Toolkit for Competitive Counties in Kenya A Practical Tool to Promote Firm Competitiveness for Jobs and Economic Transformation at the Subnational Level in Kenya Toolkit for Competitive Counties in Kenya A Practical Tool to Promote Firm Competitiveness for Jobs and Economic Transformation at the Subnational Level in Kenya Toolkit for Competitive Counties in Kenya iii Copyright © 2022 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW Washington, DC 20433 USA All rights reserved. This document is a product of the staff of 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. 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Toolkit for Competitive Counties in Kenya iv Table of Contents 1 3 Acronyms / p.v Toolkit for Competitive Introduction 1 Counties 8 Step 1 2 Analytical Framework Understanding the local economy 11 2.1 Objective 2.2 Approach 2.3 Step-by-step guide 3 Step 2 Private sector diagnostic 13 Step 3 County institutional analysis 16 Step 4 Priority transversal policy interventions 23 Acronyms Toolkit for Competitive Counties in Kenya v Acronyms ATC Agriculture Training Centre OSR Own Source Revenue CBEM County Business Environment for MSEs PPD Public Private Dialogue CEREB Central Region Economic Block PPP Public Private Partnership CIDP County Integrated Development Plan REBs Regional Economic Blocs CJET Competitiveness for Jobs and Economic Transformation SEZ Special Economic Zone FCDO Foreign, Commonwealth and Development Office SME Small and Medium Enterprise FCI Finance, Competitiveness, and Innovation SPJ Social Protection & Jobs FTE Full time Employees SUED Sustainable Urban Economic Development Program FY Financial year TCC Toolkit for Competitive Counties GCP Gross County Product UEP Urban Economic Plan GDP Gross Domestic Product VC Value Chain GoK Government of Kenya WB World Bank GVA Gross Value Added HCDA Horticultural Crops Development Authority JET Jobs and Economic Transformation KAM Kenya Association of Manufacturers KEBS Kenya Bureau of Standards KEPROBA Kenya Export Promotion and Branding KEPSA Kenya Private Sector Alliance KES Kenya Shillings KIE Kenya Industrial Estates KIPPRA Kenya Institute for Public Policy Research and Analysis KIRDI Kenya Industrial Research and Development Institute KNBS Kenya National Bureau of Statistics KNCCI Kenya National Chamber of Commerce and Industry MEP Municipal Economic Plan MSEA Micro and Small Enterprise Authority MSME Micro, Small, and Medium Enterprise NEMA National Environment Management Authority 1 1 Introduction For Kenya to transform into a prosperous middle-income country that provides more and better jobs as well as high quality of life to all its citizens1, the Government of Kenya (GoK) needs to create the conditions for the private sector to become globally competitive. Private sector firms have been the primary source of job creation in Kenya accounting for 70 percent of total employment, and 99 percent of busi- nesses are micro, small, and medium enterprises (MSMEs). Improving the enabling conditions for private sector growth and productivity can have transformational impact on the creation of more, better, and inclusive jobs in Kenya. 1.  Vision 2030, the GoK long term development blueprint covering the period 2008 to 2030. Toolkit for Competitive Counties in Kenya / Introduction 2 The subnational dimension is critical to increased firm governments to leverage their intimate, context-specific know- productivity as many of the factors that help attract, retain, ledge to commence this journey of ensuring that the private and expand the private sector manifest at the local level and sector is a key stakeholder in socioeconomic development at the can be unique to a city or region (World Bank, 2015). While subnational level. Through the Kenya Subnational Competitiveness subnational barriers to competitiveness can be resolved directly for Jobs and Economic Transformation (CJET) study, the team by national governments or through the leadership of the local sought to tackle this challenge. private sector, research finds that subnational and local/city governments have a competitive advantage and can be more The study developed an analytical tool to support Kenya’s efficient and effective in addressing subnational challenges. subnational governments to identify opportunities and barriers Improving the competitiveness of local economies is a pathway to realizing inclusive and sustainable private sector-led growth to eradicate poverty and increase shared prosperity. within their jurisdictions. To ensure appropriateness, the tool was tested through a robust deep dive into four counties for the In this regard, the expanded role of county governments in identification of: i) market failures constraining private sector Kenya presents an opportunity to promote private sector led growth; and ii) policy interventions that consider mandates development at the local level to boost employment and and capacities of local governments. The deep dives were con- growth, as part of the next frontier of devolution support in ducted on specific products within value chains that had been the country (World Bank, 2021b). County leaders realize that identified through analytical work conducted prior to this study, their task is no longer limited to providing efficient services but the constraints and opportunities identified are transversal to their citizens: It now also includes positioning local firms and cross-sectoral. In this sense, the resulting product i.e., the to compete in the domestic and global marketplace. However, Toolkit for Competitive Counties (TCC) reflects the lessons county government capabilities to support firm competitiveness learned from its practical implementation on the ground and often lag behind of those in infrastructure, planning, or financial provides an “off-the-shelf” product ready to be scaled to all 47 management. Economic development requires a suite of new counties. skills i.e., in economic analysis, strategy, investment promotion, financial instruments, MSME services in incumbent/emerging The rest of this report is structured as follows: sectors, or the ability to lead market oriented PPDs (World Bank, • Section 2 describes the analytical framework, in terms of its 2022). objective and approach. • Section 3 presents a detailed step-by-step application of the A top-down understanding of the local economy can identify framework at the county level. transversal constraints to local private sector growth. A bottom-up market-oriented analytical process and proactive consultation with the private sector can increase the relevance of identified opportunities to specific VCs and help channel limited subnational government resources towards interven- tions that are most likely to support local firm competitiveness and growth. A key task, therefore, is how to better equip county 2 3 Analytical Framework 2.1 Objective 2.2 Approach 2.3 Step-by-step guide Toolkit for Competitive Counties in Kenya / Analytical Framework 4 2.1 Objective The top-down analytical framework is designed for county In parallel or sequentially to the identification of transversal governments and aims to promote awareness and strengthen constraints, some counties may want to deepen their private their capacity to engage with the local private sector. The sector diagnostic and prioritization to increase the relevance tool provides a useful starting point for counties to identify the and impact of policy actions on economic transformation by cross-cutting needs of local firms and industries and enhance focusing on market-driven opportunities for specific value their understanding of how to address the constraints. The align- chains that are beyond the status quo. If resources and oppor- ment between local private sector needs and local public sector tunities allow, a more rigorous PPD process could be pursued mandate, capacity, and incentive can help county governments through a Competitiveness Reinforcement Initiative (CRI). This prioritize relevant policy interventions and investments that is a 6 to 9-month cluster engagement that includes detailed will increase the efficiency of public sector support for local firm assessment of specific industry/VC segments to help refine level competitiveness and economic transformation. the identification of constraints and solutions, ensure strong buy-in by the private sector, and initiate the process of applying public policy and investment tools to address their needs for transformational impact. Annex 4 of the SCG Guidebook (World Bank, 2022) provides more details on this approach. Toolkit for Competitive Counties in Kenya / Analytical Framework 5 2.2 Approach Figure 1  The Competitive Cities framework The proposed approach adopts the four policy levers of the Competitive Cities conceptual framework (World Bank, 2015) as 1 2 the overarching methodology to identifying and classifying the re In Re main types of interventions available to county governments to tu st gu c itu la successfully facilitate their firms and industries to create jobs, nd ru tio tio County Wedge* La st raise productivity, and increase the incomes of citizens. & fra ns ns These are: In & Institutions and regulations (for example, taxes, licenses, duties, legal regulation, promotion, and branding). Infrastructure and land (for example, roads, public spaces, Agglomeration markets, transportation, communications, land (including colocation arrangements for similar firms in dedicated zones and/or office space), electricity, water, and sanitation). Firm-level performance Skills and innovation (for example, education, vocational training and workforce development, and innovation networks). Factor Output markets markets Enterprise support and finance (for example, access to capital, export assistance, investment promotion and support, incen- tives, and business development services). tio & En up va lls n S te po no Ski rp rt ris & e Fin In an ce 3 4 Source: World Bank 2015 * In the context of Kenya, it is the county government that is the relevant entity at the subnational level. Toolkit for Competitive Counties in Kenya / Analytical Framework 6 Mandates, incentives, and capacities of county governments approach, it is thus critical to understand the existing level of often present the biggest hurdle in leveraging their existing county mandates, capacities, and resources and potential scope endowments or assets to improve local firm competitiveness to expand them to match the needs of the private sector (World and drive economic transformation. As part of this analytical Bank, 2022). Figure 2  County institutional analysis Mandate Capacity Incentives To act on specific market To support private sector-led job To pursue competitiveness inter- coordination, and government creation and competitiveness ventions through optimal allocation failures. of resources Using skills in leading mar- Understand lines of responsibil- ket-oriented PPDs, delivery of For example, through account- ity to define best entry points for MSME services, economic analysis, ability, financial rewards competitiveness interventions strategy, investment promotion, use (local grants) of financial instruments. Source: Authors Toolkit for Competitive Counties in Kenya / Analytical Framework 7 2.3 Step-by-step guide Adapted to Kenya’s subnational landscape, the analytical methodology consists of four steps (Figure 3). These steps are further discussed in Section 3. Figure 3  Proposed steps to identify policy interventions that facilitate private sector growth and development Output: meaningful policy interventions that should be included in the action plan Step 1 Step 4 Understanding Priority transversal the Local economy Projected policy interventions impact Output: Current sector mix and development stage of the local B C Output: Potential high-impact and easy interventions to define the economy entry point for cross-cutting policy action D Step 2 Step 3 Private sector needs diagnostic A County institutional analysis Output: Constraints and needs of Output: Subnational mandates, the local private sector across incentives, and capacities 4 policy levers Ease of to influence policy levers implementation A B C D 3 8 Toolkit for Competitive Counties Step 1 Step 2 Step 3 Step 4 Understanding Private sector County Priority the Local diagnostic institutional transversal policy economy analysis interventions / Objective / Objective / Objectives / Objective / Step overview / Step overview / Additional details on / Step overview / Table 1  Step 1 methodology / Table 2  Step 2 methodology proposed activities / Table 9  Step 4 methodology overview overview / Table 5  Step 3 methodology overview / Additional details / Additional details on overview / Additional details on proposed on proposed activities proposed activities / Additional details on activities / Table 3  Questions for value proposed activities / Table 10  Categories to detail chain firms and key repre- / Table 6  Roles across and shortlist all potential sentatives levels of government interventions based on impact / Table 4  Table to document and other stakeholders (Illustrative output) identified constraints (Illustrative output) / Figure 4  The proposed (Illustrative output) / Table 7  Fiscal assessment approach for assessing overview the ease of implementation / Table 8 Questions criterion. for value chain firms / Table 11 Shortlisting and key representatives intervention matrix Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 9 The TCC is a step-by-step practical instrument for applying the proposed analytical framework at the county level. It aims to raise the awareness and strengthen the capacity of county Look for the companion form governments to identify constraints faced by local firms and industries and to begin the process of addressing the identified constraints and creating the necessary conditions for competi- tiveness and economic transformation within their jurisdictions. This toolkit is accompanied by a companion form that provides a space for readers to reflect on the data collected as they follow the steps Using this guidebook, the government can identify: outlined in the toolkit. The form can be manually or digitally completed and aims to help users identify the cross-cutting policy interventions that • County specific constraints that hinder private sector address barriers to private sector development at the subnational level development and local firm competitiveness as observed in a in Kenya. representative subset of sectors and value chains • Potential interventions that could address the identified cross-cutting constraints • Gaps and inefficiencies in mandates and capacities that limit the ability of the county to create an enabling environment for private sector development • ‘No regret’ interventions that counties can implement to address identified constraints. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 10 Primary & Secondary Analysis Needed Step 1 Step 2 Step 3 Step 4 Understanding Private sector County institutional Priority transversal the Local economy needs diagnostic analysis policy interventions Desk research Stakeholder engagement Meetings Workshops Stakeholder consultations Interviews with key county officials Interviews with key private sector representatives Step 1 Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 11 Step 1 Understanding the local economy Step overview The current state of the county economy is identified through a review Objective of existing county documentation and data on private sector activity to understand what are the existing economic activities that drive the Assess current sector mix and development stage of the local economy local economy. This will involve 1) a review of CIDPs, sectoral, spatial, and urban plans to establish what the mix of sectors and value chains at county level are, and 2) engagement with county and national govern- ment officials to validate the findings from the desk review. Table 1  Step 1 methodology overview METHODOLOGY ACTIVITY Desk research Review county government documents to identify the: • existing county projects and sectors, • corresponding value chains, and • relevant county government implementing agencies. Review global good analytical practices used by other local governments to understand and characterize their local economies. Robust engage- Hold a meeting with KNBS on data collection tech- ment with the niques and the data collected for the Gross County Kenya National Product (GCP) exercises to help provide a better Bureau of Statis- understanding of the upstream, downstream, cross tics (KNBS) linkages between sectors. Engagement with Hold a meeting with the Governor’s office to validate County Govern- the county government priorities and the current or’s Office sectoral and spatial plans. Engagement with Hold a meeting with the relevant departments to departments discuss the: relevant to • the progress on existing support programs for the county economic private sector in the county, and activities • the current budget allocation for county sectors and value chains. Stakeholder • Consult private sector actors and county officials consultation to validate the broad understanding of the local economy. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 12 Additional details on proposed activities b) Stakeholder consultations to validate understanding of the local economy a) Engagement with the Governor’s office and county officials from relevant departments Through the questions provided below and a desk review, details of the local economy, including structure, governance, inclusive- The following questions provide guidance on the areas of focus ness, and performance will be collated: during interviews with the Governor’s office and county offi- cials from relevant departments to establish what is the level County economy overview of existing support to the local private sector, and current and planned resource allocations: • Who are the core private sector actors? • Who are the service providers and what are their roles or 1. What is your understanding of the binding constraints on the functions? local private sector? • How do the actors relate to each other and how do the service 2. What economic or financial analysis has been conducted to providers relate to the actors? understand the current mix of economic activities and assess their challenges and opportunities? Private sector economic attributes 3. What are the initiatives/interventions in place to support the local private sector? • What is the current size (as share of county/national GDP 4. Who are the champions at the county level for the local and /or value added) of the local private sector? private sector or particular segments of it? • What are the trends in growth (potential volatility and 5. Are there other actors supporting the local private sector or booms/busts)? particular sectors and value chains (e.g., national govern- • What is the spatial distribution of private sector activity ment, development partners, private investors)? If so, what (clusters, SEZs, crop areas)? is the extent of their involvement? • What are the employment levels and wages in the county 6. What is the current budget allocation for support to the private sector, by different type of activity and formality/ private sector? Is the allocation sufficient? informality, etc.? • What are existing subsidies to county economic activities that might cause competition and market distortions (e.g., input subsidies, tax holidays, etc.)? • What is the export performance if exporting (tariffs, trade barriers)? • What is the connectivity to regional/domestic markets? • What are the existing government/donor programs or reforms relevant for the county private sector? Step 2 Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 13 Step 2 Private sector diagnostic Step overview To maximize impact, it is crucial for county governments to know Objective what market failures are limiting the private sector in the county before applying public policy and investment tools to address Assess the constraints and needs of the local private sector them. These market failures will be identified through a thorough across the four policy levers of competitiveness assessment of what limits competitiveness at the firm level within counties. It will include both desk research and engagement of county stakeholders to determine the constraints affecting private sector firms, and viable solutions to address the constraints. Table 2  Step 2 methodology overview METHODOLOGY ACTIVITY Desk research Review constraints facing private sector firms using private sector analyses and reports. 2 Engagement Hold meetings to discuss: with County • the challenges affecting the private sector from government officials the county government’s perspective. • the current government plans to resolve the challenges. Individual interviews Conduct interviews with a representative sample of private sector firms (an appropriate sample to reflect the views of the firms within the county) to obtain first-hand accounts of challenges faced. Interviews with key Host a workshop to discuss constraints facing pri- private sector repre- vate sector actors with key representatives from sentatives associations and coordinating bodies. 2.  These reports include Government published Kenya Economic Surveys and CPSD reports published by the World Bank. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 14 Table 3  Questions for value chain firms and key representatives Additional details CATEGORY QUESTIONS on proposed activities Institutions and • Which existing policies/regulations are beneficial to your business? regulation • Which existing policies/regulations are a hindrance to your business? • Which policies/regulations, if formed, would be beneficial to your business? a) Engagement with county government officials Infrastructure and • What are the most important infrastructure inputs to your business (lands, The indicative questions below can guide the discussions with Land roads, water and sewerage, power, mobile network, business premises)? County government officials on both constraints and potential • How easy or difficult is it for you to access these infrastructure inputs? solutions. • For the infrastructure inputs that are difficult to access, are there specific problems faced when dealing with county government agencies? • What policy issues are major cross-cutting constraints to • What would you recommend to address the challenges you have outlined above? private sector-led growth in the county? • What actions can be taken to facilitate more private sector Enterprise • How easy is it to access finances for starting and running your business? engagement and investment in the county? Support and • Have you ever taken out a business-related loan in the past? • How else can the private sector be supported to drive growth Finance • Which sources did you approach? and the creation of more and better jobs within the county? • What were the main obstacles you faced? • Where are the most important and feasible opportunities for • To meet your financing needs, do you prefer formal sources or informal private investment to transform or create markets for local sources? Why? private sector firms in the near term? • What are the major challenges you face in accessing financing for your • Which cross-cutting actions could have the greatest impact business? on private sector growth? • What are your main constraints in accessing markets? • Which institutions support your business growth activities (e.g., business planning, product improvement, auditing, accounting, filing for VAT, tax advice, staff training etc.)? b) Interviews with local firms and key representatives • Which institutions or programs support your import/export activities? • Are there any specific equipment / technological needs you have? How The indicative questions below can facilitate the private sector would they benefit you? constraint identification process during the interviews with indi- viduals and key private sector representatives. Skills and • Do you require additional management skills to help you grow your business? Innovation • How easy is it for you to access skilled labor for running your business? • Do you experience a shortage of skilled labor and what skills are missing in the local labor pool? Why are these skills not available locally? Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 15 Table 4  Table to document identified constraints Table 4 can be used to organize the information gathered from stakeholders on the constraints affecting the local private sector across the four policy levers. Illustrative output Example 2: Constraints facing private sector actors in County X START HERE SOLUTIONS (FOR STEP 4) What is the main constraint What is the implication affecting the local private sector? What is the underlying cause? to the affected group? ID What is the possible solution? Institutions and Regulations High cost of production A Simplify and streamline business Cost of licenses and permits Multiple, costly licenses reducing competitiveness of products licensing and permits for firms Infrastructure and Land Variable rainfall across the seasons and limited public B Improve water use planning and crowd-in private Water supply challenges Crop loss leading to decreased production finance to smooth cyclical variation in water supply funds to build new/maintain existing infrastructure Enterprise Support and Finance Firms are often not aware of and do not have the technical C Increase knowledge dissemination and training on quality Quality standards and certification capacity to meet the standards they need to acquire certification Limited access to markets, local and exports standards and international certification requirements Skills and Innovation Lack of adequately trained workforce Vocational training that is insufficient or not aligned D Higher costs of training for firms Setting up regional vocational training centers in local labor market with the needs of the local private sector Step 3 Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 16 Step 3 County institutional analysis Additional details on proposed activities Subnational government capabilities differ widely across and Objective within geographies, and the lack thereof often presents the biggest hurdle for counties in leveraging their existing resources Assess the mandates, incentives, and capacities of the county or mobilizing additional resources to drive competitiveness and to influence the four policy levers of competitiveness enhance economic transformation. A rigorous assessment of the resources and capacity of county governments can inform the design of identified interventions and highlight areas where those could be meaningfully increased to enhance the effectiveness of implementation and expand county capabilities for the design and implementation of future interventions. This rigorous assessment involves an evaluation of the insti- tutional structure, fiscal status, and existing capacity of the county government. The assessment will be conducted through a document review and consultations with selected county offi- cials and its output will deepen the understanding of the roles, responsibilities, reporting lines, mandates, incentives, and capaci- ties of the county government. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 17 Table 5  Step 3 methodology overview Additional details on proposed activities METHODOLOGY ACTIVITY a) Institutional analysis Desk research Assess national governance documents e.g., the Kenyan constitution, annual county budgets and The desk research will map out the institutional and organization plans, and national/regional/county development structure at each level of government that is relevant to private strategies to: sector development, including national institutions, Regional • identify the current institutional mandates3 of Economic Blocs, County, municipalities, as well as County depart- the County government and any gaps, redun- ments with roles that foster firm growth and competitiveness. It dancies, and overlapping mandates between the national and county governments through will assess roles, relevant power, and reporting lines between and an institutional analysis. This assessment can within institutional levels. be done for all counties through a legal review • assess the fiscal space and technical capacity The indicative questions below to county officials can complement of the county government to implement inter- the desk research and provide further details on the institutional ventions through a fiscal and human resource capacity assessment. This assessment needs analysis: to be conducted at the county level. I. General questions Engagement with Hold meetings with selected government officials to: selected national • discuss their roles and responsibilities, and and county 1. What do you see as the responsibilities of the county govern- • understand their reporting lines, mandates, ment in promoting economic growth, improving economic government incentives, and capacities. officials growth, and job creation? This will complement the desk research to inform 2. What are the key programs and projects of the county that the institutional analysis, fiscal assessment, and capacity assessment. aim to improve competitiveness, and promote private sector driven growth and job creation? 3. Does the county work with other neighboring counties across the region? a. Who are these neighboring counties? b. Is there a fixed mechanism to work with your neigh- boring county officials? c. Is the cooperation smooth? If not, what do you think is the main problem? 3.  Specific mandates that address identified constraints in shortlisted value chains Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 18 II. Questions related to other levels of government or other County in providing infrastructure? (e.g., water, power, key stakeholders roads) 7. What does the county do to help private firms to access land? 1. What are the national government programs and initiatives Are there challenges faced in providing this support? that support private sector firms in this county? 8. Does the county provide any skills upgrading and training 2. Are there any other national government initiatives that aim initiatives for the local private sector? to promote competitiveness, growth, and job creation for 9. Does the county have an innovation and research support your County? program to support firms? Have there been challenges to 3. Do the private sector, civil society, or other stakeholders in providing such programs? the County implement any programs or projects to promote 10. Does the County offer any access to finance support, particu- competitiveness, and improve business performance and job larly to SMEs and start-ups? creation? What programs or projects do they implement? III. Questions related to the services counties provide for firms 1. What are the most recurrent complaints you hear from private sector firms? 2. What permits, certificates, and licenses do different busi- nesses acquire from the county administration? What steps are involved in each of the processes? What costs are involved? How long does it take for each step and how long does the entire process take? 3. How many of the services offered to businesses by the county are digitized? Are there ongoing efforts to digitize govern- ment-to-business (G2B) services? 4. Are there monitoring and evaluations mechanisms in place to measure county performance in service delivery (qualitative or quantitative)? 5. Does the County engage in investment promotion activities for private sector firms? Are there other activities that are related to improving the business environment of the County for businesses? (e.g., a one-stop shop for obtaining permits, paying tax, or other city-level specific incentives?) 6. What does the County do to address the infrastructure requirements of? Are there major challenges faced by the Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 19 Table 6  Roles across levels of government and other stakeholders Table 6 provides the framework to organize the findings from the questions above. This will highlight the existing county mandate compared to those of other levels of government and Illustrative output the extent to which certain interventions are already decentral- Example 4: Generic illustration of potential roles across different levels of government and ized or could be decentralized considering the political economy other stakeholders that would be made concrete after conducting the institutional analysis and governance. (Adapted from (World Bank, 2015)) SOLUTIONS (FOR STEP 2) ASSESS STAKEHOLDER ROLES AND IDENTIFY OVERLAPS ASSESS GAPS In county’s technical ability ID Proposed intervention County National Private Overlaps in roles4 to implement proposed & solutions Government Government Sector interventions Institutions and Regulations Standards and certification Policy gap on number and type of licenses Municipal taxes and incentives Macroeconomic management associations levied in total on private businesses National investment Zoning and land use policies and trade policy Construction permits, Industry-specific taxes business licenses and regulations Public safety and law enforcement Infrastructure and Land County roads and public transport Highways, roads, Additional infrastructure Overlap in infrastructure and shared services provision mandate Water, sanitation, Power grid waste management Regulations for infrastructure Public safety provision, such as PPP laws 4.  Monitoring by the County government is necessary to ensure there is no duplication of efforts between national and county government. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 20 Table 6  Roles across levels of government and other stakeholders Illustrative output (continuation) Example 4: Generic illustration of potential roles across different levels of government and other stakeholders that would be made concrete after conducting the institutional analysis (Adapted from (World Bank, 2015)) SOLUTIONS (FOR STEP 2) ASSESS STAKEHOLDER ROLES AND IDENTIFY OVERLAPS ASSESS GAPS In county’s technical ability ID Proposed intervention County National Private Overlaps in role to implement proposed & solutions Government Government Sector interventions Enterprise Support and Finance Business support services (includ- Business associations Gap in local (county level) Export and trade facilitation business support services ing business industrial areas) and support networks Market intelligence Investment policies and promotion Access to finance support schemes and business information Facilitation of seed, catalyst, Equity and debt finance and risk capital Skills and Innovation Talent attraction programs Gap in local (County level) Public education system Vocational training programs vocational training Policies to attract and Cluster development support Research and Development retain talent at County level Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 21 b) Fiscal assessment c) Capacity assessment This assessment will establish the current and recent budget and The capacity assessment will evaluate the county’s technical revenue levels of the counties (e.g., deficit or surplus over the ability to implement the proposed interventions. The assess- last five years) as well as main revenue sources, such as share of ment will review overall capacity in procurement, financial intergovernmental fiscal transfers, licenses, and fees, property management, strategic planning, risk management, monitoring taxes, sales tax, etc. The assessment provides information on the and information systems, performance management, transpar- county’s absorptive capacities and the output can be mapped as ency, and accountability. shown in Table 7. In addition to the above, the assessment will identify any gaps Table 7  Fiscal assessment overview in capacity, recommend the types of capacity building needed to support the county government in pursuing competitiveness Indicator Year 1 Year 2 Year 3 Year 4 Year 5 Average Comments and economic transformation policies, and estimate the feas- Overall funds available ibility of building the required level of capacity. The indicative to the county questions below can guide the institutional capacity assessment. County government revenue per capita5 Local government revenue transfers6 The ratio of planned to actual tax collection Funding from other sources e.g., development partners Budget allocation to the priority sector and value chain 5.  The total government revenue (income annually collected, both capital and recur- rent for the county) per capita, averaged for the last five years. 6.  Percentage of county government revenue originating from the national govern- ment. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 22 Table 8  Questions for value chain firms and key representatives QUESTION THE RATIONALE FOR THE QUESTION (FOR THE INTERVIEWER’S REFERENCE) Overall gap assessment For each identified intervention in step 3 above, what are the key An understanding of the existing level of technical capabilities to implement identified technical capabilities that are required (i.e., policy development, interventions would indicate the extent to which Technical Assistance or capacity legal expertise, communication skills, participatory budgeting building is required for county officials. etc.)? Questions on internal capacity Has the county implemented a proposed intervention with the The best way to develop the County’s capacity in implementing an intervention is local private sector? through practical application. The more experience the county has, the more assured • If yes, was it successful? the county staff, potential investors, and financiers will be that an intervention can be implemented effectively. • Has there been continuity among key staff involved? • Were formal lessons learned or other knowledge transfer mechanisms deployed to retain institutional knowledge? Are there enough available and sufficiently qualified (by training In appraising the available staff, the County should consider the extent to which it may and/or experience) staff to oversee the day-to-day supervision of be able to borrow expertise from other government departments or entities, at the the proposed interventions? local or national level. Are there processes or policies for selecting a In addition to having a dedicated team focused on the identified intervention, the • Project manager, County will need processes to assign the right staff to deliver each project. • Project team, and/or • Consultant(s) to provide technical assistance? Is there likely to be continuity of key personnel (for example, The key members of this team would ideally commit to the project over the long term, across administrations), when the county government changes even when the county government changes, and knowledge transfer mechanisms after elections? should be put in place to retain knowledge in instance of staff turnover. If consultants need to be hired for technical assistance, will there be funds available to pay for such services? Gaps in expertise and capacity could be filled with consultants. The County will need the financial and technical ability to select and hire qualified consultants with relevant Are there any regulations or policies that affect the County’s experience. ability to hire outside technical advisers? Questions on Planning and Budgeting Is there a budgetary system that does or would support multi- Short-term budgeting might not adequately reflect year fiscal commitments to the intervention as needed? the long-term financial commitments needed of certain interventions. Step 4 Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 23 Step 4 Priority transversal policy interventions Step overview Step 4 identifies and prioritizes interventions at the county level Objective that address the specific private sector constraints identified in step 2, being cognizant of political economy considerations as well as Prioritize potential interventions to define the entry point existing short-and long-term economic opportunities. As counties for cross-cutting policy action often have limited public resources, it is imperative to channel efforts toward those interventions that are most likely to sustain- ably improve productivity and facilitate economic transformation in their regions. Counties will therefore need to prioritize the most impactful interventions and translate them into tangible actions given the mandates and capabilities assessed in step 3. Interventions are categorized as per the county’s priorities, capacity, and any other available support from other non-county entities7. Interventions will vary in each region dependent on the aforementioned county specific factors, and not every county will have interventions for all of the four policy levers. 7.  Non county government entities are entities that are not under the county gov- ernment jurisdiction. They include the national government, private sector actors, banks, development partners, civil society, and others. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 24 Table 9  Step 4 methodology overview Additional details on proposed activities METHODOLOGY ACTIVITY Proposed potential interventions that directly address the Desk research Identify and further detail potential interventions identified constraints in step 2 will be identified through desk and stakeholder research and stakeholder consultations and will be organized consultations along the four policy levers. For instance, if water shortage has Workshop Bring together a representative sample of public been noted as a constraint, a potential intervention would be and private sector stakeholders to prioritize to assist with monitoring and enforcement of water usage and interventions based on expected impact upon water availability. This intervention would then be listed under implementation. the “Infrastructure and land” policy lever (in Table 10). Consultation Host consultations with relevant county interviews departments to discuss the priority list The interventions are then further detailed and classified (as and possible next steps. either High, Medium or Low impact) through consultation with county officials from relevant departments (and external experts, as needed) in Table 18 below. Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 25 Table 10  Categories to detail and shortlist all potential interventions based on impact Illustrative output Example 4: All potential interventions that will address the constraints facing private sector actors in County X SOLUTIONS (FROM STEP 2) EXPECTED IMPACT UPON IMPLEMENTATION Proposed intervention Implementation benefit ID & solutions Based on stakeholder consultation Low Medium High Institutions and Regulations Simplify and streamline business licensing and permits for firms Lower business operational costs × Infrastructure and Land Improve water use planning and crowd-in private finance to smooth cyclical variation in water supply Higher crop yields × Enterprise Support and Finance Provide business development support on quality standards and certification Access to wider markets × Skills and Innovation Support local vocational training centers Greater quantity and quality of skilled labor available, in providing training relevant to the local private sector reducing business training costs × Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 26 x SOLUTIONS (FROM STEP 2) EASE OF IMPLEMENTATION ID Proposed intervention 1. Can the county implement it itself? 2. If NO , can it enter a partnership or Low Medium High & solutions YES OR NO coalition to implement it? YES OR NO NO & NO NO & YES YES Institutions and Regulations Simplify and streamline business licensing and permits for firms NO YES × Infrastructure and Land Improve water use planning and crowd-in private finance to smooth cyclical variation in water supply YES × Enterprise Support and Finance Provide business development support on quality standards and certification YES × Skills and Innovation Support local vocational training centers in pro- viding training relevant to the local private sector NO YES × Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 27 A two-level assessment (illustrated in Figure 4) is utilized to Interventions that fall within the pre-determined “attractive” establish the ease of implementation from a county perspective. range are given the highest priority. This range is for interven- The first level of assessment will determine the ease of imple- tions that are classified as high under the impact of implemen- mentation of the selected intervention using county government tation and high or medium under ease of implementation. resources while the second level assessment will determine the ease of implementation using other stakeholder resources. Figure 4  The proposed approach for assessing the ease of implementation criterion Can the intervention be Yes High ease implemented using county of implementation government resource? No Is it easy to mobilize other resources through partner- Yes Medium ease ships and coalitions with other of implementation stakeholders? No Low ease of implementation Source: Authors Toolkit for Competitive Counties in Kenya / Toolkit for Competitive Counties 28 Table 11  Shortlisting intervention matrix Place proposed solutions to private sector needs based on STEP 2, STEP 3 and STEP 4 Cross-cutting interventions with a high impact PROJECTED and easy to implement should be prioritized IMPACT HIGH MEDIUM LOW LOW MEDIUM HIGH EASE OF IMPLEMENTATION Contact Kenya Country Office Delta Center Menengai Road, Upper Hill P.O. Box 30577, Nairobi Tel: (254-20) 293 6000 Fax: (254-20) 293 6380 / 381 Main Report: Analytical Framework for Competitive Local Economies in Kenya Online Toolkit: Online Toolkit Companion form: Companion form