Why Only Two in Ten Kenyan Firms Are Plugged Into Global Value Chains

The headline number

Kenyan firms score 18.65 out of 100 on a global value chain participation index built from four things: whether a firm exports directly, whether it exports indirectly through a third country, whether it sources inputs from abroad and whether it sits inside an international production network. In plain terms, roughly two in every ten Kenyan firms are meaningfully plugged into global production, and eight are not.

This is the central finding of a KIPPRA Discussion Paper by Kevin Wanjala, now a co-founder of Herufi, and Mohamed Omar Abdullahi, who built the index from World Bank Enterprise Survey data covering 358 Kenyan firms and tested what predicts a higher score.

Which sectors are already in and which are stuck outside

The index varies enormously by sector. Chemicals, pharmaceuticals and plastics lead at 30.16, followed by food processing at 26.63. Tourism sits at the bottom with 7.36, behind other services at 12.04 and retail at 16.83. At the sub sector level, paper, electronics and plastics and rubber score highest, while leather, construction and hotels and restaurants score lowest, several of them below 11.

That spread matters because it points to where policy leverage already exists rather than where it has to be built from nothing.

What actually moves the index

The paper tests firm size, productivity, ownership, intellectual property, quality certification and financing constraints as drivers, using Tobit regressions that account for the many firms with zero participation.

Three findings stand out:

• Size compounds. Large firms score meaningfully higher than small and medium ones on every mode of participation, largely because they can absorb the fixed costs of entering international networks.
• Productivity and research and development pay off. More productive firms and firms that invest in research and development post higher scores across direct exports, indirect exports and import sourcing.
• Finance is a binding constraint, not a footnote. Firms reporting major or very severe obstacles to accessing finance score significantly lower, holding size and productivity constant.

Quality certification also raises participation, mainly through forward linkages, since certification is often the ticket to being trusted by a foreign buyer in the first place.

The policy case

The paper's recommendations centre on lifting the constraints its own regressions identify: investment in productivity through skills and technology, wider awareness of international certification requirements, and credit information infrastructure that lets lenders price SME risk properly instead of avoiding it. It also points to firms that already benefited from targeted government support, such as those inside export processing zones, as evidence that the policy lever works when it is used.

A companion KIPPRA Policy Brief translates these findings into six specific financing interventions for SMEs. We cover it separately.

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Summary of Firm Level Analysis of Global Value Chain Participation in Kenya, KIPPRA Discussion Paper No. 285 (2022), by Kevin Wanjala and Mohamed Omar Abdullahi, Kenya Institute for Public Policy Research and Analysis. Read the full paper, including the sector tables and regression results, at the link above.