Nairobi — Capitalising On Unexploited Opportunities, Kenya Can Grab the International Market

Investment decisions throughout Africa can no longer be inward looking.

In the current dispensation of economic trading blocs and integration, local industries must embrace regionalism.

Policy makers should promote and facilitate borderless investments as a means of ensuring their sustainability and economic growth.

In positioning Kenya within the global market, we must capitalise on unexploited opportunities to innovate and enhance the productivity of vast natural resources.

We should also diversify our products and advance our economy to capture an increasing proportion of the value added knowledge-based industries. While the strength and level of development of the country's economy relative to that of its neighbours attracted foreign direct investment (FDI), many factors have discouraged such progress in recent decades.

Nevertheless, Kenya has the potential to draw on assets such as an industrial sector that is better developed than Uganda's and Tanzania's and human capital, among others.

A review of FDI prospects suggests a strategy to reinforce Kenya's role, as a regional centre for manufacturing and service delivery would promote the country's competitiveness.

Competitiveness cannot be overemphasised because it is critical to globalisation. Competitiveness is not simply about creating a sound macro-economic environment with favourable exchange rates, positive balance of trade, industrial subsidies and low inflation rates.

It has to do with productivity where resources are deployed by firms in key sectors that can create wealth. Countries that have many competitive firms have high and rising Gross Domestic Product (GDP) and per capita income.

Despite a relatively favourable legacy of manufacturing competence, Kenya has not attracted the FDI needed to seize growing opportunities arising from the global relocation of manufacturing capacity from the Organisation for Economic Cooperation and Development (OECD) countries to the developing world.

In addition, the country has not benefited from the global rationalisation of commodity manufacturing trans-national companies. Instead some trans-nationals have relocated.

Less obviously, Kenya is losing ground to its neighbours in the manufacturing of basic consumer products and industrial inputs.

As such, the first pillar for reinvention is strengthening the country's ability to manufacture basic consumer goods and industrial inputs for the region. This can be achieved by building on the existing manufacturing base, enhancing competitiveness and regaining the lost market share.

The past few years have seen the rapid emergence of developing countries as industrial powerhouses and the relocation of production away from OECD countries. This was possible due to the liberalisation and World Trade Organisation (WTO) agreements. As such, industrialised countries' exports of manufactured goods declined. Multilateral trade liberalisation opened doors to specialisation and generated new opportunities for developing countries to produce and sell manufactured goods to industrialised countries.

However, sub-Saharan Africa has missed out on these opportunities. This is especially true for Kenya whose manufactured goods exports have remained at the same level.

Though the manufacturing sector remains an important component of the country's economy, its share has experienced frequent fluctuations. Local manufacturers have not succeeded in developing competitiveness.

We have failed to seize opportunities generated by trade liberalisation. For instance, bulk exports to the European Union (EU) remain resource based.

Kenya's main exports are manufactured goods sold to the United States. Owing to the Agoa programme, these are mainly garments.

While lack of competition in East Africa has sheltered Kenya's manufacturing sector to a certain extent, competition has started to emerge from within and without the country.

Hitherto, the country dominated neighbouring markets in a range of basic manufactured goods that have not been subjected to fierce international competition.

The relatively good economic performance of neighbouring countries in recent years has started to erode Kenya's edge in manufacturing, even though it continues to export significantly more manufactured goods per capita.

Of concern is that Kenya has not only been bypassed as a country of choice for manufacturers but it has also suffered from a wave of delocalisation. Previously existing manufacturing activities have now moved to other countries.

There is need to encourage trans-national companies to maintain or expand their activities in Kenya. Other countries have gone this way and it's time we followed suite.