and over performers

- Export performance

over time

Roadmap

Summarize data in blue

print

Best Practice

- Compare scores with

HPO database

HPO Model (de Waal)

Administer HPO questionnaire

Calculate scores for firms and

industries

Detailed study on HPO

Interviews identify and determine

what the organizations did to

achieve high scores

14

The Impact of Regional Trade Agreements : The Case of Leather Manufacturing in Kenya, Uganda and Tanzania

Peter Kiuluku

Presentation structure

Current Status

The Issues

The Opportunities

Challenges

16

Focus

Have RTAs led to the increase in consumption at domestic and/or export markets?

How are benefits distributed along the value chain and what can be done to have more benefits flowing down stream?

What can be done at both policy level, sector and firm level to increase productivity and the sector competitiveness?

17

Leather Industry Kenya, Uganda & Tanzania

Leather manufacturing not fully developed in Tanzania, Kenya and Uganda.

Sector Underperformance

In Kenya, dominated by one multinational firm

Only 60% of hides and skins collected

How to increase productivity, standards and quality

How to make the industry benefit the entire chain

Making leather manufacturing environment friendly

Increasing capacity Utilisation

Current state of Play The Issues

18

Leather Industry Kenya, Uganda & Tanzania

The Policy and Regulatory environment

Environmental standards

Innovation and Technology in processing

Skilled Human Resource for Leather Industry

80 percentage of exports are raw hides and Skins

Manufacturing for domestic and export in COMESA and SADC.

Processing leather for export and domestic market

Partnership with small manufacturers of leather products

Partnership with leather Tanning factories

Modern Slaughterhouses and Slabs

Challenges Opportunities

19

Influential Actors

Bata Shoe Company a Multinational with a market share of about 50 percent in foot wear in Kenya and some presence in Uganda and Tanzania

Leather Industry Associations

20

Construction Industry

Slide 1 - Industry Players

Slide 2- Positioning of players

Slide 3 Contractors growth path

Henry Njuguna

2121DBA -ENG. HB NJUGUNA 21

THECONSTRUCTION

INDUSTRY

Equipment

Manufacturers

Banks andFinancial

InstitutionsResource

Inputs

clientsprofessionsContractors

FIGURE 1- INDUSTRY PLAYERS


Building Construction Value ChainC

lien

ts-

Go

vt/P

riva

teS

ecto

r

GeneralContractors

SpecialistContractors

Consultants

Retail Trade

Concrete PipesHollow BlocksConcrete Tiles

Metal Hardware(Production/ Import

/Wholesale)

Sanitary Ware Electricals

Paints&Lacquer

Marble Production

Metalworks & Furniture

Cement Industry

Sand, Earth & Gravel

Mining(Limestone,

Gravelstones,Marble)

Forestry Logging Sawmills

Timber Furniture

Transport Services, Energy & Water

Equipment & Spare Parts

Banking,Financial & Business Services,


GeneralContractors

GeneralContractors

GeneralContractors

Contractor Progression Path

CL

IEN

TS

CL

IEN

TS

CL

IEN

TS

SmallContractorsAt locallevel

MediumContractorsAt Nationallevel

LargeContractorsAtInternationallevel

Subcontractors


Subcontractors



Subcontractors

Consultants

Consultants

Consultants

24

The Industry perspectives: Issues and Constraints*

Poor reputation - substandard work, well above budget delivered years after contractual timehence the term cowboy contractors.

Poor relationship between Government, contractors and public.

Use of old decrepit construction equipment

Corruption - More than half of contractors regularly make unofficial payments worth more than 6% of revenues

The cost of labor is comparable to East African countries, but uncompetitive with Asia.

Real wages have doubled or tripled since 1994 but firm productivity has remained stagnant.

Relative to other poor countries, Kenya has a well-developed financial sector and a falling cost of capital.

High crime rate - a third of firms experienced a crime in 2002.

* Conclusions of IPR/ World Bank Manufacturing sector study 2004

25

Sector is key pillar in Economic recovery.

Since 2003, budgetaryallocations for the sector, has increased tremendously.

Implementation of key reforms

Private sector participationthrough Public PrivatePartnership

25

Construction Industry in Kenya Reforms & Opportunities

Roads: Establishment of three Semi Autonomous Agencies.

Housing: Kenya Slum Upgrading Program, Civil Servants Housing Scheme & Development ofAppropriate Building Technologies.

Energy: Consolidation of Electric Power & Petroleum Acts and creation of Rural Electrification Authority, Energy Regulatory Board and Energy Tribunal.

OpportunitiesReforms


Subsector 2006/7$MILLIONS

2007/8SMILLIONS

2008/9$MILLIONS

2009/10$MILLIONS

Roads & Public works

$504 $ 495 $ 434 $528

Water and Sanitation

$120 $148 $190 $231

Urbaninfrastructure

$33 $57 $69 $83

Transport $29 $71 $94 $113

Energy $130 $132 $218 $264

Housing $9 $46 $55 $68

Total $824 $882 $993 $1,223

PLANNED GOVT INVESTMENT IN THE CONSTRUCTION SECTOR

27

Factors that contribute to High Performance in the corrugated paper packaging Industry: A case of Kenya and Tanzania

Research Topic

Value Chain

Sector Constraints

Sector Opportunities

Discussion Points

Lucas Turuka

28

KEY ISSUES

Whether African national sectors are efficient, effective and sustainable

Whether they can grow to capture regional and global markets and achieve high performance and sustainability

Why the Enterprises in the packaging Sector have not opted for an integrated approach which can guarantee them locally produced inputs and global markets.

29

CORRUGATEDPACKAGINGINDUSTRIES

INDUSTRIALPAPERFORPACKAGES

FINESTPAPERFOR LAND TITLES

FINE PAPERFORMONEYBOOKS & CALENDARS

NEWSPRINTPAPERFORNEWSPAPERS

TISSUEPAPERFORTISSUES & CIGARRETES

PAPERCONVERTER

S

SUGAR CANE WASTE

SISALWASTE

GRASSWASTE

PADDYWASTE

OTHERCELLULOSE

WASTE

JUTEWASTE

TIMBER

M I L L E R S

PULPING & PAPERCONVERTING

SUGARCANE

SUGARCANE

FARMERS

MANILLAGRASS SISAL JUTE

PADDYWOOD

OTHERCELLULOSEFIBRE CROP

SISALFARMER

S

MANILLAGRASS

FARMERS

PADDYFARMERS

FORSTRYFARMERS

JUTEFARMERS

OTHERCELLULOSE

FIBRE CROPS

INPUTSTRANSPORTING

INPUTSPROCURIN

MILLING

TRANSPOR-TING

FARMING

MACHINERY PROCUREMENT

MACHINERYPROCUREMENT

CORRUGATED PAPER PACKAGING VALUE CHAIN

30

SECTOR CONSTRAINTS

Inspite of the existence of cooperative societies producers are

unable to organize for economies of scale thereby limiting their

chances of reaching higher valued markets.

Most actors have limited education and therefore unable to prepare

business plans and to keep financial records.

Some of the institutions created by the state to help small

businesses have stifled the latters progress.

Organization and Management

There is lack of linkage to large buyers on account of poor global

networking which suppresses actors sales potential.

There is acute lack of information on standards which has failed

actors to produce to buyer specifications thereby limiting their

access to global opportunities.

There exist market organizations but are not professional in their

orientation and character.

Poor infrastructure increases cost of transportation resulting in

some inputs not being transported to reach business destinations.

Market Access

Small scale farmers lack access to appropriate tools and machinery

which limits their output.

Lack of technical skills by producers to produce to European and

American buyers specifications reduces their market access and

income.

Lack of capital to procure machinery for commercialization of

agriculture, horticulture, mining and manufacturing leaves the

actors with limited capital base and reduced to petty producers.

Technological/product development

CONSTRAINTSTYPE

31Limited funds are set aside for R&D because of lack of appreciation

on the importance of the same for development.

Research and Development

Corruption is a serious problem in the two countries depriving the

government of capital that could have been used to improve

services.

Courts of law and the police are inefficient in dealing with

corruption cases because of kickbacks

Corruption

Rural-urban transport is still greatly hampered by poor roads, rail

and air transport.

Communication through telephone is a big problem for Tanzania as

services are inadequate given the big population.

Poor infrastructure continues to hinder inputs supply forcing the

few companies to operate below installed capacity.

Infrastruture

Few banks exist in Tanzania that give loans and where they do,

charge interest rates not manageable by small businesses.

Collaterals demanded by banks have discouraged small companies

from borrowing to get capital that would have allowed them to take

off strongly.

Finance

Governments have moved in late to protect the interests of small

businesses enterprises through control of import of products

locally produced.

Investors have enjoyed much better treatment at the expense of

small scale local enterprises.

Tax holidays given to new investors have caused the treasury to

lose billions of dollars through exempted tax.

Regulatory framework

32

SECTOR OPPORTUNITIES

Foreign created and owned organizations could promote local

businesses and make money.

Civil society organizations can be developed to join

government work of promoting investment at a fee.

Trade professionals can be given opportunities to enhance

their competences locally or overseas to achieve improved

performance.

Organization and Management

Match maker companies established by foreigners can help

local business make money.

Professional marketing organizations can be established to

link local producers with overseas buyers at a fee.

Books and fliers in local or vernacular on overseas markets

could sensitize the enterprenuers.

Market Access

Foreign machinery and equipment manufacturers can supply

on credit subject to strict repayment contracts.

Foreign companies offering machinery and equipment for hire

at a price and make money.

Establishing plants for manufacture of primary machines and

spare parts is potentially good investment.

Technological/ Product Development

OPPOTUNITIESTYPE

33

Recommendations

Policies for improving business efficiency be developed.

Bureaus of standards to better advise the government on packaging standards.

Overseas benchmarks can be localized to upgrade local products and services.

Improve business enabling environment for industries to grow.

34

Key Actors in Sector

Companies in corrugated paperboard and boxes manufacturing in Kenya include the following:

East African Packaging Industries. Kenya Litho Ltd. Paper Bags Ltd. Paper convertors Ltd. Unified Bag Manufacturers Ltd. Carton Manufacturers Ltd. and All Pack (K).

manufacturing industry in kenya

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