Industries without Smokestacks in Africa: A Kenya Case Study

This study assesses the scope for industries without smokestacks (IWOSS) to generate large-scale wage employment opportunities in Kenya especially for the youth. IWOSS are non-manufacturing industries that demonstrate high productivity and employment potential similar to manufacturing. While Kenya has, since independence, prioritized industrialization anchored on manufacturing as an avenue for employment creation and economic growth, the country is facing early deindustrialization characterized by adeclining share of manufacturing in employment and gross domestic product (GDP). Recognizing this enormous challenge, recent policy discourse in addressing persistent youth unemployment has widened its focus to include emerging sectors of IWOSS. This study examined the job creation potential for youth across diverse IWOSS sectors, focusing on horticulture, ICT and tourism, and identified constraints that inhibit growth and job creation. The methods include a review of sectoral performance with respect to growth and wage employment; assessments of current and projected levels of employment and productivity; and application of value-chain approach to examine job creation potential and the key constraints. The main data sources included the Kenya’s Social Accounting Matrix (SAM), the World Bank Jobs Group Database, Occupational Network Data (O-NET), and various survey data sets including the Kenya Integrated Household Budget Survey (KIHBS) 2015/16 and the World Bank Enterprise Survey for Kenya 2018. These approaches were complemented by a survey of key informants in the three sectors, conducted in 2020. The three IWOSS sectors (horticulture, ICT, and tourism) reveal above-average output growth and are projected to continue being significant sources of wage employment for youth up to the year 2030. In contrast, except for construction, the industrial sectors performed below-average with respect to output growth over the two decades up to 2018. The study identified both cross-cutting and sector-specific constraints affecting competitiveness, investments, output, and employment growth of the three select IWOSS sectors. The cross-cutting constraints relate to the investment climate, which encompasses infrastructure, the regulatory environment, and skills. Horticulture faces constraints related to inaccessibility to cold chain facilities, non-tariff trade barriers, limited coordination among exporters, capacity gaps, and insufficient systems for handling food safety compliance. ICT faces additional challenges of weak competition environment and weak supportive framework to identify, fund, and nurture ICT innovations. Tourism faces additional challenges related to multiple taxation and levies. Recommendations are suggested to address both cross-cutting and IWOSS sector-specific constraints including: Government and other stakeholders should support continuous skills transfer and support to local producers, promote investments in cold chain infrastructure, ensure policy framework that enhances competitive markets to improve affordability, put in place an all-encompassing policy for e-commerce, support private sector investments in education for high-level ICT skills and soft skills, adoption of emerging technologies, enhance development of access roads and promote competitive air transport and promote new product innovations.