Kenya’s Entrepreneurs Key in accelerating Country’s industrial transformation – African Economic Outlook 2017

By David Indeje

Global growth prospects remain uncertain having an impact on spending and investment falling between 3-3.5 percent.

Africa’s real GDP growth slowed down to 2.2 percent in 2016, mainly due to the continued fall in commodity prices and weak global economic growth and adverse weather conditions, which impacted on agriculture production in some regions. However, it is expected to rebound to 3.4 percent in 2017 and 4.3 percent in 2018.

The Nairobi Declaration, announced at the end of the two days Sixth Tokyo International Conference on African Development (TICAD VI) summit held in Kenya, outlined new emerging challenges for Africa such as the falling of commodity prices, outbreak of Ebola virus disease and the rising wave of radicalization, acts of terrorism and armed conflict.

The declaration called for the need to diversify and industrialize the continent’s economy, develop human resources and strengthen health-care systems.

African governments need to integrate entrepreneurship more fully into their industrialization strategies, according to the African Economic Outlook (AEO) 2017 released Monday at the African Development Bank Group’s 52nd Annual Meetings.

Kenya is among the 16 countries Bloomberg has ranked as a risk in its Global Risk Briefing.

Bloomberg states, “Politics is roiling markets as the Trump era dawns, Chinese leadership turns over and major elections sweep through Europe. Bloomberg’s risk map signals where danger lurks.”

The World Bank has revised its outlook on Kenya’s 2017 GDP growth downwards, to 5.5 percent from 6.0 percent previously citing:  the slowdown in private sector credit growth that has been persistent since late 2015 and may worsen as a result of the cap on interest rates resulting in slow growth in SMEs, and the prevailing drought that has affected the agricultural sector.

“We expect GDP growth for 2017 to be between 5.4 percent – 5.7 percent, supported by government spending on infrastructure and recovery of the tourism sector,” according to Cytonn Investments Analysts.

According to the AEO 2017 Outlook, “In fact, there are promising developments across the continent. Africa’s growth increasingly relies on domestic sources, as shown by dynamic private and government consumption that combined, accounted for 60 percent of the growth in 2016.”

“The outlook (for Kenya) is positive, with growth projected at 6.1 percent in 2017 and 6.5 percent in 2018. Consumer Price Index (CPI) inflation projections remain slightly above 5 percent over the same period,” the report states.

To withstand the global markets volatility, Kenya is diversifying its dependence on commodity exports by establishing more favorable environments for private investment in downstream agricultural processing, manufacturing, and services to help expand job creation, accelerate long-term growth, reduce poverty, and minimize vulnerability to price volatility.

“The country aims to have a robust, diversified and competitive manufacturing sector to help its transformation into an industrialized middle-income economy by 2030. The overall goal for the industrial sector is to increase its contribution to GDP by at least 10 percent per annum and propel the country towards becoming Africa’s industrial hub.”

Phylis Wakiaga, CEO of Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya however, states, “In order for us to advance our economy and realize this goal, we must focus on increasing and sustaining four critical facets; job creation, revenue generation, value addition and export earnings. A thriving manufacturing sector is able to deliver all four and much more.”

For Wakiaga, if the government wants the manufacturing sector to thrive, “Predictability and investor confidence are mutually inclusive. Investors derive confidence to invest where they trust policy-makers and the government’s intent to maintain a predictable environment as much as possible in order for their investments to yield returns.”

“Without predictable policies, investors are not only discouraged from scaling up their business, but they begin seeking alternatives which are basically more suitable, predictable and secure markets to relocate their businesses,” she adds.

The AEO also calls for investments in new technologies to spur industrial growth as they facilitate small-scale manufacturing. Additive manufacturing allows firms to cut down on production, by reducing the cost of customization. It enables creative firms to compete for thanks to their knowledge of local needs. “New business models based on the collaborative economy allow small firms to take advantage of underutilized resources such as computing power, transportation vehicles and office space. They permit small firms to become more competitive and improve the efficiency of environmental resource use.”