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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
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
15
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
2222DBA -ENG. HB NJUGUNA 22
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,
2323DBA -ENG. HB NJUGUNA 23
GeneralContractors
GeneralContractors
GeneralContractors
Contractor Progression Path
CL
IEN
TS
CL
IEN
TS
CL
IEN
TS
SmallContractorsAt locallevel
MediumContractorsAt Nationallevel
LargeContractorsAtInternationallevel
Subcontractors
SpecialistContractors
Subcontractors
SpecialistContractors
SpecialistContractors
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
2626DBA -ENG. HB NJUGUNA 26
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).