Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 100381 Furniture Industry in Kenya Situational Analysis and Strategy Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mailpubrights@worldbank.org Acknowledgements T his report, funded through the generous sponsorship of DFID and the Netherlands, has been prepared jointly by a team from Creapo Oy, Helsinki, Finland (Harri Ahveninen, MSc. forest products and economics, CEO); Stephen Irura Ng´ang`a (PhD, associate professor and Dean School of Business, Katarina University); and Meshack Odera Muga (principal research officer, KEFRI forest products research program) and the World Bank (Maria Paulina (Ina) Mogollon, Finance and Private Sector Development Specialist; Georgia Dowdall, Senior Analyst; and Farah Manji, writer and Editor). The report benefited from the comments and support of World Bank team colleagues, Ganesh Rasagam, Aref Adamali, Karuna Ramakrishnan, and Kennedy Mukuna Opala. The team would like to thank those who provided support with data gathering and review of report drafts, especially Adan Mohamed (Cabinet Secretary), Wilson Songa (Principal Secretary), Julius K. Korir, Hezekiah Bunde Okeyo, and Julius Kirima of the Ministry of Industrialization. Finally, the team would like to thank the many furniture sector stakeholders – timber merchants, furniture manufacturers, furniture outlets, training providers – interviewed for this study. TABLE OF CONTENTS Acronyms ................................................................................................................................... i Executive summary ................................................................................................................ ii 1. Introduction ............................................................................................................................... 1 1.1 Objectives ............................................................................................................................. 1 1.2 Methodology and structure ................................................................................................. 1 2. Global, regional, and domestic furniture markets and trends ................................................. 5 2.1 Overview of global market and trends ................................................................................ 5 2.2 The furniture market in Africa ............................................................................................. 7 2.3 The furniture market in East Africa ...................................................................................... 8 2.4 The furniture market in Kenya ............................................................................................. 9 2.5 Chapter summary ................................................................................................................ 10 3. Furniture value chain ................................................................................................................. 11 3.1 Timber availability in Kenya ................................................................................................. 12 3.2 Regulation in the timber industry ........................................................................................ 13 3.3 The Kenyan sawmilling industry .......................................................................................... 14 3.4 The wood-based panel industry .......................................................................................... 15 3.5 Furniture manufacturing ..................................................................................................... 16 3.5.1 Formal furniture manufacturers ................................................................................. 17 3.5.2 Informal (Jua Kali) furniture manufacturers ................................................................ 18 3.6 Furniture outlets ................................................................................................................. 20 3.7 Furniture stakeholders ......................................................................................................... 20 4. Competitiveness analysis ........................................................................................................... 23 4.1 Competitiveness vis-a-vis imports ....................................................................................... 23 4.2 Key constraints facing the industry ...................................................................................... 26 4.2.1 Constrained input supply ............................................................................................ 26 4.2.2 Limited skills and poor production facilities ................................................................ 28 4.2.3 Access to markets ....................................................................................................... 29 4.2.4 Limited communication, coordination and collaboration ........................................... 29 4.3 Chapter summary ................................................................................................................ 29 5. Strengths and opportunities for development ......................................................................... 31 6. Recommendations ..................................................................................................................... 33 6.1 Enhance institutional collaboration and sector support ...................................................... 34 6.2 Tackle supply-side constraints to increase production and quality ..................................... 35 6.3 Improve productivity and innovation through better skills and technologies ..................... 36 6.4 Enhance access to markets and induce greater demand for products ................................ 38 Annex 1: Lessons from government interventions in other countries ...................................... 41 China ............................................................................................................................ 41 Malaysia ....................................................................................................................... 41 South Africa .................................................................................................................. 42 Annex 2: SWOT analysis .............................................................................................................. 43 References ..................................................................................................................................... 44 LIST OF FIGURES Figure 1: Value chain of the Kenyan furniture industry ............................................................... iii Figure 2: Expected growth of the furniture market in 2015 ........................................................ 6 Figure 3: African furniture exports, production and imports by region (2013) ........................... 7 Figure 4: African furniture market size by country (2013) ........................................................... 8 Figure 5: Value of furniture imports in Africa (2013) ................................................................... 8 Figure 6: Urban populations of east African countries (2013) ..................................................... 8 Figure 7: Size of the East African furniture market (2013) ........................................................... 8 Figure 8: Evolution of the furniture market in Kenya (sales from 2009-2013) ............................. 9 Figure 9: Kenyan furniture market size by product type (2013) ................................................... 9 Figure 10: Furniture sales forecast in Kenya (2013 vs. 2018) ........................................................ 9 Figure 11: Value chain of the Kenyan furniture industry ............................................................... 11 Figure 12: Kenya’s wood deficit ..................................................................................................... 12 Figure 13: Forest types in Kenya (2010) ......................................................................................... 12 Figure 14: Kenyan trade balance of roundwood and sawn timber ................................................ 14 Figure 15: Estimated consumption of industrial wood in Kenya (2013) ........................................ 14 Figure 16: Number of registered and licensed sawmills in Kenya ................................................. 14 Figure 17: Indicative economics of sawmilling: Kenya vs. Finland ................................................. 15 Figure 18: Kenyan trade balance of wood-based panels ............................................................... 15 Figure 19: Indicative economics of the plywood industry: Kenya vs. Finland ............................... 16 Figure 20: Evolution of volume of Kenyan furniture production ................................................... 17 Figure 21: Evolution of top 10 Kenyan furniture exports by product from Kenya (2009-2013) ..... 17 Figure 22: Kenya’s top furniture export markets (2013) ................................................................ 17 Figure 23: Distribution of formal furniture firms by region and size ............................................. 17 Figure 24: Percentage of informal firms increasing their number of employees, machines, or premise space over the last three years ........................................................................ 19 Figure 25: Labor productivity in the informal sector ..................................................................... 19 Figure 26: Formal market furniture price-quality spectrum .......................................................... 20 Figure 27: Map of stakeholder engagement with the Kenyan furniture sector ............................. 21 Figure 28: Evolution of imported furniture in Kenya (2009-2013) ................................................. 24 Figure 29: Comparative costs of manufacturing a desk (1,500 size with panel legs) ..................... 24 Figure 30: Comparative costs of a mobile 3-drawer pedestal ....................................................... 24 Figure 31: Unit values of trade in upholstered chairs .................................................................... 26 Figure 32: Unit values of trade in wood office furniture ............................................................... 26 Figure 33: Unit values of trade in wooden bedroom furniture ..................................................... 26 Figure 34: Comparison of key indicators related to the Kenyan sawmilling and wood-based panel industries ............................................................................................................ 27 Figure 35: Market size of wood-based panels in Kenya ................................................................. 27 Figure 36: Percentage of institutions providing furniture-related training programs ................... 28 List of tables Table 1: Suggested government interventions to improve the competitiveness and growth prospects of the Kenyan furniture industry .................................................................. iv Table 2: Sampling of respondents for furniture survey in Kenya ............................................... 2 Table 3: World furniture production, top 10 producing countries (€million and percentage share), 2003 and 2012 .................................................................................................. 6 Table 4: Kenyan plantation species for the furniture industry (2013) ........................................ 13 Table 5: High level impact indicators of wood plantations ......................................................... 13 Table 6: High level impact indicators of the sawmilling industry ............................................... 15 Table 7: High level impact indicators of the wood-based panel industry ................................... 16 Table 8: Characteristics of the formal furniture sector .............................................................. 18 Table 9: High level impact indicators for the formal furniture sector ........................................ 18 Table 10: Characteristics of the informal furniture sector ........................................................... 19 Table 11: High level impact indicators of Jua Kali sector .............................................................. 20 Table 12: Percentage share and value of imports in the Kenyan furniture market (2013) in USD millions .............................................................................................................. 23 Table 13: Summary of cost differences between Kenya and China .............................................. 24 Table 14: Cost comparisons of furniture inputs and manufacturing among select competitors 25 Table 15: Proposed strategy targeting Kenyan furniture manufacturing and exports ................. 31 Table 16: Summary table of recommendations ........................................................................... 33 ABBREVIATIONS CAGR Compound Annual Growth Rate CSIL Center for Industrial Studies COMESA Common Market for Eastern and Southern Africa EAC East African Community EU European Union FDI Foreign Direct Investment GRDS Global Research & Development Services KFS Kenya Forest Service KNBS Kenya National Bureau of Statistics MDF Medium Density Fireboard MOED Ministry of Industrialization and Enterprise Development NITA National Industrial Training Agency OBM Original Brand Manufacturing ODM Original Design Manufacturing PPP Public-Private Partnership SADC Southern African Development Community i Furniture Industry in Kenya EXECUTIVE SUMMARY T he performance of the furniture and timber value chain in Kenya is crucial both to employment and growth in the country. The and regional markets in East Africa, other parts of the continent, and beyond. Kenya is the strongest regional producer in East Africa. It has sector employs 160,000 people---starting from a logistically advantageous geographic position the forestry sector and going all the way through that confers it comparatively easy access to local, manufacturing—produces approximately US$452 regional and international markets, a supply of million of furniture per year and exports US$22 raw materials from neighboring countries that is million. With this in mind, the Ministry of relatively accessible, and a large workforce with Industrialization and Enterprise Development a strong tradition of working in both the informal (MOIED) requested the World Bank analyze and formal segments of the furniture value chain. these sectors in order to understand their current state of development, their main constraints, and The furniture market in Kenya stood the interventions necessary to accelerate their approximately at US$496 million in sales in 2013, growth. This report intends to summarize these. with a Compound Annual Growth Rate (CAGR) of 10% over the past five years. Similar growth Global output of furniture amounts to US$480 over the coming years is expected. Furniture billion and global trade in furniture stands at imports stand at US$66 million and constitute 13 US$140 billion.1 Over the last decade, world percent of the total market. Imports are taking furniture production has increased year on year an increasingly large portion of the Kenyan with the exception of 2008 and 2009. In 2010, market, growing at a CAGR of 24% between for the first time, the share of wood furniture 2009-20134. Exports are growing more slowly at production from middle and low income countries a 10% CAGR. Without a significant push for the was over half of total world furniture production, development of the local industry, an increasing at 53 percent.2 Africa accounts for 2.2% of output proportion of consumption in these markets will and 2.8% of trade, with net imports amounting be met by imports. to US$2.5 billion, with demand in the region being driven by rapid urbanization and increasing The furniture value chain in Kenya consists of six purchasing power. The East African furniture core segments. It begins with the forestry sector, market is valued at US$1.2 billion and trade in and progresses through timber harvesting and the region is worth US$298 million.3 Kenya is the transport, timber processing, and timber trading. largest producer of furniture in East Africa. The furniture industry sources from timber traders and processors, and may sell through Kenya’s furniture industry is well positioned furniture outlets or directly to consumers. to expand its furniture sales domestically and Figure 1 illustrates the value chain, and identifies regionally to capitalize on the growing local the key stakeholders at every stage in the process. 1 Creapo. 2 European Commission, (2014), “The EU Furniture Market Situation and a Possible Furniture Products Initiative.” Available at: http://ec.europa.eu/growth/ tools-databases/newsroom/cf/itemdetail.cfm?item_id=7918&lang=en&title=Study-on-the-EU-furniture-market-situation-and-a-possible-furniture- products-initiative- 3 Creapo. 4 Creapo. Situational Analysis and Strategy ii Executive Summary Figure 1: Value chain of the Kenyan furniture industry Timber harvesting Timber Timber Furniture Furniture Stage Forestry and processing trade industry outlets transport Saw milling Formal Timber manufacturers stakeholders Plywood and traders Independent Forest land/ merchants furniture Timber Key plantations MDF particle traders chains and Timber Informal board outlets processors sector Hardboard (’Jua Kali’) Source: Creapo The main challenges facing the furniture industry manufacturers are “crowded out”, hampering in Kenya have been identified as follows: their access to domestic and regional markets. 1. Constrained input supply-The Kenyan forestry Informal “Jua Kali” manufacturers are also sector is unable to meet local demand for timber losing their access to markets, as consumer and the country is a net importer of sawn timber buying habits change and mass retail becomes from the region. Import licenses for timber the channel of preference. are nevertheless required. These licenses lack 4. Limited engagement and collaboration transparency and create opaqueness across between different stakeholders across the the industry. Further down the value chain, value chain, both within and between the the sawmilling industry is fragmented and formal sector and Jua Kali entities-Across the characterized by a lack of investment. The value chain, there is fragmented stakeholder wood processing industry is also not operating engagement and minimal linkages which result optimally due to its oligopolistic structure, the in limited collaboration within and between protection it receives from import duties on the formal sector and Jua Kali manufacturers, equivalent products, and operational issues restricted scope for outsourcing and and inefficiencies. specialization, and reduced efficiency and 2. Limited labor skills and poor production opportunity for serial production. Moreover, facilities-The Kenyan furniture industry, and there is no single association or group that the informal sector in particular, suffers from represents the furniture industry in its dealings low labor productivity as a result of limited with the government. training opportunities and low investment in new technologies. Many firms in the Based on the above, there are four areas in which industry have sub-optimal production facilities strategic interventions can serve to significantly and operate outdated machinery, which push the development of the furniture and exacerbates this further. timber sectors in Kenya. These are listed below and explained in further detail in Table 1. 3. Limited access to markets-Kenyan furniture manufacturers are facing increasing 1. Enhance institutional collaboration and competition from Asian imports, particularly support in the furniture industry to foster in formal mass market retail channels. Local linkages among stakeholders; iii Furniture Industry in Kenya Executive Summary Table 1: Suggested Government interventions to improve the competitiveness and growth prospects of the Kenyan furniture industry Recommendation Specific Actions • Improve stakeholder collaboration across the industry by establishing an Enhance institutional collaboration Industry Association and sector support • Develop a strategic regional framework to assist in National-County implementation • Lay the foundations for a sustainable forestry sector that is able to meet Kenya’s demand for timber • Eliminate import licenses for timber and reduce import duties for intermediate products Tackle supply-side constraints to • Promote regional trade agreements to facilitate and increase timber imports increase production and quality • Improve the efficiency and quality of inputs to the furniture sector by promoting the development of wood-based panel production and upgrading of the sawmilling industry • Promote input standardization (particularly in materials and design) • Establish a Kenyan Center for Excellence as a platform to provide relevant industry training and (in the longer-term), co-ordination of R&D Improve productivity and • Set up prototyping facilities to develop new products innovation through better skills and • Provide incentives to upgrade technology and expand manufacturing technologies facilities to move towards serial production • Increase access to finance • Enhance collaboration among Jua Kali entities via clustering • Promote regional trade agreements • Improve border logistics and regional transportation networks to strengthen regional integration • Improve the implementation of the Build Kenya, Buy Kenya public Enhance access to markets and procurement initiative induce greater demand for products • Promote exports of Kenyan specialty products (i.e. “ethnic-rustic” pieces) in key international markets • Establish Jua Kali-focused marketing entities to facilitate access to formal markets 2. Tackle supply-side constraints to enable Kenya has the opportunity to expand its furniture producers to increase production and quality; industry to meet growing local and regional 3. Improve the productivity and innovation of demand. The rest of this report will explore the furniture manufacturers to enable them to structural and operational challenges that hold upgrade their design, quality, and volume; back the performance of the Kenyan furniture and timber industries and suggest interventions 4. Enhance access to domestic and regional that can help the industry consolidate, strengthen, markets and induce greater demand for and increase its competitiveness and productivity. Kenyan furniture products. Situational Analysis and Strategy iv 1. Introduction 1.1 Objectives 1.2 Methodology and Structure T he Government of Kenya recognizes that the performance of the furniture sector is crucial both to employment and growth in the country. To meet the above objectives, available data was analyzed and field surveys of formal and informal furniture businesses, timber The Ministry of Industrialization and Enterprise traders, and training providers were conducted. Development (MOIED) therefore requested Data was collected by way of oral interviews, an analysis of both the furniture and timber administrative questionnaires, and observations sectors, in order to understand their current of 244 businesses along different stages of the state of development, their main constraints, furniture value chain in different parts of the and the interventions necessary to accelerate country. In addition, conversations with industry their growth. stakeholders were held to deepen the analysis and verify findings. Official data was used as The objective of this report is to provide a a starting point (KNBS Census of Industrial comprehensive value-chain analysis of the Production, KNBS Economic Survey and Abstract, Kenyan furniture industry, including the timber and World Bank Enterprise Survey for Informal sub-sector, in order to assess policy options Firms), and complemented where needed. The available to the MOIED and recommend critical above provided the basis for a comprehensive and interventions to stimulate the industry’s strategic analysis of the industry and informed development. By situating Kenya’s furniture the development of policy recommendations industry within the global and regional context, and interventions. this paper also aims to identify ways in which to boost Kenya’s competiveness in the East African Data collection, in the form of oral interviews markets and beyond. and administrative questionnaires, was directed at six categories of respondents, selected from The analysis in this report is largely focused on 16 counties with major towns as focal points. the wooden furniture sector (versus plastics, The main criteria for choosing the counties to composites, and other furniture). The bulk of be surveyed was the perceived concentration Kenya’s furniture industry is focused on wood, of furniture enterprises and volume of trade in and Kenya has a competitive advantage in wood furniture and related wood products. relative to South Africa, Asian countries, and Europe, which have very competitive value chains in furniture made from other materials. Situational Analysis and Strategy 1 1. Introduction Table 2 details the number of questionnaires Central Bank of Kenya’s monthly data. Initial administered and collected from each category estimates of 2013 furniture consumption of respondent—timber trade and furniture were calculated from internationally available materials, formal furniture firms, Jua Kali consumption ratios for furniture types in furniture manufacturers, Jua Kali furniture different stages of development. Jua Kali output (training needs assessment), furniture training was estimated based on fieldwork results. A providers and furniture outlets. A total of 244 number of iterative calculations were carried questionnaires were administered. out to establish the best possible professional judgement about Kenya’s 2013 furniture Further to this, the limited available furniture consumption, import, export and production. production and market data presented A full census of production would have to be significant challenges for analyzing Kenya´s conducted to arrive at a more accurate estimate. furniture market. The current market size and its structure (consumption, import, export and The report is structured as follows: Chapter 2 production) was assessed off the base of the describes the global, regional, and domestic import and export data available from the KRA furniture markets and the market trends in Customs Department and converted into USD Kenya that shape the furniture industry. Chapter using average annual exchange rates from the 3 describes the furniture value chain and its Table 2: Sampling of respondents for furniture survey in Kenya Number of questionnaires Timber Jua Kali trade and Formal Jua Kali furniture Furniture furniture furniture furniture (training needs training Furniture Region materials firms manufacturers assessment) providers outlets Total Nairobi 15 5 20 15 10 4 69 Eldoret 2 1 10 5 1 1 20 Mombasa 2 1 8 6 3 0 19 Kisumu 4 1 10 0 4 0 18 Nyeri 2 1 5 1 3 2 14 Kitale 4 1 4 1 1 2 13 Nakuru 3 1 7 1 0 1 13 Embu 2 1 6 1 1 1 12 Meru 2 1 5 1 1 2 12 Kakamega 2 1 5 1 1 2 12 Kiambu 1 0 5 3 3 0 12 Machakos 2 1 5 1 1 1 11 Thika 0 0 5 2 1 1 9 Taita-Taveta 1 0 5 1 1 0 8 Kirinyaga 0 0 0 0 1 0 1 Muranga 0 0 0 0 1 0 1 Total 42 15 100 39 33 17 244 Source: Creapo 2 Furniture Industry in Kenya 1. Introduction historic growth, including forestry, sawmills, competitive advantages, and opportunities plywood mills, furniture manufacturers, and for development. Chapter 6 concludes with retail outlets. Chapter 4 focuses on Kenya’s recommendations to accelerate the growth of performance against imports, and highlights the industry. Where possible, chapters end with critical constraints that hold back the industry. a summary of key points and conclusions. Chapter 5 elaborates on the sector’s strengths, Situational Analysis and Strategy 3 2. Global, Regional, and Domestic Furniture Markets and Trends T his chapter explores the global, regional • Strengthened and domestic furniture markets as well as the market trends that shape the industry. It distribution chains and outlets in import markets. presence of furniture examines key historical and forecast demand • Assertive Government policies and strategies and supply dynamics, identifies Kenya’s most in China and Malaysia, and strong Government important furniture products and highlights and firm-negotiated conditions in Turkey its most significant segments. The chapter and Poland, as well as in a number of other concludes by describing key trends in domestic emerging countries, which have resulted and export markets. in lower production costs and increased competitiveness. 2.1 Overview of Global Market and Trends Technological advances and decreased trading Over the last decade, world furniture production costs have lowered furniture prices and opened has increased year on year with the exception markets up to foreign competition. Indeed, of 2008 and 2009. In 2014, global furniture in the last ten years, world trade of furniture, production was worth US$480 billion and global which accounts for about 1 percent of world furniture trade amounted to US$140 billion.6 trade of manufactured goods, has grown faster The top furniture importing countries were the than furniture production.5 This increase has United States, Germany, France, UK, and Canada, been due to: while the top exporting countries were China, • Improvements in technology, which have Italy, Germany, Poland, the United States, and increased the productivity of manufacturing Malaysia. In the last decade, China emerged as and reduced the impact of labor costs on total the world leader in terms of furniture production, productivity. Some of these improvements more than doubling its exports from US$25 include: new furniture designs, new types billion in 2009 to US$53 billion in 2014.7 Table 3 of wood products, new packing methods shows the top 10 countries in terms of furniture enabling efficient use of cargo space, and production and percentage share in 2003 and overall reductions in material costs due in 2014. Notably, the top furniture producing to lower barriers of entry for competitive countries somewhat coincide with the top supply sources. furniture importing countries, further underlining • Development of standards and certification the importance and dynamism of trade in the for wood and furniture for export markets. furniture industry. 5 European Commission, (2014), “The EU Furniture Market Situation and a Possible Furniture Products Initiative.”Indeed, between 2013-2014, global furniture trade increased by 3.2 percent according to Furniture Today, (2013), “CSIL: Global furniture trade to climb 3.2% in 2014,” December 30. Available at: http://www.furnituretoday.com/article/483967-csil-global-furniture-trade-to-climb-32-in-2014 6 Furnishing Idea, (2014), “CSIL: The Global Scenario of markets,” December 15. Available at:http://www.furnishingidea.com/news/economy-and- marketing/2014/csil--the-global-scenario-of-markets_346.html 7 Furnishing Idea, (2014), “CSIL: The Global Scenario of markets,” December 15. Available at:http://www.furnishingidea.com/news/economy-and- marketing/2014/csil--the-global-scenario-of-markets_346.html Situational Analysis and Strategy 5 2. Global, Regional, and Domestic Furniture Markets and Trends Table 3: World furniture production, top 10 producing countries (€million and percentage share), 2003 and 2012 2003 2012 €million % share €million % share China 22,555 10% 145,318 40% USA 60,677 27% 51,642 14% Germany 15,492 7% 17,738 5% Italy 19,338 9% 15,950 4% India 5,386 2% 11,624 3% Japan 11,925 5% 10,743 3% Poland 4,393 2% 8,323 2% Canada 8,385 4% 8,262 2% Brazil 3,168 1% 7,970 2% France 7,817 4% 7,929 2% Top 10 159,137 71% 285,499 79% Others 63,877 29% 75,363 21% World* 223,014 100% 360,862 100% Source: CSIL processing of data from official sources8 In 2010, for the first time, the share of production Figure 2: Expected growth of the furniture market in 2015 of middle and low income countries was over 6 half of total world furniture production, at 53 percent. This was due to increased production 5 in emerging economies to satisfy increased 4 demand in domestic markets (Brazil, India), and investments made by companies from advanced 3 Percent economies in new plants designed to boost 2 growth in exports.9 1 In terms of the outlook for consumption growth, 0 current trends indicate that the geography of c a t ld io ean ro ern er rth er th ric as ifi ica ica or AmSou pe c Af e E AmNo Eu ast Unrop Pa n W & ddl furniture consumption is changing and that the E ia Eu As i M Source: CSIL interaction between high income and emerging countries is increasing.10 As Figure 2 shows, while Trends and tastes in furniture are continuously the expected growth of the furniture market evolving, and while they need to be considered in 2015 is expected to be only 2.5 percent for in the macro context of increasing globalization the world, significantly higher growth rates are and innovation, the specific country-level expected for Asia Pacific (5.2 percent) and the context ultimately dictates which styles Middle East & Africa (4.3 percent). and materials prevail. Relative population 8 European Commission, (2014), “The EU Furniture Market Situation and a Possible Furniture Products Initiative.” 9 European Commission, (2014), “The EU Furniture Market Situation and a Possible Furniture Products Initiative.” 10 IHB, Timber Netwok, (2014), “World furniture production doubles in last decade,”July 1. Available at: http://www.ihb.de/wood/news/Furniture_ production_trade_37596.html 6 Furniture Industry in Kenya 2. Global, Regional, and Domestic Furniture Markets and Trends demographics and family formation, spatial and designs. They are also increasingly used layout of housing and other building construction to ever-shorter delivery times, sophisticated that emerge in countries, cities or towns are distribution channels that are continuously fundamentally important, as are dynamics like evolving, and access to e-trade. the role of the home and the lifestyle enabled by a specific location (office, retail, education 2.2 The Furniture Market in Africa D and health facilities, etc.). Residents of highly emand for furniture in Africa is rising due congested cities, for example, are likely to have to growing populations, urbanization, and a preference for furniture that is smaller, more purchasing power. Africa accounts for about 2.2 compact and easier to transport and assemble in percent of the global consumption of furniture high rise apartment buildings. and about 2.8 percent of the global furniture trade, with net imports at US$2.5 billion11. Demand is Environmental awareness is increasingly being met both through local production and gaining momentum as a powerfulforce in imports: between 2009 and 2015, furniture furniture manufacturing. This takes many production in Africa and the Middle East grew by forms - from ensuring wood is sourced from a 15 percent.12 sustainable forest (with a source authentication label provided), to using eco-friendly finishing Figure 3 shows that Northern and Southern materials, to awareness about the carbon- Africa are the major furniture markets, and footprint of manufacturing (fuel used to transport, simultaneously, the major producers, importers, distance from input sources, use of recycled and exporters of furniture. Other parts of Africa materials, etc.). Linked to this is the prevalence of (Western, Central and Eastern) service the long-standing vintage furniture, globally. In terms majority of their demand locally, and import to of tastes—globally inspired designs and gently cover the gap. These markets are expected to profiled furniture have become more common grow, particularly Eastern Africa, riding on the (versus furniture with sharp, large edges), as back of its GDP and population growth. have multifunctional/all-round pieces, often with an IT functionality. The niche for custom-made Figure 3: African furniture exports, production and furniture, special bedroom furniture (mattresses imports by region (2013) with health functions), and niche markets 4,000 (leather furniture) also remains prominent, as 3,000 does demand for subsectors like outdoor and leather furniture. USD million 2,000 In terms of production and business 1,000 development trends, the demand for high quality products continues to increase. Across 0 the world, retailers are increasingly accustomed (1,000) to obtaining large volume orders from outlet Northern Western Central Eastern Southern chains, and operating with flexible production Production Exports Imports lines that can accommodate changes in orders Source: CSIL and Creapo 11 Furnishing Idea, (2014), “CSIL: The Global Scenario of markets,” December 15. Available at:http://www.furnishingidea.com/news/economy-and- marketing/2014/csil--the-global-scenario-of-markets_346.html 12 Furnishing Idea, (2014), “CSIL: The Global Scenario of markets,” December 15. Available at:http://www.furnishingidea.com/news/economy-and- marketing/2014/csil--the-global-scenario-of-markets_346.html Situational Analysis and Strategy 7 2. Global, Regional, and Domestic Furniture Markets and Trends Figure 4 shows the furniture market size of 2.3 The Furniture Market in East Africa T different African economies in 2013. South he East African economies consume US$1.2 Africa is the largest market at US$1,548 million, billion worth of furniture annually, of which followed by Algeria (US$1,259 million), Nigeria 22 percent is imported (US$268 million).13 Since (US$1,148 million) and Egypt (US$701 million). growth is driven (and bound) by growing urban Figure 4: African furniture market size by country (2013) populations and purchasing power, growth prospects are favorable, and Kenya, Ethiopia, 1,800 Tanzania and Uganda are likely to remain the 1,600 1,400 dominant furniture markets. Among these 1,200 economies, Kenya is likely to take the lion’s share of the market even though its urban USD million 1,000 800 population is smaller than that of Ethiopia and 600 Tanzania (Figure 6). 400 200 Figure 6: Urban populations of East African countries (2013) 0 18.00 Urban population (millions) 15.00 Source: CSIL and Creapo 12.00 Figure 5 shows the ten main African importers 9.00 of furniture as South Africa, Angola, Morocco, 6.00 Libya, Nigeria, Egypt, Ghana, Sudan, and Kenya. 3.00 Some of these countries have a weak furniture industry, creating import demand for African and 0 overseas suppliers. Others have strong industries a ia ia da ia da ea n i ti nd ny da ou op an al itr an an ru m Ke Su ib nz hi Er Ug Rw Bu So Dj and dynamic markets, and both import and Et Ta h ut So export furniture. Source: CSIL and Creapo Figure 5: Value of furniture imports in Africa (2013) Figure 7: Size of the East African furniture market (2013) 600 600 500 500 400 400 USD million USD million 300 300 200 200 100 100 0 0 a ia a da da ia ea i ti n nd ny ni ou op al da itr an an a ru m Ke ib nz Su hi Er Ug Rw Bu So Dj Et Ta h ut So Import Local production (less exports) Source: CSIL and Creapo Source: CSIL and Creapo 13 Creapo and Furnishing Idea, (2014), “CSIL: The Global Scenario of markets,” December 15. Available at:http://www.furnishingidea.com/news/economy- and-marketing/2014/csil--the-global-scenario-of-markets_346.html 8 Furniture Industry in Kenya 2. Global, Regional, and Domestic Furniture Markets and Trends As illustrated in Figure 7, Kenya is the largest In terms of product segments, the majority of market for furniture in East Africa. It is sales in the Kenyan furniture market in 2013 also the largest producer of furniture— were in upholstered furniture, office furniture manufacturing twice as much as Ethiopia, and bedroom furniture (see Figure 9). As a the next biggest market. percentage of sales, imports were most prevalent in other seats and parts, office furniture and 2.4 The Furniture Market in Kenya upholstered furniture. T he Kenyan furniture market was estimated Figure 9: Kenyan furniture market size by product type to be US$496 million in sales in 2013, and growing at a 10 percent compound (2013) 120 annual growth rate (CAGR) between 2009 100 and 2013.14 Growth has been driven by 80 USD million urbanization, economic growth, housing and 60 office construction, and these trends are largely 40 expected to continue. Going forward, the Kenyan furniture market is expected to grow at 20 an 8 percent CAGR between 2013 and 2018. 15 0 The furniture market in Kenya is serviced by the formal furniture sector, Jua Kali enterprises (the Locally produced Imported Source: Global Research & Development Services, Creapo informal sector), and imports. Imports constitute 13 percent of sales (US$66 million), and yet are growing the fastest: imports grew at a 24 percent In the next five years, the products segments CAGR between 2009 and 2013. Jua Kali represent that are forecast to see the most growth in over a third of sales (US$160 million) and its sales are kitchen furniture (10 percent CAGR), sales have grown at a 10 CAGR over the same bedroom furniture (10 percent CAGR), and period. Formal furniture firms hold 60 percent of wooden seats and other seats and parts (each at the market, but are growing the slowest, at an 8 a 9 percent CAGR), as illustrated in Figure 10. percent CAGR (see Figure 8). Figure 8: Evolution of the furniture market in Kenya Figure 10: Furniture sales forecast in Kenya (Sales from 2009-2013) (2013 vs. 2018) 600 Demand forecast 2013-2018 for furniture in Kenya 800 500 700 400 600 Mattresses + supports Misc. Furniture USD million 500 Bedroom 300 Kitchen 400 Office Other seats + parts 200 Wood seats 300 Upholstered 100 200 100 0 2009 2010 2011 2012 2013 0 Formal industry (less exports) Imports Jua Kali industry 2013 2018 Source: KNBS, Global Research & Development Services, Creapo Source: KNBS, Global Research & Development Services, Creapo 14 KNBS, Global Research & Development Services, Creapo. 15 Creapo. Situational Analysis and Strategy 9 2. Global, Regional, and Domestic Furniture Markets and Trends 2.5 Chapter Summary The East African economies consume US$1.2 T his chapter explored the global, regional and billion worth of furniture annually, with Kenya domestic furniture markets and the trends being the largest market for furniture in East that most shaped them. Africa (US$496 million) and largest producer of furniture. Within Kenya, the formal furniture The global furniture market (worth US$480 and informal furniture sectors respectively billion in 2014) demonstrated positive growth supply around US$452 million worth of furniture over the last decade (except for 2008 and 2009). annually, with the difference being met by This growth was driven largely by lower furniture net imports. Our analysis found that in 2013, prices and more internationally competitive upholstered furniture, bedroom furniture and markets. The expected growth of the furniture office furniture held the bulk of the value in sales, market in 2015 is expected to be only 2.5 percent with the products segments that are forecast globally, with emerging markets expected to grow to see the most growth in sales being kitchen more rapidly, and Middle East & Africa forecast to furniture, bedroom furniture and wooden seats. grow at 4.3 percent. In this context, Africa accounts for about 2.2 percent of the global consumption The following chapter explores the structure, of furniture and about 2.8 percent of the global key stakeholders and dynamics along the furniture trade, with northern and southern Africa furniture value chain in Kenya, and serves as being the biggest regional markets, and South the foundation on which the competitiveness Africa, Algeria, Nigeria, Egypt, Morocco and Kenya analysis in Chapter 4 is built. being the largest country markets. 10 Furniture Industry in Kenya 3. Furniture Value Chain T he furniture value chain in Kenya has six main parts to it (Figure 11 shows these graphically). Each part is explained in turn in this Chapter, (MDF) particle board, and hardboard. These mills transform logs into processed timber to be used by furniture manufactures. with regulations for each highlighted where • Timber traders sell processed wood to formal relevant. The Chapter concludes with a map of firms and Jua Kali entities. Timber traders key stakeholders and supporting institutions for exist in only some segments of the industry, the furniture value chain. as a significant portion of processed wood is • Forestry: the key stakeholders are public and sold directly to manufacturers. private owners of forest lands and plantations • Furniture manufacturers include both formal in Kenya and in neighboring countries. and informal enterprises. Formal firms are • Timber harvesting and transport: key typically small and medium enterprises, while stakeholders are timber merchants and informal ones are mostly individual craftsmen. processors, responsible for moving wood from Both of these segments sell directly to forest to processing factories. While timber customers. merchants sell to smaller processing mills, • Furniture outlets are typically independent large mills typically harvest and transport furniture chains and retail outlets that sell their inputs themselves. finished furniture items, whether locally • Timber processers include mills for sawn sourced from formal furniture manufacturers, timber, plywood, medium density fireboard imported, or both. Figure 11: Value chain of the Kenyan furniture industry Timber harvesting Timber Timber Furniture Furniture Stage Forestry and processing trade industry outlets transport Saw milling Formal Timber manufacturers stakeholders Plywood and traders Independent Forest land/ merchants furniture Timber Key plantations MDF particle traders chains and Timber Informal board outlets processors sector Hardboard (’Jua Kali’) Source: Creapo Situational Analysis and Strategy 11 3. Furniture Value Chain 3.1 Timber Availability in Kenya production (0.107 million hectares), and this K enya has limited forest resources, is regulated by the Kenya Forestry Service. As characterized by low rates of reforestation shown in Figure 13, the forest plantations which and growth. Timber demand greatly exceeds are farmed commercially account for less than 1 availability, and the country has a wood deficit of percent of forest land in Kenya. 16.6 million m3 per annum, as illustrated in Figure Figure 13: Forest types in Kenya (2010) 12.16 Unfortunately, most wood is harvested for fuel. 12,000 10,385 Area estimate (1,000 hectares) Figure 12: Kenya’s wood deficit 10,000 8,000 Local and central administration; fall under log banning legislation 16 6,000 Million m3/a 1.4 4,000 3,467 42 Farmed commercially 2,000 1,140 24 107 90 0 Farm lands Protection Indigenous Public Private with trees forests closed forest forest canopy forests plantations plantations Total demand Industrial wood Industrial wood Average annual Source: KFS and Creapo harvested for fuel harvested for deficit furniture Source: KFS and Creapo The deficit of furniture wood in Kenya is partly due to the fact that the majority of industrial Kenya has a total forest land area of 15,189 plantations in the country do not produce million hectares. Most forest lands are private optimal timber for furniture, as illustrated in farms (10,383 million hectares) which are not Table 4. In addition, there is insufficient data on farmed commercially and where the density of the demand for timber to enable investments in trees is unknown. Some of these farms service commercial reforestation. the informal furniture industry. Around 3.5 million hectares are comprised of protection Table 5 shows high level impact indicators forests, and 1.1 million hectares are closed for the forestry sector in Kenya. The sector is canopy indigenous forests. Both of these fall concentrated in the Coastal and Western regions under local and central administration, and they of the country. Its output value is estimated to be are subject to the log banning legislation (more US$32 million, while its employment is calculated on this legislation further on). Only a small share to be 13,000 people. Given limited data availability, of public forest lands are allocated for timber both figures may be underestimated. 16 KFS and Creapo. 12 Furniture Industry in Kenya 3. Furniture Value Chain table 4: Kenyan plantation species for the furniture industry (2013) Forest Area Hagenia Podo Cedar Meru Oak Markhamia Olea Mbambakofi Camphor Aberdare Mt. Elgon Kakamega Mt. Kenya Mau Arabuko Sokoke Kilimanjaro Source: KFS and Creapo Throughout these bans, there have been a small Table 5: High level impact indicators of wood plantations proportion of sanitary fellings each year that Estimated value of output have provided some timber for the furniture (annually) US$32 million industry. The Kenya Forestry Service (KFS) has Coastal and also granted import licenses for timber. Timber Location Western regions species for furniture are imported primarily No. of people employed by from Tanzania (mainly pine and cypress), the 5,400 KFS Democratic Republic of Congo (DRC, hardwoods) No. of people employed in silviculture and forestry 6,600 and Uganda. Between 2009 and 2013 the total No. of people employed in value of timber imported into the country from 1,150 both DRC and Tanzania was KSh 15.6 billion logging Source: Creapo (US$184 million).18 3.2 Regulation in the Timber Industry The logging bans have had three major K enyan furniture production used to be based implications: on the utilization of indigenous hardwoods. However, decreasing availability of hardwoods • They have enabled Kenyan private farmers to sell wood, but have also required Kenya to and an increasing emphasis on environmental increase imports of logs and wood products protection of natural forests led to a timber from neighboring countries. harvesting ban on indigenous hardwoods in • Kenya has become a net importer of sawn 1986, which resulted in a 50 percent decline timber (see Figure 14), though timber trade of furniture production volume. On top of the statistics have been criticized as inaccurate, ban on indigenous hardwoods, harvesting of and actual import volumes likely exceed plantation trees was banned from 1998 to licensed import allowances. 2012.17 In 2012, the ban on plantation trees • The market price of timber products has was lifted on pre-qualification of sawmillers and increased consistently since 1998, likely analysis of plantation timber resources. The ban due to the local timber harvesting bans, the was re-introduced in November 2014 following a logistical challenges of importing sawn timber, Presidential meeting with County Governors, and the transport costs associated with doing lifted in March 2015 following an enquiry on the so, and the difficulties in securing consistent status of forest plantations. flows of import quantities and qualities. Three companies, Raiply, Comply and Timsales, all associated with the Rai Group, were exempted from this ban on plantation trees. 17 Kenya Forestry Research Institute, (2015), “KEFI-Policy brief No. 4.” Available at: http://www.kefri.org/pdf/POTENTIAL%20OPPORTUNITIES.pdf 18 Situational Analysis and Strategy 13 3. Furniture Value Chain Figure 14: Kenyan trade balance of roundwood and Figure 16: Number of registered and licensed sawmills sawn timber in Kenya 800 1,600 1,400 700 1,200 600 Number of firms 1,000 500 KSH millions 800 400 600 300 400 200 200 100 0 0 2008 2009 2010 2011 2012 2013 Small Medium Large Export Import Size characteristic of sawmills Source: KRA Customs Department and Creapo Source: KFS and Creapo 3.3 The Kenyan Sawmilling Industry from public forest plantations. Similar to the T geographic coverage of forests in Kenya, sawmills he Kenyan sawmilling industry consumes are concentrated in the western and central the majority of industrial roundwood (85 regions of the country. percent) available for furniture production (Figure 15). The main timber species in Sawmilling volumes declined drastically after sawmilling are pine, camphor, cypress, grevillea, the harvesting bans on indigenous forests in the and eucalyptus (hence underscoring the limited 1980s, and have not yet fully recovered. Due amount of furniture species in Kenya). to strong demand, firms are able to sell fresh Figure 15: Estimated consumption of industrial wood in Kenya (2013) sawn timber and thus, have limited incentive 1,400 to process the wood further for optimal use in downstream industries. 1,200 1,000 Timber in Kenya is not utilized as efficiently 800 as possible by sawmills, as the yield of sawn 1000 m3 600 timber from logs tends to be low because of 400 lack of skills and equipment. The inefficiency of Kenyan sawmilling results in high wastage 200 and higher end prices. Figure 17 compares the 0 Sawmilling Plywood Poles, other value of logs as they move up the value chain in Source: KFS and Creapo Kenya and Finland, which is used as a benchmark for European costs and prices. While the cost of The Kenyan sawmilling industry is highly timber is relatively cheap in Kenya (illustrated fragmented, with 850 registered sawmills by the bars on the left-hand side of the figure), and 450 operating sawmills (see Figure 16). sawmill production inefficiencies mean that Production is concentrated in the larger firms: recovery yields are lower and thus the quantity of in 2011-2012, the 52 largest sawmilling firms logs required to produce a meter cubed of sawn accounted for 58 percent of log purchases timber is higher (illustrated by the middle bars in 14 Furniture Industry in Kenya 3. Furniture Value Chain Figure 17: Indicative economics of sawmilling: Kenya vs. 3.4 The Wood-based Panel Industry Finland19 300 250 P lywood mills consume 15 percent of industrial wood available for furniture, and they produce plywood, MDF, particle 200 board, blockboard, and veneer. These mills sell predominantly to the formal industry and use USD/m3 150 pine and cypress as raw material,with knots 100 and timber structure limiting the visual quality 50 of plywood (Asian counterparts use hardwoods 0 instead.) Although wood-based panel mills have Log delivered at mill Log cost/m3 of sawn timber Price paid to sawmill, net of tax high capacity utilization ratios, they currently Finland Kenya employ rather labor-intensive production Source: Creapo methods and have large sites which could enable the figure). Ultimately this results in a higher final much larger productions. net price of sawn timber in Kenya (illustrated by the bars on the right-hand side of the figure). The plywood industry is highly concentrated: there are only four plywood mills in Kenya, the Table 6 shows high level impact indicators for the three largest being Raiply, Comply Industries, sawmilling industry in Kenya. The output value and Timsales. The largest wood processing of the industry is estimated to be US$116 million, holding company—the Rai Group—also owns while its employment is calculated to be 18,200 the existing small plants of particle board and people. Given limited data availability, both fiberboard, using wood residues from the Group´s plywood and sawmilling operations. figures may be underestimated. Annual value Encouragingly, Biashara Master Sawmills, a added per worker is approximately US$3,000. machinery supplier, has gradually and recently Table 6: High level impact indicators of the moved into timber processing. sawmilling industry Estimated value of output Kenya has developed a position in in-transit (annually) US$116 million import and re-export of wood-based panels in Across Kenya, with Eastern Africa, as shown in Figure 18. concentrations Location in Coastal and Figure 18: Kenyan trade balance of wood-based panels Western regions 2,500 No. of people employed in 10,200 sawmilling and planning 2,000 No. of people employed as operators of portable 8,000 1,500 KSH millions sawmills Value added per worker 1,000 US$3,000 (annual) Source: Creapo 500 0 2008 2009 2010 2011 2012 2013 Export Import Source: KRA Customs Department and Creapo Ex-mill refers to the net price/income to a company, free of VAT. 19 Situational Analysis and Strategy 15 3. Furniture Value Chain Similar to the sawmilling industry, timber in Table 7: High level impact indicators of the the wood-based panel industry is not optimally wood-based panel industry utilized. Outdated production methods and Estimated value of machinery and equipment lead to production output (annually) US$75 million inefficiencies, resulting in lower wood processing Raiply: Eldoret Timsales: Elburgon recovery yields and ultimately higher costs for Location of plywood Comply: Njoro and consumers, relative to European counterparts. mills Nakuru Figure 19 illustrates this–although firms in Kenya Biashara sawmill: Njoro can purchase logs at a lower price on average Estimated employment 5,950 than in Finland (which is used as a proxy for Value added per worker US$5,000 Europe), production inefficiencies mean firms (annual) Source: Creapo have to use a larger quantity of logs to produce an equivalent meter cubed of processed plywood, 3.5 Furniture Manufacturing which contributes to higher end-prices. Figure 19: Indicative economics of the plywood industry: Kenya vs. Finland F urniture production in Kenya largely services the growing domestic market. The sector produced US$452m worth of furniture in 2013, 600 both through formal (US$292m) and informal 500 manufacturers (US$160m). Employment 400 in furniture manufacturing is calculated to 300 be 125,000 people, with the formal sector representing less than 10 percent. Growth is 200 healthy, with an estimated 2009-2013 CAGR of 100 8 percent for formal furniture manufacturers 0 and 10 percent for Jua Kali. The sector’s main Log delivered Log cost/m3 of Price paid to at mill plywood plywood mill, net of tax inputs included (i) wood products (sawn timber, Finland Kenya plywood, MDF, blockboard, veneer); (ii) metal Source: Creapo products (tubular, sheet); chemical products (glue resin, paint, lacquer, laminates, melamine Table 7 shows high level impact indicators for foils); and (iv) glass, fabrics, and leather. the wood-based panel industry in Kenya. The output value of the industry is estimated to be The domestic furniture sector has had a bumpy US$75 million, its employment is calculated to be ride (Figure 20). Production declined sharply in almost 6,000 people, and its annual value added the late 1970s when timber supply from Kenyan per worker approximately US$5,000. Wood- natural forests was reduced, and it further based panel mills are located in Eldoret, Elburgon, declined in the 1980s when timber harvesting Njoro, and Nakuru. from natural forests was banned in order to sustainably manage the watersheds in the mountain regions. Although production started to recover in 1992 and has seen a lot of growth since 2008 off the back of the burgeoning Kenyan economy, logging bans continue to be a major source of uncertainty for it. 16 Furniture Industry in Kenya 3. Furniture Value Chain Figure 20: Evolution of volume of Kenyan furniture Figure 22: Kenya’s top furniture export markets (2013) production Ethiopia, 160 US$0.7m Rwanda, Rest of Africa, 140 US$1.8m US$5.7m 120 Uganda, Volume index, 2009=100 US$1.9m 100 80 The total value Tanzania, of furniture 60 exports was US$3.2m 40 20 Somalia, South Sudan, 0 US$3.5m US$5.4m 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: KRA Customs Department and Creapo Source: KNBS and Creapo Although the Kenyan furniture sector is 3.5.1 Formal Furniture Manufacturers largely inward-oriented, a small portion of The formal furniture sector consists of about formal firms export. In 2013, the value of 190 small, medium, and large firms. Most exports was USDUS$22 million. 20 As Figure are clustered in urban regional hubs, with the 21 shows, this comprised mostly of bedding majority of the large and medium firms located products (mattresses), plastic furniture and in Nairobi, the Coast, and Eastern regions, as wooden furniture. illustrated in Figure 23. The majority of Kenya’s furniture exports Most firms source inputs on a cost and quality go to neighboring countries such as South criteria, on a 50:50 basis of imports versus Sudan, Somalia, and Tanzania (Figure 22). domestically produced materials. Although Only a few firms consistently export furniture, wood-based panels are subject to a 25 percent predominantly to regional markets. import duty, domestically sourced ones are often inferior in quality and more expensive due to limited supply. Figure 21: Evolution of Top 10 Kenyan furniture exports Figure 23: Distribution of formal furniture firms by by product from Kenya (2009-2013) region and size Export of furniture & furnishing from Kenya 25 Western North Eastern 20 Other seats Eastern Swivel and special seats Rift Valley USD million 15 Parts of seats and furniture Vehicle seats Nyanza Bedding products 10 Plastic furniture Central Metal furniture Bamboo, rattan, Coast cane furniture Wood furniture 5 Nairobi 0 10 20 30 40 50 60 0 Number of firms 2009 2010 2011 2012 2013 Small Medium Large Source: KRA Customs Department and Creapo Source: KNBS and Creapo 20 KRA Customs Department and Creapo. Situational Analysis and Strategy 17 3. Furniture Value Chain Uncertainty with regards to input supply, coupled people, and its annual value added per worker with historically limited local demand, has approximately US$2,300. meant that firms have not invested in upgrading technology, expanding manufacturing facilities, Table 9: High level impact indicators for the or keeping the skills of employees up to date. formal furniture sector Despite encouraging market growth, firms have Estimated turnover of sector (annually) US$292 million not invested in serial production facilities, nor Large urban centers, developed the necessary connections with Location including Nairobi, other parts of the supply-chain to enable them Mombasa, Rift Valley to produce on mass. Most formal firms produce No. of people employed 9,000-10,000 furniture on a piece-by-piece basis, without Value added per worker US$2,300 state-of-the-art equipment or training systems. (annually) This is not for lack of funds. Indeed, field survey Source: Creapo data indicates that the profit margin in the formal furniture sector is robust, at 25 percent. 3.5.2 Informal (Jua Kali) Furniture Manufacturers The Jua Kali sector employs approximately The strategy most firms follow is to produce 115,000 people, a third of whom work part- furniture in low volumes, with high margins. time.21 Jua Kali manufacturers source low cost They have high operational costs and operate inputs from local timber merchants (and often on a fixed price basis. Few firms specialize, and from illegal markets), and sell directly to a wide instead they produce many types of furniture, spectrum of customers according to their budgets. with a large range of price, quality, and style. Around 40 percent of Jua Kali furniture produced Firms typically sell their products through is custom designed by the customer, while the exhibition centers, supermarkets, and dedicated remainder is either designed by the craftsman furniture stores in malls and popular retail areas. or copied from a catalogue. Jua Kali enterprises Table 8 summarizes some of these characteristics. have their competitiveness undermined by the rising costs of raw materials, which can make their Table 8: Characteristics of the formal furniture sector hand crafted furniture an expensive alternative High margin, low volume, high for customers. Strategy operational costs, operate on fixed price basis The Jua Kali sector is highly fragmented: entities Exhibition centers, supermarkets,operate individually and compete against dedicated furniture stores in malls Distribution each other, resulting in less than optimal and popular retail areas, online stores productivity and value-added. The Jua Kali are All kinds of furniture, depending also characterized by the predominant use of Furniture type on range of price, quality and style manual tools and equipment. These limited Source: Creapo levels of automation, coupled with poor access to electricity, affects both the production capacity Table 9 shows high level impact indicators for of Jua Kali, as well as the quality, range and the formal furniture sector. The output value of competitiveness of their products. Few Jua Kali the industry is estimated to be US$292 million, have been formally trained, and most learn under its employment is calculated to be 9,000 – 10,000 informal apprenticeships and on an ad-hoc basis. Creapo. 21 18 Furniture Industry in Kenya 3. Furniture Value Chain Table 10: Characteristics of the informal furniture sector Small margins, low volumes, low operational costs, operate on a non-fixed price Strategy basis (negotiation) Sell directly to customers; Premises located by the roadside near residential areas Distribution that facilitate access to target markets; Exhibition centers and open air retail centers countrywide, located in densely populated areas Furniture type Wide range of products, though style and finishing limited by available tools. Source: Creapo The strategy most Jua Kali follow is to produce Figure 25 compares labor productivity in the furniture in low volumes, with small margins. informal sector in Kenya. The furniture sector They have low operational costs and price is stands out at 28,000 KES per month, versus the negotiable. Jua Kali typically have road-side informal manufacturing sector at 22,000 KES per premises near residential areas that facilitate month and the informal services sector at 21,000 easy access to customers. Table 10 expands on KES. Although in absolute terms these numbers some of these characteristics. are very low, the furniture sector’s relatively better performance is indicative of overall growth Relative to other informal sectors in Kenya, in the sector. the Jua Kali furniture industry exhibits strong growth and higher labor productivity. Figure Table 11 shows high level impact indicators for 24 shows that 43 percent of informal furniture the informal furniture sector. The output value firms increased their number of employees, of the sector is estimated to be US$160 million, machines, or premise space over the last three its employment is calculated to be 115,000 years, compared to 27 percent of informal people, and its annual value added per worker a manufacturing firms. mere US$609. Figure 24: Percentage of informal firms increasing their number of employees, machines, or premise space over the last three years Figure 25: Labor productivity in the informal sector 50 30 28,000 43 Monthly sales per worker (KSH ‘000s) 40 38 25 36 22,000 21,000 % of firms 30 27 27 20 26 26 20 18 15 15 10 10 0 5 s l a sa bi ru re g s ra rm ice in nz ro itu ba ku nt r a lfi rv tu i Na Na om Ny Ce rn 0 Se ac Al Fu M uf Services Rest of manufacutirng Furniture an M Source: World Bank Enterprise Survey, 2013: Informal Survey Source: World Bank Enterprise Survey, 2013: Informal Survey Situational Analysis and Strategy 19 3. Furniture Value Chain Table 11: High level impact indicators of Jua Kali sector Estimated turnover of sector (annually) US$160 million Location Across Kenya No. of people employed 115,000 (a third of which work part-time) Value added per worker (annually) US$609 Source: Creapo 3.6 Furniture Outlets income strata. In the high quality part of the F urniture outlets and traders buy their price-quality spectrum there are few players. merchandise either from Kenyan They target top earning strata and stock luxury manufacturers or importers. Furniture brands and some more common brands with distributors vary from large-chain supermarkets exceptional quality. (Nakumatt and Game) to specialized outlets of international luxury brands (BoConcept), 3.7 Furniture Stakeholders dispersed across Nairobi, but concentrated in the larger urban and cosmopolitan areas. Kenya’s emerging ‘mall culture’ has facilitated the growth of here are numerous private and public stakeholders involved along the value chain the T Kenyan furniture industry, as illustrated and reach of many of these outlets. in Figure 27. These include various government bodies and institutions, such as the Kenya The price-quality spectrum ranges widely in Forest Service and the Kenya Forestry Research furniture outlets, as per Figure 26. The low Institute. No single association or group quality part of the spectrum is mostly found in represents the furniture industry in its dealings supermarkets, has an unknown brand, is sourced with the government, although through the in Asia, and is targeted at the middle income Kenya Association of Manufacturers and the strata. The medium quality part is typically sold Kenya Private Sector Alliance the sector’s more at exclusive furniture retailers, where there is a general concerns are heard. Importantly, there stock of well-known international brands, and are no links between formal and informal generally a mix of low and high quality imports manufacturers, which limits specialization, with some domestically manufactured products. collaboration, and outsourcing. It is primarily targeted at middle and upper Figure 26: Formal market furniture price-quality spectrum LOW QUALITY MEDIUM QUALITY HIGH QUALITY Source: Stratlink, (2015), “Furniture Market Research: Kenya.” 20 Furniture Industry in Kenya 22 Figure 27: Map of stakeholder engagement with the Kenyan furniture sector22 FORESTRY AND TIMBER PRODUCTION TIMBER PROCESSING FURNITURE INDUSTRY MARKET AND IMPORTS Source: Creapo. Ministry of Environment and Natural Resources Ministry of Industrialization and Enterprise Development Kenya Forest Service Kenya Revenue Authority Kenya National Chambers of Commerce Export Processing Zone 3. Furniture Value Chain Kenya Forestry Research Institute Kenya Industrial Estate Kenya Bureau of Standards Export Promotion Council Special Economic Zone Situational Analysis and Strategy KTDA, Finlay, Kornaza, Kenya Industrial Estates The furniture sector Africa, Nyayo Tea Zones, Sawmills Private has no institution or Public Kakuzi Biashara Master Sawmillers (Njoro), association unifying procurement RaiPly, Timtrade (Nanyuki) and coordinating Western and Comply, among many other small scale amongst different Central Kenya, operators statkeholders Commercial Buyers Farm Other regions Offices Plantations Plantations Plywood, blockboard, MDF particle board, Industry hardboard, mills Hotel DRC, Uganda, Trade consumers Tanzania, South Sudan, RaiPly, Comply formal furniture Log EAC region Biashara Master Sawmillers Formal furniture manufacturers Imports Sokoro Fibreboard Distributors Import licesing by KFS Panesar, Henry West, FI, Timsales Rosewood, Transwood, Timsales, Shah Timber, EHG, Export Markets China, Indonesia, Vietnam, KPS, New Line, Fairdeal, South Africa, United Arab Emirates, Timber merchants Wood Charm, etc. United Kingdom; Import licesing by KFS Rattan imports Informal furniture Timboroa, Mau Ranges, Input materials manufacturers and distributors Individual Aberdare Ranges, Mt. Kenya, Leather, glue, metal legs, locks, Nairobi, Kiambu, Nakuru, household Mt. Elgon; Kitil Farm; hinges, handles, fabrics, paints Embu, Meru, Mombasa, Rattan consumers Eastern Africa Crafts, Novelties and all major towns Bamboo and Bamboo and & Arts SKILLS AND TECHNOLOGY DEVELOPMENT Ministry of Higher Education Ministry of Labor Kenya Industrial Research and Development Technical Vocational Training Authority National Council for Science, Technology and Innovation Technology Development Center National Training Authority Source: Creapo 21 4. Competitiveness Analysis P revious chapters have described the structure and key trends in Kenya’s furniture sector. This chapter will assess the position Imported furniture competes most directly with formal furniture manufacturers, as they typically use the same distribution networks and performance of Kenya’s furniture industry and sell to the same market. Imported furniture with an in-depth focus on two key areas: (i) has taken up significant space in supermarkets competitiveness relative to imports; and (ii) and other outlets dealing with household goods, major constraints facing the industry. likely also cannibalizing on the Jua Kali market share. Imports are price competitive, but their 4.1 Competitiveness vis-a-vis Imports price-quality ratio can vary widely. The product T otal furniture imports in Kenya amounted assortment of imports is evolving rapidly and to US$66 million in 2013, including US$38 quality is getting better, which is reflected in the million in wood furniture. China is the principal rise in unit prices. source of wood furniture imports, followed by Malaysia. Although starting from a low base, Table 12 shows the 2013 percentage share Kenya has been importing greater volumes of and value of imports in the Kenyan furniture furniture: between 2009 and 2013, imports grew market. In terms of product categories, imports at a CAGR of almost 24 percent, compared to a are largest in “Other seats and parts,” office 10 percent CAGR for the overall furniture market furniture and upholstered furniture with US$15 in Kenya. Today, imports constitute 13 percent of million, US$10 million, and US$9 million of sales total domestic furniture sales. respectively. As a percentage of the category, Table 12: Percentage share and value of imports in the Kenyan furniture market (2013) in USD millions Value Import as % of Product category Market size imported market Upholstered 104 9 9% Office 89 10 11% Bedroom 87 4 5% Mattresses & supports 45 1 2% Misc. furniture 38 21 56% Wood seats 47 3 6% Kitchen 44 3 6% Other seats & parts 42 15 35% Total 496 66 13% Source: KRA Customs Department, Global Research & Development Services, and Creapo Situational Analysis and Strategy 23 4. Competitiveness Analysis imports are largest in “other seats and parts”(35 and shipping costs are considered. This is evident percent), office furniture (11 percent), and in Figure 29 and Figure 30, which compare the upholstered furniture (9 percent). This excludes production costs for a regular desk and a 3-drawer the “miscellaneous furniture” category, which is pedestal. Table 12 then summarizes and explains by far the biggest both in terms of value imported major cost differences between China and Kenya. and as percentage of the market. Kenyan manufacturing costs are higher than As illustrated in Figure 28, between 2009 and those in competitor countries. Making a desk and 2013, the fastest growing product categories for a 3-drawer pedestal in Kenya is 22 and 19 percent furniture imported to Kenya were metal furniture more expensive,respectively, than making it in (36 percent CAGR), plastic furniture (35 percent China. As summarized in Table 12, “other input CAGR), and bamboo rattan and cane furniture (32 materials” are 33 and 79 percent more expensive percent CAGR). in Kenya than in China for a desk and a 3-drawer Figure 28: Evolution of imported furniture in Kenya pedestal, respectively, and “particle board” is (2009-2013) 50 and 43 percent more expensive. Conversely, 70 Kenya is cheaper on labor and machine time (see 60 negative numbers in Table 13), largely because 50 machines are old and not used extensively, and because laborers are cheaper and less skilled. USD million 40 30 Table 13: Summary of cost differences between Kenya and China 20 Kenya vs. China: Cost difference 10 3-Drawer 0 Category Desk Pedestal 2009 2010 2011 2012 2013 Other seats Parts of seats and furniture Bedding products Metal furniture Overheads 22% 19% Swivel and special seats Vehicle seats Plastic furniture Bamboo, rattan, cane furniture Wood furniture Machine time -67% -79% Source: KRA Customs Department and Creapo Labor -52% -52% Locally manufactured furniture is not cost- Other input materials 33% 79% competitive vis-à-vis imported furniture. In fact, Particle board 50% 43% Kenyan products are only competitive in local and Total cost difference 22% 19% regional markets after import duties (25 percent) Source: Creapo Figure 29: Comparative costs of manufacturing a desk Figure 30: Comparative costs of a mobile 3-drawer (1,500 size with panel legs) pedestal 60 70 50 60 50 8.8 40 6.3 40 USD 30 USD 30 20 20 10 10 0 0 Kenya South Africa Malaysia China Kenya South Africa Malaysia China Overheads Machine time Labor Other input materials Particle board Overheads Machine time Labor Other material inputs Particle board+MDF Source: Creapo with input from industry stakeholders Source: Creapo with input from industry stakeholders 24 Furniture Industry in Kenya 4. Competitiveness Analysis Overheads are larger in Kenya than in China, and Central Africa. Timber supplies from Uganda likely reflecting less developed managerial skills, (a source of wood for Kenya) have declined, and higher business transactions costs, and piece-by- African countries and China have increasingly piece versus serial production. turned to DRC to source their wood. Detailed cost comparisons between Kenya, Despite significant government investment, China, Malaysia and South Africa further show electricity prices in Kenya are still high vis-à-vis that on average, Kenya’s inputs—particularly comparator countries. As new power generation wood-based panels and electricity—are more facilities come on line, the price per kilowatt hour expensive than in competitor countries. Table 14 is expected to drop a few cents, making it more in shows specific price differences for sawn timber, line with international comparators. particle board, MDF, and plywood. In China, furniture firms are able to buy raw materials at Regarding labor costs, Kenyan labor is slightly competitive prices and in various assortments as less expensive than in South Africa and China. a result of competition in the raw material supply Output per person is high, but this is due to higher industry and the import trade. This is not the case input costs and not to higher value added per in Kenya, and its high costs in these materials person. Value added per person in the furniture stands out as a result. manufacturing sector in Kenya is indeed quite low—at US$2,280 per person in the formal sector Hardwoods in Kenya are on the higher end of the and US$609 in the informal sector, reflecting poor cost spectrum, reflecting the decreasing stocks levels of skills. of traditional hardwood wood species in East Table 14: Cost comparisons of furniture inputs and manufacturing among select competitors Cost Factor China Malaysia South Africa Kenya Teak (1,450-3,225); Rubberwood Plantation species US oak (650-1775); (224-392); Eucalyptus (233-530); Sawn timber Mahogany Indigenous (440-460) Meru oak (390-480); (USD/m3, furniture (1,050-1,130); hardwoods Pine (260-280) Mahogany grade) Walnut (1,530-1,775); (320-2,600) (1,700-1,950); Sapelli (1,250-1,275) Mvule (2,300-2,450) Particle board 7.7 (local E1) -10.5 (USD / 18 mm, 11-12 12-13 21-24 imported) 4´x8`, std and E1) MDF 15 (local E1) – 27 (USD / 18mm, 4´x8`, 13-15 16-18 30-35 (New Z.) std and E1) Plywood 8.4 – 9.1 7-8 13-14 12-14,50 (USD / 6mm, 4´x8´) Electricity 0.07-0.16 0.09-0.11 0.08-0.10 0.14-0.24 (USD / KWH) Labor 250-500; Average 200-900; Average for 800-1,600 550-600 (USD / Month) for all levels 1,350 all levels 760 Output 70,000 34,000 18,000 33,000 (USD / person) Value added 2,280 (formal) 20,000 9,500 4,500 (USD / person) 609 (Jua Kali) Source: Creapo with input from industry stakeholders Situational Analysis and Strategy 25 4. Competitiveness Analysis Competition in the Kenyan furniture market Figure 33: Unit values of trade in wooden bedroom furniture is primarily based on price, with design and 12,000 quality playing a secondary role. In this regard, the quality, design, and prices of import furniture 10,000 have been moving upwards in recent years, 8,000 requiring the Kenyan industry to improve its KSH/Unit productivity and product assortment to compete. 6,000 4,000 Figure 31, Figure 32, and Figure 33 show the unit values of trade in upholstered chairs, 2,000 wood office furniture, and wood bedroom 0 furniture, respectively. The figures compare the 2008 2009 2010 2011 2012 2013 China to Kenya Malaysia to Kenya Kenyan export unit price of imports from China and Malaysia Source: KRA Customs Department and Creapo in these categories, against the unit price of Kenyan exports in these categories, using the 4.2 Key Constraints Facing the Industry A latter as a proxy for the local price. The figures Strengths, Weaknesses, Opportunities, show that Chinese and Malaysian imports are and Threats (SWOT) approach was used moving upmarket in terms of price, particularly to analyze the competitiveness of the in upholstered chairs and wood office furniture. Ken yan furniture industry and put forward Figure 31: Unit values of trade in upholstered chairs recommendations for its development 16,000 (the full SWOT diagram is contained in the Annex 2). We have used this analysis to identify 12,000 significant structural challenges hindering the competitiveness of the Kenyan furniture industry, KSH/Unit which are listed below and each explained in turn. 8,000 1. Constrained input supply raises the cost and lowers the quality of furniture manufacturing. 4,000 2. Limited skills and poor production facilities results in suboptimal productivity and lower 0 2008 2009 2010 2011 2012 2013 quality products. China to Kenya Malaysia to Kenya Kenyan export 3. Decreasing access to markets means difficult Source: KRA Customs Department and Creapo to defend market share vis-à-vis imports. Figure 32: Unit values of trade in wood office furniture 4. Limited industry communication, coordination 6,000 and collaboration undermines the potential of the furniture sector. 4,000 4.2.1 Constrained Input Supply KSH/Unit A constrained input supply raises the cost and lowers the quality of furniture manufacturing. 2,000 Supplies of domestic timber are insufficient, and lack of information on local timber supply 0 2008 2009 2010 2011 2012 2013 and demand helps undermine the long-term China to Kenya Malaysia to Kenya Kenyan export sustainability of the wooden furniture industry. Source: KRA Customs Department and Creapo 26 Furniture Industry in Kenya 4. Competitiveness Analysis If adequate data were available, informed decades, their recovery yields stand at 20-30% decisions about commercial reforestation would (vs. closer to 50% in other countries). be easier to make, and sawmillers, wood-panel processors and furniture manufacturers would Figure 34 shows the difference in production be able to plan in advance, taking into account efficiency between sawmills and wood-based the timber options and sources available to them. panel mills: the value added per meter cubed of wood consumption is 2.5 times greater in the Imported timber is also uncertain, as it latter than it is in the former. From a forestry requires KFS import licenses. While licenses development and utilization perspective, this give the government a means of controlling and underlines the importance of consolidating and monitoring import volumes, in an environment improving the sawmilling industry and investing of scarcity of inputs, they make the process of and expanding the wood-based panel industry. importing sawn timber costly and complicated, and ultimately restrict the quantity of raw Although the wood-based panel industry does materials available to manufacturers. Finally, fare better than the sawmilling industry in there may be potential conflicts of interest within terms of efficiency, competition is limited and KFS, given its revenues come from the production incentives to improve productivity are minimal. and sale of timber. If the latter could be imported The industry is protected by a 25 percent freely—like most goods within the EAC—the import duty, even though the East African Trade local price of timber would fall, and KFS revenues Community applies import duties of 25 percent would follow suit. to finished products, and of 10 or 0 percent to intermediary products and raw materials. At the sawmill part of the furniture value chain, The oligopolistic structure of the industry industry fragmentation restricts the scale at further undermines the quality and quantity which sawmills are able to operate. Hundreds of of locally produced outputs and creates room small players run their businesses using outdated for price inflation. Figure 35 shows the market machinery and facilities, limiting the efficiency of size for wood-based panels in Kenya, and the production and undermining the quality of sawn proportion of panels which has to be imported timber in Kenya. Indeed, since most sawmill firms to meet demand. have not invested in equipment in the last few Figure 34: Comparison of key indicators related to the Kenyan sawmilling and wood-based panel industries Figure 35: Market size of wood-based panels in Kenya 300 100 20 250 80 200 Index: Sawmilling=100 60 1,000 m3 150 40 75 25 100 20 20 20 30 50 10 10 0 0 Wood consumption Amount of value Value added/m3 of Plywood MDF Particle board Fibreboard added wood consumption -20 Saw milling Wood-based panels Local production Import Export Source: Creapo Source: Creapo Situational Analysis and Strategy 27 4. Competitiveness Analysis 4.2.2 Limited Skills and Poor Production Facilitiesthere is an untapped need of market-driven, high quality training to improve the competitiveness Limited skills and poor production facilities, of the value chain. coupled with insufficient investments in these areas, results in low levels of productivity. Jua Kali craftsmen learn under apprenticeships and on an ad-hoc basis, which can be a long and Both the formal and informal furniture drawn-out process. There is a pervasive lack of sectors are hampered by outdated production free or paid training available for Jua Kali, which facilities and limited repair, maintenance, limits the quality, sophistication and design of and modernization investments. The formal the furniture they are able to produce. furniture sector has not moved towards serial production, nor has it developed connections There is no institution currently offering with other parts of the value chain to enable mass training in furniture production, and the closest production. The Jua Kali sector uses manual tools, programs focus on timber technology, carpentry, which affects production capacity and product and joinery. The number of students enrolled is quality, range and competitiveness. negligible—in the single digits—, and the majority are self-sponsored, with very few institutions The low investment rate in the Kenyan furniture providing some sort of financial aid. Figure 36 industry is illustrated by the following figures: shows the percentage of Kenyan institutions the furniture industry accounted for 1.3 percent providing furniture-related training programs. of gross industrial output, 1.8 percent of consumption of intermediate products, and 0.3 Figure 36: Percentage of institutions providing furniture- percent of gross value added.23 related training programs 80 Lack of skilled workers and limited relevant training also hampers the development of the 60 industry, and both formal and Jua Kali enterprises have indicated labor competency is a serious Percent 40 challenge to their competitiveness. It is difficult to find prospective employees with 20 relevant skills, and thus the majority of training takes place haphazardly on the job. Formal 0 firms estimate it takes nearly two years on the Carpentry Building & Masonry & Joinery Construction Welding & fabrications Technical teachers Timber technology job for an employee to acquire sufficient skills Source: Creapo to be competent in production. This skills gap is compounded by a lack of investment in on- going training. Further, the training levy may not Going forward, the increasing size of the incentivize firms to adequately invest in in-house domestic market and the potential export skills development. Firms may feel they have opportunities for Kenyan furniture should already paid for training, yet they do not actively result in better preconditions for serial take advantage of National Industrial Training production. For such production to be a reality, Authority (NITA) offerings, and are wary of the however, trained people, updated premises and time and paperwork associated with refunds equipment, suitable product assortment, and a for alternate training. Given that the furniture supply chain that caters towards serial production sector is a skill and knowledge intensive industry, are all needed. KNBS, (2010), “Basic Report on the 2010 Census of Industrial Production (CIP).” 23 28 Furniture Industry in Kenya 4. Competitiveness Analysis 4.2.3 Access to Markets 4.2.4 Limited Communication, Coordination and Collaboration Access to markets is challenging both domestically and internationally. There is no official industry association to represent sector interests, collect relevant data, Domestically, Kenyans are increasingly shopping organize demand and supply for specialized in malls and supermarket chains, where training, promote Public Private Partnerships imported furniture is stocked and sold. Mall (PPPs), and share best practices. This limits the retailers source large volumes of standardized capacity of the industry to invest in necessary pieces, contrary to the piece-by-piece production resources and respond to changes in the market. that local manufacturers typically focus on. Jua Kali enterprises have limited access to formal The different parts of the furniture value chain retail because their products lack quality operate in silos, with minimal communication, assurance,standardization, and volume. This engagement and linkages amongst them. The means growing consumer demand is increasingly latter results in limited collaboration within met by imports in the first place, and formal and between formal and informal players, and manufacturers in the second place. restricted scope for outsourcing, specialization, and serial production. Government initiatives such as the Buy Kenya, Build Kenya public procurement program 4.3 Chapter Summary T have the potential to provide significant local his chapter considered Kenya’s competitive demand for Kenyan manufacturers. Although positioning relative to imports and explored supportive regulation exists, generalities and the key constraints facing the sector. loopholes in the policy definition, as well as weak implementation, has so far undermined the Imports currently constitute 13 percent of the program’s impact on local firms. total furniture market, and have grown at a CAGR of 24 percent between 2009-2013. These Internationally, companies looking to export products compete most directly with the formal furniture are discouraged by cumbersome sector because they use the same retail channels. border procedures, where transport permits, Kenyan manufacturing costs are higher than corruption, security and complicated rules make those in competitor countries on all dimensions concluding export deals challenging. In addition, other than machine time and labor. lack of market knowledge and limited contact with potential buyers further complicate access The performance of the furniture industry is to international markets. To export beyond the currently undermined by four key constraints: region, buyers are increasingly demanding the (1) constrained input supply, which raises origin of wood be certified, to ensure protected the cost and lowers the quality of furniture forests are not depleted. For local manufactures, manufacturing; (2) limited skills and poor the latter is difficult given the amount of wood production facilities that result in suboptimal currently imported, the lack of clarity regarding productivity and lower quality products; (3) its origin, and its limited traceability. decreased access to markets, which makes it difficult to defend market share vis-à-vis imports; and (4) limited industry communication, coordination and collaboration, which undermines the potential of the furniture sector. Situational Analysis and Strategy 29 5. Strengths and Opportunities for Development T he furniture industry in Kenya could potentially grow and expand its domestic, regional and global market share. Five important Given the expected growth in demand for furniture in Africa, Kenya, and the East African Community, and the forthcoming EAC, SADC, strengths underpin this: and COMESA Free Trade Agreements, three • Potential for economies of scale in the target strategies for the furniture sector seem industry. Kenya is the largest producer of appropriate, as illustrated in Table 15. furniture in East Africa and has a long tradition of furniture making. Firms in the furniture No strategy comes without risks, and this is no industry thrive with economies of scale, and exception. The risk for the formal sector is that formal and informal firms in Kenya are already firms might be unable to position themselves geographically clustered. Significant industry in the medium to high-end part of the market. expertise, a large workforce, and some firms with updated equipment can be leveraged for They may also no longer be able to maintain further growth and development. their current market positions in the local market because of imports and the consolidation of • Logistical advantage in serving local and outlet chains. regional markets, particularly relative to neighboring countries and Asian competitors. For the informal sector, the risk is that if • Strong growth in the formal and informal their costs increase without a commensurate manufacturing sectors (8 and 10 percent improvement in quality and design, entities CAGRs, respectively, between 2009 and 2013). may no longer be competitive. Also, increased • Attractive profit margins for existing formal efficiency may come at the cost of jobs. Finally, manufacturers (25 percent after tax in difficulties may be encountered when adapting survey sample). new furniture styles and when marketing to • Strong political will to support industry Kenyan furniture preferences. development. Table 15: Proposed strategy targeting Kenyan furniture manufacturing and exports Market segment Strategy / Opportunity in Next 10 Years Increase production and exports of differentiated “ethnic - rustic” / Swahili Coast Market niche business furniture to regional and developed markets. Move towards serial production, and develop and produce higher value-added Formal sector furniture pieces to meet increasing demand in local and regional markets. Improve productivity and value addition, refine quality and design, develop Jua Kali sector clustering and specialization, and enter into the local furniture trade to maintain market share. Situational Analysis and Strategy 31 5. Strengths and Opportunities for Development For the ethnic-rustic niche furniture, the risk is the existing market (thus calling for a new push that Swahili Coast furniture pieces might not be to expand the market), and that from a price adequately differentiated, that Asian "ethnic- perspective, the Kenyan-made furniture may not rustic" furniture may already have saturated be competitive. 32 Furniture Industry in Kenya 6. Recommendations In order to develop the furniture industry in 3. Improve the productivity and innovation of Kenya into an internationally competitive one, concerted public-private efforts are furniture manufacturers to enable them to upgrade their design, quality, and volume; required. Specifically, four major action 4. Enhance access to domestic and regional initiatives are proposed, each designed to markets and induce greater demand for address critical binding constraints hampering Kenyan furniture products. the competitiveness of the furniture industry. They are: This chapter describes each recommended 1. Enhance institutional collaboration and initiative and sub-initiative, summarized in support in the furniture industry to foster Table 16, and highlights both their benefits linkages among stakeholders; and risks. 2. Tackle supply-side constraints to enable producers to increase production and quality; Table 16: Summary table of recommendations Recommendation Specific Actions Enhance institutional • Improve stakeholder collaboration across the industry by establishing an Industry collaboration and sector Association support • Develop a strategic regional framework to assist in National-County implementation Tackle supply-side • Lay the foundations for a sustainable forestry sector that is able to meet Kenya’s constraints to increase demand for timber production and quality • Eliminate import licenses for timber and reduce import duties for intermediate products • Promote regional trade agreements to facilitate and increase timber imports • Improve the efficiency and quality of inputs to the furniture sector by promoting the development of wood-based panel production and upgrading of the sawmilling industry • Promote input standardization (particularly in materials and design) Improve productivity and • Establish a Kenyan Center for Excellence as a platform to provide relevant industry innovation through better training and (in the longer-term), co-ordination of R&D skills and technologies • Set up prototyping facilities to develop new products • Provide incentives to upgrade technology and expand manufacturing facilities to move towards serial production • Increase access to finance • Enhance collaboration among Jua Kali entities via clustering Situational Analysis and Strategy 33 6. Recommendations Table 16: Summary table of recommendations (continued) Recommendation Specific Actions Enhance access to markets • Promote regional trade agreements and induce greater demand • Improve border logistics and regional transportation networks to strengthen regional for products integration • Improve the implementation of the Build Kenya, Buy Kenya public procurement initiative • Promote exports of Kenyan specialty products (i.e. “ethnic-rustic” pieces) in key international markets • Establish Jua Kali-focused marketing entities to facilitate access to formal markets 6.1 Enhance Institutional Collaboration • Liaising with the proposed Center of and Sector Support Excellence, explained further on, to increase E the levels of skills across the industry. nhancing institutional collaboration and fostering linkages among stakeholders in • Developing a marketing and branding the furniture industry is key given the highly program to promote a distinguishing strategy fragmented structure of the sector, the for higher-end Kenyan furniture styles and limited linkages among stakeholders, and the products, to increase visibility and demand. lack of a coherent and shared competitiveness • Organizing study tours for firms to meet strategy by the private sector, government, buyers and see cutting-edge technologies and other institutions. Two important and designs, and up-and-coming consumer initiatives are proposed. trends. 6.1.1 Improve stakeholder collaboration across To be effective, the industry association will the industry by establishing an Industry need buy-in from all parties, both formal Association through KAM and informal through the National Establishing an industry association would Jua Kali Federation. It will need to represent and support the development of the entire industry consolidate the interests of the entire furniture value chain across Kenya and would give the manufacturing industry and ensure they can furniture sector a voice vis-à-vis the government. work cooperatively together. It would have several functions: • Fostering linkages and encouraging dialogue 6.1.2 Develop a strategic regional framework to between stakeholders, with a view to assist in National-County implementation facilitating outsourcing and contracting. Although programs for the furniture sector • Putting forward a unified representative are formulated at the national level, they voice of the industry to the government and require implementation at the county level. A other stakeholders. framework involving county governments and • Collecting statistics on the furniture industry, timber stakeholders across the country in the including data on market information, cost implementation of interventions is recommended. competitiveness, and local and regional If county governments are not consulted and benchmarking. The association would also included, implementation may struggle given the coordinate with KNBS and KFS regarding importance of local nuances. statistics of wood supply and demand. 34 Furniture Industry in Kenya 6. Recommendations 6.2 Tackle Supply-side Constraints to business model and potential conflict of interest Increase Production and Quality issues at KFS could then further optimize the efficiency of their operations. T ackling supply-side constraints is key to increasing production and quality in the furniture industry. Five actions are In the event the information shortage of existing forest plantations persists, planting rates by recommended: the State, private investors, and farmers will • Laying the foundations for a sustainable continue to be misinformed regarding timber forestry sector that is able to meet Kenya’s demand in Kenya. demand for timber; • Eliminating import licenses for timber and 6.2.2 Eliminate import licenses for timber and reducing import duties for intermediate reduce import duties for intermediate products; products • Promoting regional trade agreements to The Government should consider the objective facilitate and increase timber imports of import licenses in light of the scarcity of wood • Improving the efficiency and quality in Kenya. Given a significant amount of wood is of inputs to the furniture sector by smuggled into the country today, removing the promoting the development of wood- strict licensing requirements would enable more based panel production and upgrading of wood to be imported legally. In addition, it would the sawmilling industry serve to decrease smuggling, and consequently, all the intermediation payments their illegal • Promoting input standardization (particularly import requires. A decrease in smuggling would in materials and design) also help clarify for stakeholders in the EAC region • Enhancing the collaboration and productivity what the demand for wood in Kenya is, and how of Jua Kali entities via clustering much needs to be planted to satisfy it. 6.2.1 Lay the foundations for a sustainable Wood based panels are a relatively scarce forestry sector that is able to meet Kenya’s intermediary product, and as such their demand for timber classification should be corrected from Consideration should be given to the current “finished goods” to “intermediary goods,” with mechanisms of harvesting and sales under KFS the applicable duty amended from 25 percent to 10 percent or 0 percent. Correcting this and whether these are optimal, or if outsourcing classification would increase the availability of key and further privatization would be more inputs at international market prices, which is a effective. In addition, the mandate of KFS should precondition for Kenyan and foreign investments be broadened to ensure it collects and publishes to expand furniture and joinery production. statistics on demand and supply of local wood. While competitive pressure on local suppliers on price and quality will no doubt intensify—and This intervention would furnish the furniture significant lobbying on behalf of wood-based industry with an inventory of existing plantations panel mills may result—reducing the import and would clarify the short-term availability duty is crucial for the future competitiveness and of wood, which could then be incorporated in expansion of the Kenyan furniture industry. new forest planting schemes. Considering the Situational Analysis and Strategy 35 6. Recommendations 6.2.3 Promote regional trade agreements to Facilitating the expansion of the wood- facilitate and increase timber imports based panel industry and the upgrading and consolidation of the sawmilling industry Trade cooperation relationships with neighboring is essential for furniture and other end-use countries should be developed to bolster Kenya’s industries. This would also have significant opportunities as a furniture producer and positive environmental consequences, as firms are exporter to East African markets, and to allow able to invest in new technologies and processes easier imports of logs and sawn timber into Kenya. that waste less timber. Importantly, not doing this The benefit of this would be improved availability would hinder competitiveness, expansion, and of wood input products at regional market prices. investments in the furniture sector and result in further dependence on imports. 6.2.4 Improve the efficiency and quality of inputs to the furniture sector by promoting 6.2.5 Promote input standardization (particularly the development of wood-based panel in materials and design) production and upgrading of the sawmilling industry The longer term supply of the high-end Kenyan market and developed export markets will hinge Greater competition in the wood-based panel on standardization and certification. The Kenyan industry should be encouraged and facilitated. Bureau of Standards should be consulted as a This can be done by reducing or removing partner to develop input standards and ensure import duties and assessing potential barriers that their implementation is adhered to. Doing to entry given the limited number of players in this will enhance business transparency and will the industry and the high levels of demand for facilitate certification and branding of furniture wood-based products. Simultaneously, a formal made in Kenya. statement should be issued supporting the development of the sector. 6.3 Improve Productivity and Innovation For sawmills, incentives should be provided for through Better Skills and Technologies their consolidation and upgrading. Achieving scale in the industry would allow for significant investment in machinery, allowing for increased Improving the productivity and innovation of furniture manufacturers by enabling them to upgrade their design, quality, and volume is key quality and quantities, and more added value via for the development of the industry. Several secondary processing. Issuing a formal statement actions are suggested: and offering subsidized loans with conditions • Establishing a Kenyan center for excellence that tie into policy directions could expedite as a platform to provide relevant industry consolidation and upgrading. training and (in the longer-term), co- ordination of R&D. Upgrading of locally sourced furniture inputs • Setting up prototyping facilities to develop such as glue, glass, metal, laminate, leather, could new products be encouraged via formal connections to facilitate offtake agreements and outsourcing. An industry • Providing incentives to upgrade technology association could potentially play this role. and expand manufacturing facilities to move towards serial production • Increasing access to finance • Enhance collaboration among Jua Kali entities via clustering 36 Furniture Industry in Kenya 6. Recommendations 6.3.1 Establish a Kenyan Center for Excellence 6.3.2 Set up prototyping facilities to develop new as a platform to provide relevant industry products training and (in the longer-term), co- Providing common facilities with shared ordination of R&D professional tools and machinery to create To improve development and dissemination professional prototypes that can be used to of new technologies and skills across the assess demand would give aspiring and small furniture industry, a virtual (or physical) Center businesses the opportunity to (i) enhance quality of Excellence could provide an important and design; and (ii) minimize the risk of investing platform. The Center could be established as a working capital in pre-produced furniture items. public-private partnership, and seed capital (or a government investment) would enable the Government or donor financing would be setup and basic capabilities. Over time, it would required to cover start-up costs, but these operate as a demand-driven entity. facilities would ultimately run as private businesses, with individuals paying to use A Center for Excellence could improve the machines and tools. The government could availability and relevance of training programs incentivize demand initially by providing in Kenya. It could initially be set up virtually vouchers to individuals looking to use these and begin with the provision of technical and facilities. Similar entities currently exist in managerial extension services in firms, with Kenya—Gearbox, for instance—and may be the government incentivizing demand through useful platforms from which to pilot and extend vouchers. The Center would have the capacity these facilities more widely. to provide training-needs assessments and technology extension services, and develop For a prototyping facility to be successful, the tailored training curriculums. In addition, it concept would have to be widely publicized should be able to provide training on different to overcome industry reticence to using (and materials used in furniture, including composite paying for) external facilities and services. In materials that use less wood. Initially, the addition, examining best practices in other Center could conduct industry research to focus countries would be important, as would be program content and build credibility, liaising and ensuring the facility is empowered to develop coordinating with the Industry Association. new prototypes on order as well as on its own. Challenges to setting up a Center would include: 6.3.3 Provide incentives to upgrade technology (i) sourcing appropriate owners and seed capital and expand manufacturing facilities to for its development and initial operations; (ii) move towards serial production quickly understanding the requirements of the In light of the growth in local demand, enabling industry, (iii) offering demand-driven services serial production by investing in facilities and at a competitive cost, and; (iv) having the high- collaborating with stakeholders along the value quality personnel (and access to facilities) to chain makes economic sense. The government provide them. Most importantly, the Center could make available soft loans for investments in would need to address the mentality among the upgraded, large-scale manufacturing facilities as industry regarding the need for advisory and a signaling mechanism to stimulate demand. This training services, but the reticence to pay for and would enable increases in output, productivity, use them. sales, exports, and value addition. Situational Analysis and Strategy 37 6. Recommendations 6.3.4 Increase access to finance • Improving the implementation of the Build Explicit government support for the furniture Kenya, Buy Kenya public procurement sector, coupled with education for financial initiative institutions, could assist in the development • Promoting exports of Kenyan specialty of more appropriate financial products for the products (eg., “ethnic- rustic” pieces) in key industry (and particularly for its SMEs). Focused international markets efforts to help customize and pilot these financial • Establishing Jua Kali-focused marketing products could make a significant difference in entities to facilitate access to formal markets access to finance for the sector. • Organizing study tours for firms to meet buyers and see cutting-edge technologies and 6.3.5 Enhance collaboration among Jua Kali designs, and up-and-coming consumer trends. entities via clustering Enhancing collaboration amongst Jua Kali would 6.4.1 Promote regional trade agreements enable the sustained development of businesses, Kenya is currently the strongest furniture including potentially sub-contracting to larger producer in the East African Community. furniture firms and exporting. This can be done Regional trade agreements within the EAC by promoting “cluster initiatives” and by (literally) provide Kenya with a competitive advantage further clustering Jua Kali entities such that the to capture market share relative to furniture provision of common services and facilities can producers from countries further afar. be targeted more effectively. These activities would promote collaboration—allowing Jua In preparation for the Continental Free Trade Kali to take advantage of economies of scale, Area to be implemented by 2017, EAC countries facilitate specialization, enhance market linkages, should facilitate increased trade amongst each and encourage improvements in productivity and other in terms of raw materials and finished value-addition. products. This would help build the industry and consolidate its strength vis-à-vis the rest of Africa. To be successful, this strategy would need buy- in from local existing Jua Kali associations. The This has been a successful model in countries latter would need to be on board with spatial like Malaysia, where the government cooperates clustering, improvement of premises, technology with countries in the region to facilitate mutual and skills, and sharing of common services trade of input materials and final goods. (including marketing). If Kenya is not able to leverage and grow regional 6.4 Enhance Access to Markets and Induce trade quickly, the Kenyan furniture industry will Greater Demand for Products come under significant pressure if the Africa Free Trade Zone agreement goes ahead in 2017 E nhancing access to domestic and regional markets and inducing greater demand for Kenyan furniture products is key for the growth as planned. This will give regional powers (most notably South Africa) the opportunity to sell their products to other African markets, duty free. of the industry. Several actions are suggested: If Kenyan formal and informal manufacturers • Promoting regional trade agreements are unable to lower costs, improve efficiency, • Improving border logistics and regional upgrade production methods and enhance transportation networks to strengthen quality and design, they will struggle to compete. regional integration 38 Furniture Industry in Kenya 6. Recommendations 6.4.2 Improve border logistics and regional • Provisions to maintain furniture should also transportation networks to strengthen be encouraged, such that manufacturers see regional integration first-hand the sturdiness, durability, and uses Given the poor conditions of road networks of their products. in Kenya, Tanzania, South Sudan, and Uganda, • A catalogue that provides specifications it is essential to improve border procedures, for furniture design and quality, and puts a governance, and transparency to promote trade percentage cap on the prices that can be paid in furniture and strengthen regional integration. for it would be desirable because it would maximize transparency. While this theoretically To increase the propensity of Kenyan firms provides equal opportunities for all Kenyan to export regionally, the Government can: (i) furniture manufacturers (formal and informal), simplify and streamline border procedures and the reality is that the tendering process calls rules (the electronic single window for customs for technical, design, standardization, and clearance is a great first step), (ii) bolster security; procurement know-how. and (iii) curb corruption at the border. Importantly, there is a risk that the above It is important to note that the promotion of measures are insufficient to make the system fully smooth border logistics is not restricted to transparent, and that open public procurement Kenya, but also requires the participation and does not adequately cater to local manufacturers cooperation of neighboring countries. and Jua Kali entities. 6.4.3 Improve the implementation of the Build 6.4.4 Promote exports of Kenyan specialty Kenya, Buy Kenya public procurement products (i.e. “ethnic-rustic” pieces) in key initiative international markets Public procurement can provide significant Kenyan manufacturers have a natural opportunities to the furniture sector in competitive advantage in traditional Swahili Kenya, and can play a role in upgrading of Coast furniture, given their pieces meet the the industry in terms of product quality design standards of developed, consumer and quantity. The Buy Kenya, Build Kenya markets. The industry association, with the program, 24 should be fully implemented, with support of the government, should facilitate the amendments that have been proposed to connections between global furniture outlets it by the Ministry of Industrialization. A few and craftsmen producing these unique specialty additions are also suggested: products. In addition, it should consider • Sunset clauses should be included, to force organizing study tours for firms to meet buyers review of the policy and enable extensions if and consumers. found deserving. Given high-end, “ethnic-rustic” furniture is • Stringent quality controls should be added as by definition a niche play, it will likely take part of implementation, as well as mechanisms some time for efficient distribution channels to enable public entities to provide feedback in developed markets to be established. Also, to manufacturers on their products. this furniture may struggle to differentiate itself from Asian “ethnic rustic” furniture and achieve adequate export scale. The Ministry of Industrialization and Enterprise Development is in the process of finalizing the Buy Kenya, Build Kenya policy, which is seen as a way of 24 creating markets for local products and services. The policy aims to reduce government and private expenditure on imported products and services and reduce the unemployment rate by supporting the local economy to grow. Situational Analysis and Strategy 39 6. Recommendations 6.4.5 Establish Jua Kali-focused marketing This will likely take some time to develop entities to facilitate access to formal given scale and consistency is an important markets prerequisite for formal markets. While some Establishing Jua Kali-focused marketing entities Jua Kali entities can meet requirements for small that secure contracts, facilitate volume, and volumes of individual products, a sustained ensure quality control could enhance Jua supply calls for spatial clustering, upgrading of Kali access to markets. This would allow manufacturing and consolidation of outputs. Jua Kali entities to supply formal furniture outlets, manufacture bulk components for The Kenyan furniture industry has a strong formal furniture market outsourcing, access foundation. Nevertheless, the challenges it export markets, and compete for government currently faces constrain its competitiveness public procurement. and efficiency in local, regional and international markets. Implementing the above cross-cutting interventions could unlock specific bottlenecks, and bring about a new performance trajectory for the industry and its value chain. 40 Furniture Industry in Kenya Annex 1: Lessons from government interventions in other countries T o actively promote the competitiveness of the sector, the Kenyan Government can draw on lessons of successful interventions from China, • Formulation of a strategy to target key export destinations and attainable market niches, and active support of international Malaysia, and South Africa. The governments marketing campaigns and distribution in these countries initiated furniture-sector relationships development policies that included, among • Establishing provincial and national furniture others, incentives for furniture firms, investments industry associations to develop and share in the industry to systematically develop the value industry knowledge and contribute to chain, clustering of micro-firms, and certification international marketing. standards and branding. Malaysia China The Malaysian government recognized the In the 1970’s, due to a national shortage of wood, competitive pressure from leading low-cost the government targeted specific value added- producers like China and Vietnam and aimed industries, including the furniture industry, to move the Malaysian industry towards with the intention of generating employment, increasingly higher value-added timber industry meeting domestic demand, and increasing exports. The various policy frameworks they have export revenues. The Chinese government implemented have been highly comprehensive, implemented wide-ranging initiatives, initiated and have included the following interventions, the following: amongst others: • Ensuring a competitive supply of production • Government support of the plantation and inputs, by allowing imports of wood for all forestry sectors, and sourcing of logs and wood-processing industries. wood products from neighboring countries. • Clustering manufacturing entities in a number • A range of financial and other incentives— of coastal cities and industrial parks, which including a refundable tax to incentivize had access to support services. Clustering firms to invest in manufacturing and export within these cities and industry parks value added products, the Investment Tax was further specialised into pre-selected Allowance, and the Small & Medium Industry product lines. Development Corporation (which provides • Support of training institutions to ensure tax incentivizes for the modernization and availability of human capital, and formulation upgrading of SME furniture firms, subject to of standards and operating regulations. qualifying criteria). • Financial incentives to promote local • A proactive role in establishing public private industry and attract FDI, which included partnerships and the establishment of various tax “windows” for rebates and refunding on niche and industry-wide associations to drive development costs and investments in new the development of the industry. technology. Situational Analysis and Strategy 41 Annex South Africa • Demand-driven vocational training has been The South African government regards the enhanced, based on benchmarking the South furniture industry as an important sector, and African industry against the main import carried out extensive analytical work to find ways supplier countries to accelerate the upgrading of restoring the international competitiveness of South African furniture manufacturers. of the industry. The current sector development • Horizontal governmental policies and strategies and policies include: investment projects are closely coordinated with the development strategy of the • Emphasis that competitiveness is to be furniture industry. based on furniture design and manufacturing technology. • The SME segment is powered by increased clustering, specialization, networking and cooperation, with enhanced capacity and flexibility. 42 Furniture Industry in Kenya Annex Annex 2: SWOT Analysis STRENGTHS WEAKNESSES • Potential for economies of scale in the industry • Limited and unreliable supply of inputs (sawn • Kenya is the largest producer of furniture in East Africa timber, wood-based panels, other inputs) constrains • Kenyan formal firms are already geographically industry growth and increases dependence on clustered imports • There is significant existing industry expertise (10k • Insufficient investment in technology, design, skills, formal employment, 115k informal) and supply chain results in limited availability of • Logistical advantage in serving local and regional industry-specific skills and low levels of productivity markets (relative to neighboring countries and Asian • Limited access to furniture outlets for Jua Kali competitors) means the sector cannot fully tap growing consumer • High profit margins for existing formal manufacturers demand (furniture trade outlets meet demand with (25% after tax) majority imports) • Strong growth in the formal and informal sectors (8% • Limited collaboration and cooperation both within and 10% CAGRs, respectively) and between the formal and Jua Kali sectors results • Long furniture tradition, both in the formal and in limited outsourcing and specialization in both informal sectors segments • World class ethnic/rustic furniture for niche markets • Lack of official industry association to represent being made in Lamu and in specific shops in Nairobi sector interests, promote PPPs and Kenyan furniture, • Strong political will to support industry development and share best practices (formal and Jua Kali) OPPORTUNITIES THREATS • Strong demand in Kenya, the East African • Growing competition from other regions meet the Community and Africa more broadly, driven increasing furniture demand in Africa by increased levels of urbanization, housing • Forthcoming EAC, SADC and COMESA Free Trade construction, and rising levels of income Agreements result in South Africa flooding the East • Productivity hike through training and R & D African market • Renewal of industry structure, technology and firms • Inability to improve and expand availability of local • Restructuring and upgrading of Jua Kali inputs results in an increasing dependency on • Forthcoming EAC, SADC and COMESA Free Trade imports Agreements will facilitate easier supply of input • Decreasing availability of furniture hardwoods materials and increase access to markets (mvule, etc.) • Increasing desire of consumers for specialty pieces • Upgrading of furniture industry in Asia to export and mementos creates a market for Swahili furniture original design and greater quantities of furniture to Kenya • Lack of communication and collaboration amongst industry stakeholders means it is difficult to rally them around a renewed growth agenda • Ethnicity, age, and class differences between formal industry • CEOs and Jua Kali mean efforts to increase outsourcing between formal and informal producers fail • Even with industry upgrading, unclear if domestic cost structure allows for effective competition vis-à- vis Asian imports Situational Analysis and Strategy 43 References Abonyi, George. 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