The manufacturing sector in Kenya: an empirical analysis

Abstract

Manufacturing is the corner stone of Kenya's Industrial sector. This sector is not only seen as the economy's engine of growth but also as a means of diversifying it. However after three decades of existence, the sector is still grappling with problems, some of which were inherited from the pre - independence period. These problems have contributed to the poor performance of the sector especially in the 1980s. Based on the existing literature and the available data, this paper provides a descriptive and empirical analysis of the factors that determine growth in the manufacturing sector. Its primary purpose is to identify the major determinants of manufacturing output growth in Kenya. In doing this, the major focus of the paper is an analysis of the relative importance of these determinants,followed by a proposal of measures to enhance output growth in the sector. The main findings of the paper,based on a time-series regression model, are that per capita income, export of manufactures, government expenditure and import substitution have statistically significant influences on manufacturing output growth. Industrial policies and foreign investments in manufacturing turn out to be modest predictors of manufacturing output growth. To promote faster growth of the sector, there is need to adopt policies which enhance the per capita income level. To this end policies are required both in the agricultural and the industrial sectors which are the major sources of income. The future of manufacturing will also depend heavily on the growth of its exports and the adoption of more efficient import substitution strategies. More importantly, the growth of the sector will depend on what extent industry - specific policies are adopted to rationalize and re - structure the whole manufacturing sector.