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The East African : February 24th 2014
48 TARGETED INVESTMENTS Kenya in $235m manufacturing plan to boost key sectors, revive factories The blue-p≥int aims to t≥ansfo≥m the count≥y to a middle level income status in the next nine yea≥s A JOINT REPORT The EastAfrican K enya has approved an ambitious industrialisation roadmap that seeks to boost light manufacturing while reviving failed factories at an initial cost of Ksh20 billion ($235.3 million). The blueprint — tabled before Cabinet for approval two weeks ago — aims to take the country to middle-income status in the next nine years through targeted investments in the energy and transport sectors as well as agriculture sub-sectors — textiles, leather, agro-processing, beef and fishing — where Kenya has a competitive edge. The government has also earmarked Ksh9.5 billion ($11.7 million) to finance existing factories, especially in the paper, sugar, coconut, coffee and pyrethrum subsectors that are either facing collapse or are already closed. The roadmap aims to grow the country’s GDP by between $4 billion and $6 billion per year and increase the country’s manufacturing base from 11 per cent of the GDP to 20 per cent in the next decade, driven by a projected rise in exports. Increased exports would help the country effectively deal with the fiscal and monetary challenges it has faced for the past 10 years as it will reduce the current reliance on domestic consumption as a major driver of growth. The World Bank, in its latest assessment of the country’s economy, said Kenya’s bid to attain middle-income status depends on its ability to grow its exports. The Ministry of Industrialisation is requesting Ksh27.9 billion ($324.4 million) to enable it to begin implementation of the grand plan in the next financial year. The allocation, if granted, will be four times the capitation of Ksh7.4 billion ($87 million) disbursed to the ministry in the current financial year. The roadmap plans to increase the competitiveness of critical sectors such as tea, flowers, coffee and horticulture, which contribute nearly 50 per cent of all exports. In 2012, for example, tea and coffee contributed 26 per cent of the total exports; flowers 15 per cent and vegetables six per cent. The EastAfrican BUSINESS FEBRUARY 22-28,2014 in b≥ief Kenya to allow duty free maize imports Kenya will allow importation of duty free maize to avert a looming food shortage and forestall an increase in consumer prices. Special adviser to the president on agriculture James Nyoro said that the government is considering lifting the 50 per cent duty imposed on maize imports from outside the EAC to ease the projected shortage. There are fears of a food supply shortage from May when the current stocks are predicted to run out. Agriculture Secretary Felix Koskei said the country faces a shortage of between seven million and 10 million bags of maize. He said maize had been sent from agriculture-rich North and South Rift to 24 counties that are vulnerable to drought. Uganda urged to revive Co-operative Bank Uganda faces renewed pressure to revive the Co-operative Bank after President Yoweri Museveni directed Treasury to pay off all the bank’s loans. As a result, the Minister of Trade, Industry and Co-operatives Amelia Kyambadde has pushed for the revival of the bank, saying that without it, plans to commercialise agriculture will be delayed even further. The plan will boost Kenya’s textile sector and improve the country’s business environment. Picture: FILE The amount that the Ministry of Industrialisation is requesting to enable it to begin implementation of the grand plan in the next financial year $324.4m Some of the interventions to be used to improve the critical sectors are: Identifying and removing obstacles to growth — whether they be financial, logistical, or regulatory — and focusing on sector specific growth strategies. The roadmap also plans to grow the textile, leather, agro-processing, beef and fishing industries. “The economy needs structural reforms to improve the business environment and increase foreign direct investment flows to Kenya,” said John Randa, the World Bank’s country economist for Kenya. “Such reforms will include tax and expenditure measures, which will see an increase in savings and investments in manufacturing exports.” In the textile industry, for TEXTILE INDUSTRY About 110 large scale garment manufacturers in Kenya depend on supplementary imports from Uganda and Tanzania. Currently, local demand for leather stands at 28 million units of leather goods but only four million is produced. Kenya imports 85 per cent of leather while accounting for 0.2 per cent of the global market. Plans for the leather sector include value addition; increased duty on export of raw leather by 25 per cent to 50 per cent; banning raw leather exports in the next three years; enhancing access to finance for the existing tanneries and minimising duties on inputs. example, 90 per cent of land for cotton is unused, while the leather industry is yet to satisfy local demand. Data shows that in the cotton industry, the national lint demand stands at 111,000 metric tonnes (MT) while local production is at 11,000MT, serving only 10 per cent of the demand. Ginneries have been closed due to lack of raw materials as most Kenyans buy cheap second-hand clothes. Kenya plans to increase duty on new and used textiles in the next 24 months to cushion the local cotton industry. This should also provide a direct market for farmers, encouraging them to take up cotton growing. The government plans to invest Ksh9.5 billion ($11.7 million) in six agricultural sub-sectors. The sugar industry requires the largest investment of Ksh5 billion ($58.8 million). The sugar industry has decried inflow of sugar from other countries, which creates a surplus. Mumias Sugar Company has more than 11,000 tonnes of white sugar in its stores, according to Peter Kebati, the company’s managing director. The coconut and cashewnut industry will receive Ksh500 million ($5.8 million) while the pyrethrum, livestock and coffee sectors require Ksh1 billion ($11.7 million) each. To reduce the cost of doing business in the country, the government plans to reduce the number of procedures required to start a business from the current 10 to three days. Manufacturers have frequently cited high energy costs, insecurity, expensive trade logistics and difficulty in accessing external markets as the top challenges that have restricted the sector’s growth. “The tax rate is not only too high — at 45 to 50 per cent of profit — but the real burden is that firms have to pay 40 different kinds of levies at different places,” said KAM chief executive Betty Maina. The Ministry of Industrialisation said the country hopes to ride on growing opportunities in East Africa, which are expected to increase with the planned $100 billion infrastructure projects for the next five years. Among the infrastructure projects are the Tanga Port; standard gauge railway and the Lamu Port-South Sudan-Ethiopia Transport corridor. “If the government could help sort out the demand side, the roadmap should be implementable in the medium term,” said Kenneth Kaniu, chief investment officer with Stanlib Kenya. By Jeff Otieno and Scola Kamau Despite earlier efforts to revive the Co-operative Bank, it is believed that insufficient capital led to the bank’s collapse in 1999 — nearly a decade and a half ago. Pressing security and economic matters in the mid-1980s, meant that co-operatives were not a priority for the government. Olkaria III geothermal raises capacity to 110MW The geothermal complex in Naivasha. Picture: File Ormat Technologies Inc has increased the total capacity of Olkaria III geothermal complex in Naivasha, Kenya to generate 110MW of electricity. OrPower 4 Inc, a wholly owned subsidiary of US firm Ormat Technologies, completed construction of the $45 million third unit at Olkaria III almost three months ahead of schedule, according to Ormat’s chief executive Dita Bronicki. The output of Ormat’s first electricity generating unit is 48MW, the second unit generates 36MW while the third has a capacity of 26MW. Olkaria III complex was financed with a $310 million debt facility provided by the Overseas Private Investment Corporation (OPIC) of the US.
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