Kenya's industrial age awaits better business ties

Over the past decade, Kenya and China have deepened economic collaboration with increased foreign direct investment from China. These ties have opened up new opportunities for investments on both sides, and China has become one of Kenya's leading partners in development through bilateral agreements.

However, the private sectors of the two countries have lagged behind in forging business-to-business ties and the unending opportunities for joint ventures.

The main hindrance for the private sector has been the lack of policy-driven interventions that encourage the mutual transfer of skills and labor. While bilateral ties have grown, people-to-people ties are yet to take off.

Additional focus on travel requirements, acquisition of visas and work permits is needed to kick-start business-to-business engagements.

Kenya's National Assembly and China's Standing Committee of the National People's Congress have already identified the need to develop legislation to encourage investment between the two countries. Kenya is already in the process of developing special economic zones to open up additional opportunities for investment across the country. It is envisaged that the SEZs will attract more Chinese investors, who are expected to take up different modes of investments and partnerships, including joint ventures.

It is expected that such business cooperation will enhance skills development, and technology transfer and absorption.

According to the World Bank, SEZs account for 22 percent of China's GDP, 45 percent of FDI, and 60 percent of exports.

China began the march to industrial reform in the 1980s, when the first five SEZs were set up. In 2014, China had six SEZs, 14 open coastal cities, four pilot free-trade areas, and five financial reform pilot areas. There were also 31 bonded areas, 114 national high-tech development parks, 164 national agricultural technology parks, 85 national eco-industrial parks, 55 national ecological civilization demonstration areas, and 283 national modern agriculture demonstration areas.

As a result, SEZs have created more than 30 million jobs, increased the income of participating farmers by 30 percent, and accelerated industrialization, agricultural modernization, and urbanization.

During the last visit by Chinese Foreign Minister Wang Yi, agricultural modernization and infrastructure development were identified as key areas of partnership with Kenya, as the country looks to leverage China's technological know-how to accelerate its industrial transformation.

"Industrial relocation was how China took off, and Kenya can benefit from it. China stands ready to share its experiences on industrial zoning and SEZs, and we're ready for more cooperation in these fields," Wang said.

Given that Kenya has finalized its SEZ Act and is currently working on finalizing the regulations to govern it, this is an opportune time for the two countries to put in place policies to encourage business-to-business collaboration and facilitate the formulation of joint ventures.

In the initial phase, Kenya will set up four main SEZs as export oriented zones. The country is also in the process of developing its trade policy and export strategy, to boost its share of global trade.

Kenya's trade currently accounts for 0.03 percent of global trade, despite economic and trade agreements with various countries and trading blocs. The trade potential with China remains largely unexploited, with key opportunities in the export of value-added horticultural products.

According to the Fresh Produce Exporters Association of Kenya, the value of horticultural products was $2 billion in 2014. The sector's potential, however, remains untapped, with post-harvest losses estimated at between 25 and 30 percent.

Kenya produces more than 8.4 million metric tons of produce, 95 percent of which is traded domestically in its raw form. This presents a huge opportunity for agro-processing and the mechanization of agriculture, to increase overall yields, boost the quality of produce and process more competitive products.

Key horticultural products include fruits, maize, sorghum, edible oils, while there are additional opportunities in sugar processing and biodiesel.

Opportunities for investment exist in both pre- and post-production, including in the manufacture of greenhouses, dam construction, and the development of irrigation systems. Other opportunities include seed propagation, packaging, and the production of fertilizer and agrochemicals.

In addition to production-based opportunities, there are opportunities in mechanization such as tractors, processors and machine tools.

By forging business-to-business links and joint ventures, our countries can mutually benefit from the vast opportunities through the SEZ model.

The author is chief executive of the Kenya Private Sector Alliance. The views do not necessarily reflect those of China Daily.