The Roadmap to Kenya’s...

The Roadmap to Kenya’s Industrialization

Ministry of Industrialization & Enterprise Development

We must realise Vision 2030 and fulfill the Jubilee Manifesto

We will do this by:

• Growing our GDP for the next 16 years by $4-6bn per year

• Increasing our manufacturing base from 11% of GDP to

20% of GDP

• Addressing 3 critical issues:

– Increasing foreign investment: regional neighbors are

attracting 2-3x more than we are

– Reducing the cost of doing business: through targeted

investments in energy and transport

– Improving the ease of doing business and reducing

corruption

• Investing in and developing specific sectors where we have

a natural competitive advantage

Kenya will reach

key Vision 2030

targets… 9 years

ahead of schedule!Due to a focus on specific sectors

of the economy, and bold

industrialisation measures put in

place by the Kenyan government

back in 2014, Kenya will reach the

Vision 2030 GDP targets almost

nine years ahead of schedule. In

announcing this amazing result, the

President congratulated both public

and private sector organisations for

31 January, 2020

Headline in 2020 if we

move fast now!

Headline in 2020 if we

move fast now!

2

Total GDP, USD Billions

211192

175159

144131

119109

9990

8274676156514642

+10% p.a.

282726142013 252423 203022212019181716 2915

We must grow GDP by $4-6 billion per year for the

next 16 years to hit vision 2030

$42

$211

3

We must build a stronger industrialized economy

Manufacturing contribution to GDP

36

28

32

15

17

11

South Korea

Morocco

Egypt

Kenya

Thailand

Malaysia

81

74

92

68

50

11

% of GDP % of exports

4

It can be done: Morocco more than doubled its rate of

GDP growth by focusing on key sectors

Morocco increased its rate of growth by 2.5x By focusing on key sectors and designing

supporting policies and enablers

09

58

08

55

07

52

06

51

05

47

04

46

03

44

02

41

01

40

0

37

99

36

98

36

97

34

96

34

+1.8%

60+4.9%

10

• Focused on sectors where it had a competitive

advantage: tourism, agriculture, autoparts,

textiles

• Provided tax breaks and investment incentives

• Created SEZ clusters to provide more business

friendly environment for FDI

• Created vocational training institutes to produce

talent for target sectors

• Liberalized trade: FTAs with EU, US, Turkey,

Mid East

• Built new highways to facilitate internal trade

and ports to facilitate external trade

GDP, $ Billion

5

However, we must address 3 critical issues

Kenya Rwanda

Ease of doing business

129 32

Paying taxes

166 22

Protecting investors

98 22

Corruption index (0-most, 100-

least)

27 53

Enforcing contracts

151 40

We must address our weak

competitiveness rankings

We must dramatically

increase FDI inflows

We must reduce the cost of doing

business

1.0

+430%

Zambia 10.3

Uganda 5.3

Tanzania 4.6

Ethiopia 2.0

Rwanda 1.7

Kenya

1 2 3

Avg. industrial tariff, $/kwh, 2013

Ethiopia 5.4

RSA 5.7

Tanzania 7.6

Kenya 17.3

% GDP, 2011

2,760

1,940

1,565

2,350

Avg. import cost, $ per container1

1 Includes all costs associated with procedures required to import (e.g., documents, admin, clearance, customs, handling, transport)

2014

At same time, we must recognize the relative strengths of

neighboring countries as we are “competing” for investments

Ethiopia

• High FDI inflow

($970m annually)

due to consistent

economic growth of

9-10%

• Low cost of business

− Energy: $0.03

vs.0.17/kwh

− Labor

• Large infrastructure

investments at 26%

of GDP, 70% budget

on non-recurrent

Rwanda

• Strong GDP growth

of above 8%

• Strong and well

functioning

institutions, low

corruption &

effective security

• Easiest place to do

business in Africa

(32/185)

• Strong education

system

• Attractive

corporate taxation

Tanzania

• Strong economic

growth; average 7%

over last decade

• Significant FDI

($1.7bn vs. Kenya’s

$260-400m)

• Manufacturing

exports grown from

7% to 20% of total

exports

• 5x expansion of

exports

• SEZ being

established in Tanga

Nigeria

• 2nd largest

Economy in Africa

$269bn GDP

• Largest FDI recipient

($7bn in 2012)

• Favorable

investment laws

e.g., low taxes, tax

relief, repatriation

etc.

• Access to multiple

ports in the Country

• Highest number of

qualified

professionals

SOURCE: United Nations Conference on Trade and Development, World Investment Report 2013 7

Over the next 5-10 years, we must take advantage of key

trends to drive industrialization

$100b+ planned infrastructure investment in East

Africa provides opportunity for local businesses

World food demand will increase by 70% and Africa

has 60% of world’s remaining arable land

Resource discoveries in Oil, Natural Gas, Coal,

Minerals can drive the creation of local businesses

Established ICT infrastructure and thriving

ecosystem creating high-tech entrepreneurs

International trade opportunities combined with

rising costs in China is shifting jobs to Africa

8

Key sectors

Enablers Improve the ease of doing business

Support sectors for growth: skills, infrastructure (SEZ, FTZ, etc), and finance

Unlock the potential of SMEs

Job creation and industrialisation strategy

▪ Increase manufacturing to 20% of GDP

▪ Create 5m additional jobs

▪ Increase FDI 5x

▪ Ease of business to top 20 by 2020

Develop a compelling FDI attraction plan

Grow critical

sectors where we

have scale

▪Tea

▪Flowers

▪Coffee

▪Horticulture

Leverage natural

advantages to create

competitive sectors

▪Textiles and cotton

▪ Leather

▪Agro-processing

▪Beef

▪Fishing

Build local

industry to

support resource

and infrastructure

investments

▪Oil

▪Minerals

▪ Infrastructure

(e.g. steel)

▪Geothermal

Transform

government

industry

▪Pan Paper Mills

▪Sugar

▪Coffee

▪Coconut/ cashew

▪ Livestock

▪Pyrethrum

Enhance non-

industrial job

creating sectors

▪ ICT

▪Retail and

wholesale trade

▪Tourism

1 2 3 4 5

6

Expected

outcomes

7

8

9

Build a strong government delivery capability10

We will apply a broad industrialisation and job creation strategy

9

Main products exported by Kenya

%, 100= USD billion

0

Other

Oil products6

37

4.6

2012

Vegetables

33

26

15

6

2006

3.5

42

7

53

3

Flowers

Tea & coffee

Tobacco

Salt & cement

Apparel3

23

10

6

2001

1.5

400

43

36

10

7

SOURCE: Trademap, World Bank

Employment

~4.5 million employed

now, can grow

exponentially

Interventions

1. Determine obstacles

to growth (finance,

logistics, regulations)

2. Focus sector

strategies to

debottleneck

obstacles to growth

3. Link sectors to

enabling efforts (e.g.

SEZ, FTZ)

We must continue to enhance competitiveness of our tea, coffee,

and horticulture sectors as they account for nearly 50% of exports

FOCUS SECTORS: GROW CRITICAL SECTORS WHERE WE HAVE SCALE

1

10

Opportunity Key challenges

• Displace imports: Local demand of

28m units, only 4m filled locally

• $60 billion global market

• 80% of Kenyan land ideal for cattle

• Low productivity - hides raised as by-product

• 85% of skins damaged/lost during slaughter

• Poor logistics and low tannery capacity

• Shortages of trained personnel and capability

• 90% of land for cotton unused

• Under-utilised manufacturing capacity

• Duty free access to U.S. ($93 billion)

and EU ($228b) thru AGOA and EPA

• International companies actively

diversifying from the East

• Low productivity and quality, of cotton

• Outdated processing capacity

• High cost of energy , labor, and logistics (for

export)

• Kenyan fishery potential

estimated at 150k MTs while

only producing 7k MT

• Lack of infrastructure and modern fishing

vessels

• Lack of commercial processing capability

• Lack of skilled expertise

• Large potential export market

• 80% of land ideal for cattle

• Lack of disease free zones

• Low productivity, poor quality feed, lack of

water

• Lack of controlled processing facilities

Impact

• GDP from 4-7%

of agriculture

• Employment of

675K in 3 years

from 148k

• GDP ~$630m

• ~400k jobs in

5 years

• TBD

• TBD

Leather

Textiles

Beef

Fishing

We will create competitive sectors by leveraging opportunities

FOCUS SECTORS: EXAMPLES OF IMPACT

A

B

D

E

• Global food demand will grow 70%

• Duty free access (EAC, AGOA, EU)

• Domestic consumption to double by

2020

• Low productivity of small holder farmers,

poor quality, and significant wastage

• High cost transport infrastructure

• Lack of processing capacity

• 200k jobs over

2 yearsAgro-processingC

2

11

Cotton and textiles has potential to drive growth

Large market opportunity Kenya’s potential is currently under utilized

� ~385,000 ha of land suitable for cotton (900,000 bales)

– only 10% harvested

� 22 Ginneries operating at 25%

� 52 textile mills at 53% utilisation

� 110 large scale garment manufacturers

SOURCE: FAO, Cotton Development Authority, Team analysis

1 Based on maximum production volume at 2010 prices (KES 48/kg) 2 Decrease due to significant price drop disincentivising farmers

� National lint demand 111,000 MT of seed

cotton – local production only at 11,000 MT

� Lack of local supply supplemented with

imports from Uganda and Tanzania

� Domestic garment demand largely supplied

by cheap second hand used clothes

Large domestic

market

▪ GDP contribution of 7% from current 4%

▪ Employment of ~675k in 3 years from 148k

Overall impact

FOCUS SECTOR EXAMPLE: COTTON

Chad

132

United States

503

217

China

84

276267

Colombia

68 206

293

ParaguayAustralia

167

South AfricaTurkey

Tanzania

75

68

BrazilKenya

86

Pakistan

94

144

ArgentinaNigeria

SudanCameroon

Egypt

234

India

56

Production costs incl. subsidies

State subsidies

USD ct per lb of produced lint 1, 2010/20112

Cotton producers cost curve

� Duty free access to U.S. ($93 billion) and EU

($228b) thru AGOA and EPA

� International companies actively diversifying

from the East

� 3 potential garment market segments with

differing levels of opportunity:

- Basics (high automation, low cost)

- Seasonal (high quality, low cost)

- Fast fashion (high quality, short supply

chain)

Large

International

market

Kenya has a relatively strong position on the cost curve1

Significant land is suitable for cotton2

Processing capacity is already available3

A

12

Garment manufacture

Basics, seasonal, fast fashion

Cotton production Textile manufacture

Cotton

farmingGinning2 Spinning

Weaving

& knitting

Dyeing

& finishingDistribution

• Lack of appropriate seeds

and inputs, i.e. fertilizer

• Lack of farmer expertise in

water management, soil

management, etc.

• Poor access to capital

• Limited ability or incentive

for producers to

differentiate by quality

• Shortage of sufficient quality cotton

• High cost of energy

• Non-standard operating procedures

• Imported machinery, spare parts expensive

• Accessories and other imported inputs slow

and expensive to source

• Difficulty accessing finance

• Basics: Insufficient

automation in garment

production to enable high

volume processing

• Seasonal: inferior technical

capabilities to meet

international buyer

expectations

• Fast fashion: Slow and

expensive logistics/ transport

to reach end markets;

difficulty in accessing key

inputs (e.g. buttons) due to

high tariffs and customs

delays

Challenges across the value chain

Garment

production


A

13

Interventions can unlock the cotton potential in Kenya

▪ Public-private partnerships for seed and fertilizer production, distribution would greatly

increase the quality and quantity of cotton available in Kenya

▪ Nucleus out-grower schemes would further increase small-holder productivities and

livelihoods by providing access to improved inputs and training in return for guaranteed

off-take

▪ Best-in-class agricultural extension services could target small holders directly

▪ Developing local entrepreneurs to provide spray or tilling services to the sector would

establish SMEs and improve farming practices

▪ Build capabilities and improve access to finance to enable rehabilitation and

modernization of ginneries

▪ Develop special economic zones for textile and garment production, including

significantly reduced import and export tariffs, strong infrastructure investment, and

other incentives to focus on international seasonal market

▪ Enforce “buy Kenya” for government institutions and encourage local patronage to build

domestic market

▪ Increase duty on new and used textiles over the next 24 months

▪ Reduce cost of business with targeted subsidies and tax benefits


Cotton

production

Textile and

Garment

manufac-

ture

A

14

Example: Turkey has grown to the 4th largest apparels exporter

Growth story

15

Gross output (USD billions)

Key success factors

Source: ITAEU (Istanbul Textile and Apparel Exporters Union); team analysis

▪ Investment incentives and other measures

– Free land/relocation subsidy

– Tax breaks

– VAT cuts

▪ High import taxes to protect local industry with

strong enforcement

▪ Creation of 4 industrial zones for textiles

▪ Training and capability building through internship

programs

Government

support

▪ Clusters to improve collaboration, reduce transport

costs and enable specialization for export markets

▪ Focus on increasing value-add through Original

Design Manufacturers and Original Brand

Manufacturers

Private

companies’

successful

strategies

▪ 8th-largest cotton producer in the world

– Access to raw materials reduce costs and

improve lead times

▪ Took advantage of large local demand

▪ Close proximity to European market

Leverage

natural

endowments

0.3

2011

48.5

29.4

19.1

1980

3.7

3.4

Textiles

Apparel

▪ 4th largest exporter of apparels

▪ 9th largest exporter of textiles

▪ Textiles and apparel industry

represents

– 3.5% of gross output

– 17% of total exports


A

15

Leather is an attractive sector for Kenya

SOURCE: European Journal of Business and Innovation Research

There is a large domestic and global market…

• 4 million units of leather goods currently

manufactured but local demand is ~28 million, i.e.

imports make up 85% of demand

• Leather contributes Sh 10.6 billion towards GDP

(about 4% of overall agriculture)

• Export value of the leather industry is $90m

(2011) with a CAGR of 16.9% from 2006-11

• Global trade in leather is $50-60 billion, with

Kenya supplying only 0.2% of the market

…in which Kenya can leverage strengths to

increase share

• 80% of Kenyan land area consists of arid/semi-

arid (ASAL) land, ideal for cattle production

90640

KenyaEthiopia

by 2015

Rest of

world1

59,270

Global

demand

60,000

Global leather industry

USD, million

1 Largest exporters: Brazil, India, US, China

FOCUS SECTOR EXAMPLE: LEATHER

Kenya has significant land suitable for cattle

production

1

• Current growth is around 10.3%

• Production is varied and includes cattle, goat,

sheepskin, camel, crocodile, ostrich

There is opportunity for wealth creation and

commercialization of pastoralists2

• Livestock sector overall provides 90% of

employment in ASAL areas and currently

employs 22,000 people

The sector is experiencing high growth and growing

varieties of leather production3

B

16


Interventions

Challenges across the value chain

SOURCE: Kenya Leather Development Council; team analysis

Challenges

▪ Most slaughter conducted at sub-standard facilities with

a shortage of skills

– 60% of skin defects caused during slaughter process

– 25% of skins lost entirely at this stage

▪ Large network of informal traders collect skins

▪ No timely logistics to get skins to tanneries

▪ Increase in smuggling due to new export tax

▪ Only 11 tanneries country-wide (vs. 27 in Ethiopia)

▪ Lack of trained personnel contribute to low quality

▪ Little to no branding in global marketplace

▪ Skin defects from ticks, thorns, and husbandry practices

▪ Lack of quality facilities only able to fulfill ~14% of local

demand

Livestock

Slaughter

Skins and

hides

trading

Tanning

Leather

manufac-

ture

▪ Low productivity as livestock raised by smallholders

▪ Hides are only produced as by-product

• Increase value addition: Current duty

on export of raw hides & skin is 80%

• Increase duty on export of wet blue

gradually by imposing 25% duty to

50% and then ban it in 3 years

• Support expansion of existing

tanneries through incentives and

access to finance

• Support expansion of leather goods

manufacturing facilities and

encourage new players

• Minimize tax duties on industry’s

technology inputs

• Conduct global branding campaign

focused on Kenyan “natural” leather

• Enforce “Buy Kenya, Build Kenya” for

all disciplined forces

Challenges

B

17


Case study: Ethiopia’s leather sector is a major driver

of economic growth, creating 50,000 jobsDriven by… The sector could reach ~640 million by 2015

+43% p.a.

2014/15

636

110

526

13/14

443

92

351

12/13

310

76

234

11/12

218

62

156

2010/11

153

49

104

Domestic

Export

A $636 million leather industry is driven by

▪ Replacing imports, and growing domestic demand reaching 122 million2

▪ At a projected 50% p.a. growth rate pushing exports to $526 million

The largest livestock population in Africa

▪ Herd size of over 100 million1

Under-utilized industrial capacity

▪ Tanneries have excess capacity of 50%

Cost-advantage in labor

▪ Ethiopia has the lowest wage-cost structure among low-cost countries

Strong government support

▪ Emphasis on animal nutrition, parasite control, and hide quality

1 53 million cattle, 26 million sheep, 23 million goat; 2: Assuming domestic consumption tracks GTP projected GDP growth rate of 17%, imports of USD 12.2 mil in 2010/11 decline at 16%, rate seen over previous 12 months

SOURCE: CSA manufacturing report; Access capital – Ethiopia macroeconomic handbook; Import export monthly data

B

USD, million

18

Agro-processing is a key growth sector

Growing local and international markets Eastern Africa market size, Values 2020

SOURCE: Global Growth Compass

� Access to EAC regional market made

easier through integration – 120 million

consumers

� Growing middle class in Africa, and

increasing sophistication in needs for

processed foods

� Processed food1 market size: USD ~ 20

billion by 2020

Growing

regional market

FOCUS SECTOR EXAMPLE: AGRO-PROCESSING

0.1

0.1

0.1

0.2

0.2

0.2

0.5

0.5

0.6

0.8

1.0

1.5

1.5

1.5

1.9

2.2

2.4

6.2

Ready meals

Noodles and pasta

Tea

Baby Food

Sauces, Dressings

Snacks

Canned/Preserved food

Ice cream

Confectionery

Dairy products

Chilled and frozen food

Juices, RTDs and others

Bottled Water

Oils and Fats

Bakery products

Dried processed food

Coffee

Carbonates

Nominal USD, billions

Top 3

categories

constitute >USD

10 b market

value

� Horticulture products already demanded

largely in European markets e.g., Tesco a

major client

� Huge opportunity to manage processing

value chain instead of exporting raw

materials for processing elsewhere

Existing and

growing

international

demand for

Kenyan

produce

C

19

There is a significant opportunity to develop primary and

secondary processing across many sectors

Production Primary processing Secondary processing

1 2 3


Tertiary processing

4

Washing and cleaning,

preparing, basic milling

Packaging, crushing,

grinding

Transformation, higher

value add, food science

Dairy• Capacity for

pasteurization for local

market, opportunity to

serve regional market

• UHT filling for local

market, opportunity to

serve regional market

• Production of yoghurt,

cheese, opportunity to

service regional market

Tea• Adequate cleaning

capacity

• Packaging for export and

domestic done locally

• N/A

Coffee• Adequate cleaning

capacity

• Roasting, grinding for

export done locally

• N/A

Rice• Paddy rice cleaning by

cooperatives

• White rice as staple for

local market, growing

regional market

• Limited processing E.g.,

rice powder

Grains/cereals• Capital intensive for flour

production

• Bread production for local

market, growing regional

market

• Limited production of

pasta etc

Fruits/vegetables• Lack of processing

capacity – huge potential

• Packing, canning, cold

chain challenges, high

quality standards

• Complex science requires

investment

Livestock• Inputs expensive,

unreliable supply, sent

abroad for processing

• Limited value add

processing

• N/A

C

20

Production

Processing

and

marketing

Interventions to unlock agro-processing in Kenya

▪ Enabling effective linkages will develop smallholder commercial

agriculture as well as domestic capacity for increased value added

production via processing – which relies on a number of enabling factors

including:

– Devising a platform to link smallholders to processors

– Innovating and allowing increased access to agricultural credit

– Supporting cooperatives to improve management

capabilities/sophistication

▪ Evaluate economics of supply, demand, cost curve to understand the

benefit of local processing

▪ Need to understand rigorous international quality standards for export

markets

▪ Creating an enabling environment for processors/buyers to enter the

market e.g., access to land, incentives

▪ Develop efficient access points for export e.g., dedicated air facilities, to

ensure maintenance of cold chain


C

21

Kenya can support a strong beef industry

Growing market demand Kenya’s potential is currently under utilized

� East Africa – Tanzania, Uganda

� Middle East markets – UAE, Kuwait,

Qatar, Saudi Arabia

� Central Africa – DRC

� Northern Africa – Sudan, Egypt (10

tonnes/week)

� Targeting – China, Libya, Malaysia

Growth of

export

markets

FOCUS SECTOR EXAMPLE: BEEF

• 80% of Kenyan land area consists of arid/semi-

arid (ASAL) land, ideal for cattle production

Kenya has significant land suitable for cattle

production

1

The sector is has under-utilised processing capacity2

• Live cattle is exported for processing

• Processing capacity is available, but often not

up to standard

D

22

� Global market for fresh meat and fish is

$640 billion and growing

Market size

There are many challenges across the value chain

Linkages within the

systemProduction Processing

Marketing and

distribution

1 2 3 4

▪ Absence of disease free

zones

▪ Lack of formalised

farming techniques

▪ Issues with animal feed

– poor quality and high

cost ingredients

▪ Uneven distribution of

livestock feed

▪ Poor water supply

▪ Inadequate extension

activity

▪ Lack of appropriate

credit facilities

▪ High transport costs

▪ High cost of live cattle

▪ Lack of adequate

slaughterhouses that

meet international

standards

▪ Major exports of live

animals to countries

where processing is

better controlled and

affordable e.g.,

Mauritius, Egypt

▪ Lack of health and safety

standards enforcement

▪ Few market players –

KMC, QMP, Farmers

Choice, Alpha

▪ Limited variety of

products

▪ Few value-added

products

▪ Kenya prices are

uncompetitive with

international prices e.g.,

Brazil and Argentina

▪ Weak and inefficient

linkages between

demand and supply


D

23

Interventions in Kenya’s beef industry

▪ Accelerate the development of disease free zones

▪ Improve productivity

– Improve distribution of feed to fatten cattle

– Increase support to farmers to formalise farming techniques

▪ Drastically increase production

– Encourage entrance by private sector players to establish small

abattoirs or meat processing facilities

– Support slaughterhouses to achieve export standards to enable

increased supply to high potential markets such as the EU

– Kenya Meat Commission is set for privatisation to help it increase its

output and efficiency and enable the country meet demand of an

expanding export market

▪ Put controls on exports of live cattle


Production

Processing

and

marketing

D

24

There is huge potential to develop a fishing industry

% marine fisheries production potential

Production potential Current situation

▪ Tuna is one of the main fish species targeted by the

industrial fishers in the Western Indian Ocean

▪ 80% of the Indian Ocean catch is accounted for by

countries in the region (Kenya, Tanzania, Mauritius,

Seychelles, Madagascar, Somalia, Comoros and

Mozambique)

▪ This is equivalent to 826,000 tonnes with an estimated

value of between $ 3-4 billion per annum

▪ In Kenya, tuna fishing is undertaken within the coastal

near shore waters and the 200 nautical miles Economic

Exclusive Zone (EEZ)

▪ Inshore marine fishing is mainly artisanal

– ~4,800 un-motorized boats produce about 6,000-7,000

tons of fish annually, estimated at KES 500m

▪ Offshore fisheries zone is mainly exploited by vessels from

Distant Water Fishing Nations (DWFNs)

– Some of the fish is landed in Kenya and exported,

whilst some is landed directly in the Distant Nations

– License fees earn the Government ~ KES 30 million per

year (~US $ 400,000)

SOURCE: EU/Indian Ocean Commission

95

Total potential for marine fishing is

estimated at 150,000 Mtons

5

Current production

is only 7,000 Mtons

FOCUS SECTOR EXAMPLE: FISHING

E

25

There are challenges in wild catch and aquaculture

▪ Lack of infrastructure to take

advantage of its geographic location

along the richest tuna belt in South

West Indian Ocean

▪ Lack of modern commercial size

fishing vessels

▪ Lack of monitoring allows for greater

frequency of illegal fishing incidents

▪Weather patterns influences fishing

production for small vessels

▪ Lack of expertise regarding fish health

and pond conditions

▪ Limited managerial experience of fish

farmers

▪ Lack of capital and infrastructure to

sustain farming operations

▪ Limited availability of fish feed and/or

fish feed mills

▪Need for more stringent

certification for

aquaculture products in

order to meet

international health

standards

▪ Inferior processing

methods

▪ Limited distribution chain

Roe and

smoltFarming

Trade, Sales,

MarketingProcessing

Fish feed

Fish meal/

oilHandlingSea harvest

Wild catch industry Aquaculture industry Both industries


E

26

Kenya must develop a major fishery industry

SOURCE: GoK

Interventions

Establish a joint venture with equity held by a major private company and Kenya

government where GoK would grant exclusive fishing rights and protection to the JV,

while the private company would supply fishing vessels and other capital

Establish a joint venture with equity held by a major private company and Kenya

government where GoK would grant exclusive fishing rights and protection to the JV,

while the private company would supply fishing vessels and other capital

Establish fish processing industries and associated infrastructure (e.g., modern cold

storage facilities) in the greater Mombasa area.

Establish fish processing industries and associated infrastructure (e.g., modern cold

storage facilities) in the greater Mombasa area.

Train a large number of Kenyans to undertake industrial fishing and processingTrain a large number of Kenyans to undertake industrial fishing and processing

Adopt appropriate policy framework for commercial fishingAdopt appropriate policy framework for commercial fishing

Establish the Coast Guard and its capacity, including adequately equipped vessels,

ground-based radar systems, and properly trained personnel

Establish the Coast Guard and its capacity, including adequately equipped vessels,

ground-based radar systems, and properly trained personnel


E

27

East Africa will see $100 billion infrastructure investment

Increasing investment in infrastructure Priority opportunities

SOURCE: Global Growth Compass

FOCUS SECTOR EXAMPLE: BUILD LOCAL INDUSTRY

Transport

Energy

Other

utilities

Real Estate

Total projects value

(USD B)

78

9

8

3

Example projects

Lamu Port-S Sudan-Ethiopia corridor

Mombasa-Malaba Railway

Tanga port and railway

High-voltage line installation

Eastern Electricity Highway Project

Mnazi Bay - Dar NAG pipeline

Olkaria N geothermal plant

Karuma hydropower plant

Nairobi Metro Services Improvement

SEZ, e.g. Konza technology city

development

Refinery in Kabaale in Hoima district

National Housing Corp Real Estate

develop.

Private sector developments

• Cement

• Steel (structural,

rods, bars)

Basic

materials

Equipment

Services

• Furniture

• Locomotive

assembly

• Construction

3

28

Interventions to develop these sectors

Challenge Intervention

SOURCE: Global Insights, Team analysis

FOCUS SECTOR EXAMPLE: BUILD LOCAL INDUSTRY

Wood

products

Steel

Cement

Cons-

truction

services

+7% p.a.

6.14.33.5

+3% p.a.

1.3

83%17%

1.2

79%

21%

0.6

58%

42%

Consumption in Kenya

USD Billions

+7% p.a.

0.6

19%

81%

0.4

20%

80%

0.5

11%

89%

+6% p.a.

0.3

22%78%

0.2

23%

77%0.2

13%

87%

2007 2012 2017

Imports

Local production

Breakdown unavailable

Key challenges

• Lack of scale

• High cost of capital

• High energy costs

• Significant cost pressure

from Asian competitors

• High energy costs

• Skills and capability

depending on the

sector

• Availability of low cost

machinery

• Sustainable use of

resources

• Skills and capability

Opportunity / approach

• Support local growth and expand exports

within and outside EAC (e.g., to the US

through AGOA)

• Leverage availability of local resources

• Increase local production (e.g., by

creating mini steel mills) to displace

import of billets, wire rods

• Use scrap metal, DRI or HBI , leverage

availability of Iron Ore

• Support industry growth

• Expand local sector from cement

grinding, to include clinker production

• Support local cement production

• Build and expand local construction

sector into new areas through incentives

for local firms and capability transfer

• Reform tax incentives

3

29

Transforming government industries can unlock latent

value in addition to the focus sectors

FOCUS SECTOR EXAMPLE: GOVERNMENT INDUSTRIES

4

First, we will categorise key government industries based on

strategic relevance and operational health…

…then we will determine the target

recipients for investment

IndustryInvestment

required

Pan Paper Mills Kes. 1bn

Sugar Industry Kes. 5bn

Coconut/ cashew

nut

Kes.500m

Pyrethrum Industry Kes.1bn

Livestock industry Kes.1bn

Coffee industry Kes.1bn

Total Kes.9.5bn

Relevance

to strategy

Organisational health

High

Low

StrongWeak

Invest for

growth

Exit

industry

Consider

privatisation

Invest in

improving

organisation

PRELIMINARYILLUSTRATIVE

30

We can increase Kenyan GDP by up to $1 billion just by

increasing broadband internet to 50% penetration

GDP increase per 10% increase in broadband

penetration, Percentage

Middle East 0.1

India 0.3

Malaysia 0.5

Germany 0.6

France 0.7

Victoria (Australia) 0.8

US 0.8

UK 0.9

New Zealand 0.9

OECD high /

Medium income

0.9-

1.5

Broadband impacts economy

▪ GDP contribution from direct

network investments

▪ Impact of broadband investment

on suppliers of equipment,

content (South Korea application

development ecosystem)

▪ Foreign direct investments as a

result of ICT infrastructure (e.g.

Argentina ICT sector growth)

▪ More efficient business processes

because of connectivity (e.g.

Singapore development of supply

chain – port, Changi Airport and

Singapore Airlines)

▪ Increase in knowledge and

services – improved health and

education services (e.g. online ICT

training resource in Sweden used

by 35% of teachers)

SOURCE: ITU ; Press clippings; Companies websites; World bank

1 Increase of 25% implies GDP elasticity of 2,5x 0.65 = 1,6% of GDP; GDP level for 2011 assumed = 33,62 billion (World bank)

2 Employment elasticity of 0.5 of GDP growth, 0.5% increase in employment per 1% increase in GDP

ESTIMATES

• McKinsey & Company Proprietary and Confidential

• Up to $1 billion in

GDP increase in

Kenya by raising

broadband

penetration from

1% to 50% (i.e.

3% of GDP)1

• This would create

140,000-270,0002

jobs alone

FOCUS SECTOR EXAMPLE: ICT

5

31

Attracting investment is hard due to low competitiveness

ENABLERS: EASE OF DOING BUSINESS

SOURCE: KenInvest, Kenya Economic Survey 2010 and 2011; World Investment Report 2012

6

Kenya is currently attracting the smallest

proportion of FDI in Eastern Africa

Our competitiveness has been falling as an

investment destination:

▪ Low “doing business” indicators

▪ Low on the global competitiveness index

Issues include:

▪ Tedious and time consuming procedures

▪ Multiplicity of institutions involved

▪ Silo culture in government

Total FDI inflows to Kenya

USD million

0

200

400

600

800

1000

1200

Overall ranking in Ease of Doing Business

129122

3254

20142013

Kenya Rwanda

32

We will increase our ranking with targeted reforms


29

26

44

73

32

90

10

0

16

33

3

465

158

125

10

9

8

6

9

9

8

8

6

9

3

Registering property

Dealing with construction permits

Starting a business

4444Enforcing contracts

Trading across borders

Paying taxes

Getting electricity

41

Post-reformCurrent

1847

60

95

90

33

163119

143156

166

166

151

134

Procedures

Number

Time it takes

Days

Ranking

Doing Business indicator

Doing Business indicator 2014 Rank Proposed changes

Resolving Insolvency 123 Reduce duration from 4.5years to 1.5 years Enact the Insolvency Bill

Protecting Investors 98 Allow access to all corporate documents before trialRegulate approval of related

party transactions

Getting Credit13 Enforce legal rights and maintain a unified credit

information system. Enact the Insolvency Bill

Other reforms necessary

6

SOURCE: KenInvest, IFC Doing Business indicators 33

We will implement through a “one-stop shop”

Key elements of our approach

• Roll out investment Pitch Book – March 2014

• Roll out One Stop Shop model for Kenya – April 2014

• Host Inter-

Governmental forum –

March 2014

• 1st Global Investor

conference On Kenya to

be Launched in June

2014

• Target $1 Billion in FDI

2014/2015


6

34

We have an advantage over Africa in most skill dimensions

Blockages to

hiring

% share of total

reported

reasons for not

hiring

Skills supply in

current

workforce

% of companies

responding that

current

workforce has

insufficient skills

6.5

7.8

6.3

10.7

2

4

6

5

7.4

9.1

8.3

9.3

Education

Soft skills

Technical skills

Work experience

10

9

12

13

Education

Soft skills

Technical skills

Work experience

Africa Kenya

ENABLERS: SKILLS

7

SOURCE: McKinsey survey

Kenya trails Africa Kenya leads AfricaLower scores preferable to higher scores

35

We will apply best practices in national skill-building programs

Results

▪ SENAI (The National Industrial Apprenticeship Service) was

established in 1942 and offers technical education and

vocational training (such as apprenticeship, qualification courses,

technical courses) across a wide range of sectors

▪ The industry imposes a 1% levy on payroll (industries, fisheries,

transportation and communications) to fund training programs

▪ The chambers of employers control a host of institutions (of

which, one is SENAI) with full independence under private sector

statutes.

▪ Increased employment opportunities

– 90% of employers prefer to hire from SENAI

– 78% employability of former SENAI students

▪ Increased popularity and track record of program

– Over 55 million total enrollments1

– Over 2.3 million annual enrollments

▪ Subsector strengthening through increased

competitiveness and growth of Brazil’s industrial

subsectors

▪ Increased industrial contribution through consulting

services, knowledge sharing, and equipment provision

Brazil

▪ Program directly oriented towards low income older workers

and the unemployed youth

▪ Government created training centers focused on capability

building in line with specific industry demand (e.g., managerial

and business development skills for textiles industry and

scientists, engineers and geologists for Oil & Gas, Steel and

mining sectors)

▪ Improved reach and relevance

– 162 public training centers in operation, financed

mainly through government budget allocations

– 50,000 people trained by public centers in 2005

Indonesia

▪ Training program geared toward workers at SMEs with largest

potential to impact Moroccan economy

▪ 6 month program (2 days a month) focused on Capability

building, implementation support & knowledge sharing

▪ Employees spend remaining days at work implementing

manufacturing skills learned from training program

▪ Improved corporate productivity shown by average

increased productivity of 50% of 30 initial companies

who completed 6 months training

▪ Improved national GDP: Anticipated 1.5% increase in

GDP over 3 years due to program

Morocco

Detail

ENABLERS: SKILLS

Case examples

7

36

You cannot create a viable industrial zone without some existing (natural)

and sustainable competitive advantage

Don’t put all your eggs into one basket – build the zone around 2-3 sub-

sectors

The industrial zone should have 30,000 ‘core jobs’ to accelerate growth

and create maximum cluster effect

Get the private sector involved in governance of cluster

The regulatory ‘special economic zone’ environment is important, but not

sufficient factor in attracting investors

SOURCE: Team analysis

We will create SEZs and an FTZ for target sector growth using

key success factors drawn from global SEZ implementations

ENABLERS: SPECIAL ECONOMIC ZONE

7

37

Inc

en

tive

fra

me

wo

rkD

oin

g b

us

ine

ss

an

d

ad

min

istr

ati

ein

terf

ac

e

Ro

le o

f d

eve

lop

er-

ma

na

ge

rWe will use a systematic framework for creating the SEZ

Tax on business

Tax on employees

Training aid

Set-up aid

Administrative one-stop-shop (company set-up)

• State contribution to/payment of training expenses

• Level of State payment of initial set-up investment

• Proper one-stop-shop: assistance with and centralization of administrative procedures for company set-up and formation

• Delegation of administrative duties (e.g. immediate issue of permits)

DescriptionRising levels of competitivity/aggression

>20% 10-20% 5-10% < 5%

>30% 20-30% 10-20% < 10%

>30% 10-20% 5-10% < 5%

<20% 20-30% 30-50% > 50%

<5% 5-10% 10-20% > 20%

Labor flexibility• Flexibility of labor law (e.g. short-term contracts, working hours)• People flows (visas and work permits for expats)

19 indicators

Doing business -administration

• Simplification of/reduction in repetitive administrative procedures in the zone:– Tax (e.g. tax/social security returns)– Customs regime– Foreign exchange regime

Not aggressive Very aggressiveNot very aggressive

• Company tax (IS)

• Value added tax (VAT)

• Customs regime (customs duty on import of goods)

• Rate of income tax for workers

• Rate of income tax for executives

• Social security contributions rate for the employer

• Social security contributions rate for employees

• Rate of income tax for expats

• Social security contributions rate for the employer (expats)

• Social security contributions rate for employees (expats)

Integration in development terms

• Delegation of planning powers:– In zone (e.g. development/construction restrictions)– Off site (e.g. water/power connections, roads)

• Interface with the city (e.g. transport links to the city)




>30% 20-30% 10-20% 0-10%

> 20% 15-20% 5-15% 0-5%

Subsidized pay>30% 20-30% 10-20% 0-10%

> 15% 10-15% 5-10% 0-5%

> 20% 15-20% 5-15% 0-5%

>30% 20-30% 10-20% 0-10%

> 15% 10-15% 5-10% 0-5%


7

38

We will ensure our SEZ and FTZ are competitiveIn

ce

nti

ve

fra

me

wo

rkD

oin

g b

us

ine

ss

an

d

ad

min

istr

ati

ein

terf

ac

e

Ro

le o

f d

eve

lop

er-

ma

na

ge

r

Tax on business

Tax on employees

Training aid

Set-up aid

Administrative one-stop-shop (company set-up)

• State contribution to/payment of training expenses

• Level of State payment of initial set-up investment

• Proper one-stop-shop: assistance with and centralization of administrative procedures for company set-up and formation

• Delegation of administrative duties (e.g. immediate issue of permits)

Description

Labor flexibility• Flexibility of labor law (e.g. short-term contracts, working hours)• People flows (visas and work permits for expats)

Doing business - administration

• Simplification of/reduction in repetitive administrative procedures in the zone:– Tax (e.g. tax/social security returns)– Customs regime– Foreign exchange regime

• Company tax (IS)

• Value added tax (VAT)

• Customs regime

• Rate of income tax for workers

• Rate of income tax for executives

• Social security contributions rate for the employer

• Social security contributions rate for employees

• Rate of income tax for expats

• Social security contributions rate for the employer (expats)

• Social security contributions rate for employees (expats)

Integration in development terms

• Delegation of planning powers:– In zone (e.g. development/construction restrictions)– Off site (e.g. water/power connections, roads)

• Interface with the city (e.g. transport links to the city)

Dynamic view: rising levels of aggression

MOROCCO EXAMPLE


7

39

Small and medium-sized enterprises are vital to our future

Current status

• Kenya’s SME role:

‒ 20% of GDP

‒ 80% of total employment and

90% (591,000) of all new jobs

created in 2012

‒ Poverty reduction through

generation of income

‒ Minimizing rural-urban migration

• Binding constraints to SMEs

competitiveness include:

‒ Inadequate access to financial

services (industrial financing)

‒ Poor markets access,

‒ Lack of appropriate worksites

‒ Inadequate skills and low

technologies

Overall impact

potential

Creation of 700,000

jobs annually

Opportunity

• Enhancing Value Addition to agricultural

and natural resources in devolved

governments

• Exploiting the policy on 30% of all

public procurement to the youth

• Cross-border trade for EAC regional

market

• Accelerate Biashara Bank (KIE, YEDF,

WEF, UWEZO) to earmark 30% of the

funds to Industrial Financing for

product & market development, asset

financing, marketing, working capital

• SME Parks to provide Common

Manufacturing Facilities, promote

cluster development, develop local pool

of skilled labour, network of firms, and

promote entrepreneurship

• Incubation Support Programme to

promote technological upgrading,

capacity building, IPRs, quality standards

(4K Programme)

Additional funding in FY2014/15 of KSh. 200m for master planning and architectural designsAdditional funding in FY2014/15 of KSh. 200m for master planning and architectural designs

ENABLERS: BUILDING SMEs

8

40

We will apply global best practices to support SME growth

SOURCE: Eurostat, McKinsey analysis

Enabling factors Interventions

Finance

SMEs from

inception

to scale

Promote

entrepre-

neurial

culture

Shape a

fertile SME

ecosystem

Targeted education

programs

Targeted education

programs

• Foster development of education programs that boost the attractiveness of

entrepreneurship and encourage an entrepreneurial mind-set

• Incentivize business training and support for SMEs

Innovative

environment

Innovative

environment

• Support the promotion of entrepreneurship through the creation of

associations, televised contests, and business-plan competitions

Employee skillsEmployee skills• Align the skill requirements of the SMEs and education offerings

(primary and secondary education, vocational training)

Low regulatory

burdens

Low regulatory

burdens

• Streamlined cumbersome registration process

• Simplify accounting/auditing standards

Collaboration

between

stakeholders

Collaboration

between

stakeholders

• Encourage cooperation between established companies and SMEs through

targeted tax breaks

• Promote relevant research and exchange of talent among academia and SMEs

Access to capitalAccess to capital

• Ensure availability of financing for each stage of enterprise development,

e.g., address the “missing middle” perhaps via an Industrial Development

Bank to support equity markets dedicated to high-potential SMEs

Growth stimulusGrowth stimulus

• Develop solutions for high-risk, low-qualified entrepreneurs to help fight

poverty, long-term unemployment, and social divides

• Provide incentives to grow SMEs in selected competitive sectors e.g., through

preferred supplier models where procurement relies on SME component

ENABLERS: BUILDING SMEs

8

41

SOURCE: World Bank “Special Economic Zones: Performance, Lessons Learned, and Implications for Zone Development”; Press Articles;

MGI Economics Research Team Analyses

An investment promotion agency (IPA) is a government agency (or occasionally a nonprofit

organization) whose mission is to attract foreign investment to a country, state, region or city

1 Sorted by the stages of an IPA’s role in attracting FDI

Why are they successful?

▪ Overcome information

asymmetries by spreading

awareness about

investment opportunities

▪ Centralize information

gathering, cutting down on

costs to potential investors

▪ Speed up screening and

processing times

“Investment promotion

agencies are central to

attracting foreign direct

investment” – United

Nations Conference on

Trade and Development

“IPAs are often key players,

being on the front line of

targeting investors and

marketing the country as a

whole” – International

Institute for Environment and

Development

ILLUSTRATIVE

▪ Marketing

▪ Investor targeting

▪ Information provision

▪ Use of specific

promotional tools

▪ Investment facilitation

▪ One-stop clearance

▪ Continued investment

support

Mission/objective 1

We will create an investment promotion agency to facilitate

the investment process ...

ENABLERS: INCREASING FOREIGN INVESTMENT

9

42

Investment

excellence

driven by

Investment

Promotion

Agency

Supporting

enablers

Design Execute Enforce

Develop customized

pitch books with

tailored value

proposition to

prioritised investors

in key sectors

Engage an army of

investment officers to

source and pitch deals

to attract enough

investors to meet the

required level of

investment per year

Investment and

Enforcement agency to

ensure quality of

committed and

deployed investment

Plug-and-play industry ecosystem

Business friendly environment and a cosmopolitan society

▪ Provide large scale infrastructure with proximity to efficient ports and logistics providers

▪ Develop plug-and-play facilities with well-connected logistics and supporting infrastructure to ensure quick ramp up times and assured supply

▪ Provide clear and transparent investment rules and governance

▪ Ensure ease of establishing and operating business to achieve top position in “Ease of Doing Business”

… and create an enabling environment for investors

ENABLERS: INCREASING FOREIGN INVESTMENT

9

43

We will establish a formal ministerial delivery mechanism

SOURCE: McKinsey

Description Tasks

Industrial

Development and

Delivery Board

▪ Leads delivery programme

▪ Chaired by the Minister

▪ Delivery Unit will act as the Secretariat

▪ Meetings will be held on a monthly basis

▪ Monitors Delivery Programme

▪ Problem-solving through escalation

▪ Counsel and guidance to Delivery Unit

Ministerial

Delivery Unit

▪ Independent unit in the Ministry

responsible for ensuring delivery

▪ Leader reports to Minister and PS

▪ Leader has direct authority to assign

resource

▪ Leader can hold Departments accountable

▪ Performance management and reporting

to Delivery Council

▪ Weekly monitoring of Departments

▪ Provides problem-solving assistance to

projects

▪ Secretariat to the Delivery Council

▪ Communications and development work

Steering

Committees

▪ Responsible for overseeing delivery of

specific programs

▪ Chaired by the Department Head

▪ Meetings will be held on a monthly basis

▪ Performance management of

Departments

▪ Escalates issues that require intervention

▪ Reviews budget spending progress

▪ Monitors daily and weekly

implementation

ENABLERS: DELIVERY

10

44

This will include 3 sets of tools to measure performance

Implementation tracking tool

▪ Each KPI project will have an

implementation plan

▪ Ministerial Delivery Unit to track

daily and weekly the progress of the

implementation plans

▪ Weekly and monthly progress

reports are submitted to SteerCo

and Delivery Council

▪ Delivery Unit will report at least 3

highlights in weekly updates

A KPI dashboard

▪ Delivery Unit will track, monitor and

report the KPI progress of each

Department to both the SteerCo

and Delivery Council, weekly

▪ SteerCo and Delivery Council will

refer to the KPI dashboard report to

chase Heads of Departments on

yellow and red status issues

B PS Scorecard

▪ Three-way communication in

establishing Department Head’s

KPIs (Minister, Head of Delivery Unit

and PS)

▪ PS sets targets and KPIs, together

with detailed implementation

programmes

▪ Minister approves KPIs and

implementation plans, suggest new

focus areas and assess PS’s

performance during Performance

Dialogues

▪ Delivery Unit Head facilitates

Performance Dialogues, provides

advisory support and guidance

C

ENABLERS: DELIVERY

SOURCE: McKinsey

10

45

Feb Mar Apr May Jun Jul Aug

06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Develop sectors 1 & 2

Prioritise

turnarounds

Develop targeted interventions for up

to 6 organisations

Develop SEZ value proposition and conceptual

design, infrastructure, governance, etc

Develop sectors 3 & 4

Design FDI and Investment

Promotion Agency approach

Assign tasks,

build roadmap

Prioritize

focus sectors

Design solutions on prioritised issues

e.g. skills bootcamp, credit etc

Execute quick wins

& resolve issues Execute

Identify required skills

for each focus sector

Develop integrated plan for

building required skills

Diagnostic: SME landscape

barriers & solutions

Establish

MDUExecute against delivery outcomes and roll-out ministerial effectiveness program

Activity

▪ Sector strategies

& roadmaps

▪ Transform

industry

▪ SEZ strategy

Sector strategy,

SEZ, FDI

▪ FDI attraction

Ease of doing

business

Skills

development

Catalyse SME

growth

Build delivery

capability

Immediate

In sequence

We have designed a carefully sequenced program to deliver

46

▪ Identify and prioritize the critical issues and barriers, and specific owners within Govt

▪ Design solutions, build alignment, and develop roadmap for various stakeholders

▪ Launch quick wins and implementation plan for longer-term solutions

Improve ease of doing business from

123rd in the world to top 10 in 5 years

Drive key sectors and leverage AGOA

and European duty-free agreements to

grow GDP and create jobs

▪ Prioritize sectors based upon size, employment and ability to compete

▪ Complete economic build up vs. growth objectives

▪ Launch 4 detailed sector strategies to identify key sub-sectors and requirements to win

▪ Identify critical enablers (e.g. infrastructure, skills, etc)

▪ Validate strategy with key private sector players

▪ Identify potential anchor investors and begin delivery

▪ Establish a competitively advantaged

SEZ/FTZ

▪ Benchmark SEZ relative to regional and global competitors

▪ Design value proposition including infrastructure, financial, labor, etc

▪ Design governance and ownership options, assess financing needs and anchor investors

▪ Create an FDI engine to increase FDI

by 5x

▪ Design and articulareoverall Kenya Value Proposition and identify key barriers

▪ Establish org capacity and design/align strategy for investment promotion (inc President)

▪ Identify target investors, develop customized pitchbooks, launch roadshows, etc

Establish a robust delivery capability ▪ Establish ministerial delivery unit capability to ensure delivery of the above 1-4

programs

▪ Develop scorecard and performance tracking approach

▪ Assess overall program funding requirements and resolve

Catalyze growth in small and medium

sized enterprises

▪ Map the landscape of SMEs and likely growth opportunities

▪ Determine barriers to growth and practical solutions to resolve

▪ Develop quick interventions which can work at scale

▪ Create roadmap to implement

▪ Prioritise and restructure failing

industries with capacity for

turnaround

▪ Prioritise organisations for urgent intervention and are strategic or sector priorities

▪ Develop a series of targeted interventions on an institution by institution basis

▪ Proceed with turnaround program

We have identified the activities that need to be undertaken

Support skill development for key

sectors

▪ Identify key skills required for each sector

▪ Develop integrated plan for how to build each of the required skills

47

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