Drawing in Investors into Kenyan Intermediary Cities: How the UK Government Supports their Quest to Foster Sustainable Economic Growth
Context:
Kenya has had in place a decentralised approach to governance for almost 15 years that has put in place various legal and institutional frameworks that determine the functional responsibilities and fiscal powers of its intermediary cities. However there has been a lack of institutional incentive and support to take advantage of their unique economic offerings to advance their development. While their financial advancement is hinged on their propensity to attract inward investment into sectors that will champion their connectivity with the broader national economy, their structuring creates a hinderance to this.
To expand their economy, Kenyan intermediary cities need to increase their access to financial resources while growing their revenue source. Additionally, innovation is needed to attract outside investment that will go beyond the national allocation that they currently rely on to meet their recurrent and capital expenditure costs. Working closely with the private sector to increase their active participation in growing the economies of these intermediary cities is hampered by inefficiency in the structuring and management of Public-Private Partnerships (PPPs). Further, the leadership of these intermediary cities lack the bargaining power to effectively negotiate with the private sector by struggling to make offers attractive to them.
Most of Kenya’s intermediary cities are the metropolitan agglomerate of their region increasing their impact potential if they successful implement measures that foster their economic growth and prioritise sustainable development. The recent devolvement of power and responsibility to the local leadership has resulted in a steep learning curve on how to best adopt decentralization policies and customise them to meet the demand of their populace. As these new intermediary cities take on more functions, increase their revenue sources and gradually gain greater autonomy with regards to expenditure they need to strengthen their collaboration with the private sector becomes imperative. To become successful in attracting private businesses and investment there is need to have them learn how to champion their natural or cultural resource endowment and proactively share their competitive advantage to see their economies expanding.
Much consideration is needed to ensure that even as economic expansion is sought, the leadership in these intermediary cities prioritise how they will manage this urban growth to ensure equitable development. Additionally, there need to be a strong steer towards diversifying the sectors in which the private sector engages in order to protect
the intermediary city from heavy reliance on one industry which would precariously increase their vulnerability to economic fluctuations.
Programme Intervention and Approach
The Sustainable Urban Economic Development Programme (SUED) funded by the UK Government has worked closely with 121 intermediary cities in Kenya to build their capacity to develop the technical and managerial ability to partner with the private sector to invest in opportunities that promote the economic development of their urban centres based on their unique offering.
Our Approach
• Urban Economic Planning: The programme combined local knowledge and international best practices to help the supported intermediary cities to develop Urban Economic Plans (UEPs). The UEPs introduced an integrated multidisciplinary approach to planning for economic growth and advocated for the maximization of agglomeration of economies. In partnership with the intermediary cities, SUED helped them identify climate-resilient value chain projects that have strong value-addition potential. By having deep-dive sessions with the leadership on the intermediary cities’ competitiveness, SUED has been able to help them identify which value chain and infrastructure projects have the most production potential that synergise the economic opportunities they have.
• Capacity Building: To promote local economic development that is driven towards sustained economic growth, which is owned by local stakeholders, SUED has worked closely with the leadership of the intermediary cities to help them respond to their increased delegated roles. The programme has provided in-person trainings, on-the job trainings, continuous education sessions as well as mentorship to various city managers to help them define the economic vision of their intermediary cities. In doing so the programme has supported them to identify policies and regulations that they need to strengthen to draw in investments for value chain and climate-resilient infrastructure projects.
• Investment Attraction: The programme worked closely with city mangers in supported intermediary cities to attract investment into selected climate-resilient value chain and infrastructure projects through a multi-step process:
o First the programme utilised the UEPs to identify the most viable sectors in the intermediary cities and applied a screening criterion to determine which value chain and infrastructure projects would progress to the prefeasibility study phase of the investment attraction process. The project screening and selection phase shortlisted the most feasible projects for
1 Bungoma, Eldoret, Isiolo, Iten, Kathwana, Kerugoya-Kutus, Kisii, Kitui, Lamu, Malindi, Mandera and Wote
investment with three projects per municipality finally selected, comprising a mix of value chain and infrastructure projects.
o Second, SUED conducted pre-feasibility studies to assess the viability of the selected projects in detail to gain a deeper understanding of the operating environment and determine their viability and impact potential as well as capability to attract investors.
o Third, the programme prioritised investor outreach and identification utilising market sounding to determine the appropriate investor and engaging with them to introduce the projects and determine their appetite for the investment in the intermediary cities.
o Fourth: SUED provided a seed fund for the selected projects. SUED’s seed fund is demand-led and provides an incentive for investors to catalyse the investment and de-risk the projects. SUED worked closely with the investors to determine the need, amount and use of the seed capital for the projects.
SUED’s multi-pronged approach is going beyond helping the intermediary cities to develop viable urban economic strategies but ensuring that they are able to actualise them. The local-level leaders are now able to drive inclusive economic growth that is geared towards local financial resilience that ensures stronger intermediary cities that contribute to an economically stronger regional economy that form founding blocs on an economically vibrant and diverse Kenya.
The programme has successfully drawn in investments worth £63.5 million in public and private sector investment with 11 deals signed. The following are profiles of projects closed in Kisii and Iten that showcase the varied partnerships the programme has advanced in supported intermediary cities:
Case study 1: Avocado Oil Processing Plant in Kisii
Project Highlights:
Project Details
Funding Raised
The project entailed setting up a 70-tonne avocado oil extraction facility in Kisii Municipality. The extraction facility will utilise locally sourced avocado fruits to produce avocado oil, mainly for the export market. The expected volume of raw materials required per day is 70 tonnes of fruits which will ripen for a period of 7-10 days before the extraction of oil. The raw materials will be sourced from farmers in Kisii County, with any shortfall met through sourcing from the neighbouring counties. The project was commissioned in April 2023 and is being undertaken by Avofresh Processors Limited.
Total funding raised: £2,576,965
Funder/Programme Investor contribution: £2,107,160
SUED Seed fund contribution: £469,805
Project Highlights:
Beneficiary Population
Expected Jobs to be Created
Expected Impact
The project will mainly benefit avocado farmers in Kisii and neighbouring counties, and other participants in the value chain such as transporters.
The project is expected to generate 1,195 jobs. These comprise 95 direct full-time equivalent jobs for the day-to-day operations; approximately 1,000 farmers will benefit through a ready market for their products, with this number expected to increase to 3,000 in the medium to long term; and 100 induced jobs are expected to be generated because of the project being implemented.
Climate resilience: Approximately 3,000 people will be prepared to respond effectively to the impacts of climate change.
Avocado trees present multiple benefits to the environment, sustainable land management and climate change regulation. The growing of avocado trees in Kisii is being undertaken as agroforestry which enhances biodiversity and soil fertility, together with diversified food production. Therefore, increased avocado tree planting and growing, combined with good agricultural practices, will result in strengthened resilience.
In addition, prompt delivery of the harvest to the aggregation centres by farmers will reduce the risk of avocado damage and post-harvest losses. Farmers will deliver their avocados to the nearest aggregation centre for collection in bulk by trucks operated by Avofresh Processors Limited. The aggregation centres will be set up across the wards where avocado growing is undertaken.
A suitable circular economy model will be adopted in the Kisii plant. Extraction of oil from avocado will result in organic waste that will be utilised as raw material for other value products. These include manure, animal feed or waste-to-energy generation.
Gender and social inclusion: Women are the main avocado producers in Kisii and predominantly sell in local markets to other retailers and to brokers. Of the 3,200 members in the Kisii Avocado Cooperative, 60% are women. The avocado oil processing plant provides an additional avenue for income generation for these women.
Avofresh Processors Limited is setting up aggregation centres around Kisii County and in neighbouring counties. The aggregation centres will mainly offer job opportunities for youth, with two to three people permanently stationed at each aggregation centre to receive, weigh, record and relay information to the office for collection of the avocadoes. Youth in Kisii are also currently involved in harvesting and transportation. They could be engaged by farmers, in particular women farmers, to transport their produce to the aggregation centres.
Case study 2: Irish Potato Processing Plant in Iten
Project Highlights:
Project Details
Funding Raised
Funder/Programme
Beneficiary Population
Expected Jobs to be Created
The project entails establishment of a fresh and frozen Irish and sweet potato fries processing plant in Iten Municipality. The proposed plant will commence with processing 30,000 tonnes of Irish potatoes and 30,000 tonnes of sweet potatoes into fresh and frozen fries in its first year of operation. The output of the factory will include fresh and frozen Irish and sweet potato fries and puree, which will be sold in East Africa and the European, Asian and Egyptian export markets. Production is expected to grow to the full capacity of 100,000 tonnes per annum for both Irish potatoes and sweet potatoes by the fifth year of operation. The project was launched in January 2023 and is being undertaken by Select Fresh Produce Kenya Limited.
Total funding raised: £15,495,850.00
Investor contribution/other funding: £14,760,850
SUED Seed fund contribution: £735,000
The project will mainly benefit Irish potato and sweet potato farmers in Elgeyo Marakwet and neighbouring counties, and other participants in the value chain such as transporters.
The project is expected to generate 5,226 jobs in the first year. These comprise 75 direct full-time equivalent jobs for the day-to-day operations; approximately 5,000 farmers will benefit through a ready market for their produce, with this number expected to increase to 10,000 within five years; and 151 induced jobs are expected to be generated because of the project being implemented.
Expected Impact
Climate resilience: Approximately 10,000 people will be prepared to respond effectively to the impacts of climate change.
Select Fresh Produce Kenya Limited will collaborate with the County Government and other implementing partners such as COLEACP2 to provide technical support to farmers to produce higher-yielding potatoes and reduce post-harvest losses, which are currently estimated at 20% of the produce.
Select Fresh will purchase curing trucks and establish a curing room. The curing process will reduce the risk of the produce being damaged and extend the shelf life of the Irish and sweet potatoes by up to one year.
The processing facility will adopt a circular economy approach through upcycling the generated waste products into animal feeds and organic manure which will reduce or eliminate the facility’s solid waste footprint.
Select Fresh currently has a centralised facility in Nairobi where packing and processing of customer orders are undertaken. The company sources raw materials from other counties and then transports them to the processing plant in Nairobi. The establishment of the processing plant in Iten will reduce collection distances with respect to Irish and sweet potatoes thus resulting in lower emissions from diesel trucks, some of which are greenhouse gases.
Project Highlights:
Gender and social inclusion: At least 41% to 60% of the county population engages in Irish potato farming, typically rain-fed, smallholder farms. Women and youth actively participate across the value chain and are major actors. Women groups are more involved in seed propagation. Women and youth are engaged in farm production, with harvesting mainly done by youth men and women. Transportation of the Irish potatoes is dominated by youth men who also double as brokers. Women and youth are also engaged in retail trade.
The proposed contract farming model provides a ready market for women and youth, while ensuring raw materials for the processor. Women farmers are more predisposed to brokers due to selling at the farm gate because of limited mobility and lack of information on available markets.
Inclusion will be enhanced through ensuring farmers from special interest groups are aware of Select Fresh’s project during farmer mobilisation exercises across the counties, for example, through engagement with grassroots organisations such as women and youth groups, when seeking to mobilise and contract farmers.
Best Practices to Replicate
• Need for Capacity Building and Training: From the onset, SUED planned to incorporate capacity building and training in the programme implementation. Investing in training and skill development programs for county/municipal government officials, community leaders, and residents is crucial. These programs enhance their ability to effectively manage and sustain programme activities. SUED has embedded within its investment attraction support capacity building modules that are shared through training, on-the job training and mentorship. These trainings have centered on various aspects such as project management, sustainable practices, financial management, and community engagement techniques. The programme knows that building local capacity of municipalities ensures that initiatives are implemented efficiently and maintained over the long term.
• Stakeholder Partnerships and Resource Leveraging: The programme has been intentional in advancing a multiplier effect it its support by working with various partners in the intermediary cities such as different business associations. Building partnerships with local businesses, NGOs, academic institutions, and other stakeholders is crucial to ensure sustainability of the activities. These partnerships bring additional resources, expertise, and networks to support ongoing initiatives. Leveraging these diverse resources not only strengthens the implementation of projects but also broadens their impact and sustainability.
• Community Engagement and Ownership is critical: Encouraging community involvement in decision-making processes and building project ownership is vital. Through SUED implementation, it was noted that when residents are engaged from the planning stages, their needs and priorities are better understood and incorporated into project designs. This involvement promotes local entrepreneurship as community members may initiate or participate in project activities, enhancing economic opportunities and social cohesion. Projects aligned with community interests are more likely to be supported, ensuring their longterm success and sustainability.
• Diversified Funding Strategies: While SUED includes a grant component, its implementation targeted supplementing this with operator funds and alternative funding sources such as grants, private sector investments, and revenue-generating activities reduces dependence on external funding. Grants from governmental or non-governmental
organizations can provide initial support, while private sector investments offer sustainable financing options. Revenue-generating activities, such as fees for services or products provided by projects, create ongoing income streams. Diversifying funding sources enhances financial stability and ensures projects can continue operating independently over time.
• Monitoring and Evaluation for Impact Assessment: Establishing robust monitoring and evaluation mechanisms is essential for assessing progress, measuring impact, and identifying areas for improvement. Monitoring tracks project implementation against set goals and timelines, while evaluation assesses the broader impacts on the community and environment. Data collected through these processes informs decision-making, allowing adjustments to be made to enhance effectiveness and efficiency. Regular evaluations also provide accountability to stakeholders and ensure that resources are used effectively. The programme continues to work closely with all its investment partners to ensure that the initial objectives and goals of the projects are maintained to ensure that the projected impact is achieved.
• Integration into Local Policies and Plans: Advocating for the integration of successful programme outcomes and best practices into local urban development policies and plans is critical. Incorporating proven strategies and lessons learned from initiatives ensures their continuity beyond the initial funding period. This integration aligns municipal development goals with sustainable practices, guiding future projects and initiatives. Local policies that reflect these practices support ongoing urban development efforts and facilitate long-term planning for sustainable growth. SUED has ensured that the UEPs are prioritised by the intermediary cities and incorporated in their future implementation plans as well as have budget allocation.
• Knowledge Sharing and Collaboration: Promoting knowledge sharing and collaboration with other municipalities, both nationally and internationally, will help enrich experiences and enhance collective learning. Sharing successes, challenges, and innovative solutions fosters mutual learning and supports continuous improvement in urban development practices. Collaborative efforts can lead to the adoption of new ideas, technologies, and approaches that improve sustainability and resilience across cities. Networking with other municipalities also strengthens advocacy efforts and promote shared goals for sustainable urban development on a broader scale. The programme has prioritised peer to peer learning among the municipalities and has on several occasions linked them in forums to discuss their ways of working that can be replicated.
The programme has utilised varied complementary ways to develop the capacities and skills of the intermediary cities leaders work with the private sector to attract inward investments into sustainable and scalable economic development projects. With SUED’s support, intermediary cities in Kenya are innovating ways in which they conduct businesses with the private sector and identifying new ways of working that will ensurethat local public assets suchas land, infrastructure and publicly owned enterprises are utilised to incentivise private investment and de-risk large projects resulting in taking advantage of previously untapped potential and increasing their capability to attract inward investment that promote rapid economic growth.