A coordinated push into export-led and import-substituting manufacturing could anchor inclusive growth, transform rural economies, and place Kenya on a trajectory toward becoming Africa’s manufacturing hub. Nicasio Karani Migwi, Founder, MD and CEO of Afromaximus Consult and Afromillenium Awards.
Kenya’s push to become an industrialized, middle-income economy is at risk of stalling unless the country decisively shifts manufacturing and investment into its rural heartlands.
With manufacturing contributing just 7.3% of GDP in 2024- less than half the Vision 2030 target of 15% by 2027- the case is growing for a large-scale County Industrialization Fund, structured as a Marshall Plan-style intervention to anchor factories, jobs and exports beyond major cities.
Kenya’s industrial sector spans manufacturing, construction, mining and quarrying, electricity supply, and water and waste management. Yet outside manufacturing, contributions to GDP remain modest: construction accounts for 6.3%, electricity 1.8%, mining 0.7%, and water and sanitation just 0.4%. Manufacturing itself remains heavily urban-concentrated, limiting its impact on employment, poverty reduction and regional development. This stagnation comes as global manufacturing dynamics shift, opening a rare window of opportunity for low-wage, youthful economies like Kenya.
If well-structured, the fund could crowd in private capital while accelerating rural industrialization and reducing long-term dependence on transfers and welfare spending.
A coordinated push into export-led and import-substituting manufacturing could anchor inclusive growth, transform rural economies, and place Kenya on a trajectory toward becoming Africa’s manufacturing hub.
China’s rise as the “factory of the world” was built on low-cost labour, but that advantage is fading as the country edges toward high-income status, with GNI per capita reaching USD 13,660 in 2024. As wages rise, manufacturers are increasingly seeking alternative production bases across Asia, Africa, and Latin America. While China is countering this shift through capital-intensive, AI-driven manufacturing, labour-intensive production is already migrating to lower-income economies. Kenya, with a GNI per capita of USD 2,110, sits firmly within the competitive wage bracket, alongside India and much of Sub-Saharan Africa, positioning it to absorb displaced manufacturing if the right industrial ecosystem is built.
However, the benefits of industrialization in Kenya remain unevenly distributed. National poverty stood at 39.8% in 2022, but stark disparities persist between urban and rural regions. Urban poverty was 33.2%, compared to 42.9% in rural areas. Counties with strong urban centers and industrial bases- such as Nairobi (16.5% poverty), Kiambu (20.5%), and Mombasa (22%)- record significantly lower poverty levels than largely rural counties like Turkana (82.7%), Mandera (72.9%), Samburu (71.9%), and West Pokot (60.1%). These same industrialized counties command a disproportionate share of GDP and manufacturing value added, reinforcing the link between factories, urbanization and poverty reduction.
This imbalance has serious demographic consequences. Kenya’s youth unemployment challenge is intensifying, with World Bank data showing that 27.8% of young people are neither in education, employment nor training. Across Africa, nearly 12 million young people enter the labour market each year, yet only about 3 million secure formal jobs. Industrialization, particularly through manufacturing for both domestic and export markets, has historically been the fastest and most scalable path to absorbing large youth populations, a lesson demonstrated repeatedly across Asia.
China’s own experience offers a relevant blueprint. Its Township and Village Enterprises, driven by rural local governments after the 1978 economic reforms, expanded from 1.5 million firms in 1978 to more than 12 million by the mid-1980s, employing up to 135 million people at their peak. These enterprises were instrumental in lifting over 800 million people out of poverty, accounting for roughly three-quarters of global poverty reduction over four decades. Similar trajectories were followed by the Asian Tigers and later the Tiger Cub economies, which paired export-oriented manufacturing with heavy investment in skills, infrastructure and business-friendly policies.
Kenya has taken tentative steps in this direction through devolution. Since 2013, several counties have established investment and development corporations to attract domestic and foreign investors, promote import substitution and anchor manufacturing locally. Counties such as Meru, Kirinyaga, Machakos, Kisumu, Mombasa, Kakamega and Homa Bay have identified bankable agro-processing, manufacturing and industrial projects worth hundreds of millions of dollars, spanning food processing, pharmaceuticals, shipbuilding, renewable energy and light manufacturing.
At the national level, the rollout of County Aggregation and Industrial Parks (CAIPs) reflects growing recognition of the need for place-based industrialization. Backed jointly by national and county governments and supported by UNIDO, each park costs KSh 500 million and targets agro-industrial value chains, job creation and export growth. Thirteen counties are currently participating, but the scale remains insufficient relative to the size of Kenya’s industrial and employment challenge.
This has led to calls for a dedicated Counties Industrialization Fund worth approximately USD 4.7 billion (KSh 611 billion) over a five-year presidential term- equivalent to allocating USD 100 million to each county for factory development, industrial infrastructure and investor support. The proposed fund would be comparable in scale to Kenya’s Standard Gauge Railway investment, which cost about USD 5 billion, and would represent a modest reallocation within an annual national budget of roughly USD 33 billion.
Crucially, the fiscal burden could be reduced through public-private partnerships, improved ease of doing business, and targeted reforms to cut the cost and time of setting up enterprises, accessing power, securing permits, and trading across borders. If well-structured, the fund could crowd in private capital while accelerating rural industrialization and reducing long-term dependence on transfers and welfare spending.
Supporters argue that such a strategy is not only economic but existential. Without large-scale job creation, Kenya risks a deepening youth unemployment crisis with serious social and political consequences. By contrast, a coordinated push into export-led and import-substituting manufacturing could anchor inclusive growth, transform rural economies, and place Kenya on a trajectory toward becoming Africa’s manufacturing hub- leveraging human capital, financial depth, regional markets and institutional capability rather than mineral wealth.
The ambition is bold: to multiply Kenya’s USD 124.5 billion economy several-fold within a generation, following the path carved by countries that moved from poverty to prosperity through industrial discipline and strategic state support. Whether Kenya seizes this moment may determine whether rural regions remain trapped in subsistence, or become the foundation of the country’s long-promised economic transformation.
