KAM's Industrial Business Agenda - 2012

The KAM Industrial Business Agenda
Priority actions to build competitive local industry to expand employment in KENYA
Proposals for the incoming Government. Kenya Association of Manufacturers (KAM)1 2012
Established in 1959, KAM exists to support Kenyan manufacturers in their operations in Kenya and wherever they operate. The Association has more than 700 members among them Kenyas leading industries. It has oces in 6 locations where industries are located in Kenya Nairobi, Mombasa, Nakuru, Eldoret, Thika, Kisumu and Athi River.
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Table of Contents
Priority challenges for the next governments Ensure energy security Unblocking the logistics Corridor from the Port Make it less taxing to pay taxes Achieve meaningful regulation We need a wage policy that supports employment expansion Make it possible and easier to sell our goods and services Keep the country moving swiftly and safely Need for strong public institutions that support Industrial Development Mobilizing resources for industrial investment Ensure the implementation of the constitution Work towards water security and Environmental Conservation Set aside dedicated land banks for industrial investors in key towns and locations Support to innovation and technology development Improving links between education and market Reduction of corruption in business 4 7 9 11 13 15 17 18 19 20 21 23
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KAMs Industrial Business Agenda Proposals to the incoming Government for the delivery of competitive manufacturing in Kenya post 2012
Foreword
Kenya is moveing towards a seminal election in 2012/2013. It will be the rst elections under the Constitution promulgated in 2010. Kenyans have great expectations that life will dramatically improve with the implementation of the constitution with more eective and accountable governments. The governments (national and county) that emerge from the forthcoming elections must therefore be ready and able to implement programmes for improved service delivery that will impact on the citizens of the country at all levels. Business is a key constituency in this regard. Enterprises can create jobs and wealth for everyone if provided with a conducive and supportive environment where they can thrive. Recent growth in Kenya has been driven largely by the private sector on the demand side mostly through private consumption and exports, and from the supply side, by a broad array of activities producing tradable and non tradable goods and services, including horticulture, telecommunication, wholesale and retail trade, manufacturing, as well as construction and transportation. However investment rate is low partly because investment returns are not lucrative largely because of the cost of doing business is high both direct and indirect cost e.g. labour, capital, transportation, energy, crime, insecurity and burdensome engagement with regulators and government service provider. The net impact of these costs are reduced sales or high total productions costs which makes goods and services produced in Kenya uncompetitive. The business environment in any economy is an important factor in determining the level of investments that take place, expansion plans for businesses, employment levels, revenue collected and the general well being of society. The cost of doing business in Kenya has continued to rise over the last few years, making it very dicult for businesses to thrive. The performance of Kenya has continued to dip in the Doing Business comparator studies. In 2012 Kenya is ranked at 109 out of 179 countries down from 106 in 2011 and our best performance of 93 was in 2007. It is the same direction noted in the World Competitiveness Surveys by the World Economic Forum where Kenya is ranked 102 out of 142 countries surveyed. This kind of performance is disturbing for business and indicates our eroded competitiveness and compromises our aspirations of 10% growth that will enable our country to become prosperous. This global positioning reects the views of investors operating in the country who are the source of such information. The last comprehensive survey was undertaken in 2007 and the feedback from nearly 700 investors indicated below.
Firms reporting major or very severe business constraints: all formal rms, Kenya, 2007 (%)
This can and needs to be reversed with concerted action so that Kenya can be a leader and competitive again. Through this Industrial Business Agenda, Kenya Association of Manufacturers presents the key issues aecting businesses in industry as well as the proposed solutions to tackle these problems through a partnership framework. This represents our view of what needs to be done. The common theme that underlies our recommendations is to ensure that our country and counties can create an environment for competitive Kenyan businesses. Our contribution is inspired by the view that business has a duty and role to play in shaping the election debate and ensuring that political parties and their aspirants for oce pursue a pro-growth and pro-business agenda. We call upon all those aspiring for leadership at the national and county levels to take this proposal to the heart of their preparations for oce and upon successful assumption of oce to urgently put in place the plans and team that will address these challenges and create a conducive environment for conducting of business and to build a strong and winning Kenyan economy. Such businesses and enterprise will be partners to Government in the creation of desired wealth and employment. Sincerely,
Betty Maina, MBS, HSC Chief Executive
Priority challenges for the next governments

1. Energy Security: Provision of aordable and sucient, reliable and clean energy to power industry and ensure energy supply security, quality and aordability. Moving Kenyans and their goods swiftly and safely: Ensuring safety on the road and seamless movement of people and goods not only through improvement of the integrated transport infrastructure (roads and rail) but also through unleashing the power of technology to expedite safe movement. Fixing the Port of Mombasa to unblock the logistics corridor: To increase eciency and productivity. The ineciency at the port of Mombasa is the single gravest contributor to the high cost of doing business on the Kenyan logistics chain. The port is choking with recurrent cases of congestion that are largely caused by system failures and low labor productivity. Making it less taxing to pay taxes. We need modern, competitive business taxes with reduced complexion and administrative burden. Elimination of burdensome regulations through the Review of regulations and licensing especially the power and practice of various regulatory bodies with overlapping mandates as well local government that have power to to impose many charges that raise revenue through charges with equivalent eect to taxes e.g. levies. Delivery of a conducive national wage policy and labour regulations that promote employment Making it possible and easier to sell Kenyan manufactured goods locally and externally - Market Development Building Ecient and eective public services that support industrial development within the country and creations of strong institutions. Support industrial investment with long term nance.
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10. Overseeing the implementation of the Constitution that promotes seamless commercial activity and with frugality. 11. Set aside dedicated land banks for industrial investors in key towns and locations. 12. Ensuring water security. 13. Promotion of ICT enabled services 14. Ensuring students are t for work- through better t between education and workplace demands. 15. Fighting Corruption
Background and Priority Challenges of the Industrial Sector in Kenya

The Government of Kenya considers industry and manufacturing industry in particular a key pillar of its growth strategy and has chosen to support it over time as evidenced by various development plans and statements. Within the current blue print, Vision 2030, manufacturing is one of the pillars alongside tourism, agriculture, wholesale and retail trade, business process outsourcing and nancial services. Kenyas Vision 2030 aims to transform Kenya into a newly industrialized, globally competitive middle-income country proving a high quality of life to all its citizens by the year 2030. Industrial sector was identied as one of the key sectors to address incidences of high poverty levels, unemployment, disparities in regional development, and major foreign exchange earnings from exports of primary or semi-processed agricultural produce. The vision for the manufacturing sector is the development of a robust, diversied and competitive manufacturing. The overall goal for the manufacturing sector is to increase its contribution to GDP by at least 10% per annum. Manufacturing sector contributes 13% of the total formal employment and Informal manufacturing accounts for 20% total informal employment. Kenyas industrial sector comprises of manufacturing, mining and quarrying and construction activities and contributes 14% to GDP The manufacturing activities account for the greatest share of industrial production . 9.4%, Building and Construction account for 4.1% and Mining and Quarrying account for 0.7%. Kenyas economy has been experiencing some structural transformation. There was a slight increase in the contribution of value added agriculture in GDP from 21.4% in 2010 to 24% in 2011 and a rise in the role of trade in services sector from 18.1% of GDP in 2010 to 20% in 2011. Valued added Industry however reduced slightly from 15% in 2010 to 14.2% in 2011. In 2011, direct formal employment in the industry increased to 2.8ml with most of these jobs -2.4m in the Informal sector with its attendant vulnerabilities. In many emerging economies especially in Asia, industry has been the growth engine and is the major tradable sector in those economies. However Kenyas industrial sector now nearly 20% of the economy enjoys modest growth rates averaging 4.% p.a over the last decade. Service sector beats it in growth rates. In 2000 manufacturing was the second largest sub sector of the economy after agriculture. In 2010, it is in fourth place behind agriculture, wholesale and retail trade, and transport & communication. In most high growth rate countries in Asia manufacturing leads economic growth in Kenya it lags in services! This poor record of manufacturing sector has contributed to Kenyas decline in export performance and to the current account decit. In the 1960s our exports of goods and services was 31% of GDP It declined to 25% in the 80s and is for the past decade averaged 25.9% of GDP . . An outward oriented trade policy which promotes exports, a secure investment climate and better infrastructure are key to achieving sustained growth in industry. In order to achieve the targets in employment expansion and welfare gains anticipated in the vision 2030, we will need to enhance the competitiveness of manufacturing sector by strengthening production capacity and local content of domestically manufactured goods, raising market share in regional markets, increasing the generation and utilization of Research and Development (R&D) results and developing niche products for existing and new markets. Kenya will succeed economically and be less vulnerable to shocks only if it balances its economy through stronger exports. In addition to strengthening the well performing traditional exports of tea, tourism and horticulture, It needs to develop and support its manufactured exports which have picked up in the last 15 years and hold
a lot of promise. Kenya is well positioned to make new products (such as textiles, chemicals and automotive parts) and enter new markets if it improve its infrastructure and investment climate. This can be done with the support from Government. In this Industrial Agenda, we outline our proposals to the incoming governments. To help industrial development and the Kenyan economy in general the incoming government should not only adopt all the proposals but also set out a programme within 100 days of entry into oce of the path to their implementation in the life of the next parliament. The proposals have a clear purpose: -to prioritise industrial development as the path to sustainable wealth creation and growth for the Kenyan economy.
Summary of the proposals to support competitive Kenyan industry
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Ensure Energy Security
Due to the key role provision of energy plays, the cost of the products from a manufacturing process will be related to the cost of energy, all other factors such as eciency of production, cost of labor and raw materials notwithstanding. The higher the cost of energy is, the higher the price of the products will be. In the Doing Business rankings, getting electricity in Kenya falls at position 115 out of the 183 economies largely because of the length of time it takes to get hooked up and the cost. There are 4 procedures, 163 days and costs 1419.2% of income per capita. The best performing economy in Africa on this indicator is Mauritius which has 4 procedures, takes 91 days to get electricity connection and costs 328.5% of income per capita. The costs per unit of electricity in Kenya is high and volatile lot depending on the amount of thermal energy in the system which is susceptible to changes in international oil prices. In 2011 for instance industry witnessed an increase in prices by up to 60% from Jan to Dec. 2011. The current cost of and quality of electricity is discouraging new investments and constraining the expansion of industries. This is made worse by the frequent power uctuations/unscheduled interruptions. This leads to lost time and equipment damage due to the poor power quality and thus making it dicult to plan ahead. While a lot has been done by the current government to increase energy supply and stabilize supply and we acknowledge that, the country is still not energy secure and capacity expansion is not keeping up with demand! In Kenya, over 60% of generated energy into the national grid is used in manufacturing enterprises. Kenya currently generates about 1,400 MW. Additional capacity in the pipeline could increase this by 500MW in the next 3 years if projects are implemented on time. But this is not enough. It is prudent therefore that any energy policies that are proposed must be aligned to the industrialization policies as well as Kenyas Vision 2030 if we are ever to unlock our overdependence on imported goods. It is estimated that Flagship projects outlined in Vision 2030 will require an estimated 42,700 MW, meaning we need a lot of investment to be energy secure. Kenya needs to create new 41,300MW of energy by 2030. And we need to look at all new sources, Added to this challenge of inadequate supply is the issue of quality. Industrial investors experience losses due to power supply quality uctuation and interruptions and majority have invested in generators which are costly to obtain and operate. Industrial rms estimate that power interruptions cost them 7% of sales. Energy security is a critical to any plans to boost productivity in Kenya and for any county that seeks to attract industrial investors.
The incoming government needs to Prioritize Provision of aordable and sucient, clean and reliable energy to power industry and ensure energy security, quality and aordability. Given the costs of these services it is strongly recommended that Government provides more support to boost energy capacity expansion. Kenya cannot deliver competitively priced manufactured goods and service/ products without adequate and reasonably priced energy. When decisions are made, execution on additional capacity delivery for energy and roads should be expedited. Delays cost the economy more.
Our recommendations therefore include:

a) b) c) We need concerted action bringing together industrialists and Government stakeholders in Energy sector to agree on how to deliver required capacity at reasonable price that can support industrialization. Increase in public investment in electricity generation, Expedited investment in transmission and distribution to ensure utilization of capacity. Failure to invest in transmission and investment means that existing capacity is not fully utilized even though consumers pay for it. The government should also incentivize private sector investments in least cost energy sector geothermal and other renewable. Today the private sector accounts for 15 percent of the power supply. It can be increased. The country should enhance exploitation of geothermal, solar, wind and biomass resources to supply at least 5,200 MW for domestic and institutional energy requirements by 2030. Provide support and incentives for industries and businesses to reduce energy wastage. Some businesses have made the required investments and saved themselves lost energy. Others might require support and incentives. Establish clear rules for private generators open access to the transmission network, as established in the energy policy. Ensure that electricity pricing maintains the nancial viability of power companies, while protecting the most vulnerable consumers. The short term solution on stable energy price will be in fast tracking of geothermal energy development that will relegate thermal plants to peaking plants. We would also like to see the establishment of petroleum fuel reserve stocks at least for 90 days to move the economy from the risk of price shocks. Development of the necessary infrastructure to go hand in hand with the generation. Coal: A clear policy should be developed and more proactive moves on exploiting the locally available resource. Net metering should be encouraged and developed. Research and Development: Encourage local manufacturing of renewable energy technologies by providing subsidies for more uptake of the technologies. Empower research institutions like NCST, KIRDI, and Universities on energy related technologies. Removal of energy inecient products from the Kenya market through various incentives and encourage local manufacturing of lights, solar products, LEDs etc.
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f) g) h) i) j) k) l) m) n) o)
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Unblocking the logistics corridor from the Port
The Port of Mombasa on the Kenyan coast plays a strategic role in the facilitation of trade both for Kenya and the neighboring countries. Manufactures in particular face numerous challenges when the port performance is inadequate, and hold the view that Mombasa port performance, transit costs and procedures lie at the heart of the logistics supply chain. However currently the ineciencies at the Port of Mombasa is the single gravest contributor to the cost of doing business on the Kenyan logistics chain. The Port is choking with recurrent cases of congestion that are largely caused by system failures and low labor productivity Cargo Clearance Procedures at the Mombasa Port, Border Posts are characterized by lengthy processes, ineciency, delays and high cost, an aspect which has led to negative impact on the economy due to high cost of trade transactions. The ineciency of the Port have for a long time had a negative impact on regional competitiveness due to delays at the Port of Mombasa, occasioned by the numerous agencies and bureaucracy in cargo clearance leading to long transit times, un-competitiveness and loss of business. Despite relatively low GDP growth rates in 2007 2008, container imports at the port of Mombasa have risen at an average rate of 10% per annum since 2005. In the year 2010, the port managed to handle a total of 618,186 twenty foot equivalent units (TEUs) against a designated handling capacity of 250,000 TEUsp.a. A projected annual average growth of 5% of the economies of the EAC member states for the next ve years, means the port will continue to operate beyond capacity. As a critical link in the logistical chain and the major channel for importation of raw materials for manufacturing into the region, the operational eectiveness of the port will have a direct impact on the competiveness of the port from Kenya. Although there have been minimal improvements over the years, the Port of Mombasa is still faced by delays in ship berthing, inecient cargo clearance process causing delays and making the port expensive and uncompetitive. Although Kenya Revenue Authority (KRA) and Kenya Ports Authority (KPA) have introduced computerized systems in their operations, delays are still prevalent due to lack of complete integration between the two systems and frequent systems failures. The clearing process at Mombasa Port, Container Freight Stations and customs procedures which otherwise are not conducive for attracting business at the port of Mombasa. The Railway Systems though critical, continues to face enormous challenges. For many years, the Kenya Railways Corporation has not undertaken any major development either through rehabilitation or upgrading of its infrastructure, construction of new lines or modernization. The track, besides being operated as a single line, has not been extended despite its limited coverage. The real issue from importers perspectives is the high costs of railway transport, unreliability of services and lack of wagons. The incoming government must therefore Fix the Port of Mombasa to increase eciency and productivity..
Our Recommendation
Port Reform leading to Commercialization and eciency improvements - Cases of successful privatized companies have been cited in Kenya. Having the required framework for privatization would help in fasttracking the process. Privatization and commercialization spreads the gains of eciency and economy of scale. Attempts at doing this in the past have been thwarted by opposition by labour. The Incoming Government needs to conclude this process.
For any real change in the quality, cost and time of travel along the Northern Corridor, the port of Mombasa and its environs need to be substantially modied to meet the potential freight tasks. This means investing in both new infrastructure and improvements that allow the port to maximize use of its existing facilities by improving port layouts, berth and land transport access. Therefore there is urgent need for expansion of capacity of o-take roads from the Port. In the short term, there is an urgent need to ensure a back-up for the KRA and KPA systems to ensure no down time and more integration of the systems, and a reform in the management structure of KPA to include representation from relevant private sector institutions and greater productivity. Otherwise a more permanent solution is the implementation of the Single Window System Improvements in o-take of cargo from the Port. This will be realized by improvement in o take corridors both road and rail. This will require new investment especially for Railway and the construction of the Standard Gauge Railway. The launch of the (LAPSSET) corridor in March 2012 is welcome and has potential to link up Kenya with the region and will bolster trade. The plan must receive the requisite investment. Ecient utilization of Port Resources: There are a signicant number of containers that have stayed at the Port for long. This critical resource should not be utilized as storage. Implementation of Maritime Regulations to ensure ecient service delivery and safety.
Congestion at the port of Mombasa has greatly aected the manufacturing sector. The port not only serves the Kenya market but a number of other countries in East Africa and if operational eciencies at the port continue the country stands to lose business to other ports. Delays in clearing goods also have an adverse eect on productivity and protability of the manufacturing sector.
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3.
Make it less taxing to pay taxes
Kenya remains amongst the most heavily taxed economies in the world with 43% of businesses in the country nding tax administration a major constraint. The Government thus should increasingly focus on making taxes less burdensome on business and simple to administer.
We need competitive business taxes with reduced complexion and administrative burden.
a. b. c. Friendly and trade facilitating tax administration. Eliminate multiple regulations by government agencies. There are too any agencies with overlapping responsibilities who use licenses and charges of equivalent eect like levies to raise revenue. Modernization of the Income Tax Law. It is more than 40 years old, has been amended many times, is complex and hard to understand for both business and KRA and therefore woefully in need of modernization which must be considered a priority. Regulate refunds and make the process fair and transparent.
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Our proposals The number of tax payments and returns that a business has to make has become untenable and is adding to the cost of compliance. We need to stream line the process urgently. The number of taxes, charges and levies that businesses pay should be reviewed. They include Corporate tax (5 times p.a), NSSF (12 times p.a), PAYE (12 times), applicable withholding taxes (monthly), Single Business Permit, Standards Levy, Industrial Training levy (2 times per annum), road maintenance levy, fuel excise duty, rates, rents, stamp duty, VAT (12times), and petroleum development levy. Kenyan businesses make up to 65 tax and tax like payments annually which add up to 50% of Prot. These taxes are not collected at the same location dierent agencies are collectors. We cannot build up formal enterprise with these sort of taxes and administrative burden little wonder then that most employment is found in the informal sector. The number of taxes notwithstanding, Kenya needs to reduce the complexity of forms and time taken to le returns. Complex processes impose administrative burdens on taxpayers leading to tax avoidance and high enforcement cost on part of government! The focus should be a move towards a tax system that emphasizes simplication and reduction of the administrative burden. Modernise the tax law. One of the principal issues we have in tax is that our legislation is outdated and archaic. Our Income Tax Act has been around for nearly 40 years (and indeed was probably the same one we had at independence) and has over the years been amended numerous times. The result is complex legislation that both business and the authority nd dicult to understand and interpret. We must have a rewrite of the law as a matter of great priority. As part of this re-write of the legislation, we need to focus on industry sectors. Our tax law in respect of insurance companies is so convoluted that nobody understands it! Similarly we need to look at the new industries oil & gas which will play a big part in the future of Kenya. The new legislation must also take into account the KRAs intention of moving towards a completely online system. If this parliament does not conclude it, prioritise modernisation and reform of VAT legislation. The complexities and diculties of application have been addressed in the proposed legislation; through there are still concerns about elimination of the incentives for investment contained therein. Tax Payer Friendly administration. Our revenue administration is cumbersome and onerous for tax payers. They are subjected to multiple audits and changes in rulings by KRA without due consideration the implications of changes in rulings to actions of tax payers. This process needs to be much more streamlined and transparent. Tax payers are willing to oer suggestions to KRA on this.
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Time taken to make Refunds must be regulated and KRA must be penalised for not administering it right. Tax claims and outstanding refunds of sums owed to business have continued to increase, thus tying up crucial capital for businesses. Despite numerous assurances and directives to resolve this, not much has been done. Reforms of the regime and VAT law to minimize incidence of refunds is a priority. In addition to the above, Kenya needs to move expeditiously to spearhead the resolution of the anomalies noted in the EAC Common External Tari to ensure proper classication of products. The Government should set up a permanent inter-ministerial Budget committee to handle various tari anomalies, especially as regards harmonization and rationalization of EAC customs Union. Furthermore, provisions to allow for changes in the protocol should be followed to avoid unilateral decisions in violation of the protocol and imposition of non-tari barriers by Partner State.
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Achieve meaningful regulation
The current business regulatory framework imposes high transaction costs on businesses through the high number of licenses required as well as the administrative burden imposed by regulators. In 2007, Government repealed close to 700 superuous license requirements eliminating about 350 and simplifying almost an equal number in. However, some of the gains, have been reversed by introduction of new charges of equivalent eect and disobedience by regulatory agencies. There are still numerous demands for eliminated licenses and We also have seen introduction of new by-laws by Local Authorities that do not resonate with existing Acts. In addition, we are increasingly seeing introduction of new licenses, which are not only cumbersome but also a burden to comply with. All these water down the Governments licensing rationalisation programme. Besides local authorities, several regulatory agencies and parastatals impose license fees and levies on businesses. These include the Kenya Bureau of Standards, National Environment Management Authority, Water and Sewerage authorities, Department of Weights and Measures, Pharmacy and Poisons Board, Department of Occupational Health and Safety, Department of Mines and Geology, Kenya Radiation Board, Kenya Forest Service among others. The compliance costs related to all these regulations is a great cost to businesses. In addition, there is need to harmonize the enforcement regime where there is duplication of roles so that businesses can deal with one government body. To spur business, there is need to streamline the regulatory framework, development of proper implementation mechanisms, reduction of the number and cost of licenses, trimming down the burden of compliance and enhancing the creating capable institutions.
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The incoming Government should consider it a priority to;

consolidate fees and charges by regulatory institutions, make it less burdensome for investors by implementation of sector one stop shops for regulation aspects, Review the funding mechanisms with an objective of reducing the fees and charges related to the overlapping roles and funding necessary regulatory agencies from the exchequer. Review of the Acts and mandates of all regulatory institutions and identifying lead institutions of the various regulatory roles to be responsible or coordinating agency in their respective roles e.g. leaving all environmental regulatory roles to be undertaken by a single agency rather than multiple agencies.
We recommend that:
A cap should be placed on new licenses and levies and a system for coordination of their imposition of businesses taxes and levies. In the context of extensive devolution, it should be ensured that the licenses issued by specic counties facilitate inter-county trade.. The approach to imposition of taxes and levies by country governments should obey the Constitution. Since the county governments will have power to develop laws, the national government should institute mechanisms for evaluating the Regulatory Impact Assessment of all regulatory proposals at the county and national governments. This will ensure that only pro-business laws and regulations are implemented. Develop the mechanism to ensure compliance with th constitution by county governments in the imposition of business taxes.. The county governments should monitor and evaluate the services oered to the business community vis a vis the fees and charges collected. The county governments should be transparent in the expenditure of the budgetary allocation from the national government. The business fraternity should have a say in the county budget to ensure that their needs are also prioritized Mergers and consolidation of agencies with similar regulatory roles and mandates e.g in IP protection.
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5. We need a wage policy that supports employment expansion

Kenya requires a wage policy that will support creation of jobs in the manufacturing sector. Besides Infrastructure, the largest component of costs in employment expanding industries is labor costs. Labour market regulations are an important factor in determining employment expansion and absorption within the economy. For a country with large unemployment, it is particularly critical to ensure that labor market regulations do not hamper absorption especially of young persons. The competitiveness of Kenya has been seriously undermined by the enactment of the new labor laws in the 2007 which did not take into consideration the views of employers. The private sector has argued that the implementations of some of the provisions in the labor laws will not only create a hostile environment between employers and workers but will also drastically increase the cost of doing business in Kenya. Rigidity in the labour market discourages creation of jobs in the formal sector and connes even more of the workforce to the vulnerability of the informal sector. This is not the choice the Kenyan economy should be making at this time. However it will be observed that most of Kenyas manufacturing jobs are currently in the informal sector! This situation is critical and is aecting the ability of several labour intensive sectors namely plantation agriculture and textile to weather the tough economic times. Investor shift to capital intensity or outsourcing as is happening to general services in industry. Recommendations: Kenyan Industrial Employers are committed to observing national and best labor practices. However it must be appreciated that these regulations can hamper labor absorption and employment creation. The New labor laws passed and implemented in 2007 have had this eect and have actually led to contractions as employers nd alternative ways including mechanization and outsourcing. It is imperative that these labor laws are reviewed expeditiously and instead the Government and Industrial employers should dialogue at the appropriate incentives for expanding safe and decent work. Government needs to pursue labor regulations that will facilitate employment expansion and industrialization. Rigid and inexible regime compromise eorts at employment expansion.
This should focus on:

Productivity based wages and departure from ceremonial wage increases. Training in skills that will lead to jobs or required by industry and to build new skills for new industries. Recognition that industrial expansion that will create employment will need to be backed up by nonexpansionary wage increases. Any country that maintains a rigid high wage labour regime looses out on competitiveness for manufacturing. Industry also recommends that the incoming Government departs from the ceremonial wage increase on Labour Day. Instead minimum wages ought to be frozen and productivity measures like piece-rate introduced. Such an approach is intended to spur productivity and performance. A mechanism should be established to promote closer collaboration between training institutions of higher learning and private sector in order to oer demand-driven curricula that target not only Kenya but also the East African region.
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Conduct an updated manpower survey so as to establish appropriate supply and demand levels in human resources. The last manpower survey conducted 20 years ago is obsolete. The current mismatch of skills causes unnecessary unemployment leading to low productivity. Wage guidelines should be more explicit on the proportion of wages for compensation arising from cost of living indices and productivity so that compensation of wages should be at half the rise in cost of living indices during the period under review, with any further compensation being based on improved productivity.
One of the main reasons for the upward creep in wages is the cost of living and tendency to adjust wages due to ination and especially related to food. Kenya needs a food policy that supports desired wage policy for industrialization. There is need to reduce the price of food and essential commodities in Kenya. A good way to reduce the price of food is to reduce the import duty on imported grains and other food products e.g sugar. Kenyas food price policy has maintained high prices partly by paying Kenyan farmers above world market prices and compounding this with high duties on imported grain. Kenyans pay more for grain and imported commodities than others who consume the same products. Import duties on these commodities and distribution structures, drive up the price of food. A policy that raises prices above market levels hurts the POOR most and compromises the drive to increase industrial and urban employment. The government will therefore need to Professionalize the grain and sugar markets - following the model of the tea sector (private sector run, transparent auctions).
Manufacturers are calling for a supportive labour framework to enhance production
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6. Make it possible and easier to sell our goods and services

Industrial producers need to be supported with access to markets. Kenya maintains an open trade policy and is export oriented. The incoming governments must safeguard this and indeed further enhance and actively pursue a initiatives to grow and diversify Kenyan exports.
External Market Development

a) Make it possible and easier to sell Kenyan goods in the external market through concluding regional, bilateral and other trade agreements and special arrangements that will deliver expansion of such markets. Such include the Tripartite Free Trade Area and those with Europe. Work towards elimination of external non tari barriers in countries we have signed trade agreements with. Make the East African Community work for Kenyan Businesses by pushing for the attainment of a true single market with limited barriers for goods and services and freedoms of movements of persons. Improve coordination of all agencies involved in trade facilitation in order to reduce the time taken to complete processes for import and export of goods and services. Support entrepreneurs to enter new markets thus developed through various forms including fairs and exhibitions in destination markets. Establish Export expansion grants and the Export Development Fund to nance export promotion and related activities. Conclude double taxation agreements with key economic partners. Stimulation of export led industries in special economic zones Local market construction and linkages through improved infrastructure and payment systems. Maintenance of conducive international nancial relations and banking structures with integrity and meet the international requirements of nancial systems transparency. Maintain a predictable and stable exchange rate regime that will spur exports. Trade nance (invoice discounting and related credit facilities against conrmed orders. Especially for smaller operators who may not have the capital to nance orders and cannot wait for the typically 60 days credit period before they are paid.
b) c) d) e) f) g) h) i) j) k) l)
Internal trade expansion

a) b) c) d) e) f) g) Local market expansion through preference in local public procurements. Protection from trade in counterfeit, unsafe goods and illicit goods in the local market. Protection of local market from uncustomed imported substitute goods that pose unfair competition. Networks of markets in rural areas and ensuring access with improved roads. Armative action in public procurement for local industrial products by government agencies. Public support for Kenyan products. Elimination of internal non tari barriers by trade facilitation agencies
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7.
Keep the country moving swiftly and safely
A good transport network is critical to the functioning of a competitive economy. An ecient and safe system and links will support mobility, delivery of goods to the market and improved well being. For too long Kenya has relied principally on Roads for goods and people movement. Roads are an important infrastructure that facilitates the movement of goods. We acknowledge that there has been improvement in the road rehabilitation and development programs but a lot still need to be done to improve the quality of the road network in the country and promotion of safe usage. However delivery of roads is just one dimension of transportation. Urban congestion has reached severe levels in the Main towns of Nairobi, Mombasa and Eldoret. This results in great loss of time, wasted fuel and delayed business. Added to this is the burden of road safety and ensuring safe usage of road by all users and minimization of conict by dierent groups of users. However roads are not enough. Kenya urgently needs to modernize its railway to promote mass movement of persons and goods and introduction of mass transit of persons. It is inecient and expensive to keep transporting people in small units as we do through cars and matatus mainly. We therefore need the government to work with all stakeholders to Keep the country moving safely Ensure safe and seamless movement of people and goods through improvement of the Countrys transport infrastructure (roads and rail) as well as application of technology to promote safety and eciency.
The incoming government needs to commit to the following:

Increase in investment directed at roads and rail to meet the growing demands of the economy Implement a projects to deliver an integrated transport system Prioritize roads that have a direct impact on businesses i.e. Trunk Roads, industrial zone roads and feeder roads in agriculturally productive areas. In the short term the National Trunk road from Mombasa needs to be kept in top working condition all the time. It is choking the Port and the region and holding up the country and investments in trucking capacity. In the medium term commit to the construction and delivery of a modern railway from Mombasa to Malaba and work with partners in the region to deliver links on the Uganda and Rwanda sides.
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Improvement in the quality and maintenance of roads including weight control. Weighbridge management in Kenya is still steeped in corruption and not eective in elimination of overloading - which destroys roads. Weight control management should have penalties for transport carrier owners (not just drivers and turn-boys), cargo owners (consignors and consignees), law enforcers on duty and points of loading e.g. KPA or CFS to ensure compliance. Regional approaches to weight control need to be fast tracked and weighbridges modernized. Reduction of congestion through timely delivery of bypasses. All major transit roads should not be constructed through growing towns. This is the source of most congestion. Prioritize road safety and educate road users on safe usage of roads. Deploy modern technology to promote road safety and discipline of users.
8.
Need for strong public institutions that support industrial development
There are several Government Agencies charged with support to Industrial Development Ministry of Industrialization, Ministry of Trade, Ken Invest, EPZA, Kenya Industrial Estates, Kenya Industrial Research Institute (KIE), Export Promotion Council (EPC), Industrial Development Bank (IDB), KRA, Immigration, Labour etc. they duplicate and contradict each other from time to time and the process of unraveling the inconsistent or duplicated actions cost investors a lot of time and money. This is in addition to the multiple regulatory agencies as well as a myriad of trade facilitating institutions. For Kenya to become a globally competitive economy, it needs an ecient, world class public service that is results driven. The incoming government must prioritize reform of public institutions, rationalizing agencies, merging those with similar functions, streamlining them to make them ecient and ensuring that tax payers get ecient and accountable government institutions.
Some key recommendations are: To spur industrialization, Kenya needs to ensure that the institutions in place to support this are well aligned and rationalized. State agencies that perform similar functions should be amalgamated in order to reduce unnecessary expenditure. All government services should be automated in order to reduce rent seeking opportunities in pursuit of services. Review nancing of state agencies and ensure they do not use levies on businesses for revenue generation.
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9.
Mobilizing resources for Industrial Investment
In the early years following independence, Government had recognized the need for vehicles for development nance such as DFCK, IDB, ICDC and KIE among others. The role that these agencies played has not been replaced by commercial banks and very few give long term support or nance start ups. In recent times Government has partnered with banks to mobilize and direct nancial support to enterprises. Government gave various incentives and support i.e remission of duty on capital equipment or for exports or for deconcentration from Nairobi. To support export-oriented manufacturing, Government introduced Tax Remission for Export (TREO) which grants tax remission on imported raw materials used for manufacture of export goods. Additionally, the Export Processing Zones Authority (EPZA) oers tax incentives for companies located in its export processing zones to encourage production of goods or services for export. The Incoming Government must incentivize and support industrial investment through policy and in specied circumstances through nancial and scal support.
Recommendations:
Kenya needs to establish a National Industrialization Fund and recapitalize its development nancial institutions mentioned above. These should be directed to support industrial investment that can enhance employment expansion and Value addition to Agricultural products in various value chains. Provision of scal incentives to spur desired industrial investment e.g. on use of locally produced industrial crops or for deconcentration. By sourcing locally produced materials and mapping these into the supply chain, a transformative multiplier eect is created, including relieving pressure on the local currency, adding value to existing world-class brands and creating opportunities for innovation that would provide consumers with safe options, competition in industry and government with revenue. To support deconcentration from Nairobi, there is need for national and County governments to set incentives and support for investors
Kenya has been largely trading with other countries in East Africa and has been exporting to the rest of the world and there is potential to boost exports if the operating environment is conducive
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10. Ensure the implementation of the constitution

The Kenyan constitution promulgated in 2010 heralds a new promise for Kenyans and their quest for shared and accountable government. It is however a rich and complex constitution that needs to be implemented with care and keen oversight by the Government and vigilance of the people to ensure delivery of the promise. The Kenya Association of Manufacturers was involved in the process leading to the nalisation and endorsement of the Constitution. We advanced the following reasons for support: 1. 2. 3. It promises to improve accountability by government and those in power. More focused government with separation of parliament and Cabinet as Ministers would be drawn from outside Parliament: Framework for Integrity in public life as represented by Chapter 6. Many businesses have suered in the hands of public servants who use their oces to extract bribes in the discharge of their duties and who use regulations and oce to harass businesses that fail to pay up. Many businesses have suered under the capricious exercise of administrative power by public servants while seeking licenses and permits, paying taxes, getting approvals for investment. Fixed Size of Government: There is a ceiling for the size of the cabinet- xed at 24. This will prevent the escalation of ministries and more importantly it will lead to a consolidation of functions so that they can be coherently delivered. Protection of Property: The Constitution guarantees the right to own property in any part of the country, freedom of movement and expands property to include Intellectual property. One of the most thriving businesses in Kenya at present is the creative industry. Our budding Software industry will grow and service the world Better Management of Public Finance: The Constitution provides for sound and accountable management of our resources. The Constitution provides for coherent policies for revenue mobilization, allocation, spending and accountability under a unied tax system that ensures national coherence and a minimum 15% allocation to counties. It also provides for equalization fund for rapid development of under-developed regions in the country. To enhance accountability, the Constitution introduces the oce of the Budget Controller to promote prior prevention of abuse of public resources before it happens. Opportunities for Business within Devolution: Devolution promises service delivery close to the people and business expects to benet from this and to thrive. We have seen what CDF and other devolved Funds have done in creating opportunities for local businesses to thrive. No doubt Devolutions provides an opportunity for our small business to grow and thrive. Separates powers and institutes checks and balances: The Constitution provides for a clear independence of the three branches of government and introduces checks and balances, sanctions and guidelines for oce holders and outlines fair removal procedures among others including administrative excesses. Independence of the Judiciary: The Constitution provides for complete nancial independence of the Judiciary which means that it can make independent decisions and judgments. The Chief Justice has also been given powers to discipline wayward judges.
4.
5.
6.
7.
8.
9.
We were however concerned about costs of implementation and assurance of freedom of commercial activity under devolved government. We remain concerned and need for the government to ensure that implementation does not break the bank and back of the nation. The incoming government must guide and oversee the full and ardent implementation of the Constitution. Any emerging challenges must be tackled expeditiously.
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The required resources and capacity for counties to carry out functions assigned under the constitution must remain a top priority. Key among these functions will be public nancial management and capable service delivery that delivers the promise. Failure to deliver accountable and capable devolved government will negatively aect business and compromise the delivery of a better business environment. Costs of constitutional implementation must be undertaken with due caution and within means. Of concern to business is the cost of constitutional commissions and creation of several commissions with overlapping mandate. The country cannot aord expensive government it will be unable to deliver and will compromise the promise of the new constitution. The Incoming government must rationalise the constitutional commissions established to date and those to be established later. KAM remains concerned about the interface between devolution and integration and especially on the question of whether devolution poses a challenge to integration of the EAC Partner States as the economy is being split into smaller economic units while business is desirous of taking advantage of the expanded regional market. The Incoming government must clearly articulate the manner in which it will pursue global and regional trade in the context of devolved government. KAM also remains concerned about decision making process at county levels: While devolution creates opportunities for capital raising and nancial intermediation, there are several levels of approval, and certain decisions will have to be endorsed by the Central Government. It is anticipated that the approval process will not be long drawn out or conictual as business depends on the environment created by Government. It is hoped that the processed for establishment of formal businesses within the counties will be freed from a lot of bureaucratic procedures. More importantly it is the expectation of business that the country will adopt unied law for doing business in the counties that promote national coherence. Support for Urban Areas: Most of Kenyas counties are rural. However it is an acknowledged fact that most industrial activity takes place in urban areas. Under the constitution, resources will be managed by county governments which are made up of mostly rural areas. As per the Urban Areas and Cities Act, at most 5 cities will have a corporate body to manage them. Business is located in more cities which will not have direct management yet will have to provide the necessary services for business delivery. In order to create the necessary business environment, counties must have sucient resources invested in urban areas. These need to be safeguarded. Therefore urbanization should be considered as a parameter for the division of Public Revenue and specic resources earmarked for urban services.
H.E the President Mwai Kibaki waves the new constituion KAMs Industrial Business Agenda Proposals to the incoming Government for the delivery of competitive manufacturing in Kenya post 2012
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11. Work towards water security and environmental conservation.

Ensuring water security is critical for Kenyas development and the incoming Government must treat this as priority. The availability of sustainable water and other natural resources will determine the competitive advantage that Kenya will have over other investment destinations in the region and world over. The incoming government must demonstrate commitment to conservation of water towers, modernization of urban water systems and sustainable water use for both commercial and residential needs. The water sources that support hydro power to the economy need to be protected. These hydro power plants contribute about 60% of Kenyas electricity output. As outlined in the social pillar of Vision 2030, introduction of water harvesting and drainage schemes need to be developed as a conservation measure. Government in partnership with other stakeholders such as schools and private sector should also encourage the increase of forest cover in the country through increased tree-planting initiatives that will conserve our ecological and hydrological environments. Government should also ensure that the highest environmental standards are adhered to in the exploration of oil. The eventual production processes should also be monitored to ensure that the climate change eects arising out of these emissions are minimized.
12. Set aside dedicated land banks for industrial investors in key towns and locations.
Governments at national and country level need to set aside and builds land banks for industrial investors in key towns at present the main path to access to industrial land is purchase of agricultural land and conversion through change of user!. Expecting them to get land through the market is making it very expensive and aects plans for de-concentration from the main industrial towns of Nairobi. Access to Land remains one of the gravest hindrances to new investment in industry and it is critical for counties and national government to build Land banks for Industrial investment Use compulsory acquisition and zoning to build land banks The new Land Act No. 6 of 2012 in Part VIII bestows on the National Land Commission power to compulsorily acquire land when necessary upon receipt of a request to do so from the respective Cabinet Secretary or the County Executive Committee Member and the land owner is fully compensated for such an acquisition. This power should be exercised in instances where the Government focus is to increase local industries for the growth of the Countrys economy. Thika Town was planned to be an industrial town from the start. The Thika super highway is now almost complete and this infrastructure is timely for the Government to work towards setting aside land in Thika for development of Industries. Such land should be prioritized to be for private investors who intend to set up industries with a priority on local manufacturers. The same idea should also be used in all the Counties such that specic areas in the Counties be set aside as land for the establishment of industries. For the towns with industrial areas, these areas should be strictly used for industrial purposes and more land in such counties be sourced for expansion of industries.
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13. Support to innovation and technology development

We need to facilitate Expansion of the National ICT infrastructure and transfusion to all counties and the Promotion of transfusion of ICT in government functions and E-government
ICT plays a key role in supporting ecient trading and production processes in the world today. This is not only limited to the private sector but government bodies around the world have taken up ICT as the mode of service provision. ICT enables and drives innovation and competitiveness. It is an innovation enabler in its own right by building a digital society where public services and private sector have aligned their processes. The current slow implementation of E-government presents a challenge and creates a disconnect between noble policy objectives and business processes in public, private sector and academia as well. This means that the potential contributions to innovation by higher education are not being realized. We therefore recommend that; a. A national innovation policy be developed to harness economic strengths and address weaknesses and respond to international challenges and opportunities. The construction of the ICT infrastructure in Kenya is nearly complete. It is critical to stimulate its use by expanding local content development. Regulatory and scal incentives should be introduced to support innovation enabled by ICT. Government agencies, particularly those supporting trade facilitation, should be revamped to support the ICT industry The National ICT policy should be organized as a continuous process with measures in place for fast implementation and monitoring instruments.
a)
14. Fit for Work - Improving links between education and market.
A competitive economy requires the right skills and attitudes of the labor force. Kenya has invested a lot in developing education with nearly universal coverage of primary education and increasing coverage of Secondary Education. However we need to be aware that higher education is critical for sustained growth in Kenya. It can improve productivity by providing the skills technical, thinking and behavioural required by the market and drive innovation and growth in the economy. There is need to review curricula in tertiary institutions to reect the latest changes in industrial technology. This should be done on a regular basis in both universities and vocational training institutions. Despite expanded access, many young people still enter the job market without adequate skills. Indeed a stark observation is that 92% of the unemployed youth (between 18 and 25) lack skills. Those who graduate from higher education lack the skills and right mix to drive competitiveness. The education system should be developed in a manner that ensures that students are able to put classroom theory into practice and even become entrepreneurs and thus creating jobs rather than searching for them. The Incoming government must commit itself to delivering quality higher education that meets the requirements for industry and the growing economy. It must also commit itself to delivering the right technical skills required in a rapidly industrializing country. National polytechnics and other technical training institutes need to have their infrastructure upgraded in order to meet the needs of industry. The government must allocate sucient resources to science and engineering. Foster deeper linkages between university and industry to develop the skilled labour for the economy. Closer collaboration between training institutions of higher learning and private sector should be encouraged in order to oer demand-driven curricula that target Kenya and the East Africa region as well.
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15. Reduction of corruption in business.

The Global Competitiveness Report (2012) ranks Corruption as the leading problematic factor to doing business in Kenya with a signicant percentage of 21.2 % of the respondents indicating this. While Kenya is not unique in facing the problems of corruption, a range of indicators show that corruption remains a serious problem and a major concern to Kenyans and the international community. Allegations of corruption, from petty extortion to national scandals, are common. Domestic and international investors regularly cite corruption in Kenya as a deterrent to doing business. Corruption undermines governance, democracy and the rule of law, intensifying injustice and conict. It destroys investor condence, raising the costs of doing business, driving investors and employers away and reducing economic growth. Business desires a more ethical business environment. KAM has provided the lead on this and recently launched the Code of Ethics for Business in Kenya that is aimed at enhancing integrity in the practice of business. The Incoming government must demonstrate clear and unequivocal commitment to ghting graft and creation of ethical government.
Recommendations:
a. b. Government to give total support to the institutions set up with the mandate of the ght against corruption. Building structures and systems of accountability in devolved government to inject integrity in the systems, leadership and procedures that will serve the counties. This will help cushion businesses against losses and impediments that are likely to occur as business opportunities shift to the counties. Criminalize corrupt actions of business and other non-state players. Implementation of the provisions of Chapter 6 of the Constitution on Leadership and Integrity Bill in the choice of State Ocers. Greater involvement of and collaboration with the businesses in the ght against corruption. Automate Government- Deploy technology in public services to reduce rent seeking opportunities in the pursuit of services. Structural reforms be carried out in the operations of the port, customs, local authorities, government procurement etc to reduce corruption risks and tendencies largely faced by the businesses as they seek services from these government departments.
c. d. e. f. g.
In Conclusion:
This is not exhaustive but has been highlighted because of the burdens the place on Industry. KAM pledges its continued support to Government in the search for solutions to these bottlenecks that aect our industrial agenda.
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VISION
To be a world class business membership organization eectively delivering services to its members wherever they operate.
MISSION
To promote competitive local manufacturing in a liberalized markets.
Kenya Association of Manufacturers P O. Box 30225 - 00100, Nairobi, Kenya . Tel: +254 (0)20 3746022, (0)722 201368, (0)706 612384 Email: [email protected] Website: www.kam.co.ke

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The KAM Industrial Business Agenda

Priority actions to build competitive local industry to expand employment in KENYA

Betty Maina, MBS, HSC Chief Executive

Priority challenges for the next governments

Background and Priority Challenges of the Industrial Sector in Kenya

Summary of the proposals to support competitive Kenyan industry

Ensure Energy Security

Our recommendations therefore include:

Unblocking the logistics corridor from the Port

Make it less taxing to pay taxes

Achieve meaningful regulation

The incoming Government should consider it a priority to;

5. We need a wage policy that supports employment expansion

This should focus on:

Manufacturers are calling for a supportive labour framework to enhance production

6. Make it possible and easier to sell our goods and services

External Market Development

Internal trade expansion

Keep the country moving swiftly and safely

The incoming government needs to commit to the following:

Need for strong public institutions that support industrial development

Mobilizing resources for Industrial Investment

10. Ensure the implementation of the constitution

11. Work towards water security and environmental conservation.

13. Support to innovation and technology development

15. Reduction of corruption in business.

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