THE BIG FOUR AGENDA. INVESTMENT OPPORTUNITIES-IN THE MANUFACTURING SECTOR Flora Mutahi Chairperson Kenya Association of Manufacturers 14 th June,2018

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1 THE BIG FOUR AGENDA INVESTMENT OPPORTUNITIES-IN THE MANUFACTURING SECTOR Flora Mutahi Chairperson Kenya Association of Manufacturers 14 th June, Years of Manufacturing Excellence! Since 1959

2 GROWTH (%) GDP to Contribution (%) -On select activities Manufacturing -Current state GDP GROWTH/YR (%) Manufacturing Contribution to GDP/Yr (%) Manufacturing sector growth/yr (%) YEARS 6.5B n 0.2 % Gross Domestic Product contribution by Activities YEARS Agriculture, f orestry and f ishing Manuf acturing Construction Financial and insurance activities Exports 18% total 6.1% EAC 300,600 employees Other sector increasing, mfng DECREASING

3 GROWTH Why value addition matters 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% There is growth in employmen t but Low value added exports & Low inflow of hard currency. % growth in employmen t is in low cadre jobs Value Addition in manufacturing has stagnated 0.0% % JOBS % value added to manufacturing output % compensation

4 Manufacturing contribution to GDP (%) Manufacturing Big 4 Ambition Large gap between projected Big 4 ambition and business as usual Business as Usual-Historical Business Unusual -Big 4 Ambition Business as 3% growth-projected

5 Closing the gap to Big 4 Agenda for manufacturing 15% Manufactu ring share of GDP Competitivenes s 12% Vs Global 8.3% Manufactu ring share of GDP 40% market share, Kshs30Bn Illicit Trade Market Access 58% drop in EAC Predictable and Stable policy environment Shocks causing low investment in FDI & LDI

6 Competitiveness Illicit Trade Market Access Predictable and Stable policy environment Quality & affordable energy IDF and RDL Productive Labour Delayed payment Finished goods Industrial input Multiple fees and Charges Logistics and Transport SMEs access to funds

7 Competitiveness Illicit Trade Market Access Predictable and Stable policy environment Multiple fees and Charges Logistics and Transport SMEs access to funds

8 Competitiveness Illicit Trade Market Access Predictable and Stable policy environment Risks to the Big 4 Agenda Loss to Government >40% Alcohol Lost Market Share >25% Edible oils >12% Steel >12% Tobacco Substandard seeds Tax Evasi on > KES 16Bn Excise tax lost in illicit cigarettes & alcohol KES 30Bn in revenue KES 2.5Bn Steel

9 Competitiveness Illicit Trade Market Access Predictable and Stable policy environment Local Market Regional Market Global Market Competitiveness Illicit Trade Market Access Predictable and Stable policy environment Ad-hoc Policy Processes disrupting manufacturing VAT refund formula dis-incentivizing exportation Administrative 6% Withholding VAT

10 Drivers to closing the gap - Manufacturing 18Bn % 14% 6.4Bn % 11% 13% 8.3% of GDP Sort out the four asks - Sustain current Manufacturing + Organic growth Min. 40% all govt. projects allocated to local manufacturers Strategic incentives to attract new investment Targeted sector interventions

11 Manufacturing Commitment Incremental Impact by 2022 FOREX EARNINGS $ 7.3Bn in foreign exchange earnings in selected manufacturing sectors INVESTMENTS $ 4.9Bn Minimum new investment 469,500 Direct Jobs created in the manufacturing sector in next five years JOB CREATION LOWER CONSUMER PRICE 10% Lower cost of local manufactured goods through Efficient Consumer Response Mechanism & Economies of Scale

12 Manufacturing Commitment Incremental Impact by 2022 Sector New jobs New investment ($ Mn) Export Earnings ($ Mn) TEXTILE & APPARELS FOOD AND BEVERAGE LEATHER TIMBER CEMENT AGRIC/FRESH PRODUCE AUTOMOTIVE IRON & STEEL CHEMICALS PAPER & PAPERBOARD PHARMACEUTICAL TOTAL 469,500 4,960 7,300

13 THE PRIORITY SECTORS IN THE BIG 4 AGENDA Sector Target by Textile apparel/cotton $350 to % 2bn exports ; 500,000 Cotton jobs & Create New Apparel Job 100,00 2. Leather $ 140M - $ 500 M exports;50,000 New jobs; Make 20Million shoes 3. Agro-processing 16% - 50% 1000 SMEs Create 200,000 (Tea, Dairy & Meat) jobs 4. FISH processing $20 M fish feed mill investment & Create 20,000 jobs 5. Construction materials 470M-$ 1Bn &Create 10,000 new jobs 6. Oil, Mining &Gas Attract 1 global scale player in the mining value add 7. Iron &Steel $1 Bn new investment 8. ICT Phone, Laptop, TV assembly plant;5 Business processing Outsourcing (BPO) Player &Create 10,000 jobs

14 Enablers Doing Business 80 th to 50 th Industrial park zones Sme;s support programs Market Access- Grow exports annually Standards

15 Textile and Apparel Incremental Impact by 2022 Key driver- Competitiveness INVESTMENT 52K Jobs at risk Challenges Targeted Sector Interventions 1.4Bn Direct Jobs 220K FOREX 2.6Bn 12% above global cost competitiveness Ceremonial wage increases Forex Premium of 15% or 15% credit note against exports offset against govt. taxes No value chain integration

16 Tea Incremental Impact by 2022 Key driver- Value Addition INVESTMENT 300Mn Challenges Targeted Sector Interventions Direct Jobs 81K FOREX 2.6Bn Only 2.7% sold as value added Overreliance on traditional bulk tea markets Progressive policy directive Attract large global tea processors Common user facility for smaller packers Export development& country branding using Ad-valorem tax on bulk tea

17 Iron & Steel Incremental Impact by 2022 Key driver- Quality & Affordable Power Challenges Targeted Sector Interventions FOREX 500M n Direct Jobs 20K INVESTMENT 1Bn High cost of power Impact of government levies (IDF & RDL) Reduction in the cost of power ($0.15 to $0.09) Removal of IDF and RDL

18 Construction Material Incremental Impact by 2022 Key driver- Market Access FOREX Direct Jobs 57.5K INVESTMENT 2.1Bn Challenges Access to govt. projects and procurement (affordable housing, infrastructure projects) Targeted Sector Interventions Implementation of the local content Reduction in the cost of power ($0.15 to $0.09)

19 Big 4 Food and Nutrition security Initiatives Opportunity Enhance large scale production Universal Healthcare Initiatives Opportunity Manufacture drugs locally Housing Initiatives Opportunity Cement Steel Fittings

20 Thank you... Kenya Association of Manufacturers Kenya Association of Manufacturers