Industrialization Models: Lessons for Kenya

1. Industrialization Models: Lessons for Kenya Thoughts from a paper being developed at Kenya Institute for Public Policy Research & Analysis (KIPPRA)

2. Introduction-1 • Kenya’s industrialisation requires fresh thinking in the face of liberalisation and globalisation. • In the circumstances, is it realistic to rely exclusively on the market for industrial development? • Can the experience of Industrialised countries and NICs inform?

3. Introduction-2 • KIPPRA is looking at these questions though the paper is not complete • The team is exploring the experiences of 3 industrial, 3 newly industrialised economies, and 1 Eastern European economy • Kenya’s experience so far is compared with these 7 countries

4. Industrialisation Principles • From the case studies, two broad categories of development policies have guided Industrial and NIEs: • Market oriented and Structuralist policies. The latter brings into perspective the important role of the government, • However, more emphasis has been laid on the market although none of industrialised countries has strictly developed through that approach • Korea and Singapore, which are seen as models of modern industrial development followed state-led strategy

5. How have the countries done it? The case studies show that 8 factors have led to successful industrialisation: • Macro- economic stability • Favourable business environment • Efficient infrastructure • Research and Development • FDI • Selective intervention • Skilled labour • Industrial development status

6. How have the countries done it?XXXX = very high; XXX= high; XX= low; X= very low

7. How have the countries done it?XXXX = very high; XXX= high; XX= low; X= very low

8. Lessons • To a large measure, the success of industrial and NIE countries is explained by principles of: • Free enterprise; • Macroeconomic stability; • Human capital; and • Appropriate institutional and physical infrastructure • For NIEs, this is reinforced by: • Selective and functional interventions in limited number of enterprises with potential for technological and development linkages (strategic positioning and niche markets) • Efficient and focused bureaucracy, choosing winners, setting and enforcing performance targets

9. Challenge • Due to globalisation,markets are unlikely to deliver industrial development for LDCs. Reasons: • Weak competitiveness: low technological innovation & human capital • increased international inequality: globalisation has concentrated innovative capabilities in the industrialised countries • Externalities that affect proper functioning of market and the need to protect infant industries in the process of industrialisation. • Attracting export-oriented FDI increasingly requires selective promotion and targeting

10. What should Kenya do? • Place and nature of industry must be clearly specified in Vision 2030! • Commit seriously (harness adequate resources, have performance targets) to the 8 success factors while continuously monitoring outcome: Focus, Focus, Focus! Adapt policies! • Develop selective interventions based on specific objective criteria: • export markets & country’s comparative and competitive advantages • technological adaptation: need to develop requisite capability and skills; intellectual infrastructure is key to facilitate technology transfer • promotion of a few successful industries: pick winners and direct resources there!

11. What should Kenya do? • Condition support on performance targets • Building and sustaining Kenyan entrepreneurs and local talent; and enhancing innovativeness as a societal value. • Develop institutional structures to implement short-term and medium-term actions: lets do what we plan and do it well with or without donor support. • Exploit the location advantage of the country for contract manufacturing, i.e. to integrate Kenyan firms into global supply chains.