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September 22, 2018

WYCLIFFE MUGA: Manufacturing not the answer

Juggler
Juggler

A year has now gone by since the last general election. And, predictably, the extravagant promises made during the 2017 election campaigns are increasingly being revealed to have been empty.

Of these promises, perhaps none has been shown to have been more hopelessly misguided than the promise made by many gubernatorial candidates that they would ‘bring manufacturing’ to their counties.

And we must concede that this is a particularly seductive promise. For although we are routinely reminded of the tragedy of our many thousands of ‘unemployed college graduates’, the fact remains that those who have degrees are but a tiny percentage of our potential workforce. So, to appeal politically to the masses, you need a promise of the large-scale creation of blue-collar jobs — factory jobs — and especially those which would provide in-house training.

Now, here is the really odd historical coincidence: Just a year before we heard all those promises of factory jobs, over in the US one Donald Trump rode to victory on just such promises. Only in his case he was promising to ‘bring back’ factory jobs which had once been found all over the US but were no longer available to those who needed them.

No doubt the dynamics of the Trump victory were more complex than that. Nonetheless, I believe there is a consensus that a passionately deluded conviction that blue-collar jobs would be plentiful under the Trump presidency played a major role.

So, our gubernatorial candidates were, in effect, promising to ‘create’ in Kenya the very thing that Trump promised to ‘bring back’ to the US.

Thus far, neither effort has been successful. Mostly because, as many economists who opposed Trump pointed out in vain during the campaign, those American factory jobs had not been ‘taken’ by lower-cost production countries like Mexico or China. It was mostly technology that had made those jobs ‘disappear’. Most modern factories are so extensively automated that it takes relatively few people to operate a huge factory which produces vast quantities of medicines, or clothing fabrics, or soft drinks.

Once upon a time in Kenya, ‘import substitution’ was the official government policy. So memories yet linger of a time when factory jobs were not that rare here. But times have changed. Consider, for example, the one economic sector that has known the most phenomenal growth over the past decade or so: the telecommunications sector.

There are an estimated 30 million mobile phone handsets in use here in Kenya. But here is my question: Did we manufacture any of these mobile phones locally? After all, Kenya used to have a government-owned factory assembling analogue phones out in Gilgil in the 1980s. That was classic ‘import substitution’.

But there was never any realistic possibility of the mass local production of the far more technologically complex mobile phones. Although the assembly of mobile phones is in some respects labour intensive, the supply chains — and other linkages — needed for getting the phones assembled and shipped out at competitive costs require a level of infrastructure way beyond anything we have at this time.

It made more sense that we imported the phones, and local entrepreneurs then built up a vast service industry around mobile telephony. It is in this service sector that new jobs were created. In just about every corner of the country you will see one of the many thousands of green M-Pesa shopfronts. And these M-Pesa agents and sub-agents are in themselves catalysts for other small business opportunities in those area.

None of this should come as a surprise to our decision-makers and their policy advisers.

In his book The Elusive Quest for Growth, the development economist William Easterly notes that, “Nobel laureate Robert Solow published his theory of [economic] growth in a couple of articles in 1956 and 1957. His conclusion surprised many, and still surprises many today: investment in machinery cannot be a source of growth in the long run. Solow argued that the only possible source of growth in the long run is technological change.”

Over 50 years later, Kenya’s telecommunications sector proves him right.

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