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Business: Let's lift Kenya's industries but be alert to risks

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by November 25, 2016 General

Industrialisation Cabinet Secretary Adan Mohammed listens to a point from Devki steel mill chairman Narendra Raval during a familiarization tour of the company in Ruiru recently. Mohammed announced three heartwarming developments last week that have the potential to transform the economy in a few short years. (PHOTO: COURTESY)

Industry, Trade and Co-operatives Cabinet Secretary Adan Mohammed announced three heartwarming developments last week that have the potential to transform the economy in a few short years.

But the Cabinet Secretary will need to be fully awake of pitfalls that could rob the country of its just dues just as well as other well-intentioned but badly implemented projects in the past.

First, and potentially, most exciting was the news that talks between the Government and two foreign investors to inject Sh203 billion into the budding steel industry are at an advanced stage.

The Cabinet Secretary was right when he said the reason the steel industry was so important is that it is a key pillar in the establishment of a robust manufacturing sector. Indeed, a short excursion through the country’s industrial areas reveals that there is a dearth of what the world refers to as industry. At best, what Kenya has are light industries.

The shortage of real industrial is what explains the meager 11 per cent contribution of the sector to the national economy. Adan Mohammed’s prediction that a more robust industrial sector can contribute up to 20 per cent of the Gross Domestic Product (GDP) by 2020 is, therefore, spot on.

But for this to happen, and particularly for this growth to percolate throughout the rest of the economy, the Government will have to do more than produce a conducive business environment. It has to roll up its sleeves and get down to work alongside the foreign investors many of whom have a track record of taking home the bacon leaving locals to scramble for the leftovers.

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This explains when the other announcement that the Government is planning to form a special fund to finance projects that the private financial institutions find too risky is equally exciting. It is too bad that the setting up of the fund will necessitate the merging of already existing state-owned financial institutions.

But if truth were to be told, these state institutions—Industrial Development Bank, Kenya Industrial Estates, Industrial and Commercial Development Corporation and Agricultural Finance Corporation– may have benefited a few well-connected individuals, while they remain largely unknown to the vast majority of Kenyans including some well-educated and travelled ones.

This should be a cautionary tale on how not to attempt to develop a country by favouring a few politically-connected individuals at the expense of the public from whom the finances dished out are sourced.

Many of the beneficiaries of these funds have also been known to refuse to pay the loans advanced to them leaving these institutions as a drain on the exchequer year-in year-out.

Hopes are high, therefore, that the new breed of leaders at the helm of the country’s affairs will learn from this history of misguided public expenditures as they craft the policies that will govern the Kenya Industrial Transformation Plan.

Perhaps, the policy makers might benefit from a short tour of Japan and Singapore to learn how the former rose from the ashes of the Second World War and how the latter transformed a rocky fresh-water-deficient island into modern industrial and technological giants.

The secret behind these countries’ success is a clear designation of industries that would transform their respective economies while lifting the millions of their citizens from poverty. This was followed by a clear-headed development policy that required the pouring in of public funds into these enterprises. While it is true Japan benefited hugely from development loans borrowed from the United States government and development banks, Singapore had to pull itself up on its own bootstraps.

Kenya can, however, start a notch higher than these countries because it does not need to raise all the funds required since it has foreign investors willing to put their money into what they see as future gold mines.

But it would be naïve to allow them to own the entire investment, especially when it is clear its success will depend on Kenya’s continued support as the global steel industry is notorious for its cyclical nature. This is often compounded by leading steel manufacturing countries who seek to unload their surpluses by dumping them in other countries at highly uncompetitive prices.

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