Mr President, use this local content idea to create jobs

Unless one is living in a bubble, the stark truth is that Kenya’s unemployment and underemployment is getting worse. Policies enunciated by successive economic strategy papers have not triggered the desired effect. Those papers are written by very clever people, have honest intentions but there is no political steel to drive them in a sustainable manner.

MANUFACTURING

But this does not have to be so and President Uhuru Kenyatta can make a profound difference if he pushed through a law that implements the Local Content Mechanism (LCM). The LCM is the requirement that “specific parts of a product must be made using indigenous local materials in a host country to complete a product from a foreign country”. A law on the LCM is the one strategy option the President has to leave a real legacy on reviving manufacturing and creating jobs.

I sat through a presentation last week that convinced that this is what Kenya needs, and wondered why it has not been implemented. The presentation by the Global Institute of Management was an eye-opener.

Imagine this: In your kitchen are a variety of items for cooking. One of the most ubiquitous is a knife. Typically, it will be made of thin steel with a cutting edge, a handle made of either wood or hardened plastic into which the steel will be embedded or bolted. Most of those knives are imported – from Brazil, Germany, China, India or wherever. A few might have been fabricated in Kenya but these are not very popular. These imported knives enter the country as complete units.

COMPLIANCE

Kenyans are very heavy users of bicycles and motorcycles, brought in from mainly India and China. These again come in as complete units ready for use. When they need spares, these too are imported.

We applaud when periodically we see a government representative sign a memorandum of understanding concessioning the setting up of a car factory. The happy announcements claim that 500 or so of our people will be employed. The fact is that all the parts in that car will be imported. Our people will just assemble them here.

Consider how many people are being employed in factories manufacturing those parts in the source countries and you will agree that we are being conned!

The benefits of LCM have been realised in countries that have implemented it and enacted laws to enforce compliance. For example, South Africa has enforced a law that 38 per cent of parts and materials used in the car industry must be made of local content. It is no accident that the automotive industry alone accounts for 6.8 per cent of that country’s GDP! Brazil, Venezuela, India are other examples.

CRACK WHIP

The Global Institute of Management proposes a five-part schedule, over a set timeline, in which household goods should have a 30 per cent LCM, then bicycles and motor cycles up to 25; followed by motor vehicles and spare parts up to 20 per cent; light industrial and agricultural mechanised equipment up to 25 per cent and finally heavy equipment up to 15 per cent.

Key legislative drivers to make this happen are a Local Content Act, an Investment Charter and a Local Content Blueprint. These can be put in place very quickly.

The LCM proposal is one that the President should take very seriously. He has been exhorting the private sector to propose ways in which unemployment can be tackled and he surely must find time to listen to the proposal.

A few people will be keen to maintain the status quo because it benefits them. Mr President, don’t allow such selfish intentions to frustrate an idea that has worked in other countries. Listen to the proposal and crack the whip.

 Tom Mshindi is the former editor-in-chief of the Nation Group and is now consulting. [email protected], @tmshindi