MANUFACTURING IN KENYA:APPAREL-TEXTILE, LEATHER, AND

FURNITURE

October 2015

Table of contents

1. Mandate and methodology

2. Structural similarities across sectors

3. Kenya’s positioning and cross-cutting recommendations

4. Conclusion

4

The manufacturing sector is a critical component of the Kenyan economy, although performance has been sub-optimal

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014Manufacturing Kenya GDP

Kenyan manufacturing vs. GDP % growth rates (2010-2014)

GDP average: 6%Manufacturing average: 4%

• The manufacturing sector was the second largest contributor to GDP in 2014 (c.10%), and formally employed 287,500 people.

• Manufacturing is crucial to job creation, industrial development, and growth

• The fastest growing sectors in Kenya (financial services and communications) added less than 10,000 jobs per year between 2009 and 2013.

• The 4 sectors with the highest productivity growth between 2009 and 2013 accounted for only 7 percent of total employment.

• A single new apparel factory in the EPZ adds 2,000+ jobs.

5

Rationale and mandate from Ministry of Industrialization

• MOIED requested WB assess the competitiveness of several

labor-intensive sectors: leather & leather goods, textile &

apparel, and furniture-timber

• Understand their current state of development and main

constraints

• Propose strategies and assess policy options

• Recommend interventions necessary to accelerate growth,

leveraging international experiences

6

Methodology: Limited data availability made for a challenging and time-consuming research process

• Gathered existing studies and policy documents

• Analysed official data:

• KNBS Economic Surveys & Census of Industrial Production

• WB 2013 Kenya Enterprise Survey

• Conducted surveys, field interviews, and in-depth conversations with industry

stakeholders and panels of experts

• In furniture, we surveyed 244 stakeholders across the country and across each

stage of the value chain

• Held public consultations

• Collaborated extensively with Ministry—at CS, PS, and technical levels—and

Kenya Association of Manufacturers (KAM)

Table of contents

1. Mandate and methodology

2. Structural similarities across sectors

3. Kenya’s positioning and cross-cutting recommendations

4. Conclusion

8

1. Limited official data = lots of professional guestimates!

• Official data was useful for apparel

where exports are significant and

firms are concentrated (and formal)

• Sample size was too small to draw

conclusions for leather and

furniture

• Only medium and large companies

represented in KNBS’ industrial

“census,” so only partially useful

for understanding industry size

9

2. Challenging business environment means firms face an uphill battle

• High electricity prices

• Limited access to finance

• Complex regulations for

non-EPZ firms

• Poor roads and

challenging logistics

- 500 1,000 1,500 2,000 2,500 3,000

Kenya

Ethiopia

Lesotho

South Africa

China

Bangladesh

India

VietnamCost to import(USD/container)

Cost to export(USD/container)

Comparison of Import/Export Costs among Competitors (USD/Container)

10

3. Balance of power in sectors is skewed, with manufacturers at a disadvantage

And in furniture, competition issues in the wood-based panel subsector prevail

In leather, tanneries are the strongest players

Raw Hides & Skins

Wet Blue & Crust

Finished Leather

Animal Husbandry and 

Leather Products

Tanning ManufacturingAbattoirs &

Traders

Forestry Timber

harvesting and

transport

Timber processing

Timber trade

Furniture industry

Furniture outlets

11

4. Limited collaboration across value-chains and within sub-segments of each value-chain

• Very little outsourcing

between the formal and

informal sectors

• Limited specialization among

companies

• No voice vis-à-vis Government

• Limited leadership and

cooperation for sector-wide

improvements

5. Uncertainty around sector sustainability undermines willingness of private players to make investments for growth

• In apparel, continuation of AGOA (resolved!)

• In leather, tanneries’ preference for “wet blue” exports

• In furniture, unreliable supplies of timber:

11

Total demand Industrial woodharvested for fuel

Industrial woodharvested for furniture

Average annual deficit

Mill

ion

m3/

a

42

24 1.4

16.6Kenya has a significant wood deficit

13

6. Low productivity is pervasive, given rudimentary technology and limited managerial and technical skills

• Technology is outdated and expensive to replace

• Skills are low, training is not readily available, and

the Training Levy is reportedly ineffective.

14

7. Bulk of employment is in the informal sector, where labor productivity is dismal

• In leather, 4,000 formal vs. 10,000 informal workers

• In timber-furniture, 160,000 workers total, of which in

manufacturing, 10,000 formal vs. 115,000 informal

• Informal sector characterized by: - Limited tools and mostly “on the job” training - Low value-added goods- Jobs that are not high quality

Formal sector Jua Kali sector

No. of people employed 9,000-10,000 115,000Value added per worker per yr USD 2,300 USD 609

Employment in the furniture industry

15

8. Difficult access to markets means growth is illusive

Domestically Regionally

Internationally

0

10

20

30

2nd Hand‐Mitumba

New‐Low Cost New‐Mid Cost New‐High Cost

Pairs

 of sho

es so

ld 

(millions) Non‐Leather

Leather‐importedLeather‐Kenyan

16

9. Cheap and/or higher quality imports threaten locally manufactured products

020406080

2009 2013

USD

m

Value of Kenyan furniture imports (USDm)

Import CAGR (2009-2013) = 24%

0

4,000

8,000

12,000

16,000

2008 2009 2010 2011 2012 2013

KSH/Unit

Unit values of trade in upholstered chairs

China to Kenya Malaysia to Kenya

Kenyan Market Share of Footwear by Point of Distribution

• For leather and apparel

imports have displaced

local mkt almost

entirely

• For furniture, imports

growing fast and

already 13% of market

share

Table of contents

1. Mandate and methodology

2. Structural similarities across sectors

3. Kenya’s positioning and cross-cutting recommendations

4. Conclusion

18

Business case for the Kenyan manufacturing sector - I

1. Strong local and regional demand fundamentals

2. Access to markets

1. Strategic location

2. AGOA

3. Regional power with sophisticated private sector

4. Growing services sectors that can support and strengthen manufacturing

1

2

3

4

19

Business case for the Kenyan manufacturing sector - II

1. Availability of raw materials mean possibility of integrating value chains

2. Large labor force with pool of skilled workers, relative to neighbouring countries

3. Unique African design

4. China is no longer low cost due to rising wages

5

6

7

8

20

Cross-sectoral recommendations

• Develop and deepen networks of regulation, facilitation, skills, and infrastructure

1

2

Improve the business environment

• Intervene in protective dynamics and legislation that distort power towards upstream stakeholders

Remove market distortions that undermine competition

21

Cross-sectoral recommendations

• Labour productivity- Enhance the quality &

availability of managerial and technical skills through more and better on the job training

- Rethink existing Training Levy

• Investment in technology, machinery and facilities: provide incentives for upgrading machinery and facilities at firm level

3 Improve productivity and innovation

22

Cross-sectoral recommendations

4 Increase access to markets and induce greater demand

• Promote exports in regional and international markets by increasing regional and international awareness and coordinating branding efforts

• Establish Jua Kali-focused marketing entities to facilitate access to formal markets

• Improve transparency and implementation of public procurement

23

• Establish new / strengthen existing industry associations to give sector a voice

• Enhance cooperation across and within each value chain

• Leverage association to facilitate data collection, training, and marketing initiatives

Enhance institutional collaboration and support at sector level05

Table of contents

1. Mandate and methodology

2. Structural similarities across sectors

3. Kenya’s positioning and cross-cutting recommendations

4. Conclusion

25

Conclusion

• Manufacturing has the potential to be a cornerstone

of the economy in terms of job and wealth creation,

but GoK and the private sector needs to take action

to ensure its growth and development

• Given commonality of challenges, it is best to

complement vertical interventions with horizontal

policy interventions to address cross-cutting

constraints