Investments in downstream agricultural activities should boost growth

Although largely rural and modestly sized, Kisii County offers significant scope for growth over the medium and long term, thanks to planned infrastructure spending and a growing population. Following the passage of devolution in 2010, the county has sought to translate its strong agricultural base into more value-added sectors such as agro-processing, branding and marketing. Given Kisii’s location near the edge of western Kenya, the county also has the potential to enhance trade with nearby Tanzania and Uganda.

Accounting for 60% of the county’s total production and employing 80% of the labour force, the agricultural sector continues to drive Kisii’s economy, and with farmers focusing on cash crops, scope for increased downstream activity is opening up. The tertiary sector is also well developed, and is largely dominated by financial activity, consisting of over 100 financial services providers. The sector is marked by a high level of lending, with the county representing Kenya’s largest financial market.

That said, important challenges remain to be addressed. For example, although the county is densely populated, it has a limited road network and utilities infrastructure is reaching capacity.

Geography & Climate

Kisii County lies just south of the equator, in western Kenya. With a total size of 1318 sq km, it is one of the smallest counties in the country. Kisii borders several other counties, including even smaller Nyamira to the north-east, Narok – home to Kenya’s renowned Masai Mara National Reserve – to the south, and Homa Bay and Migori, on Lake Victoria’s shores to the west.

Kisii is a hilly county, dissected by several rivers that flow west into Lake Victoria. The major rivers are Gucha, Iyabe, Mogonga, Mogusii and Riana. The topography ranges from peaks of 2100 metres above sea level in the east of the county to the lowest point of 1200 metres above sea level in the west, descending towards Lake Victoria. Moderate temperatures and two rainy seasons contribute to the success of agriculture. The temperature ranges between 15°C and 30°C, while average annual rainfall is 1500 mm. The first rainy season runs from March through June and is characterised by heavier rains, while lighter rains fall from September through November.

Population

With 1.3m inhabitants, Kisii County has one of the highest population densities in Kenya, of approximately 1000 inhabitants per sq km. The average annual growth rate is 2%, and this rate is expected to continue to increase over the next few years. In a county dominated by agricultural activity, the sub-counties with the most arable land – Kitutu Chache South, Nyaribari Chache, Bomachoge Borabu and Bomachoge Chache – have the highest population density. One-third of the population is under 20 years of age and the county’s urban population is less than one-quarter of the total. Kisii Town is the commercial and financial centre of the county, with slightly fewer than 70,000 inhabitants. The other three major towns of Tabaka, Suneka and Ogembo have a combined total of 25,000 inhabitants.

Human Development

The poverty rate stands at 49.3%, slightly higher than the national figure of 47%, and in rural areas many people lack the required documentation or collateral to access credit markets. The labour force comprises 56.5% of the population, but only 25% of residents are engaged in formal employment. This has made it difficult to measure the true level of unemployment, which is officially listed at 61% but may be lower in reality. Literacy stands at 71.5% among adults and 86.5% among the whole population. Health indicators have improved over the last decade, with child mortality halving and immunisation coverage gradually expanding.

Government

In the March 2013 ballot James Ongwae was elected as the county’s first governor, heading the executive branch of the county government with 10 sector departments. The County Assembly is Kisii’s legislative branch, and comprises 71 members who are responsible for making the county’s laws.

The county is administratively divided into nine subcounties, also called constituencies: Kitutu Chache North, Kitutu Chache South, Nyaribari Masaba, Nyaribari Chache, Bomachoge Borabu, Bomachoge Chache, Bobasi, South Mogirango and Bonchari.

The county will launch an industrialisation policy in 2014 with the help of Kenya Industrial Estates (KIE), a 50-year-old national organisation with a mandate to promote growth. KIE has a local Kisii branch, and it is helping with county plans to develop an industrial park modelled on the Vision 2030 Konza Technology City, a Machakos County mega-project that has been dubbed Silicon Savannah.

To promote more development, officials are keen to see the involvement of Kisii’s roughly 700, 000-strong diaspora community. The county government will host a diaspora investment conference in Kisii in 2014. The Kisii County Development Foundation is another initiative that is still in the conceptual stages. A county government agency, it is intended to be a vehicle to channel donor aid.

Fiscal Situation

Since devolution, counties have managed their own budgets, and sources of revenue are strictly regulated. In Kisii’s case, the national allocation (including a conditional share) of KSh5.8bn ($66.12m) represented more than 80% of revenues for the fiscal year 2013/14.

On the expenditures side, devolution guidelines stipulate that at least 30% of the county budget must be spent on new development programmes, which Kisii has exceeded, channelling 42% of the county budget towards development expenditure. In the first half of the 2013/14 fiscal year, the period from July to December 2013, the county received KSh1.9bn ($21.67m) from the national revenue allocation and raised KSh85m ($969,000) from local sources – lower than expected in both cases.

As a result, the county government has launched various initiatives to streamline collection and raise revenues from local sources. In May 2014 an automated revenue collection system was launched to seal leakages in street parking payments and public transport fees. In March 2014 a new Finance Bill was passed by the County Assembly that – if enacted – will see the county government raise additional revenues from a variety of sources.

Banks Thriving

With regards to cash velocity, money circulation in Kisii County accounts for 60% of western Kenya’s money market. “Kisii has a high volume of daily financial transactions,” said Nahashon Ongeri, Kisii branch manager of Chase Bank. “This is because locals are comparative risk-takers.”

Unusual for many African markets, residents in Kisii take loans readily, making for a dynamic financial system even though only about 30% of the population is banked. Loans outnumber deposits in Kisii, according to Ongeri, while the majority of borrowers are small and medium-sized enterprises, and there is a 10% loan default ratio.

Kisii has 17 banks, with a total branch network of 19 banks. Because of the large amounts of money changing hands daily in Kisii, the county is pushing for a branch of the Central Bank of Kenya to open locally. Around 90% of the banked population is urban, as banks are heavily concentrated in Kisii Town. Due to the inefficiency of setting up branches in villages, banks have found a solution by adopting the agent model to engage rural customers.

To promote rural activity, Kisii has rolled out a Joint Loans Board, through county trade development offices, with a KSh200m ($2.28m) fund to support micro, small and medium-sized enterprise growth. The loan scheme, an offshoot of a national project, not only offers accessible credit, but also trains borrowers on loan management.

Applicants fill out a basic four-page form with only one stipulation: record-keeping. Borrowers in Kisii use the loans for purchases such as farm equipment and inputs. Loan sizes vary from KSh20,000 ($228) to 300,000 ($3420), with annual interest rates of a flat 8%. According to Ibrahim Moiro Omari, ECM of culture, sports, youth and social services, KSh2.3m ($26,220) was disbursed in April 2014.

Agriculture

The agricultural sector employs 80% of the workforce and makes up 60% of the economy. However, there is limited large-scale farming in Kisii. Owing to the prevalence of small land holdings and a high population density, farming is mainly for subsistence. The main staple crops are maize, beans, finger millet, potatoes, bananas and groundnuts.

Cash crops such as tea, coffee, sugarcane and pyrethrum are grown for commercial purposes, and they are gaining prominence as key revenue earners for the country. The most highly ranked tea in the Mombasa auction is from Kisii, although the earnings of tea farmers have declined in 2014 because of depressed global prices.

Farms typically range in size from 0.2 to 2.1 ha; however, these are getting smaller because of subdivisions through multiple generations. This has forced many people to stop farming because plots are no longer economically viable; with some being too small to support even subsistence farming.

All in all, 78% of the county is arable, of which 57% is farmed. Cash crops are grown on 17,800 ha while staples take up to 72,500 ha. Kisii is divided into three ecological zones: coffee and tea are planted in the upper midland; farmers grow maize, wheat and tea in the lower highland; and sugarcane is cultivated in the lower midland. Horticultural crops – fruits and vegetables – are grown in all three zones.

Farmers face the challenge of inadequate distribution facilities, in part because subsistence farming has not created incentives for proper stores. Granaries, stores and sacks are the main forms of storage, but only 30% of produce is stored. The county government is working on strategies to improve storage, including building modern silos.

Modernising Kisii’s markets will be another priority: KSh400m ($4.56m) will be spent to give Daraja Mbili market – the second-largest outdoor market in western Kenya, which sees more than KSh1bn ($11.4m) in weekly revenues – upgrades such as designated parking, modern stalls and drainage system repairs.

Industrial Growth

Agriculture’s prominent profile in Kisii has made downstream processing a priority for the county government, given the positive impact a boost in agro-industrial activity could have on revenue and employment.

For example, in 2014 the Sydney-based Old Land Trade Company established a KSh300m ($3.42m) avocado processing plant in Kisii Town. The new facility will make oil, shampoo and soap, with production beginning mid-2014, and all products will meet EU market specifications. With a capacity of 80 tonnes per day, the plant will also handle other fruits including pineapples, bananas and oranges. To date, the investment has created 1000 jobs.

Another agro-processing unit is in the pipeline for bananas, which are already processed into crisps, flour, cakes and juice at a cottage industry level, but the county government is working to expand to largescale production. A tender to provide machinery for the banana processing plant attracted 14 bidders, for example. Crucially, the government is working to ensure that the operating environment is able to offer attractive long-term prospects for potential agroindustrial investors, and according to Charles Ocharo, project manager of Nairobi-based Euromart, among the main attractions of the banana tender was the lease of land at very favourable terms.

A processing facility for sugarcane is also in the works. A KSh2.4bn ($27.36m) factory is to be built in Nyagweta forest in South Mogirango. Construction will take two years to complete and the plant will create 600 permanent jobs and employ a number of casual labourers. The 245,000 tonnes of annual sugarcane production provides a number of inputs, and production is set to rise as farmers switch from staples like maize to cash crops such as sugarcane.

Infrastructure

To expand secondary output, the county government is also working to expand infrastructural capacity, both in terms of transport and power networks. According to national government data, Kisii has a 1568-km road network, of which 11% is paved. The paved roads pass through the major towns, while the remainder are distributed across the county’s sizable agricultural areas.

Insufficient maintenance and hilly terrain, as in many markets in East Africa, make rural roads relatively difficult to navigate. In an effort to address this challenge, KSh360m ($4.1m) was allocated to build 225 km of compacted murram standard roads in the fiscal year ending June 2014. These are all-weather roads, and each of the county’s 45 wards will get a minimum of 3 km to ensure a fair distribution and access across rural areas.

In a bid to improve connectivity for both goods and people, nine counties, including Kisii, are also working on a plan for a railway line that will connect Mombasa’s new high-speed standard-gauge railway through western Kenya. The plan – which dovetails with the national Vision 2030 development strategy – envisions a 500-km rail line featuring a 57-station network, and is expected to incorporate several corridors. A 100-km section of the line will run through Kisii and Nyamira Counties, with nine stations.

Powering Up

The electricity network is also in need of expansion. National and county government figures suggest that 45% of Kisii’s population is covered. The hilly terrain makes power infrastructure costly to maintain or install, and therefore off-grid solutions are a particular focus for expansion.

Norway’s Rural Energy Solutions is rolling out a KSh100m ($1.14m), five-year project to provide 200 solar-powered lights in Kisii’s business districts. This off-grid project will see solar panels installed on roofs and street lights. To curb outages, Kenya Power is investing KSh1.8bn ($20.52m) in eight substations across the region. The county is in the feasibility stage of exploring the potential for hydroelectric power in a number of locations, including the Gucha River.