#decenralization

The automotive industry is experiencing extensive and rapid transformation, with blockchain at the center of it all. Interestingly, blockchain technology has the potential to introduce efficiency and boost value generation across the whole industry, from the factory production of road cars to the premium motorsport supercars. As the complexity of the automotive sector keeps growing, with many…

Usage graph for the deployed server in NYC. Actually relocating unused resources from the IPFS to the sheepit-it renderfarm.

Whether devolution, a radically different approach to governance as well as facilitating investment, will work in Kenya is yet to be seen; it will certainly create both challenges and opportunities along the way. Some underlying concepts of the strategy are critical to building the economy, such as facilitating the development of SMEs, aggregating small operations to achieve scale, streamlining business processes and encouraging increased government attention on improving the climate for private investment. In the coming years it will be exciting to see whether the implementation strategy and execution of these concepts are successful.

  At a recent meeting of social investors in Nairobi, gathered by the Aspen Network of Development Entrepreneurs (ANDE), a representative of the Kenya Investment Authority (KenInvest) outlined the new investment opportunities arising from the devolution of the Kenyan government. The devolution process in Kenya was an outcome of the new constitution adopted in 2010. The new constitution divided the country into 47 counties each with their own local government and vested in these officials a far greater level of power than previously held outside the executive government. In the March 4 general elections Kenyans were able to choose, for the first time, county-level representatives such as senator, governor and MP, in addition to the president.

What does this devolution mean for investors? As explained by KenInvest the appeal to investors is localized innovation with scale through collaboration. KenInvest believes that Kenya is best placed to be the leading investment hub for Africa, particularly in key sectors such as manufacturing and financial services. Many of the programs underway forVision2030, the Government of Kenya’s plan for becoming a middle income country by 2030, also support KenInvest’s efforts by investing heavily in infrastructure and the commercialization of the country’s smallholder farmers who comprise a large portion of the population. A cornerstone of KenInvest’s plan to unlock investment opportunities in the counties is to find an anchor investor for each one. This anchor investor would be a large multinational. The idea is that the presence of such a company would quickly create a huge amount of jobs in the county and also lead to the establishment of micro, small and medium-sized businesses in the area serving the new labor force and their new income. This concept of an ecosystem building around one large company is demonstrated by the presence of Del Monte, a major American food processing company, which employs more than 6,000 Kenyans. This strategy might also beg the question of dependency: under this system does the whole county economy collapse if their anchor investor decides to pull out?

Agriculture: Agriculture contributes about 30% to Kenya’s GDP and accounts for 80% of national employment (PwC). KenInvest’s main areas of focus within the sector are livestock, cash crops (tea, coffee, sugar, sisal) and “emerging crops” such as horticulture and fruits. Horticulture has been identified as the fastest growing and highest value sub-sector. SMEs are currently mostly excluded from this sector given their weak connections to exporters and inability to meet export costs given their size. This is an issue affecting nearly every county. KenInvest plans to integrate the value chain across counties to aggregate smaller farmers and connect them directly to exporters. Aggregation across counties in the livestock sector will allow for the creation of sizable disease-free “exclusion zones” where multiple farmers can operate and share costs. Government and private sector alike have been saying for years that the key to commercialization of agriculture in Kenya is scale through aggregation of smallholder farmers. Localized management on the county level may be an important tool in making this a reality.

Tourism: KenInvest’s view is that each county is best placed to manage their own local tourist destinations. This is particularly important when it comes to issues such as land rights. However, systems for licensing should be centralized and streamlined so that standards are consistent across counties and the process for SMEs to open up is not prohibitive. In addition, the tourist experience should be seamless in terms of ability to move between different counties without new fees for entry and to purchase one entry pass to access multiple attractions.

IT-enabled services: The idea of outsourcing has quickly gained momentum in Kenya in recent years, with new and successful BPO centers emerging around the country. KenInvest’s idea is to pair this with universities. Under the KenInvest strategy each county has its own university, accompanied by a BPO center which employs the students.  This pairing would help move BPO centers outside of Nairobi where they are currently concentrated.

Manufacturing: With some key improvements in infrastructure, specifically roads and reliable power sources, the manufacturing sector in Kenya could take off as it has already in some areas such as Nakuru. Vision2030 will address infrastructural issues and KenInvest will take up the role of establishing special economic zones in each county designated for manufacturing. As much of the land in Kenya is community-owned, procuring land to set up factories has been a significant barrier for manufacturing companies to date.

Wholesale & Retail: Kenya currently has about four leading supermarket/home goods chains (Nakumatt, Uchumi, Tuskys, Naivas). In each county KenInvest is encouraging these retail giants to source locally, both in terms of the products on their shelves and their staff. Currently staff in the rural counties are often hired from Nairobi, although the skills exist among the local population for the required positions. In order to source products locally small scale producers will need to professionalize, specifically in terms of consistency of product and packaging and planning for the scale required to reliably supply a major distributor. KenInvest is developing training programs to support local producers in acquiring these skills.

Financial services: Thanks to the likes of M-PESA and Equity Bank, Kenya is already well known for innovation in reaching the lower end of the market through financial services. The focus on SME and personal banking for the lower end continues to grow, as more and more financial institutions recognize the opportunities in this space (for example Chase Bank). This continuously sophisticated network of services will be key in unlocking opportunities across the counties, particularly as so many rely on SMEs and the growing middle income consumer class.

Energy: As mentioned above, insufficient and unreliable energy production remains a barrier to business in Kenya. KenInvest is focused on developing production from a range of new sources, specifically geothermal, wind and solar, which are already gaining ground in the country (for example Lake Turkana Wind Power). As much of the country is off the grid, KenInvest has cultivated partnerships with a group of Korean companies who want to enter the market with locally manufactured off-grid energy solutions. A lack of scale has prevented them from doing so to date, but by aggregating resources across counties they could achieve the scale required for a viable investment case.