^{Page 67 note 1} The country's dependency on the foreign-exchange earnings capacity of cash crops is highlighted by the fact that the long-term trend shows an increased reliance on coffee and tea. These two commodities made up 27 per cent of total exports in 1964, and 45 per cent in 1983; Ministry of Finance and Planning, Economic Survey (Nairobi, 1984).Google Scholar

^{Page 67 note 2} P. N. Hopcraft, ‘Outward Looking Indutrialisation: the promotion of manufactured exports from Kenya’, I.D.S. Discussion Paper No. 141, University of Nairobi, 1972.

^{Page 68 note 1} India's degree of self-sufficiency in the machine-tool industry advanced from a position in 1955 where it could supply only 11 per cent of total consumption to one where 20 years later, in 1975, it accounted for 78 per cent of the country's demand; Rom Matthews, ‘Industrial Strategy and Technological Dynamism in Machine Tool Manufacture – Comparative Perspectives on India and Japan’, University of Lund, Sweden, Research Policy Institute, 1982, Technology and Culture Series No. 7. For a discussion of self-sufficiency in this field as a major developmental goal, see Cheng, Chu-Yuan, The Machine Building Industry in Communist China (Edinburgh, 1972), p. 212.Google Scholar

^{Page 68 note 2} Nixon, Fred, ‘Import-Substituting Industrialisation’, in Martin, Fransman (ed.), Industry and Accumulation in Africa (London, 1982), p. 49, draws the following conclusions, which seem particularly apposite for Kenya: import-substitution ‘has not, in practice, significantly alleviated the balance-of-payments constraint; it has led to a growing dependence on a largely imported, capital-intensive technology and has thus not created extensive employment opportunities or indigenous technological development; the process has been heavily dependent on foreign capital and has emphasised the establishment of consumer goods industries at the expense of investment and capital goods industries; it has led to what many would regard as an undersirable redistribution of income and in general it has failed to generate a sustained process of economic growth.’Google Scholar

^{Page 69 note 1} This seems to be supported by Paul Bennell's observations when he noted in 1981 that ‘The skilled artisans [of the engineering sector] were predominantly Asians who were either poached from the railways or other government departments, or directly imported from overseas. Engineering skills were mainly manual requiring little theoretical knowledge and were acquired as a result of prolonged in-plant experience.’ ‘The Formation of Engineering Labour Markets in Kenya, 1918–79’, I.D.S. Working Paper No 379, Nairobi, February 1981, p. 20.

^{Page 69 note 2} Note Per Kongstad's comments on the importance of the Asian influence on the industry: ‘In metalworking industries the Asians operate most of the 200 small or medium-sized factories near to Nairobi, Mombasa, Nakuru and Kisumu. It may be argued that general engineering is a key service industry on which the maintenance and increase of productivity in agriculture (and other industries) ultimately depends. While the exact location of agricultural processing industries is less important to peasants and farmers in a country like Kenya where transportation is cheap and abundant, the service industries providing repair facilities and general mechanical competence certainly must be within reach of the productive sectors to which they are linked, or should be linked.’ ‘Kenya: industrial growth or industrial development?’, in Rweyemamu, J. F. (ed.), Industrialisation and Income Distribution in Africa (Codesria, Dakar, 1980), pp. 99–100.Google Scholar

^{Page 70 note 1} The eighteenth-century industrial revolution in Britain would most emphatically have been still-born without the emergence of early machine-tool technology. It is well-known that James Watt built the first workable machine, the steam engine. But its successful arrival was delayed for years, as he was unable to obtain sufficient compression from the fit between piston and cylinder until John Wilkinson solved the problem by inventing the first effective machine tool: a horizontal boring mill. See Hine, C. R., Machine Tools and Processes for Engineers (New York, 1971), p. 2.Google Scholar

^{Page 71 note 1} Sources: Ministry of Finance and Economic Planning, Industrial Production Survey (Nairobi, 1965);Google ScholarMinistry of Economic Planning and Development, Statistical Abstracts (Nairobi), 1977–1982; and Central Bureau of Statistics, Industry Summary Files.Google Scholar

^{Page 71 note 2} The argument is that machanical engineering helps to catapult a country forward in its drive for economic and technological maturity. The smallness of the initial size of the machine-building sector relative to the host economy clouds its strategic importance – it grew, for example, in China from a 2.7 to a 12 per cent share between 1949 and 1966, and in India from 4.5 to 23 per cent from 1946 to 1974; Cheng, op. cit. p. 1, and Matthews, op. cit. p. 6.

^{Page 71 note 3} Machine-tool production is usually seen as a principal component of the ‘machanical’ machinery sector. Yet, even as late as 1960, it accounted for only 0.3 per cent of total manufacturing output in India; Matthews, op. cit. p. 57.

^{Page 71 note 4} Thus, even though the Kenyan authorities have not given overt emphasis to the promotion of a capital-goods industry, its 7.4 per cent rate of growth has matched the manufacturing sector over the same period of time. In fact, more recently, from 1976 to 1982, the 10.2 per cent growth of the machinery sector has been faster than that of manufacturing at 8.1 per cent.

^{Page 72 note 1} Under the wider definition of machine building, this industry grew at the rate of 18.6 per cent in Communist China between 1952–1966; at 26 per cent in the Soviet Union, 1927/1928–1937; at 15.6 per cent in India, 1951–1967; and at 15.1 per cent in Japan, 1952–1966. See Cheng, op. cit. p. 228. According to this classification of capital goods – which defines them as encompassing electrical, non-electrical, and transport machinery – Kenya sustained a rate of output growth between 1964–1980 of 13 per cent.

^{Page 72 note 2} Of course, the relevance of this comparison applies only to the consumer-goods industries involved in the production of non-durable goods.

^{Page 73 note 1} For a complete exposition of this theory, and a review of the evidence on which it is founded, see Brown, William, ‘Innovation in the Machine Tool Industry’, in Quarterly Journal of Economics (Cambridge, Mass.), 08 1957.CrossRefGoogle Scholar

^{Page 74 note 1} The Finance Bill, 1984 (Nairobi), Schedule 2.

^{Page 74 note 2} There are two points here. First, the Government has to ensure that prior to granting tariff duty relief there will be an actual, or at least potential, increase in local production. There seems little justification for tariff concessions if, in the example cited, electric motors were to be imported in C.K.D. form, simply to be assembled in Kenya. Second, the prejudices of the manufacturers regarding the height of the tariff wall may indicate a level of ‘nominal’ protection that is more than that actually warranted as regards ‘effective’ protection, defined as measured domestic value-added minus world value-added, expressed as a percentage. From an economic perspective the effective rate is a more useful measure because it gauges the protection given to the domestic factors of production and, therefore, the attractiveness of the activity. See the World Bank, Kenya: into the second decade (Baltimore, 1975), pp. 318–21, for an extended discussion on the distinction between nominal and effective rates of protection.Google Scholar

^{Page 74 note 3} Ship-breaking has been introduced as a means of alleviating the shortage of local scrap, but as yet the industry is still in its infancy. The higher quality speciality steels all require to be imported and, when available, are usually extremely expensive. It has been reported that in some instances the local importers/wholesalers add 100–400 per cent to the c.i.f. Mombassa port prices; Peter Coughlin, ‘Converting Crisis to Boom for Kenyan Foundries and Metal Engineering Industries: technical possibilities versus political and bureaucratic obstacles’, in I.D.S. Working Paper No. 398, Nairobi, 1983, p. 6.

^{Page 75 note 1} Drawn from Ali, S. S., Strategy and Development Programmes for the Fifth National Plan of Kenya (Geneva, 1983), p. 92.Google Scholar

^{Page 76 note 1} Survey of machinery manufacturers, 1985.

^{Page 76 note 2} Non-dependence on principally foreign suppliers was the rationale behind Taiwan's reliance on vertical integration during the early development of machine-tool manufacture: ‘This has been both the cause and effect of the dearth of many types of support industries, such as foundries, forges, heat treatment, electro-planting, and tools and dies. Early on when production was getting under way, machine tool builders were faced with the choice of either importing their inputs or making them where possible. The small size of the market, however, as well as a critical shortage of foreign exchange, make a reliance on dispensable imports unthinkable.’ Amsden, Alice, ‘The Division of Labour is Limited by the Type of Market: the case of the Taiwanese machine tool industry’, in World Development (Oxford), 5, 3, 1977, p. 222.Google Scholar

^{Page 76 note 3} The development of the machine industry in Korea was hampered by similar foundry/forge deficiencies, including inadequate treatment, cleaning, and processing of sand for moulds, as well as poor plant layout and wastage of materials, which imposed costs at a later stage of machine-finishing. Cited by Jayati D. Mitra, ‘The Capital Goods Sector in LDCs: a case for state intervention’, World Bank Staff Working Paper No. 343, Washington, D.C., July 1979, p. 16.

^{Page 76 note 4} The major conclusion to Jack Baranson's study of the Cumins diesel plant in India was that ‘contrary to widely held beliefs among development economists about capital deficiencies, the evidence seems to indicate that the basic difficulties lie in limitations imposed by the scale of local markets and overall deficiencies in supplier capabilities.’ Manufacturing Problems in India: the Cummins diesel experience (Syracuse, 1967), p. xi.Google Scholar

^{Page 77 note 1} Young, Allyn, ‘Increasing Returns and Economic Progress’, in The Economic Journal (London), 12 1928, p. 532.Google Scholar

^{Page 77 note 2} For instance, see Bhagwati, Jagdish and Desai, Padma, India: planning for industrialisation (Oxford, 1970),Google Scholar and Matthews, Ron G., ‘Initial Growth Pains in the Development of the Indian Machine Tool Industry’, in The Indian Economic Journal (Bombay), 10–12 1984.Google Scholar

^{Page 77 note 3} The large firm operating at below 40 per cent of capacity manufactures industrial compressors. The foreign-parent company produces approximately 2,500 units per annum, compared to 600 in the heyday of the Kenyan subsidiary, now down to one unit a month. This low level of capacity utilisation is widespread across the engineering sector. A separate study in 1983 found that foundries in Kenya used only 23 per cent of their capacity and metal engineering workshops only 34 per cent; see Coughlin, op. cit. p. 2.

^{Page 78 note 1} According to the O.E.C.D., Economic Outlook (Paris, 1984), non-oil commodity prices are in real terms, after allowing for inflation, now 50 per cent below their 1974 peak, 8 per cent below their average during the 1960s, and at about the same level as their 1971 low.Google Scholar

^{Page 79 note 1} As a means of alleviating the difficulties associated with slackness in demand, various machine-tool manufacturers in India have also diversified their output. One producer of lathes concurrently managed to produce in the same workshop a number of components for the local motor-scooter factory; Matthews, Ron, ‘The Techno-Economic Development of the Indian Machine Tool Industry with Special Emphasis on Aspects Affecting Efficiency’, Ph.D. dissertation, University of Glasgow, 1981.Google Scholar

^{Page 79 note 2} In this context, Little, Ian, Scitorsky, Tibor, and Scott, Maurice, Industry and Trade in Some Developing Countries – a Comparative Study (Oxford, 1970), p. 11, argue that ‘A determination to pursue import-substitution too far results in a neglect of comparative advantage. There are many examples of enterprises set up by governments, and of industries being encouraged by heavy protection, with little or no thought given to the costs, or to alternatives.’Google Scholar

^{Page 79 note 3} Stewart, Francis, ‘Kenya: strategies for development’, in Damachi, U. G. et al. , Development Paths in Africa and China (London, 1976), p. 88.Google Scholar

^{Page 80 note 1} Source: Statistical Abstract, 1983.

^{Page 80 note 2} Leys, Colin, ‘Accumulation, Class Formation and Dependency: Kenya’, in Fransman (ed.), op. cit. p. 179.Google Scholar

^{Page 81 note 2} The problem with this judgement, and the analysis from which it derives, is that nowhere in the government publications are the data defined for total demand and imports of machinery and equipment. But due to orders of magnitude it is, nevertheless, reasonable to assume that the figures have regard to the broader definition of capital goods, incorporating transport and electrical machinery.

^{Page 81 note 3} Kenya's direct imports of agricultural equipment in 1983, covering ploughs (and parts thereof), cultivators, weeders, hoes, harrows, soil–preparation equipment, and tea-processing machinery, amounted to just slightly over K£500,000. This needs to be compared with the direct imports of metal-working machine tools alone, which in the same year came to more than K£3,750,000. Calculated from Ministry of Finance and Planning, Customs and Excise Department, Annual Trade Report (Nairobi, 1983).Google Scholar

^{Page 82 note 1} Kenya imports tractors from at least 15 countries, and the consequential lack of standardisation in spare parts perhaps suggests why hardly 40–50 per cent are operational. See S. S. Gill, ‘Development of Agricultural Machinery in Kenya’, Industrial Survey and Promotion Centre, Kenya Ministry of Industry, July 1980, p. 7, cited by Coughlin, op. cit. p. 21.Google Scholar

^{Page 83 note 1} Even though only Ashok-Leyland Ltd., of the five civilian motor-vehicle manufacturers, was formally under external control during the early years, the industry as a whole was very much dependent on foreign collaborators: ‘of the few passenger models manufactured in the country in 1958, only one had an indigenous content of over half; the others ranged from 30–37 per cent. Commercial vehicles were in a like state, ranging from 9 to 58 per cent indigenous content, and averaging 37 per cent. By the end of 1961 the position had improved, but in no case was the import content less than one-fifth, and it still ranged up to one-half.’ Kidron, Michael, Foreign Investment in India (Oxford, 1965), p. 200. The assembly of commercial and pick-up vehicles in Kenya covers Datsun, Toyota, Volkswagen, General Motors, and Peugeot. The local content for Toyota models has reached 30 per cent, and as high as 55 per cent for the Isuzu and Bedford trucks in the General Motors range.Google Scholar

^{Page 85 note 1} This analytical technique is borrowed from Maizels, Alfred, Industrial Growth and World Trade (Cambridge, 1963), pp. 150–2, and its exposition is drawn from Cheng, op. cit. p. 212.Google Scholar

^{Page 85 note 2} The character of Kenya's post-independence industrialisation has centred on the development of final-consumption goods industries through the encouragement of multinational investments. Such a strategy inhibits the growth of domestic machine-making capacity as the foreign companies prefer to import their process technologies from the West, conforming to the practices and product standards already obtaining at their parent plants. In addition, local capital-goods producers have been handicapped by the negative tariff protection afforded to machinery manufacturers in Kenya. Zero sales tax on certain categories of imported capital goods have further reduced the viability of local production.

^{Page 86 note 2} The African market for agricultural equipment has been estimated to be between 1,000 and 1,500 million U.S.$ annually, which is supplied by local producers. See East Africa Report on Trade and Industry (Nairobi, 1983), p. 25.Google Scholar

^{Page 87 note 1} There is no doubt that Kenya's machinery producers were badly affected by the closure of the border with Tanzania in early February 1977. In the previous year, they exported machinery and other capital equipment to the value of K£6.6 million, but by 1978 this had shrunk to K£1.2 million.

^{Page 87 note 2} Kenyan Association of Manufacturers, Information Sheet, A Guideline on PTA Protocol on Reduction and Elmination of Trade Barriers (Nairobi, 1985), p. 3.Google Scholar

^{Page 87 note 3} Ibid.Preferential Trade Area for Eastern and Southern Africa (Nairobi, 1985), pp. 6–7.Google Scholar

^{Page 88 note 1} For informative reading on this point, see Ndegwa, Philip, Africa's Development Crisis (Nairobi, 1985).Google Scholar

^{Page 88 note 2} By the beginning of 1985, six of the members – Ethiopia, Malawi, Mauritius, Swaziland, Zambia, and Zimbabwe – had started using the P.T.A. clearing mechanism, which is meant to minimise the use of foreign exchange through increased use of local currencies to settle trade transactions. But the effectiveness of this system has been particularly hampered by the huge trade imbalances existing between some of the trading partners. These are already reported to have caused considerable friction between neighbouring Zambia and Zimbabwe, due to the former's huge trade deficit of U.S. $12 million which had to be paid for in foreign exchange. See The Daily Nation (Nairobi), 31 01 1985, p. 10.Google Scholar

^{Page 88 note 3} Due to persistent problems concerned with the attainment of self-sufficiency in food production, the policy priority has now shifted from the 1980 Monrovia strategy to that espoused by the O.A.U. at Addis Ababa in 1985, of emphasising the development of agricultural activities. However, sooner or later, either in the increased mechanisation of agriculture, or through future efforts to promote industrial capacity, the need to stimulate capital-goods production in Africa will again have to be recognised.Google Scholar

^{Page 89 note 1} Cf. Kibaki, Mwai, Minister of Finance, during his 1981–2 Budget Speech (Nairobi), p. 6: ‘[the import-substitution] focus on protection…stifled the growth of new industries by imposing high cost raw materials and goods on the capitive domestic market, and forestalled the development of a capital goods industry’. Note also the main thrust of Kenya's Fifth Development Plan, 1984–88, p. 196: ‘Priorities in the field of industrial consolidation will include balancing modernisation and expansion of existing enterprise so as to gain maximum production efficiency, product diversification, improvements in the capacity to export and establishment of backward linkages required to replace imported inputs… Promotion and development of producer goods industries will be encouraged where the replacement of imported inputs is possible and economically viable.’Google Scholar

^{Page 89 note 2} According to ibid. ‘The Government's policy of gradually reducing tariff protection will indirectly serve to stimulate export activity. During the 5th Plan period, domestic producers and investors will find the considerable incentive to export contrasting sharply with the squeeze placed upon production for the increasingly competitive domestic market.’

^{Page 90 note 1} Government statements during the early 1980s indicated that tariff amendments would increasingly be employed to aid Kenyan development and, in particular, to foster a capital-goods sector. Nevertheless, the importance of tariffs in terms of procuring the resources for government expenditure is as strong as ever; import duties in 1983/4 represented 30 per cent of all indirect taxes, and some 20 per cent of total taxation, almost exactly the same set of proportions that prevailed in 1979/80. See Economic Survey, 1984.

^{Page 90 note 2} Bienefeld, Manfred, ‘Efficiency, Expertise, NICs and the Accelerated Development Report’, in IDS Bulletin (Brighton), 14, 1, 01 1983, p. 20.Google Scholar

^{Page 91 note 1} H.M.T. proposed that the selling price of lathes - the most expensive but probably the tool with the greatest potential demand - should be K.Shs.138,000, and that over 500 would be purchased if the value of machine-tool imports (K.Shs.71,709,136) for 1982 held. The feasibility team estimated that if production takes place at capacity, then a gross profit to sales of 20.8 per cent, with duties and taxes, would be realised.

^{Page 92 note 1} Academics, managers and even government officials emphasise the difficulties surrounding the implementation of large investment schemes which would hurt established vested groups in the country.

^{Page 92 note 2} The P.T.A.'s rules of origin are important in this respect. A condition which must be fulfilled for a product to qualify as ‘originating’ is that at least 40 per cent local content of materials, or 45 per cent value-added, be associated with its manufacture.

^{Page 93 note 1} Venezuela has what is called a National Council (Condibieca) for promoting the capital-goods sector, with wide objectives; see U.N.I.D.O., ‘The Capital Goods Industry in Latin America: present situation and prospects’, Working Paper No. 19, Geneva, July 1984, p. 94. Technological complementation also takes place in Latin America, for example in the metal-working industries of the Andean countries; see ibid. p. 100. Although Tanzania has iron ore, and Kenya the potential of steel-making expertise, it is doubtful whether these East African countries are ready as yet for such complex co-operative ventures.