Supporting manufacturing in Kenya Scoping new activities Nairobi, 29 August 2016 Dirk Willem te Velde, Overseas Development Institute

Introduction: SET and Kenya SET is a DFID funded programme to support economic transformation mainly in DFID partner countries. We work with DFID offices, national governments, private sector, and international organisations and think tanks We are working in Tanzania, Rwanda and Nigeria amongst others A major focus is on manufacturing, because this is a key sector driving economic transformation and employment, and Governments demand this type of work Is there an opportunity in Kenya now? What can government do? Are current policies and strategies sufficient Has it allocated sufficient capacities for the task What might donors (eg DFID do)? How can a programme such as SET using analytical inputs help?

SET approach to economic transformation What is happening? Economic Transformation diagnostics Why is this happening ? Political economy analysis What should be done? Economic policy analysis How to make it happen? Practical policy advice 4

Previous set work on Role of Services in economic transformation (Khanna et al, 2016) Share of services in value added 1960-2013 Share of services in employment (pre/post 2005) High growth services least employment intensive (Kenya) Level of income Source: World Development Indicators, Kenya Statistical Abstract 2014 Note: Change in GDP share (2013-2009), percentage point, and employment intensity (2009) as wage employment divided by value added.

Decomposition of labour productivity change, Tanzania, Kenya and Uganda

Share of manufacturing in GDP (%) Source: World Development Indicators (2015)

Three questions for Kenyan manufacturing Why is productivity so low in manufacturing ? Why is informality not decreasing with economic growth ? Why is there a lack of linkages between services and manufacturing / agriculture ?

Supporting manufacturing in kenya Background papers: John Page – Kenya’s industrialisation and its drivers in a comparative context Anzetse Were - Mapping actors and constraints in manufacturing Phyllis Papadavid – finance and manufacturing Views : Government of Kenya Kenyan Private Sector Donors Think tanks / academia

Supporting manufacturing in kenya Background papers: John Page – Kenya’s industrialisation and its drivers in a comparative context Anzetse Were - Mapping actors and constraints in manufacturing Phyllis Papadavid – finance and manufacturing Views : Government of Kenya Kenyan Private Sector Donors

111 Blackfriars Road, London, SE1 8NJ T: +44 207 9220 300 The Supporting Economic Transformation (SET) is an ODI programme funded by UK DFID to support countries in their quest for economic transformation through data and policy analysis and convening. The views expressed are those of the researchers and do not necessarily represent the views of ODI or DFID. For further information: Sonia Hoque www.odi.org s.hoque@odi.org.uk

The Role of Finance in Kenyan Manufacturing (Papadavid, 201^) Key messages The objective of this scoping paper is to facilitate a discussion to scope out work to enhance Kenya’s manufacturing performance. Two potential areas of focus should be on: Small and medium enterprises (SMEs) obstacles to obtaining finance Improving the availability of financial products Lowering manufacturers’ borrowing costs Reducing informalisation and informational asymmetries about SME borrowers Kenya’s relationship with global financial markets Export promotion and inward FDI promotion not matching economic liberalisation Accessibility of debt and equity finance limited to Kenya’s larger SMEs Reduce exchange rate and interest rate volatility

The Role of Finance in Kenyan Manufacturing I. Key financing statistics: Bank lending

The Role of Finance in Kenyan Manufacturing II. Key financing statistics: Foreign direct investment (FDI)

111 Blackfriars Road, London, SE1 8NJ T: +44 207 9220 300 The Supporting Economic Transformation (SET) is an ODI programme funded by UK DFID to support countries in their quest for economic transformation through data and policy analysis and convening. The views expressed are those of the researchers and do not necessarily represent the views of ODI or DFID. For further information: Sonia Hoque www.odi.org s.hoque@odi.org.uk