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INDUSTRIALIZATION AND DEVELOPMENT During the last three decades, developing countries have tried to improve their economic status and overall standards of living through the process of industrialization. This inspiration has been reflected in various governmental policies and strategies. Since then most economics have shifted emphasis and resources towards industrialization as an indispensable strategy. Industrialization need to be defined as the process of transforming various raw materials with the help of human resources and capital into consumer goods which permit further production, social overhead , capital which further together with human resources provide new services created by industrialization. Industrialization as such does not need to be justified today. That industrialization is key to development is not all that debatable. But nevertheless one cannot think of industrialization in isolation of agricultural development. This is because the two sectors are interwoven. The growth of the industrial sector depends on agriculture while industry induces agricultural development. Economists who argue for concentration on agricultural sector can point to the fact that agricultural growth. IN the first place, in developing countries, where a large proportion of income is earned in agriculture, an increase in agricultural incomes means an increase in effective demand for manufactured goods. Given that in most manufacturing industries there is some minimum viable size of plant, expansion of agricultural incomes may be pre-requisite for establishing efficient industries. Secondly, increased agricultural productivity can, by permitting necessary food supplied to be obtained with less labour, release labour from the land for work in industry. Apart from increasing the supply of labour directly in this way, it may do so indirectly by cheapening the supply of fuel; this may improve the terms of trade, between the industrial and agricultural sectors and permit employers to pay lower wages for their hired labour. This will improve the industries viability in the home market and their competitiveness abroad. Beyond this, increased agricultural incomes are likely to pave way to increased savings and increased fax revenue to the government which can then be spent on social overhead capital hence a pre-requisite for industrialization. And if the incomes arise out of increased agricultural exports, the additional foreign exchange earned will permit increased imports of the machinery and intermediate products required by industry and frequently ease a restriction on faster industrial expansion. Finally, agriculture provides raw materials for direct use in industry, and thus offers forward linkages with industry. These may be very important as in the case of cotton growing giving rise to ginning and textile manufacture. STRATEGIES FOR INDUSTRIALIZATION Developing societies view more than ever need to adopt national policies and strategies that will lay a strong foundation for LDCs industrial transformation required to enable them emerge as a new industrialized nation within thse economies. In order to enhance a sound industrial policy, and, restructure the LDCs industrial sector, it is necessary to use instruments that are likely to improve the efficiency and competitiveness of the industrial sector, and re-orient it towards increased production for exports and increased domestic resources. The industrial reform process to this critical end need to have the following objectives:a) Improve industrial efficiency/productivity b) Stimulate on rate sector participation c) Increase the sector’s net foreign exchange earnings while diversifying its base. d) To accord priority to the development of industries having local comparative advantage. e) Liberalized and efficient capital and credit markets. f) Attracting long term foreign investment g) Efficiency and flexibility in the utilization of factors of production h) Development of a strong industrial research and development of industrial technology and manpower. Intermediate and capital goods industries are relatively under developed. The sector relies heavily on imported intermediate inputs and machinery thus making it highly import-dependent. This is a clear manifestation that industry has not created strong domestic linkages. This therefore calls for deliberate efforts to promote linkages among industries and sectors to enhance the spread effects of industrial growth and to facilitate the transfer of technology skills and growth of small-scale industries. The next phase of the country’s industrialization need to focus on the expansion of existing industries using locally available resources. IN doing so it will be quite appropriate to equally address the constraints relating to minimum efficiency plant size of domestic and regional markets, exports prospects and the issue of human resource development and institutional capacity building. Experience has shown that before a country can move into a higher path of rapid industrialization it has to achieve certain critical mass in human and infrastructural and appropriate policy framework. Key features of industrial strategy to be outlined need to include strengthening of rural-urban linkages, the encouragement of small informal enterprises and efforts to increase employment in the manufacturing sector. Decentralization of industrial policy should be key with used as planning units for industrial development. The key policy intervention need to be strengthening of the micro-enterprisebased informal manufacturing and service sector which is regarded as a key source of not only employment but also for establishing a strong industrial base. This calls for greater emphasis on the promotion of the small scale and medium sized industries and integrating industry more closely with agriculture. A pre-requisite for LDCs industrial development is political economic and social stability. All should be made aware that stability and governance are about people, the management of human affairs, sustainable development and the exercise of political power to manage national affairs. Good governance is synonymous with efficient public sector management and equitable sustainable development. To be in place it calls for effective peoples involvement, equal opportunities for all and political transparency and accountability. As it clearly indicates, no investor will risk long term investment in a nation where political, social and economic stability does not prevail. An unstable business climate discourages new investments and encourages capital flight. Further more an overbearing bureaucracy or tendency toward corrupt practices are sources of frustration towards investors hence need to be checked on. Long and slow bureaucratic procedures, duplication of licensing requirements makes investments to be costly and a policy on this need to be put in place. The fight on corruption in this case need to be given the highest priority out of which a conducive environment for investment can be enhanced. This needs to be followed by Kenyan men and women to nature a culture of entrepreneurship. This can be created through a reward system that cherishes devotedness, honesty, hardwork, discipline and sacrifice. The motto here need to be Kenya for Kenyans and each Kenyan should strife to work hard to strengthen Kenya’s position in regional and international markets. In order to create a conducive environment for industrial investments in LDCs there is need for maintaining a sound macro-economic stability which in turn will build business confidence and enable exporters to compete with foreign competitors in world markets on an equal footing. The maintenance of macro-economic stability entails a number of specific measures; control of money supply, the control of budget deficit and inflation, steady progress towards free multi-lateral trade through reductions of tariffs, compete removal of exchange control, reform of licensing procedures, re-allocation of government expenditure; proper fiscal incentives for savings and investment and abolition of price controls. Recent empirical experiences suggest that effective industrial development requires an integrated holistic approach: The development of an appropriate environment and free market policies. Studies and strategies to match demand with local resource potentials for substantial local industrialization, effective employment and sustainable industrial growth. Cost effective institutions and processes including training and follow-up services Institutions supporting the industrial growth process and Credit facilities. The availability pf a well trained labour force is critical for the county’s industrialization process. An assured supply of well trained managers and skilled technicians at both shop floor and supervisory levels is of greatest importance to the industrialization process. Equally of no less importance is the existence of entrepreneurs and managers who take risks to unrest, by bringing together productive coordination of all disciplines. In the production chain, physical production, materials management, maintenance, quality control, infrastructural support and distribution are important. Each of these areas requires specialized management skills and training which can only be enhanced through human resource development and industrial capacity building. This indeed is critical towards industrialization. However such high level of training and skill enhancement will require close collaboration between training institutions and employers of labor, so that the level of mismatch between output of graduates and skill demanded can be bridged. We need to adopt an outward development strategy through openness. Our export-oriented strategy approach can only succeed through outward looking development strategies with involvement of market or private sector oriented approach, reducing price distortions in the national economy, cautious financial management through prudent macroeconomics policies to control budget deficits and inflation. The country equally as vindicated above needs to have priority to economic growth over social welfare spending with considerable resources spent on Education and Manpower development. If LDCs is to emulate the achievements of the countries that have generated rapid growth over the past three decades fro example renown East Asia “Tigers” then a pivotal roles of the private sector and a conducive public policy, the common fundamentals need to be apparent. Integration of Industrial Development Policies and Strategies with other economic sectors especially rural development and agriculture. The achievement of macro-economic balance alongside with social and political stability. Maximizing the utilization of natural and human resources. Realistic and flexible currency exchange rates. Liberalized and efficient capital and credit markets. Attracting long-term foreign investment. Efficiency and flexibility in the utilization of factor of production. Development of a strong industrial Research and Development capacity through resource allocation and Development Institutions. Integrated functional programs for the development of industrial technology and industrial manpower. Attaining the above is not an easy task but it will require total commitment from the side of the government and workable conducive industrial policy framework. LDCs should also significantly expand their manufactured exports. Such expansion must be at the expense of its neighbours a a policy of competitive devaluation. The present concern to correct the assumed “anti-export” bias of industrial policy must be examined in this context. It has been shown that LDCs manufactured exports are primarily oriented to regional markets. Multi-lateral technical assistance could there be sort for strengthening the institutional framework for the development of a regional industrial policy involving investment cooperation, macro-economic policy harmonization and trade integration. Here the strategy for increasing manufactured exports will have to concentrate on a narrow range of products, with the export drive steered to promising destinations. A rapid pace for industrialization is essential to achieve high rates of economic growth and to generate employment and raise incomes. But the past patterns of industrialization leading to small areas of affluence surrounded by much larger areas of poverty and backwardness need to be avoided. Our future strategies need to improve on the previous ones. Emphasis should be on the development of a mass market for basic goods, the strengthening of industry’s links within the national economy, increased and more use of more use of local resources, economy in the use of energy resources and imported inputs and enhanced competitive exports, particularly of manufactured goods. Even though capital-intensive techniques will be required in many industries, incentives as well as publicly support research and development, should favor small scale, labour intensive industries and rural enterprises processing local materials. These increase the employment generating effects of industrialization leading to beneficial links with agriculture and help to narrow rural-urban disparities. The reform of industrial trade and exchange rate policies should aim at building up a dynamic export sector and efficient import substitution industries. Expanding the production of goods for exports to provide the finance for imports of essential capital and consumer goods needs to be an important component of LDCs industrialization strategy. In any case indiscriminate and subsidies in order to promote efficiency and technological dynamism. A flexible system of protection can play a useful role with protection rationalized. Full advantage should be taken of the substantial opportunities including export opportunities, open to the services sector. Efficient service industry can help a great deal to enhance the competitiveness of agriculture and industry. Policy makers need to be sensitized to the need to adopting necessary measures to promote small-sale industries. This can be done through: Conducting studies at national, regional and sectoral levels to identify demand opportunities, gaps in the production system and the availability and advantages of resources (products, raw material, available skills, e.t.c.) that should be used as bases of industrial development. Approaches and strategies should be developed to encourage investment in the small-scale industries. Networking of inter-firm linkages and cooperation among smallscale enterprises need to be promoted alongside the existing industrial firms. Priority should be given to the establishment of necessary incentives such as: financial and non-financial support programs to encourage the flow of small-scale industrial investment. There is urgent need to create a conducive environment in order to encourage both foreign and domestic and enterprise linkages. The environment is bound to create efficient enterprises that can compete in local and international markets. At present on should realize that the environment is not very conducive for three main reasons; there is a crisis in confidence in the government, inefficient production structures and significant legal and regulatory impediments. The patchy and intermittent commitment to policy and reform by the government of Kenya and the discretionary behaviour of policy and law enforcement agencies over the years has created mistrust between the public and private sector. At present confidence the system is too low hence very few investors are planning for new projects while upcoming projects are on hold. A modernization programmed aimed at replacing the rapidly aging and inefficient capital stock is urgently needed. However care should b taken to ensure that the introduction of new technology does not increase the capital-intensity of manufacturing production. Increasing the efficiency of manufacturing enterprises for raising the diffusion of entrepreneurship and technical skills throughout the Kenyan economy. The encouragement of sub-contracting links between large scale and manufacturing enterprises on the one hand and medium sized on the other can be an important means fro increasing the indirect employment generating capacity of manufacturing investment. Such links can also strengthen integration between agriculture and industry and reduce the very wide income differentials that currently exist in Kenya. There is need to strengthen the financial systems in the country for this is a prerequisite towards accelerated industrialization. The development of a robust financial intermediation system requires first and foremost financial liberation, the freeing of interest rates and reduction of excessive government intervention in the economy. To end this, the government needs to follow sound macro-economic stability, which is essential for build an efficient financial system. This means the need to improve the banking sector and building sound and efficient payment systems: deepening capital markets: and extending sector finance to include the development of infrastructure. There are four types of monetary and credit facilities facing the SSEs. i). They are unable to provide adequate collateral to obtain loans for industrial establishment. ii). They are charged higher than normal rates of interest. iii). Bankers are not knowledgeable enough to give them suitable help and iv). Government monetary policies which do not facilitate credit. Experience shows that some cultures have initiated interest rates reduction plans (United States) or have set up alternative finance and credit schemes to facilitate small enterprise development. At present however, lower and subsidized interest rates are opposed by international finance institutions. Solutions to the problems lie primarily in the availability of costs in-training bankers to deal with small-scale industrialists sympathetically. LDCs strategy for industrialization must concentrate on two approaches. First, the domestic market for manufactured goods must be expanded markedly. Second, LDCs industry must be restructured to become much more efficient and capable of exporting goods profitably and competing against goods with moderate protection. LDCs path to becoming newly industrialized nations must be established on a sound raw materials base taking into account weak forward and backward linkages now characteristic of the country’s manufacturing sector. Consideration must be given to the operational constraints and technological capacity of the country. Consequently within the next few years, much focus need to be placed on the expansion and new investments in light manufacturing resource based industries in which the country has both operational and technological capacities, while laying the ground for intermediate and capital industries. A legal environment needs to be enhanced for sound industrialization to be put in place. Law plays a very important role in business creation, expansion and administration. Law is needed for incorporation, establishment of ownership and liabilities assessment of business and financial risks, as well as enforcement of contractual agreements. A lack or absence of a well-defined legal system can constrain the efforts of a country’s industrialization efforts. The process of industrial transformation here will require enormous financial investment and sound human resource development, institutional capacity development and environmental protection. The process of industrial transformation will therefore require new thinking and approach within the following guidelines. - Maintenance of a stable transparent and accountable political and economic climate that is likely to generate business confidence, projects peoples properties and rights and upholds the rule of law and administration of justice. - Provide administrative and social services such as education and training health and other social services. - Provide and maintain the basic infrastructure at reasonable cost to customers. Involvement of the private sector in providing and maintaining infrastructure need to be encouraged. - Investment in primary production in order to increase productivity. - Restructuring of the financial markets by scrapping of the import and export licensing, decontrolling prices, and freeing the foreign exchange markets. - Liberation of trade activities selectively. - Diversification of the Kenya economy with greater focus on the Kenyan agriculture. - Special emphasis needs to be put on new product development, competitiveness in quality, processing packing, styling and design. - LDCs industry must be restructured to become much more efficient and capable of exporting goods profitably and competing against imported goods with moderate competition. - Government needs to venture into identifying new partners in industrialization exercise particularly when it comes to foreign investments. CONSTRAINTS TO INDUSTRIAL DEVELPOMENT Despite the observed achievements by the LDCs manufacturing sector and the supporting institutions the sector indeed is faced with serious challengers which unless properly addressed are likely to slow the pace of the economies industrialization process. The problems appear within the industries and plants, but sometimes these difficulties arise form deficiencies in the government’s implementation of industrialization policies. It is quite apparent from the constraints discussed in this section that, many investors, industrialists and entrepreneurs still do not regard the LDCs business environment as sufficiently conducive to attract both domestic and foreign investors. Some of these issues are basic to overall investment climate and must be tackled in the context of preparing the country for entering rapid industrial growth. LDCs infrastructural sector poses a lot of challenges to the country’s industrialization process. It is not worthy that the weakness of physical infrastructure in LDCs is one of the principal causes of the unsatisfactory performance the country’s industrial sector; and partly accounts for the low level of investments within the country. Infrastructure is essential for industrialization. It provides vital links between centers of production and markets in economic sectors, and facilitates flow of industrial goods and raw materials and people. Reasons for the continuing state of insufficient infrastructure include: poor tendering and procurement procedures, a poor maintenance culture which results in the erosion of accumulated assets and inadequate public sector financial resources to undertake new capital asset creation. The major physical infrastructural shortfalls are in power and water supply, telecommunications, roads, rail and port facilities. The abraise of governmental policy concerning certain issue and the malfunctioning implementation of the existing policies restrain LDCs industrialization process. In other cases intense conflicts of interests between those desiring to increase local production and those preferring to make fast money through imports of locally producible items hamstrings efforts to impose restrictions on imports (e.g. for garments, shoes, cars, refined sugar). Too often importers find political allies to facilitate their requests hence sabotaging the nation’s interests in industrial development, job creation and even revenue generation. An examination of the areas where policy has been inconsistent or absent will illustrate the ways these conflicts thwart improvements in industrial efficiency or increase in local production and a reduction of imports. Inappropriate technologies need to be regarded as on of the major constraints on industrialization process in LDCs. Many inappropriate and even dangerous products are made and sold locally though they throw artisans out of work and waste foreign exchange. Fro instance LDCs makes plastic baskets for the local markets even though hundreds of women weave sisal baskets for their livelihood. LDCs makes many other inappropriate products that eliminate jobs e.g. plastic chairs and throw carpenters out of work. LDCs industrial growth depends heavily on the success of agriculture given the strong links of the sector in the country. Agricultural output and incomes create a growing demand for manufacturers and a source of the savings needed to finance industry. Unfortunately lately the agricultural sector has been has been performing very poorly and is a major problem in the industrialization process. However, agriculture suffers from vagaries of weather and agricultural commodity exports suffer from price and revenue instabilities due to inelasticity in their demand and supply. The LDCs industrial sector seems to be developing within an environment of a liberalized market unlike the case of newly industrialized countries in Asia. Markets are also rapidly being globalized and the new information technologies within a low growth region exposed to regional conflicts. To industrialize in such environment LDCs manufacturers are required to produce goods and services that are regionally and internationally competitive both in price and quality. The cost of and limited access to credit poses a lot of challenges towards industrialization in LDCs. This factor has continued to be a major constraint for the private industrial sector. Inspite of the structural reforms on LDCs financial sector, there remain problems facing many entrepreneurs, in particular the small scale enterprise and women. These include; the absence of an efficient financial intermediation mechanism which can effectively channel resources towards private productive investment, attitudinal problems arising from the persistent distrust between lenders and borrowers, poor marketing strategies of the banks and the continued competition for limited funds and very high interest rates. Further, there does not exist, adequate incentives and guarantees for bank to encourage financing of small and medium scale enterprises. This situation is worsened by the absence of a credit rating agency for borrowers and a credit reference for individual borrowers. Inadequate managerial, technical and entrepreneurial skills indeed undermine the country’s efforts to industrialize. The LDCs still suffer from shortage of critical skills in finance, production, material and project management and technical capability which among other factors accounts for low productivity within the industrial sector. The link between LDCs industry and research and development is very weak. There is no structured mechanism for identifying problems and priorities in industrial growth and development. Consequently research activities and findings from research institutions have made very little impact on the overall industrialization process either due to their inappropriateness or poor transition of research findings into production. Research and Development (R&D) plays a key role in industrialization by facilitating the identification, characterization and development of material bases, new products and new processes for industrial activities. Its application in generating technologies will influence effective utilization of local resources. Bureaucracy and corruption forms the major source of frustrations to industrial investors in the country. Long and slow bureaucratic procedures, duplication of requirements and lukewarm attitudes of public servants to processing applications for approvals and licenses required by the business is costly and discourages final investors. The legal environment in which business operate in LDCs is not sufficiently efficient. This is a consequence of the underdeveloped legal information culture. In particular the incomplete collection and publication of legal materials, the inadequate and slow disseminations of laws when passed and the persistent existence of irrelevant, outmoded anti-market laws not in line with modern times and requirements. Low domestic resource mobilization national savings is a major bottleneck to the country’s industrialization process. National savings are a major element of sustainable industrialization. They are necessary for investments in human resource development, infrastructure and social services, and for industrial investments. There has been a general decline in public savings, a factor which accounts for the poor performance not only of the national economy but also the industrial sector. Expansion of the country’s industrial sector is seriously contained by these factors hence if any breakthrough is to be made; they need to be seriously addressed.