KEPROBA NEWSLETTER - NOVEMBER 2023

A publication by Kenya Export Promotion and Branding Agency

INCENTIVES FOR PROMOTING EXPORT LED MANUFACTURING IN KENYA

By Molly Wambui: mwambui@brand.ke Kenya’s exports have been increasing steadily over the past five years, from 11.5B USD in 2019 to 13.85B USD in 2022. This can be partly attributed to incentives given by the government of Kenya to various sectors.

The Export Processing Zones (EPZs) have been a key incentive for export-led manufacturing. The program offers a variety of appealing financial, physical, and procedural incentives such as a ten-year corporate and withholding tax holiday, waiver of VAT and customs import duty on imports and a single EPZA license. These incentives attract foreign direct investment and reduce production costs thus making Keyan goods competitive in the global market. Some of the items exported from the EPZs include finished garments, agricultural produce and medical equipment.

Kenya has realized significant gains from the African Growth and Opportunity Act (AGOA), a US trade act that provides qualifying Sub-Saharan African countries with duty-free access to the American market since its inception in 2000. It includes provisions for sourcing apparel and duty-free benefits for about 6,500 tariff lines.

AGOA seeks to promote economic development and exports, as well as improve governance and working conditions. The textile and apparel sector benefits the most from AGOA, accounting for more than 94 percent of total exports under the program. Kenya is the second-largest exporter of textile and apparel products to the US among AGOA-eligible countries, accounting for 23.2 percent of the market.

The sector is important in Kenya’s export-processing zones (EPZs), accounting for more than 90% of the country’s AGOA apparel exports and creating 85% of the >>> Continue on page 2

www.makeitkenya.go.ke

NOVEMBER 2023

NEWSLETTER HIGHLIGHTS Incentives for promoting export led manufacturing in keny Country Aggregation and Industrial Parks (CAIPS) and the impact on export Driving market expansion through manufacturin Kenya’s Industrialization Agenda and the impact on exports The rise of youth-led manufacturing start-ups contributing to export growthBusiness and sustainability What are ESG guidelines in manufacturing

Editorial Maureen Mambo - Editor-in-Chief Mariam Maina - Editor Molly Wambui Irene Van De Graaf Gertrude Mirobi Jonah Karanja Rachael Nyambura Wanjama Jescah Nyambura Ronald Ombamba - Layout

MakeItKenya

>>> Continued from page 1 zones’ jobs.

The National Government through the Ministry of Investment, Trade and Industry (MITI) and devolved governments through Council of Governors (COG) chose to establish the County Aggregation and Industrial Parks in line with the Bottom-Up Economic Transformation Agenda (BETA). The establishment of the 47 County Aggregation and Industrial Parks will ensure aggregation of farm products and their direct sale to markets in and outside the country through a network of international logistics companies. County Aggregation and Industrial Parks have attracted many partners and potential investors including Afro-Exim

Bank, Equity Bank, Trademark East Africa, DHL, Tatu City, KNTC, Twiga Foods and KIRDI. The United Nations Industrial Development Organization (UNIDO) will provide technical assistance.

The Government of Kenya is also a member of various regional blocs such as the East African Community and the African Continental Free Trade Area (AfCFTA). These blocs provide market penetration opportunities for Kenyan manufacturers to increase their market share worldwide. Export promotion activities such as trade missions, exhibitions, outreach services and product development programs help to increase the quantity and quality of goods that are exported from Kenya to the world.

Country Aggregation and Industrial Parks (CAIPS) and the impact on exports

By Mariam Maina: mmaina@brand.ke

I

ndustrial hubs play a crucial role in boosting exports for a country. These hubs are concentrations of industrial activities and are characterized by the presence of manufacturing units, infrastructure, and supportive services.

Kenya’s long-term development blue print, the Vision 2030 aims to transform Kenya into an Industrialized middle-income country offering a high quality of life to all our citizens.

The Government is promoting the Bottom -Up Economic Transformation Agenda (BETA) and has recognized the role played by agriculture and manufacturing sectors in income generation, wealth and job creation, increase foreign exchange earnings, and poverty reduction. This cannot be realized without programmes and initiatives that will accelerate inclusive and >>> Continued on page 3

sustainable development of industries that will drive the Country’s economy economic growth.

Towards this, the National Government in partnership with various stakeholders, is establishing County Aggregation and Industrial Parks (CAIPs) in each county. The development and implementation of the project will be jointly accomplished between the National Government, Council of Governors and County Governments The main objective of CAIPs is to grow manufacturing and investments through Agro-Industries and enhance productivity of agriculture sector in a sustainable manner hence creating inclusive decent jobs, increase farmers’ income, increase foreign exchange, provide platform where farmers, processors, exporters, research

institutions, industrial bodies and Government can engage for agro-industrial development.

The CAIPs will bring together a geographic cluster of independent firms to gain economies of scale and positive externalities by sharing infrastructure and taking advantage of opportunities for bulk purchasing and selling, training courses, extension services, recycling and use of agro-industrial waste/ residues. The Parks will be located in the main agricultural production areas and provide linkages with farmers through the collection, storage, sorting and primary processing. CAIPs will promote a farmer centric and investor friendly approach.

It will also boost agro-processing, create jobs and stimulate the necessary investment of capital and human resources to

agro-industries and promote productivity in agriculture.

The processing of agricultural produce requires a range for instance packaging, logistics, storage and distribution further creating more opportunities for job creation. Demand side will facilitate market access both local and export - diversification of products, increased competitiveness and local area development.

CAIPS can significantly contribute to the growth of Kenya’s exports, fostering economic development and competitiveness on the global stage.

Driving market expansion through manufacturing

By Gertrude Mirobi: gmirobi@brand.ke

K’Ombudo’s assertions shed light on the potential to double or even triple export values through manufacturing, underscoring its transformative impact. He outlined a two-pronged strategy to sustain growth: supporting the manufacturing sector by facilitating access to new markets and providing comprehensive export support to Kenyan businesses.

The focus on technological advancements within manufacturing, particularly automation and digitalization, not only augments productivity but also bolsters the quality and competitiveness of Kenyan goods in global markets.

This focus aligns with ongoing initiatives aimed at bolstering economic capabilities with a strong market-centric approach.

Kenya’s commitment to skill development and capacity building within the manufacturing industry remains pivotal.

Investments in education and tailored training programs aim to cultivate a skilled labor force capable of driving innovation, upholding superior standards, and meeting the dynamic demands of various markets.

K

enya is actively leveraging its manufacturing sector to bolster trade and exports, recognizing its pivotal role in transforming the country’s economy. At the Kenya Industrialization Conference, Trade Principal Secretary, Alfred K’Ombudo stressed the importance of manufacturing in propelling trade and export performance. His emphasis strongly resonated with the need to shift from raw exports to value-added products, illuminating how manufacturing significantly elevates export values and fosters market growth.

Another cornerstone of Kenya’s manufacturing sector is sustainability. Embracing eco-friendly and sustainable production methods aligns Kenya with global trends and resonates with environmentally conscious consumers worldwide, effectively diversifying our export portfolio.

Crucially, the government’s unwavering support through policy frameworks, investment incentives, and infrastructure development plays a pivotal role in cultivating thriving markets. Strengthening logistical networks, ensuring reliable utilities, and streamlining regulatory procedures collectively create an enabling environment for manufacturers, fostering market expansion and global competitiveness.

3

NOVEMBER 2023 NEWSLETTER

Kenya’s Industrialization Agenda and the impact on exports

By Jonah Karanja: jkaranja@brand.ke

K

enya, also referred to as the fastest growing economy in the East, Central and Sub-Saharan Africa, has been a major force behind economic progress by unwaveringly pursuing an aggressive industrialization strategy. In addition to creating excitement within the nation, the government’s dedication to turning the nation into a regional industrial hub has attracted attention from around the world. The endeavour has yielded notable results, including a beneficial influence on Kenya’s exports, which has propelled the country towards a more resilient and diversified economy.

Kenya’s industrialization goal, embodied in programs like the Bottom -Up Economic Transformation Agenda (BETA), places a strong emphasis on manufacturing as the backbone of the country’s economic growth. Kenya wants to increase production, lessen its dependency on traditional sectors, and create jobs by giving priority to industries including agro-processing, textiles, and pharmaceuticals. This tactical change is an obvious indication that the administration understands how crucial industrialization is to creating the conditions for long-term, steady economic growth.

Kenya’s industrialization push has paid off handsomely in

>>> Continued on page 5

terms of increased exports. Through emphasis on value addition and the production of superior commodities, the nation has enhanced its competitiveness in the international market. This change has reduced reliance on a small number of key commodities by diversifying the export basket in addition to increasing export volume.

The diversification of Kenya’s export environment reflects a dramatic shift brought about by the country’s unrelenting pursuit of industrialization. Kenya, a country historically dependent on agricultural exports, is now delighted to display a wider variety of items in its export portfolio, going beyond raw materials to include a range of manufactured products. This deliberate diversification effectively protects the country from the irrational whims of international markets and strengthens its resilience against external economic shocks by acting as a buffer against the inherent risks associated with the volatility of commodities prices.

The Kenya Export Promotion and Branding Agency (KEPROBA) fully understands that Kenya’s industrialization program is centred around the constant emphasis on adding value during the production process. The Agency through its Product Development and Marketing Directorate is making sure that the country is making a strategic shift away from the export of only raw materials and toward the export of processed and completed commodities. Kenya is able to capture a larger portion of the value chain thanks to this strategic approach, which raises export revenues and fosters the growth of a more resilient and long-lasting industrial sector.

The ability of industrialization to provide jobs and build human capital is arguably the most obvious example of its transformational power. Manufacturing sectors absorb the rising labour force as they grow to meet the demands of a booming economy, providing job opportunities for a wide range of skill sets. This multiplier effect reduces the burden of unemployment while simultaneously making the development of a trained labour force necessary. As a result, industrialization becomes a pillar of human capital

NOVEMBER 2023 NEWSLETTER

development, giving Kenya’s labour force the know-how and skills necessary to compete globally.

Kenya is creating a stronger and more competitive national identity in the furnace of industrialization, in addition to economic prosperity. Value addition increases economic gains, strategic export diversification protects against economic uncertainty, and the developing industrial sector serves as a testing ground for human capital development.

Kenya is rewriting its story and making a lasting impact on the world of international trade as it moves forward, not only as a regional economic powerhouse but also as a strong player on the global arena.

Although Kenya’s industrialization goal has achieved great advances, difficulties still exist. Barriers to financing, access to infrastructure, and regulatory requirements still exist. Both the public and private sectors must work together to address

these issues. Maintaining the momentum will require building on alliances with foreign groups and creating an atmosphere that is conducive to business.

In conclusion, Kenya’s drive toward industrialization has changed the economic landscape and increased exports as a result. Value addition, employment growth, and export base diversification are concrete results that point to a transition toward a more robust and globally competitive economy. In order to guarantee that the advantages of industrialization are equitable and sustainable, it is crucial to remove obstacles and seize opportunities as long as Kenya follows this course. The world is observing Kenya as it establishes itself as a strong competitor in the international market in addition to being a regional economic powerhouse.

The rise of youth-led manufacturing start-ups contributing to export growth

By Jescah Nyambura: Interncomm2@brand.ke

I

n the ever-evolving landscape of economic development, small scale manufacturing has emerged as a pivotal player, particularly in its impact on youth employment. As traditional job markets face challenges, the youth

are turning towards entrepreneurial endeavours in the manufacturing sector, not only contributing to economic growth but also shaping their own destinies.

>>> Continued on page 6

5

Furthermore, the hands-on experience gained in small scale manufacturing setups equips the youth with practical knowledge, making them more versatile in the job market. This not only benefits individuals but also contributes to the overall development of a skilled workforce in the country.

III. Entrepreneurship opportunities Small-scale manufacturing acts as a launchpad for budding entrepreneurs. The lower barriers to entry in this sector enable young individuals to start their own ventures with limited capital. This entrepreneurial spirit among the youth is crucial for fostering innovation and driving economic growth.

What is small scale manufacturing?

Small scale manufacturing refers to the production of goods on a modest scale, often involving local resources and labour. Unlike large-scale industrial production, small scale manufacturing operates on a more localized level, with businesses typically employing fewer than 500 people. This sector encompasses a diverse range of industries, from food processing and textiles to electronics and handcrafts.

Impact of small-scale manufacturing to the youth I. Job creation One of the most tangible impacts of small-scale manufacturing on the youth is job creation.

These enterprises often serve as an opportunity for new jobs, providing employment opportunities for individuals with diverse skill sets. Youth, with their enthusiasm and adaptability, find ample scope in these setups, where they can contribute meaningfully to the production process.

Kenya

DOLOR

LOREM

LOREM

LOREM

LOREM

LOREM

IPSUM

IPSUM

IPSUM

IPSUM

IPSUM

DOLOR

DOLOR

DOLOR

DOLOR

DOLOR

SIT AME

SIT AMET

SIT AMET

SIT AMET

SIT AMET

SIT AMET

LOREM

LOREM

LOREM

LOREM

We wa

nt

T

IPSUM

IPSUM

IPSUM

IPSUM

DOLOR

DOLOR

DOLOR

DOLOR

SIT AMET

SIT AMET

SIT AMET

SIT AMET

JOBS

Youths

Creating

more job

No.

op

portunit Educati on is a 11:12: many ies 2014 factor AfricanKenyanskey for child and for the and to pro otherscompete free sper global Dick Mau ly, Lua ly with ngu say nda MP s.

"Educa in life tion is an ground and it equaliser and just for all to levels the life," he live a fair said.

The law maker denies tunity the you says poverty Educati talent to tap theth an opporon is a many ir potent to the factor maxim AfricanKenyanskey for um. ial child and for the and to pro otherscompete free Youth sper global Dick Mau DOLOR Hour ly, Lua ly with SIT AME LOREM ngu say nda MP T IPSUM DOLOR s.

SIT AMET LOREM "Educa IPSUM LOREM DOLOR IPSUM SIT AMET LOREMT DOLOR in life tion is an SIT AMET LOREM IPSUM and DOLOR gro SIT AMET und it equaliser and just for all to levels the life," he live a fair said.

Moreover, the decentralized nature of small-scale manufacturing allows for the establishment of enterprises in rural and semi-urban areas, addressing the issue of unemployment in regions where larger industries may not be feasible. This decentralization has the added benefit of preventing mass rural-to-urban migration, promoting balanced regional development.

II. Skill development Small scale manufacturing provides an ideal platform for skill development among the youth. Many of these enterprises require a range of skills, from technical expertise in machinery operation to managerial and entrepreneurial skills. Youth engagement in such ventures fosters a culture of continuous learning and skill enhancement.

The rise of youth-led manufacturing startups has been particularly prominent in fields like 3D printing, custom apparel, and sustainable product manufacturing. These ventures not only create job opportunities but also inject fresh ideas into the market, contributing to industry dynamism and competitiveness.

Challenges While the impact of small-scale manufacturing on youth is undeniably positive, challenges persist that can hinder its full potential. Access to finance, technology, and markets often pose significant barriers for young entrepreneurs. Governments, nongovernmental organizations, and the private sector have played a pivotal role in addressing these challenges.

Access to Finance Lack of financial resources is a common obstacle for young entrepreneurs venturing into small-scale manufacturing. Most of the small businesses in Kenya operate in the informal sector, with most not registered or licensed by the government. This makes it difficult for them to access financial services and other forms of support from the government, thus limiting their ability to expand and reach new markets.

To increase access to finance government rolled out the financial inclusion fund “Hustler Fund” to promote access to affordable credit to sections of the population who were facing prohibitive cost of borrowing to finance their small businesses. Additionally, mentorship programs can guide these entrepreneurs in financial planning, helping them make informed decisions and sustain their businesses.

Technology Integration In an era dominated by technological advancements, small scale manufacturers must adapt to stay competitive.

Youth engagement in manufacturing can be optimized by providing training programs that focus on modern technologies, such as automation, data analytics, and digital marketing.

Partnerships between educational institutions and industry players can facilitate the transfer of technological knowledge to the youth.

Market Access

NOVEMBER 2023 NEWSLETTER

Access to markets, both domestic and international, is crucial for the success of small-scale manufacturing enterprises.

promote the use of e-commerce can expand the reach of small manufacturers beyond local boundaries.

In April 2023, the Government of Kenya and the United States of America successfully completed the second round of negotiations on Strategic Trade and Investment Partnership (STIP). The engagements aim to establish formal binding bilateral agreements that will expand the market for Kenyan commodities.

The youth should take advantage of opportunities such as Common Market for Eastern and Southern Africa (COMESA), African Growth and Opportunity Act (AGOA, African Continental Free Trade Area (AFCFTA), and Kenya US (United States) Free Trade Agreement (FTA), among others to position their small businesses and sell their products. In addition, initiatives that

In conclusion, small scale manufacturing stands as a cornerstone for youth empowerment, economic diversification, and community development. By addressing challenges related to access to finance, technology integration, market access and working spaces stakeholders can unlock the full potential of this sector. Enhanced market access and linkages for small businesses will improve their sales, which can result in increased revenue for the nation.

What are ESG guidelines in manufacturing?

generate an idea, research on the final idea, then create a prototype and establish a production process. This production process would entail finding a manufacturer or supplier and analyzing the cost and availability of the manufacturer. This method timed and tested, was adopted by countless successful entrepreneurs and top leaders up until the world started becoming affected by the side effects of climate change.

By Rachel Nyambura: Interncomm1@brand.ke

Until now, businesses have started adopting mindfulness in the manufacturing process with significant changes being centered around three principles known as ESG. ESG in a nutshell, is a principle whereby consumers and investors seek to ensure the companies behind the products they

T

raditionally, doing business has always been done in similar motion, profits being the engine that drives every entrepreneur. Initially, one would only need to

7

enjoy are responsible managers of the environment, care about the social welfare of its employees and suppliers, as well as providing an ethical system in governance ranging from leadership, and equal payments.

Environmental guidelines • These are principles focused on the company’s impact on its surrounding environment. This is measured by the organizations direct and indirect greenhouse emissions, toxic waste management, and its overall compliance with corporate environmental policies and regulations.

• Tea is an example of a commodity that is assessed in Kenya due to the many environmental risks it contains. Initiatives such as tree planting, use of sustainable briquettes in exchange for charcoal is also applauded by target consumer export markets.

system and shareholder/ stakeholder rights.

An example of unlawful governance in a company is inflated compensation amongst specific roles in leadership.

How is ESG implemented in manufacturing?

A great way ESG reporting is incorporated is by identifying what aspects of one’s business drive their ESG performance.

This could look like assessing one’s environmental aspect, and what are its largest drivers. Elements in manufacturing such as energy usage, water usage and CO2 emissions.

Inspection across all principles gives an organization an understanding of what should be first on the priority list to ensure advancements are also applauded and noted by internal and external stakeholders.’

Social guidelines • Social principles refer to a company’s internal and external relationship with its employees and surrounding community, respectively.

• An organization’s internal relationship is centered around its relationship with its employees. Are they receiving equal treatment? Are their health and safety given priority? These are the socially conscious themes assessed by consumers and investors alike.

• On the other hand, a company’s external relationship puts focus on the community around it. A fitting example would be (CSR) Corporate Social Responsibility.

This has been adopted widely in so many institutions and in return, activities such as volunteer work in communities, donation of profits towards special causes are what ESG conscious consumers and investors evaluate.

Tea and coffee value chains in Kenya are a notable example where socially conscious themes such as gender inclusivity and social justice are keenly observed by consumers and investors worldwide.

Governance guidelines

Benefits of ESG principles in your busisness

Governance principles revolve around;

1. Gives a business a competitive advantage within its niche

• A company’s corporate structure,

• Business ethics.

Adopting ESG principles inevitably enhances one’s brand reputation as most consumers in Western and European countries are driven to purchase a product that takes into consideration all these elements.

Simply put, governance deals with the company’s leadership

Leadership that tries to sustain great working conditions,

• Board composition, • Anti-corruption/ conflict of interest and

offer equal pay, and take a stand against societal prejudices cements its company’s mark as a product or service provider.

2. Improved operational efficiency Companies that are well on their way to adapting to ESG reporting gain the advantage of becoming acquainted with an ever-changing landscape due to climate change. This births resource optimization that saves costs on methods and transactions that previously needed more capital. This can be seen in renewable energy and other alternative ways that reduce waste.

4. Attract investors ESG principles also offer a cushion as they navigate regulatory changes as well as legal and financial risks that come with doing business.

Investors normally look at these elements to avoid blow-ups and scandals in the future.

• Use of renewable energy sources, • Lower greenhouse gas emissions • Avoid questionable work safety or child labour

Small efforts such as going paperless, recycling, and making a switch to alternative fuels can improve a business’s overall cost.

• Pay fair living wages

3. Better risk management

• Diversity in board of directors and overall leadership.

ESG reporting assists companies in identifying potential problems and risks that could arise. A company that can share updates on its carbon emissions or water consumption may help mitigate the associated risks and lower costs by finding alternate solutions.

In conclusion, investors and consumers are becoming critical and thorough towards organizations that are committed to ESG as they are able to be transparent in their efforts towards mindfulness towards the environment, employees, and their surrounding community as well as their internal governance.

• Presence of policies against sexual misconduct

Happy Holidays to You and your Families

9