THE ROLE OF RESEARCH AND DEVELOPMENT IN THE INDUSTRIALIZATION PROCESS IN KENYA

1. THE ROLE OF RESEARCH AND DEVELOPMENT IN THE INDUSTRIALIZATION PROCESS IN KENYA Moturi C. and Ogada T. Kenya Industrial Research and Development Institute (KIRDI) Technical workshop on Industrialization 22nd November 2006, KICC, Nairobi

2. CONTENTS • Background

3. Background • The Kenyan economy has enjoyed both periods of great advances and disheartening downturns. • Incidences of poverty and unemployment, meagre foreign exchange earnings (exports of primary product mainly - agro-produce) have resulted in unfavourable balance of payment and low per capita income • It is estimated that > 60% of Kenya’s population live below the poverty line

4. contd • While, the overall population growth rate has experienced a decline over the last 2-decades, unemployment continues to increase • As a result, lack of productive employment opportunities has led to a fall of real wages in nearly all the sectors of the economy • As well, the population pressure on agricultural land and the associated decline in individual holdings have resulted in low and decreasing productivity

5. contd • It has been acknowledged that in order to cope with these challenges, the economy will have to consistently grow at between 8-10% annually. • Thus, through rapid sustained economic growth, national wealth can be created, leading to increased employment and incomes and viable enterprises • These in turn will provide the resources to support measures to alleviate poverty, protect vulnerable groups and provide rising standards of living for Kenyans

6. contd • It is well recognized that industrialization is a means through which Kenya can accelerate its economic growth • Indeed, all indicators show that Kenya’s goal of rapid and sustained growth cannot be achieved in the absence of industrialization, as has also been demonstrated in all NICs

7. Indicators of Industrialization and Industrial Competitiveness • Manufacturing Value adding per capita (MVA) measures the level of industrialization of a country • Manufactured exports per capita is a measure of the ability of a country to produce goods competitively

8. MVA as % GDP

9. Industrial Development Policies in Kenya • Since independence (1963), it has been recognized that the informal sector has potential in employment and wealth creation in Kenya • The GoK has therefore continued to react positively by facilitating MSEs to generate sustainable employment and income by formulating various policies to address constraints affecting the sector • The following is thus, a summary of the key government policy papers that have been developed over the years

10. contd • Sessional Paper No 10, 1965 • The Sessional paper on “African Socialism and its Application to Planning in Kenya” set the pace in the introduction of small enterprises in the economy. • The paper sought to indigenise the economy by encouraging foreign enterprises to equip Kenyan Africans with necessary skills through training, apprenticeship programmes, to enable them operate private business

11. contd • Sessional Paper No 10, 1973 • The desire to Kenyanize the economy was further amplified by the Sessional paper on Employment. • It attempted to assist small enterprises to access working sites, credit, managerial and technical services, skill upgrading and business training services

12. contd • Sessional Paper No 5. of 1982 • The Sessional paper on “Science and Technology for Development” Recognized that Science and Technology provide the knowledge with which to identify opportunities and to increase growth rates (by making capital and labour more productive). • The Paper recommends that the GOK should deliberately, but conscientiously expand its research system to cover all sectors of the economy

13. contd • It also recommends: • Increased levels of funding to 1% of GDP for Research and Experimental Development. • Acquisition and Transfer of Technology Policy • Capacity Building for Technological transformation

14. contd • Sessional Paper No 2, 1985on Unemployment • The paper appreciated the importance of MSE sector in the economy and sought to encourage it to expand. • It however fell short of providing concrete solutions to the sector’s accessibility to credit, technical and marketing assistance

15. contd • Sessional Paper No 1, 1986 • The paper on Economic Management for renewed Growth together with the Sixth National Development Plan (1989-1993) tried to accelerate MSE growth by seeking to • amend the rules and regulations that inhibit MSEs • To limit unfair trade practices by large scale firms • To change cost-price relations in favour of MSEs • To address constraints that limit access of MSEs to finance and credit.

16. contd • Sessional Paper No 2 of 1992 • The Policy paper on “Small Enterprise and Jua Kali Development in Kenya” was released to address similar problems affecting MSEs • However, it emphasized on the creation of an enabling legal and regulatory environments that support the sector’s graduation into formal sector

17. contd • Sessional Paper No 2 of 1996 • The Policy paper on “Industrial Transformation to the Year 2020” is indeed the basis of this presentation. • The paper proposes measures to remove bottlenecks that hinder the potential MSEs in serving as seed bed for industrialization • It also proposes; • to review government procurement regulations and procedures to allow MSEs to provide goods and services to Government • The rationalization of licensing regime to make it simpler and cheaper

18. contd • Perhaps more importantly, the paper recognizes that in order for Kenya to achieve and maintain competitiveness in the global market, technology, among others, will play a major role • It also encourages; • Private sector to invest in technology development (independently or in collaboration with public R&D institutions)

19. contd • Economic Recovery Strategy for Wealth and Employment Creation (2003-2007) • The release of the blueprint became necessary to address the twin challenge of; • Creating Employment • Creating Wealth • Reducing Poverty • It emphasized on the desire to facilitate MSEs to graduate in employment size. • This was further strengthened by the release of Sessional Paper No.2, 2005, on Development of Micro and Small Enterprises for Wealth and Employment Creation for Poverty Reduction,which sought to enhance the capacity of MSEs to generate wealth as well as durable and decent jobs

20. contd • The blueprint also recommends “Enhanced support for R&D for industries by reviewing the tax incentives for doing research and zero rating research-related equipment”, among others

21. Vision 2030 • The Vision envisages a globally competitive and prosperous nation with high quality of life by 2030 • Per capita income ranking among the five highest in Africa • Eliminating absolute poverty and building an equitable and just society • Becoming Africa’s most competitive economy • 10 % growth in GDP for the next 25 years

22. The Missing Gap • It can be clearly noted, from the above review, that the proposed interventions have not necessarily yielded the expected results • This is evident in the manner in which new policies continue to be formulated to address more or less the same problems that previous policies were meant to tackle. • It is also evident that the gap between MSEs and Medium enterprises on one hand and that between Medium and Large enterprises suggest that few of the MSEs graduate to the Medium level

23. Large (21%) Medium (14%) A A MSEs (65%) Schematic Diagram illustrating the Missing Gap in the MSE Growth • (Ref: Based on Data from GoK Statistical Abstracts)

24. contd • While MSEs generate employment and wealth, the majority are unable to grow vertically, thus resulting in the gap between MSEs and the Large enterprises, i.e. the missing middle/gap • It is now well acknowledged that without vertical growth it would be difficult for MSEs to generate sustainable employment and serve as seedbed for industrialization.

25. contd • 3 Major constraints continue to hinder the vertical growth of the MSE sector, i.e.; • Lack of Credit • Low level of Education • Negative “Jua Kali” Attitude • Lack of Market Information • Lack of Technology Advancement • As well, limited work sites and lack of clear vision also contribute to the slow growth of the sector

26. Technology Acquisition There are 4-broad means of acquiring technology, i.e.; Indigenous R&D Direct foreign investment Purchasing or leasing “off-the-shelf”, and Overseas training and study tours Accessing patent documents in the public domain

27. Universities R&D Institutions R&D Teaching Extension • Capacity Building • New knowledge • Knowledge Transfer Technological development Mandate of Universities and R&D Institutions

28. e.g. KIRDI Mandate • The mandate of KIRDI at inception – in 1942, was • to initiate and develop local industriesto relieve the industrial goods shortages occasioned by the second world war • Derived from the S&T Act, 1979, Cap 250; • To carry out Research and Development in Industrial and Allied Technologies, including: • Civil engineering, Mechanical engineering, Textile technology, Electrical engineering, Mining, Power resources, Chemical engineering, Industrial chemistry, Food technology, Ceramics and technology, Environment, Information technology

29. OPERATIONAL ENVIRONMENT • The GOK adopted an Industrialization strategy for achieving: • sustainable economic growth, rapid employment generation and poverty eradication, • thro’ competitive production and consumption • It is however, well recognized that for the last 10 years or so, the Industrial sub-sector in Kenya has been on the decline, and that,

30. contd • the country is faced with; • Low capacity utilization • Declining productivity, and • Limited technological advancement • All of which are indicators of inadequate application of R&D Products

31. Research Products and IPRs-1 The direct product of research is knowledge. It can be in the form of • New Technology • New Product • New Process • Improvement in existing product, process or technology

32. Research Products and IPR-2 • Publication a traditional R&D output • The dissemination of knowledge through publications is not enough. • R&D is only useful if its products can lead to • Economic development • Industrialization • Job creation • Poverty Reduction It is only through transfer of knowledge that a R&D Institution can become relevant to the society

33. Research Products and IPR-3 • Knowledge generated may be made available free of charge • Effective transfer of knowledge can only be realized through • Legal protection and • Commercialization • Knowledge can only be commercialized if it becomes a property • It must have a Legal Owner • It must have a value • There must be a market for it

34. Research Products and IPR-4 There are two types of Assets • Tangible Assets – Raw material, land, building, machinery • Intangible Assets – knowledge Old EconomyNew Economy Tangible property Intangible Property • Research Products belong to a class of intangible property called intellectual property assets

35. Commercialization of Research Products

36. 1. Methods of Commercialization There are Four Methods through which an Intellectual Property Assets can be commercialized • Licensing • Sale • Own exploitation – start up companies • Joint ventures

37. 2. Evaluation of the Impact of R&D The contribution of R&D Institutions towards a country’s development can be measured through quantity of • IP Assets generated • IP Assets Licensed • Income from Technology Licensing • Companies created directly based on the product of R&D • Jobs created • Consultancy offered

38. Examples of Technology Transfer Activities from R&D Institutions

39. 1. Numbers of Patents Filed by Universities 1995-2003 Japan 5,506 China 13,353 Korea 5,272 Singapore 993 India 467 Thailand 139 (granted)

40. 2. Kenyan Patent Application Situation (1993-2003) • SMEs (Jua Kali) 116 • Industry 45 • R&D Institutions 14 • Individual from university 2 • Secondary School 1 • University (MU) 1 • The culture of innovation has not been developed • Researchers in Universities and R & D Institutions innovate daily most of the innovation go unnoticed.

41. 3. USA Situation. Association of University Technology Managers • Over 3000 Technology Transfer Offices • University and research center licensing (2000) • 3765 license agreements • US $ 1.3 billion income • Since 1980 • 3500 companies formed based on R&D Products • 400,000 jobs created • US $ 50 billion generated annually on sales • US $ 10 billions received as tax revenue

42. 4. Massachusetts Institute of Technology • 1500 patents granted since 1986 • 600 active licenses • 80 new licenses per year, • 20 new spin out companies per year • US $ 25 million gross annual income

43. 5. Sweden. Chalmers University of Technology • has created 240 companies from its products of R&D during 30 years from Its Technology Park

44. 6. India. Council for Scientific and Industrial Research (CSIR) • 42 Laboratories • Each laboratory has Technology Transfer Offices • 1995-1999, filed 170 patents • A patent on a polymer used in coating compact disks (30 % of compact disks produced world-wide)

45. 7. Korea • Technology Transfer from 19 Private Universities Year No of Technologies Income from TT (KWon) • 2001 58 473 million • 2002 102 983 million • 2003 133 1913 million 293 • By 2004 Seoul National University had been granted 260 patents

46. 8. Singapore National University of Singapore and Nanyan Technological University • 56,000 students • Has technology transfer offices for • Research Collaboration • Contract Research • IP Management • Technology Transfer • Entrepreneurship • Key Statistics (1998-2002) • 500 Patents filed • 107 technologies licensed • 136 research agreements signed worth US $ 42 million

47. 9. China • Over 2000 university-run S&T Enterprises • 238,000 staff out of which 78,000 Researchers • 45.2 million TRW in sales • 5600 technologies transferred • 40 % of R&D funding come from private companies • Beijing and Tsinghua Universities • spinned-off over 120 high tech companies, • some spin off companies listed in the Chinese Stock Market

48. 10. Lessons Learnt • Research can lead to technological and economic development • For this to be realized in African R&D Institutions, there is need to • Increase Investment in R&D by our governments • have in place innovation and inventive support structures and • enabling policy incentives

49. Key Constraints in promoting industrialization through R&D

50. KEY ISSUES IDENTIFIED • Low Funding of STI • Low utilization of IPR • Low level of commercialization of STI findings • Low level of utilization of Reverse Engineering • Inadequate Technology Transfer policy • Lack of entrepreneurial culture • Weak linkages between STI organizations and SMEs • Weak marketing practices in STI and SMEs • Inadequate utilization of local knowledge • Weak linkages and networks amongst STI institutions • Inadequate utilization of cleaner production techniques