Industrialization Models: Lessons for Kenya Thoughts from a paper being developed at Kenya Institute for Public Policy Research & Analysis (KIPPRA)

Introduction-1 Kenya’s industrialisation requires fresh thinking in the face of liberalisation and globalisation. In the circumstances, is it realistic to rely exclusively on the market for industrial development? Can the experience of Industrialised countries and NICs inform?

Introduction-2 KIPPRA is looking at these questions though the paper is not complete The team is exploring the experiences of 3 industrial, 3 newly industrialised economies, and 1 Eastern European economy Kenya’s experience so far is compared with these 7 countries

Industrialisation Principles From the case studies, two broad categories of development policies have guided Industrial and NIEs: Market oriented and Structuralist policies. The latter brings into perspective the important role of the government, However, more emphasis has been laid on the market although none of industrialised countries has strictly developed through that approach Korea and Singapore, which are seen as models of modern industrial development followed state-led strategy

How have the countries done it? The case studies show that 8 factors have led to successful industrialisation: Macro- economic stability Favourable business environment Efficient infrastructure Research and Development FDI Selective intervention Skilled labour Industrial development status

How have the countries done it? XXXX = very high; XXX= high; XX= low; X= very low Country Macro stability Favourable Business environment Efficient infrastructure Selective intervention USA xxxx xx France xxx Germany S. Korea Singapore Hungary Brazil Kenya

How have the countries done it? XXXX = very high; XXX= high; XX= low; X= very low Country R & D FDI Skilled labour Industrial Development status USA xxxx xx France Germany S. Korea x xxx Singapore Hungary Brazil Kenya

Lessons To a large measure, the success of industrial and NIE countries is explained by principles of: Free enterprise; Macroeconomic stability; Human capital; and Appropriate institutional and physical infrastructure For NIEs, this is reinforced by: Selective and functional interventions in limited number of enterprises with potential for technological and development linkages (strategic positioning and niche markets) Efficient and focused bureaucracy, choosing winners, setting and enforcing performance targets

Challenge Due to globalisation, markets are unlikely to deliver industrial development for LDCs. Reasons: Weak competitiveness: low technological innovation & human capital increased international inequality: globalisation has concentrated innovative capabilities in the industrialised countries Externalities that affect proper functioning of market and the need to protect infant industries in the process of industrialisation. Attracting export-oriented FDI increasingly requires selective promotion and targeting

What should Kenya do? Place and nature of industry must be clearly specified in Vision 2030! Commit seriously (harness adequate resources, have performance targets) to the 8 success factors while continuously monitoring outcome: Focus, Focus, Focus! Adapt policies! Develop selective interventions based on specific objective criteria: export markets & country’s comparative and competitive advantages technological adaptation: need to develop requisite capability and skills; intellectual infrastructure is key to facilitate technology transfer promotion of a few successful industries: pick winners and direct resources there!

What should Kenya do? Condition support on performance targets Building and sustaining Kenyan entrepreneurs and local talent; and enhancing innovativeness as a societal value. Develop institutional structures to implement short-term and medium-term actions: lets do what we plan and do it well with or without donor support. Exploit the location advantage of the country for contract manufacturing, i.e. to integrate Kenyan firms into global supply chains.