Discussion Paper No. 150 of 2013 on Determinants of Manufacturing Firm's Location in Kenyan Counties

Abstract

Establishment of manufacturing firms in a given location is expected to create employment and reduce poverty. Kenyan counties are no exception; for them to continuously address existing unemployment and high poverty levels, they have to attract manufacturing firms. However, all counties are not endowed the same way, leading to variations in the number of manufacturing firms located in each county. This study investigates the determinants of location of manufacturing firms in Kenyan counties. It uses negative binomial regression model and has found that insecurity level, agglomeration economies, availability of water, availability of roads, and cost of land determine the location of manufacturing firms in Kenyan counties. The study recommends enhancement of local partnership between the national and county governments as a way of reducing crime. County leadership should establish systems of monitoring the effects of crime on existing and prospective manufacturing firms and other investments. Secondly, Water Service Providers (WSPs) should consider supplying industrial water at subsidized rates, and in county areas where such WSPs are inadequately covered, firms should be allowed to directly tap industrial water from sources within the counties. Further, counties should fund projects involving water-piping, drilling of boreholes and construction of dams. Thirdly, when firms want to locate in an interior part of a county, construction of roads to such parts should be prioritized. In addition, regular repairs to existing roads leading to plants should be done as well as maintenance of major roads connecting different counties in order to increase accessibility to the external market. Further, provision of industrial packs with improved infrastructure around them would boost agglomeration economies for manufacturing firms and other investments. Lastly, since the cost of land in counties may not come down any soon, leasing of industrial land to firms at a lower cost would attract and retain firms. It is envisaged that these recommendations would positively inform county leadership and, if eventually actualized, counties would be on the right path towards addressing unemployment and poverty.