- Msingi East Africa has taken a sectoral approach in its race to boost the capacities of SMEs, setting ambitious employment targets along the way.
Poverty and inequality of opportunity are the two economic challenges that plague many a family in East Africa, a region with a growing youthful population that remains largely outside the formal economy and who face an uphill task not only in finding a job, but also in deriving value from every shilling that they earn.
Every year in Kenya alone, over one million young people leave secondary school, yet the economy creates on average less than 80,000 formal jobs. That means these young people have little or no chance to compete for openings in the formal sector considering that for every one million KCSE candidates, there are about 75,000 university graduates.
So, how can business leaders create long-term, quality jobs that also engender the inclusion of women and the youth in the economy and improve the livelihoods of local communities? How do they choose the industries or sectors that can guarantee long-term growth while borrowing exclusively from home-grown knowledge that is applied to provide local solutions? How can these industries then create value for investors? And ultimately, how does all this tie in with the regional governments’ aspirations of creating jobs for the youth?
These are the questions that inspired a group of industry leaders to pool their resources and find ways of unlocking value, not only in Kenya but also in other East African Community member States where they have set for themselves the ambitious target of creating over half a million jobs within the next decade.
“The region is hungry for industrial development and is poised for growth,” says Linus Gitahi, one of Kenya’s captains of industry who also chairs the board of Msingi East Africa, a not-for-profit organisation that has been catalysing the growth of industries since it was founded in 2015.
Msingi East Africa has an interesting history. It was inspired by the experiences of Chile’s salmon farming sector, through which, with the help of an endowment fund from the Chilean government and a private sector organisation, the country grew its exports to become the second leading producer of the fish after Norway. This example of how local solutions could inspire economic growth led to the idea that this could be replicated in other countries around the world. And when Msingi was formed four years ago, with the assistance of the Gatsby Africa Foundation and DFiD, it borrowed heavily from the Chilean experience.
“When we got to learn about this organisation taking a sectoral approach, that was also long-term, we thought this is something that can be applied in East Africa,” says Msingi East Africa’s interim CEO, Diana Mulili, who took over the leadership of the organisation in October.
Today, the organisation and its partners have invested in two sectors; textiles and apparels and aquaculture, where it has been a player since it was founded. It plans to expand into three more broad sectors, including heavy manufacturing, over the next five years.
Before it ventured into these two sectors, Msingi embarked on a rigorous process of examining the sectors’ potential and conducting research on the likelihood of success. Given that East Africa has vast resources to support aquaculture, the industry offered opportunities for growth, especially if production could be matched with market demands.
And although the businesses it has partnered with have already started production, they still have a long way to go before they can satisfy the growing demand for fish and fish products in Kenya, which remains a net importer. Last year alone, Kenya spent Sh1.7 billion on fish imports from China alone. On average, according to some scholars, imported fish takes about eight months from the time it is harvested to the moment it is served for dinner. By contrast, locally-sourced fish can take as few as eight hours.
Msingi’s aim is to create 20,000 jobs in fish production within the next five years, creating a value in excess of $17 million (Sh1.7 billion) in incomes from selling 50,000 metric tonnes of fish. This is in addition to the improvement in nutrition that this will spawn, not to mention the reduction in imports that will result from increased local production.
Research indicates that the industry is held back by constrains that can be solved, like a critical lack of good quality affordable feed, lack of access to capital, low levels of technical expertise and business skills, and a weak policy and regulatory environment in some cases.
To get around the challenge posed by a shortage of fish feed, Ms Mulili says Msingi has identified a partner that is ready and willing to invest in that industry.
“Fish feed contributes 70 to 80 percent of the cost of fish production,” she tells the Business Daily. According to her, this is what makes locally-sourced fish more expensive compared to Chinese imports. If this cost can be reduced, Kenyan fish can become competitive.
“We have been working with local fish feed producers to bring that cost down while also raising the quality.” This has not been easy considering that fish feed account for less than five percent of millers’ incomes.
Over the last three years that Msingi has been in that sector, it has worked with six millers across East Africa to supply 2,500 metric tonnes of improved feed to fish farmers. It has also facilitated trainers for middle tier players in the supply chain and this has led to a reduction in the wastage of feed and an improvement in the handling of fish, resulting in fewer deaths, hence increased productivity and profitability.
It has also provided $3.5 million (Sh350 million) in funding to pioneer businesses in the sector. One of the beneficiaries of its grants is Walimi Fish Co-operative Society in Uganda. Through the grant, the society put up a cold storage facility at the Wandegeya market in Kampala, meaning that farmers stop selling fish at farm gate prices and can export to destinations such as the Democratic Republic of Congo. This will in turn raise productivity.
Besides Walimi, one of the early beneficiaries was Victory Farms, which Msingi invested through long-term, or patient debt. As a result, Victory Farms increased productivity five fold and secured an additional $7 million (Sh700 million) funding, making the fish farm in Homa Bay easily the largest in East Africa. The organisation also set up Tanzania’s first aquaculture investment fund.
“If we help the pioneer farms to have outgrower farms, the mid-sized farms will start supporting the smaller ones,” says Ms Mulili of the model that Msingi has adopted to encourage investment in the subsector.
The organisation is also exploring the possibility of improving the genetic quality of the fish so that they can be harvested twice a year rather than once in nine months as is the case now.
Besides the direct investments, Msingi has also worked with government agencies in Kenya, Uganda and Tanzania to develop cage fish farming guidelines. As a result, cage fish farming is one of the sub-sectors that have been included in Kenya’ Big Four Agenda.
Through its investments and partnerships in textiles and apparels, Ms Mulili says that Msingi is targeting to create 80,000 jobs over the next five years as it strives to build on Africa’s increasing attractiveness as a garment-sourcing destination. The sector is expected to earn $1.4 billion (Sh140 billion) in exports and attract $300 million (Sh30 billion) in foreign direct investments.
“The apparels subsector is the bigger job creator,” says Ms Mulili, who is convinced that if production was ramped up, big players like Vanity Fair can turn East Africa into a source market, driven in part by the concessions offered under AGOA and also by the rising cost of production in China where wages are on an upswing as the quality of life improves.
Msingi’s ultimate aim, she says, is to get more small and medium-term enterprises to contribute more to job creation as well as supplying the bigger players. Already, Kenya has started attracting the attention of some of this big players because of its strong apparels subsector.
As a region, East Africa has numerous advantages, given that Uganda has a strong cotton-growing and processing subsector while Tanzania has also improved its apparels production.
“We have to be more intentional with our SMEs,” says Ms Mulili, who believes that there is considerable investment capital that is “looking for a home” in Africa and that SMEs can learn about best practices from the big players to scale their operations.
“Ultimately, we want to show that you can make money,” says Ms Mulili, a believer in a shared economic vision that allows different businesses to leverage on their respective strengths to drive up incomes and create widespread prosperity.