Farming key to upper middle income status

The outputs of Kenya’s agricultural sector, if targeted as a raw material for use by industry, could easily transform the country into an upper-middle-income economy in one generation. The potential to turn millions from peasants to suppliers of indu...

The outputs of Kenya’s agricultural sector, if targeted as a raw material for use by industry, could easily transform the country into an upper-middle-income economy in one generation. The potential to turn millions from peasants to suppliers of industry is enormous, and perhaps the surest way of achieving broad-based sustainable economic development. Agriculture employs more than 65 percent of the population, which makes it a critical sector that can stimulate massive economic growth across the country with even a modest increase in average incomes of the workers.

Since 2002, when the NARC government took power to the current Jubilee administration, trillions of shillings have been spent on infrastructure projects as key enablers of the economy. Alot of effort has also been put in trying to address the ease of doing business through simplifying licensing, tax and other bureaucratic bottlenecks. It is now time to make these investments work, by focusing on the one sector of the economy that sustains two out of every three Kenyans. Both livestock and crop farming can yield massive returns for the economy, but only if these are properly linked to trade and industry and we see agriculture beyond being a source of food security only to being a source of industrial raw materials that can be transformed into manufactured goods within Kenya and exported to the rest of the world.

I will give a few practical examples of agricultural sub-sectors that could be the basis for the creation of multi-billion shilling industries in about a decade or less. The textile sector tops this list. Garments from our export processing zones (EPZ) are one of the largest export items to the United States, accounting for close to $400 million sales a year. Whereas there has been significant growth in the export of garments over the years, the bulk of the fabric used in EPZs is imported and therefore the local value addition is largely in cutting and stitching. There is an opportunity to develop cotton growing to then support a larger local textile industry that can substitute the imported component within the garments value chain. This would create significant income opportunities for cotton growers in the more marginal parts of the country, ginneries and textile industries and even open a window for Kenya to be a major fabric exporter to the rest of the world.

Another example where there is opportunity for industry to have broad-based impact is in developing the local juice industry to create a differentiated tax policy that gives an advantage to juices processed from locally made juice concentrate as opposed to imported concentrate. This would encourage local manufacturers to contract farmers to grow fruits such as mangoes, passion and citrus for use in juice concentrate manufacturing. A key economic advantage here is that these fruits are grown largely by small scale farmers, who are the majority in the country. Kenya would then have an opportunity to export juice concentrate internationally and packaged juice to the regional markets and provide a high quality and reliable market to our small holder farmers.

The alcohol industry poses another big opportunity for industrialising Kenya’s agriculture. Kenya has a big opportunity to grow sorghum for both local beer manufacturers and for the export market. Considering that the bulk of our un-utilised agricultural land is in semi-arid areas that are suitable for sorghum production, Kenya has a big comparative advantage in the production of sorghum-based brews for local, regional and international consumption. The opportunity for the country to become a global base for the production of sorghum-based brews presents a huge potential to gainfully employ many households and open significant chunks of marginal land that is currently not economically utilised. I could go on and on with examples in other sectors such as livestock, leather products and pyrethrum value chains.

There is therefore need for deliberate policy initiatives that work on creating greater linkages between agriculture and manufacturing and to focus our trade negotiations on getting market access for those sectors where we can secure global markets for manufactured products that have significant backward linkages and that therefore have a significant impact on the welfare of the majority of Kenyans. There is also need for our tax policy to support the competitiveness of Made in Kenya products and the process of Making in Kenya and to encourage domestic value addition as opposed to the importation of finished goods. To determine the optional tax policy there is need for us to compare our value chains to those of our regional and international competitors and ensure that the taxes and levies that have been imposed within our value chains are not undermining the competitiveness of our products.

The incremental consumer demand that would be created by employees of the agricultural sector, the better flow of quality raw materials to the manufacturing sector and the demand for manufactured agricultural inputs such as fertilizer, which can also be locally manufactured, would have enormous multiplier effect on the economy. Given the attractiveness of Kenya as an investment destination, its port, its airport, its internal transport logistics, investment in power, well trained human capital, its relatively well developed private sector and ease of access to finance relative to other African countries, the incremental productivity that would be created from this co-ordinated approach would go a long way in ensuring the realisation of the Big Four and Vision 2030 blueprints.

Original Source: Business Daily