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Kenya: A Land of Manufacturing and Investment Opportunities (1)

Kenya, with its vibrant private sector, relatively reliable infrastructure and strong labour force, has long been an economic powerhouse in sub-Saharan Africa. The Big Four National Economic Transformation Agenda (Big Four Agenda) launched in December 2017 has pinpointed several promising areas for growth and investment potential, particularly manufacturing, agribusiness and food processing sectors.

Manufacturing under Big Four Agenda

Like many other African countries, Kenya’s economic growth has been primarily driven by its agriculture and services sectors. The manufacturing sector’s share of GDP has remained stagnant with limited increase in the past three decades, contributing an average of 10% from 1964 to 1973, rising marginally to 13.6% between 1990 and 2007, before falling to an average level below 10% in recent years.[1]

Despite this, the manufacturing sector remains an important policy priority for the Kenyan government. The Vision 2030, the Kenya Industrial Transformation Programme and, more recently, the Big Four Agenda demonstrate the government’s high level of commitment towards revitalising the sector. Kenya seeks to increase the GDP contribution of the manufacturing sector to 15% by 2022, with particular emphasis on boosting sub-sectors such as textiles, apparel and agribusiness.

Kenya has long had a domestic textile and apparel sector, but major growth in foreign investment and exports only arrived with the adoption of the African Growth and Opportunity Act (AGOA) in 2000. This allowed over 6,000 agricultural and non-agricultural products duty-free access to the US market. Under the AGOA framework, Kenyan exports rose by 26% in 2018, which mainly consist of apparel goods.[2] The US remains the top export market for Kenyan apparel, accounting for over 95% of the country’s total apparel exports to the world in 2018, followed by Uganda, Germany and Tanzania.[3] The renewal of AGOA until 2025 is likely to accentuate current growth trends and provide windows for investors and manufacturers to capture export opportunities.

With little home production of raw materials used in fabrics for making apparels, majority of them are imported overseas. For example, Kenya’s cotton sector currently comprises just 40,000 small-scale cotton farmers, compared to more than 200,000 in the mid-1980s when the industry was at its peak.[4] Due to shortages and poor-quality cotton outputs, most of the cotton-based inputs for apparels are imported from China, Asia and neighbouring African countries. However, with the growth of the country’s apparel industry supported by AGOA exports, there is room for developing sub-sectors to support the production value chain, such as cotton growing and ginning, and textile mills for yarn spinning, weaving and knitting.

Chart: Top Five Export Markets of Kenyan Apparel
Chart: Top Five Export Markets of Kenyan Apparel
Chart: Cotton Imports by Country (2018)
Chart: Cotton Imports by Country (2018)

Agriculture Transformation: Food Processing with Potential

Photo: Kenya is the third largest tea exporter globally.
Kenya is the third largest tea exporter globally.
Photo: Kenya is the third largest tea exporter globally.
Kenya is the third largest tea exporter globally.

Besides the apparel sector, opportunities exist in the country’s agribusiness. Kenya is reputed for its cultivation of tea, coffee, grains and fruits. It is the largest exporter of horticulture in East Africa and the third largest tea exporter globally. Kenya also boasts of large herds of dairy cows which provide fresh milk for processing into pasteurised milk and other dairy products such as yoghurt and ice cream.

Located near the Indian Ocean, this is also growth potential for Kenya’s aquaculture industry. In fact, the country has been exporting fish and seafood to international markets such as the EU and Israel, although aquaculture exports only accounted for less than 1% of its total exports. As the raw materials for food processing businesses are readily available and can be sourced locally, there is potential to expand value-addition production and food processing in Kenya.

Not surprisingly, fishery and horticulture products are Hong Kong’s major imports from Kenya, accounting for over half of the city’s total Kenyan imports in 2019. As the city demands for Kenyan fresh food produce, there are untapped opportunities which can be matched with the expertise from Hong Kong companies with the aim of developing the fishery and agribusiness value chains in Kenya, particularly in cold storage facilities and refrigerated transportation for perishable food products, as well as quality packaging for food produce.

Hong Kong’s Food Imports from Kenya (2019)
 SITC Code Item Value (HK$’000) Percentage of Total Imports from Kenya
 034Fish, fresh (live or dead), chilled or frozen 85,091 39%
 035Fish, dried, salted or in brine; smoked fish; flours, meals and pellets of fish, fit for human consumption 18,351 8%
 054Vegetables, fresh, chilled, frozen or simply preserved; roots, tubers and other edible vegetable products, n.e.s., fresh or dried 13,952 6%
 036Crustaceans, molluscs & aquatic invertebrates; crustaceans, in shell, cooked by boiling in water; flours, meals & pellets of crustaceans, fit for human consumption 8,800 4%
057Fruit and nuts (not including oil nuts), fresh or dried7,2783%
074Tea and mate3,5222%
Source: Census and Statistics Department of Hong Kong

 

Investment Zones to Promote Manufacturing

To capture manufacturing and processing opportunities, one could consider Kenya’s export processing zones (EPZs) and special economic zones (SEZs), which the Kenyan government has been pursuing to facilitate a more business-friendly environment and promote the country’s manufacturing sector.

Both EPZs and SEZs offer a range of incentives to support low-cost and smooth operations and encourage foreign investment. These include measures such as a ten-year corporate tax holiday and exemption from duty and VAT. Investors should note that the major difference between EPZs and SEZs is that EPZs aim to support export-oriented businesses, and therefore companies are required to export at least 80% of their output outside Kenya as well as the East African Community (EAC) region in order to operate in an EPZ. EPZs also target companies in particular sectors, such as food processing, textile and apparels, leather and commercial crafts and pharmaceutical and medical products. In 2018, there were 72 EPZs in Kenya, of which 67 were privately owned and operated.[5]

Map: Location of EPZs and SEZs in Kenya
Map: Location of EPZs and SEZs in Kenya

The wide market access which Kenya has achieved through its participation in numerous economic communities and agreements[6] offers a solid avenue for manufacturers to produce their goods in Kenya, coupled with its quality transport infrastructure and competitive export procedures compared to its African peers. Despite Kenya’s manufacturing and export potential, businesses should take note of the operational challenges they may face. The cost of labour in Kenya is uncompetitive as it has the highest monthly minimum wage in the region, which could be unfavourable for labour-intensive industries. Furthermore, import procedures are relatively lengthy, which may result in increased costs and delays for inbound freights. More information on the manufacturing environment in Kenya can be found here.


[1] Kenya Association of Manufacturers

[2] Kenya National Bureau of Statistics

[3] Trade Map, International Trade Centre

[4] Kenya Association of Manufacturers

[5] Kenya Investment Authority and Export Processing Zones Authority

[6] Kenya is a member of the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). It is also a beneficiary under the African Growth and Opportunity Act (AGOA) and EU’s Market Access Regulation.

Content provided by Picture: Melissa Ho
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