As Kenya discusses its unemployment and ways of coming out of the rut, it is useful to think through the contribution of the manufacturing sector to growth and the creation of the much needed employment.
There is a widespread view that the global economy has achieved a ‘post-industrial’ state in which development does not rely on industrialisation.
President Uhuru Kenyatta in his Big Four agenda noted that manufacturing continues to be the key driver of rapid economic growth.
The sector contributes less than 10 per cent to the GDP; most of our exports reach the buyers in raw form, reducing the country’s foreign exchange.
Ten of the 13 success stories were cases of manufacturing-led growth: Brazil, China, Indonesia, Japan, the Republic of Korea, Malaysia, Singapore, Taiwan, China and Thailand.
These countries have not achieved rapid industrialisation by chance, but by deliberate policies that oriented their private corporate sectors to rapidly raise the level and diversity of manufactured products.
The types of support included protection from foreign competition in the domestic market, incentives to export and the extension of various forms of concessional finance.
Understanding the channels through which manufacturing growth has an impact is essential for considering how it can mobilise higher growth and employment creation in Kenya.
Manufacturing is the core driver of GDP and employment while other sectors — particularly services sectors — are likely to grow on the basis of the growing demand derived from (and resulting from) an increasing GDP.
This means that we ignore manufacturing at our own peril. However, the role of manufacturing in stimulating employment specifically is complex and requires careful analysis.
This is particularly so in the light of major changes that have occurred globally and in the domestic economy over the past three to four decades, as well as specific structural characteristics of the Kenyan economy.
Why is manufacturing so important?
First, manufacturing has been the path to development. A high-quality manufacturing sector creates national wealth and power, as Erik Reinert shows in his book How Rich Countries Got Rich…and Why Poor Countries Stay Poor.
From the rise of England in the 19th century to the rise of the US, Germany, Japan and the USSR in the 20th to the newly industrializing countries like Korea, Taiwan, and now China, manufacturing has been the key to prosperity.
Secondly, manufacturing is the foundation of global ‘Great Power’. The most powerful nations in the world are those that control the bulk of the global production of manufacturing technology.
It isn’t enough to have factories and produce more goods, you have to know how to make the machinery, making the “means of production.” My own research shows that about 80 per cent of the world’s production of factory machinery has been controlled by what we would consider the ‘Great Powers’.
It is also worth noting that manufacturing creates most jobs directly or indirectly.
On global trade, the WTO says 80 per cent of world trade among regions is merchandise trade — that is, only 20 per cent of world trade is in services.
If in the extreme, an economy was composed only of services, then it would be poor.
Manufacturing is the most important cause of economic growth tied to production of machinery.
Without machinery there would be no sustained, long-term economic growth.
The explosion of the Internet, iPhones, and the like has been made possible by a small subset of production of machines called semiconductor-making equipment.