Infrastructure

INDUSTRIAL POLICY SINCE 1956 When India achieved Independence in 1947, the national consensus was in favour of rapid industrialization of the economy which was seen not only as the key to economic development but also to economic sovereignty. In the subsequent years, India’s Industrial Policy evolved through successive Industrial Policy Resolutions and Industrial Policy Statements. Specific priorities for industrial development were also laid down in the successive Five Year Plans.

Building on the so-called “Bombay Plan”1 in the pre-Independence era, the first Industrial Policy Resolution announced in 1948 laid down broad contours of the strategy of industrial development. At that time the Constitution of India had not taken final shape nor was the Planning Commission constituted. Moreover, the necessary legal framework was also not put in place. Not surprisingly therefore, the Resolution was somewhat broad in its scope and direction. Yet, an important distinction was made among industries to be kept under the exclusive ownership of Government, i. e. the public sector, those reserved for private sector and the joint sector. Subsequently, the Indian Constitution was adopted in January 1950, the Planning Commission was constituted in March 1950 and the Industrial (Department and Regulation) Act (IDR Act) was enacted in 1951 with the objective of empowering the Government to take necessary steps to regulate the pattern of industrial development through licensing. This paved the way for the Industrial Policy Resolution of 1956, which was the first comprehensive statement on the strategy for industrial development in India.

Industrial Policy Resolution – 1956 The Industrial Policy Resolution – 1956 was shaped by the Mahalanobis Model of growth, which suggested that emphasis on heavy industries would lead the economy towards a long term higher growth path. The Resolution widened the scope of the public sector. The objective was to accelerate 1 Bombay Plan prepared by leading Indian industrialists in 1944-45 had recommended government support for industrialization, including a direct role in the production of capital goods. economic growth and boost the process of industrialization as a means to achieving a socialistic pattern of society. Given the scarce capital and inadequate entrepreneurial base, the Resolution accorded a predominant role to the State to assume direct responsibility for industrial development. All industries of basic and strategic importance and those in the nature of public utility services besides those requiring large scale investment were reserved for the public sector.

The Industrial Policy Resolution – 1956 classified industries into three categories. The first category comprised 17 industries (included in Schedule A of the Resolution) exclusively under the domain of the Government. These included inter alia, railways, air transport, arms and ammunition, iron and steel and atomic energy. The second category comprised 12 industries (included in Schedule B of the Resolution), which were envisaged to be progressively State owned but private sector was expected to supplement the efforts of the State.

The third category contained all the remaining industries and it was expected that private sector would initiate development of these industries but they would remain open for the State as well. It was envisaged that the State would facilitate and encourage development of these industries in the private sector, in accordance with the programmes formulated under the Five Year Plans, by appropriate fiscal measures and ensuring adequate infrastructure. Despite the demarcation of industries into separate categories, the Resolution was flexible enough to allow the required adjustments and modifications in the national interest.

Another objective spelt out in the Industrial Policy Resolution – 1956 was the removal of regional disparities through development of regions with low industrial base. Accordingly, adequate infrastructure for industrial development of such regions was duly emphasized. Given the potential to provide large-scale employment, the Resolution reiterated the Government’s determination to provide all sorts of assistance to small and cottage industries for wider dispersal of the industrial base and more equitable distribution of income.

The Resolution, in fact, reflected the prevalent value system of India in the early 1950s, which was centered around self sufficiency in industrial 3 production. The Industrial Policy Resolution – 1956 was a landmark policy statement and it formed the basis of subsequent policy announcements. Industrial Policy Measures in the 1960s and 1970s Monopolies Inquiry Commission (MIC) was set up in 1964 to review various aspects pertaining to concentration of economic power and operations of industrial licensing under the IDR Act, 1951.

While emphasizing that the planned economy contributed to the growth of industry, the Report by MIC concluded that the industrial licensing system enabled big business houses to obtain disproportionately large share of licenses which had led to pre-emption and foreclosure of capacity. Subsequently, the Industrial Licensing Policy Inquiry Committee (Dutt Committee), constituted in 1967, recommended that larger industrial houses should be given licenses only for setting up industry in core and heavy investment sectors, thereby necessitating reorientation of industrial licensing policy.

In 1969, the monopolies and restrictive Trade Practices (MRTP) Act was introduced to enable the Government to effectively control concentration of economic power. The Dutt Committee had defined large business houses as those with assets of more than Rs. 350 million. The MRTP Act, 1969 defined large business houses as those with assets of Rs. 200 million and above. Large industries were designated as MRTP companies and were eligible to participate in industries that were not reserved for the Government or the Small scale sector.

The new Industrial Licensing Policy of 1970 classified industries into four categories. First category, termed as ‘Core Sector’, consisted of basic, critical and strategic industries. Second category termed as ‘Heavy Investment Sector’, comprised projects involving investment of more than Rs. 50 million. The third category, the ‘Middle Sector’ consisted of projects with investment in the range of Rs. 10 million to Rs. 50 million. The fourth category was ‘Delicensed Sector’, in which investment was less than Rs. 0 million and was exempted from licensing requirements. The industrial licensing policy of 1970 4 confined the role of large business houses and foreign companies to the core, heavy and export oriented sectors. The Industrial Policy Statement – 1973 With a view to prevent excessive concentration of industrial activity in the large industrial houses, this Statement gave preference to small and medium entrepreneurs over the large houses and foreign companies in setting up of new capacity particularly in the production of mass consumption goods.

New undertakings of up to Rs. 10 million by way of fixed assets were exempted from licensing requirements for substantial expansion of assets. This exemption was not allowed to MRTP companies, foreign companies and existing licensed or registered undertakings having fixed assets of Rs. 50 million and above. The Industrial Policy Statement -1977 This Statement emphasized decentralization of industrial sector with increased role for small scale, tiny and cottage industries. It also provided for close interaction between industrial and agricultural sectors.

Highest priority was accorded to power generation and transmission. It expanded the list of items reserved for exclusive production in the small scale sector from 180 to more than 500. For the first time, within the small scale sector, a tiny unit was defined as a unit with investment in machinery and equipment up to Rs. 0. 1 million and situated in towns or villages with a population of less than 50,000 (as per 1971 census). Basic goods, capital goods, high technology industries important for development of small scale and agriculture sectors were clearly delineated for large scale sector.

It was also stated that foreign companies that diluted their foreign equity up to 40 per cent under Foreign Exchange Regulation Act (FERA) 1973 were to be treated at par with the Indian companies. The Policy Statement of 1977 also issued a list of industries where no foreign collaboration of financial or technical nature was allowed as indigenous technology was already available. Fully owned foreign companies were allowed only in highly export oriented sectors or sophisticated technology areas. For all approved foreign investments, companies were completely free to repatriate capital and remit profits, dividends, royalties, etc. Further, in order to ensure balanced regional development, it was decided not to issue fresh licenses for setting up new industrial units within certain limits of large metropolitan cities (more than 1 million population) and urban areas (more than 0. 5 million population). Industrial Policy Statement -1980 The industrial Policy Statement of 1980 placed accent on promotion of competition in the domestic market, technological upgradatrion and modernization of industries.

Some of the socio-economic objectives spelt out in the Statement were i) optimum utilisation of installed capacity, ii) higher productivity, iii) higher employment levels, iv) removal of regional disparities, v) strengthening of agricultural base, vi) promotion of export oriented industries and vi) consumer protection against high prices and poor quality. Policy measures were announced to revive the efficiency of public sector undertakings (PSUs) by developing the management cadres in functional fields viz. operations, finance, marketing and information system. An automatic expansion of capacity up to five per cent per annum was allowed, particularly in the core sector and in industries with long-term export potential. Special incentives were granted to industrial units which were engaged in industrial processes and technologies aiming at optimum utilization of energy and the exploitation of alternative sources of energy. In order to boost the development of small scale industries, the investment limit was raised to Rs. 2 million in small scale units and Rs. . 5 million in ancillary units. In the case of tiny units, investment limit was raised to Rs. 0. 2 million. Industrial Policy Measures during the 1980s Policy measures initiated in the first three decades since Independence facilitated the establishment of basic industries and building up of a broadbased infrastructure in the country. The Seventh Five Year Plan (1985-1900), recognized the need for consolidation of these strengths and initiating policy measures to prepare the Indian industry to respond effectively to emerging challenges. A number of measures were initiated towards technological and managerial modernization to improve productivity, quality and to reduce cost of production. The public sector was freed from a number of constraints and was provided with greater autonomy. There was some progress in the process of deregulation during the 1980s. In 1988, all industries, excepting 26 industries specified in the negative list, were exempted from licensing. The exemption was, however, subject to investment and locational limitations.

The automotive industry, cement, cotton spinning, food processing and polyester filament yarn industries witnessed modernization and expanded scales of production during the 1980s. With a view to promote industrialization of backward areas in the country, the Government of India announced in June, 1988 the Growth Centre Scheme under which 71 Growth Centers were proposed to be set up throughout the country. Growth centers were to be endowed with basic infrastructure facilities such as power, water, telecommunications and banking to enable them to attract industries.

Industrial Policy Statement- 1991 The Industrial Policy Statement of 1991 stated that “the Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increased competitiveness for the benefit of common man”.

It further added that “the spread of industrialization to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments”. The objective of the Industrial Policy Statement – 1991 was to maintain sustained growth in productivity, enhance gainful employment and achieve optimal utilization of human resources, to attain international competitiveness, and to transform India into a major partner and player in the global arena. Quite clearly, the focus of the policy was to unshackle the Indian industry from bureaucratic controls. This called for a number of far-reaching reforms : • A substantial modification of Industry Licencing Policy was deemed necessary with a view to ease restraints on capacity creation, respond to emerging domestic and global opportunities by improving productivity. Accordingly, the Policy Statement included abolition of industrial licensing for most industries, barring a handful of industries for reasons of security and trategic concerns, social and environmental issues. Compulsory licencing was required only in respect of 18 industries. These included, inter alia, coal and lignite, distillation and brewing of alcoholic drinks, cigars and cigarettes, drugs and pharmaceuticals, white goods, hazardous chemicals. The small scale sector continued to be reserved. Norms for setting up industries (except for industries subject to compulsory licensing) in cities with more than one million population were further liberalised. Recognising the complementarily of domestic and foreign investment, foreign direct investment was accorded a significant role in policy announcements of 1991. Foreign direct investment (FDI) up to 51 per cent foreign equity in high priority industries requiring large investments and advanced technology was permitted. Foreign equity up to 51 per cent was also allowed in trading companies primarily engaged in export activities. These important initiatives were expected to provide a boost to investment besides enabling access to high technology and marketing expertise of foreign companies. With a view to inject technological dynamism in the Indian industry, the Government provided automatic approval for technological agreements related to high priority industries and eased procedures for hiring of foreign technical expertise. • Major initiatives towards restructuring of public sector units (PSUs) were initiated, in view of their low productivity, over staffing, lack of technological upgradation and low rate of return. In order to raise resources and ensure wider public participation PSUs, it was decided to offer its shareholding stake to mutual funds, financial institutions, general public and workers. Similarly, in order to revive and rehabilitate chronically sick PSUs, it was decided to refer them to the Board for Industrial and Financial Reconstruction (BIFR). The Policy also provided for greater managerial autonomy to the Boards of PSUs. • The Industrial Policy Statement of 1991 recognized that the Government’s intervention in investment decisions of large companies through MRTP Act had proved to be deleterious for industrial growth.

Accordingly, pre-entry scrutiny of investment decisions of MRTP companies was abolished. The thrust of policy was more on controlling unfair and restrictive trade practices. The provisions restricting mergers, amalgamations and takeovers were also repealed. Industrial Policy Measures Since 1991 Since 1991, industrial policy measures and procedural simplifications have been reviewed on an ongoing basis. Presently, there are only six industries which require compulsory licensing. Similarly, there are only three industries reserved for the public sector.

Some of important policy measures initiated since 1991 are set out below: • Since 1991, promotion of foreign direct investment has been an integral part of India’s economic policy. The Government has ensured a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. FDI up to 100 per cent has also been allowed under automatic route for most manufacturing activities in Special Economic Zones (SEZs).

More recently, in 2004, the FDI limits were raised in the private banking sector (up to 74 per cent), oil exploration (up to 100 per cent), petroleum product marketing (up to 100 per cent), petroleum product pipelines (up to 100 per cent), natural gas and LNG pipelines (up to 100 per cent) and printing of scientific and technical magazines, periodicals and journals (up to 100 per cent). In 9 February 2005, the FDI ceiling in telecom sector in certain services was increased from 49 per cent to 74 per cent. Reservation of items of manufacture exclusively in the small scale sector has been an important tenet of industrial policy. Realizing the increased import competition with the removal of quantitative restrictions since April 2001, the Government has adopted a policy of dereservation and has pruned the list of items reserved for SSI sector gradually from 821 items as at end March 1999 to 506 items as on April 6, 2005. Further, the Union Budget 2005-06 has proposed to dereserve 108 items which were identified by Ministry of Small Scale Industries.

The investment limit in plant and machinery of small scale units has been raised by the Government from time to time. To enable some of the small scale units to achieve required economies of scale, a differential investment limit has been adopted for them since October 2001. Presently, there are 41 reserved items which are allowed investment limit up to Rs. 50 million instead of present limit of Rs. 10 million applicable for other small scale units. • Equity participation up to 24 per cent of the total shareholding in small scale units by other industrial undertakings has been llowed. The objective therein has been to enable the small sector to access the capital market and encourage modernization, technological upgradation, ancillarisation, sub-contracting, etc. • Under the framework provided by the Competition Act 2002, the Competition Commission of India was set up in 2003 so as to prevent practices having adverse impact on competition in markets. • In an effort to mitigate regional imbalances, the Government announced a new North-East Industrial Policy in December 1997 for promoting industrialization in the North-Eastern region.

This policy is applicable for the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. The Policy has provided various concessions to industrial units in the North Eastern Region, e. g. , 10 development of industrial infrastructure, subsidies under various schemes, excise and income-tax exemption for a period of 10 years, etc. North Eastern Development Finance Corporation Ltd. has been designated as the nodal disbursing agency under the Scheme. • The focus of disinvestment process of PSUs has shifted from sale of minority stakes to strategic sales.

Up to December 2004, PSUs have been divested to an extent of Rs. 478 billion. • Apart from general policy measures, some industry specific measures have also been initiated. For instance, Electricity Act 2003 has been enacted which envisaged to delicense power generation and permit captive power plants. It is also intended to facilitate private sector participation in transmission sector and provide open access to grid sector. Various policy measures have facilitated increased private sector participation in key infrastructure sectors such as, telecommunication, roads and ports.

Foreign equity participation up to 100 per cent has been allowed in construction and maintenance of roads and bridges. MRTP provisions have been relaxed to encourage private sector financing by large firms in the highway sector. Evidently, in the process of evolution of industrial policy in India, the Government’s intervention has been extensive. Unlike many East Asian countries which used the State intervention to build strong private sector industries, India opted for the State control over key industries in the initial phase of development. In order to promote these industries the

Government not only levied high tariffs and imposed import restrictions, but also subsidized the nationalized firms, directed investment funds to them, and controlled both land use and many prices. In India, there has been a consensus for long on the role of government in providing infrastructure and maintaining stable macroeconomic policies. However, the path to be pursued toward industrial development has evolved over time. The form of government intervention in the development strategy needs to be chosen from the two alternatives: ‘Outward-looking development 1 policies’ encourage not only free trade but also the free movement of capital, workers and enterprises. By contrast, ‘inward-looking development policies’ stress the need for one’s own style of development. India initially adopted the latter strategy. The advocates of import substitution in India believed that we should substitute imports with domestic production of both consumer goods and sophisticated manufactured items while ensuring imposition of high tariffs and quotas on imports.

In the long run, these advocates cite the benefits of greater domestic industrial diversification and the ultimate ability to export previously protected manufactured goods, as economies of scale, low labour costs, and the positive externalities of learning by doing cause domestic prices to become more competitive than world prices. However, pursuit of such a policy forced the Indian industry to have low and inferior technology. It did not expose the industry to the rigours of competition and therefore it resulted in low efficiency.

The inferior technology and inefficient production practices coupled with focus on traditional sectors choked further expansion of the India industry and thereby limited its ability to expand employment opportunities. Considering these inadequacies, the reforms currently underway aim at infusing the state of the art technology, increasing domestic and external competition and diversification of the industrial base so that it can expand and create additional employment opportunities. In retrospect, the Industrial Policy Resolutions of 1948 and 1956 reflected the desire of the Indian State to achieve self sufficiency in industrial production.

Huge investments by the State in heavy industries were designed to put the Indian industry on a higher long-term growth trajectory. With limited availability of foreign exchange, the effort of the Government was to encourage domestic production. This basic strategy guided industrialization until the mid-1980s. Till the onset of reform process in 1991, industrial licensing played a crucial role in channeling investments, controlling entry and expansion of capacity in the Indian industrial sector. As such industrialization occurred in a protected environment, which led to various distortions.

Tariffs and quantitative controls largely kept foreign competition out of the domestic 12 market, and most Indian manufacturers looked on exports only as a residual possibility. Little attention was paid to ensure product quality, undertaking R for technological development and achieving economies of scale. The industrial policy announced in 1991, however, substantially dispensed with industrial licensing and facilitated foreign investment and technology transfers, and threw open the areas hitherto reserved for the public sector.

The policy focus in the recent years has been on deregulating the Indian industry, enabling industrial restructuring, allowing the industry freedom and flexibility in responding to market forces and providing a business environment that facilitates and fosters overall industrial growth. The future growth of the Indian industry as widely believed, is crucially dependent upon improving the overall productivity of the manufacturing sector, rationalisation of the duty structure, technological upgradation, the search for export markets through promotional efforts and trade agreements and creating an enabling legal environment.

Bibliography 1. Ahluwalia, I. J. Productivity and Growth in Indian Manufacturing, Oxford University Press, Delhi , 1991. 2. Government of India Annual Report 2003-04, Ministry of Commerce and Industry. New Delhi. 3. Government of India Handbook of Industrial Policy and Statistics (Various Issues), Office of Economic Adviser, Ministry of Commerce and Industry. New Delhi. 4. Government of India Economic Survey 2004-05, Ministry of Finance. New Delhi

Abstract Construction sector and construction activities are considered to be one of the major sources of economic growth, development and economic activities. Construction and engineering services industry play an important role in the economic uplift and development of the country. It can be regarded as a mechanism of generating the employment and offering job opportunities to millions of unskilled, semi-skilled and skilled work force. It also plays key role in generating income in both formal and informal sector.

It supplements the foreign exchange earnings derived from trade in construction material and engineering services. Unfortunately construction sector is one of the most neglected sectors in Kenya. Although the construction sector has only a 2. 3 percent share in GDP, its share of the employed labor force was disproportionately large at 6. 1 percent in FY07. The construction sector is estimated to have grown by 17. 2 percent in 2006-07 as against 5. 7 percent of last year.

The higher demand for construction workers is also reflected in a continued double-digit rise in their wages since FY05. Their wages increased by 11. 1 percent in FY07. Keywords: Construction Sector, GDP, Causal Relationship, Co-integration. 1. Introduction The construction industry plays an essential role in the socio economic development of a country. The activities of the industry have great significance to the achievement of national socio-economic development goals of providing infrastructure, sanctuary and employment.

It includes hospitals, schools, townships, offices, houses and other buildings; urban infrastructure (including water supply, sewerage, 280 drainage); highways, roads, ports, railways, airports; power systems; irrigation and agriculture systems; telecommunications etc. It deals with all economic activities directed to the creation, renovation, repair or extension of fixed assets in the form of buildings, land improvements of an engineering nature. Besides, the construction industry generates substantial employment and provides a growth impetus to other sectors through backward nd forward linkages. It is, essential therefore, that, this vital activity is nurtured for the healthy growth of the economy. The main purpose of this study is to see whether growth in construction industry actually caused the economic increase or, alternatively, did economic expansion strongly contribute to construction growth instead? 1. 1 Global Distribution of Construction Output and Employment: Globally, construction industry is regarded as one of the largest fragmented industry. An estimate of annual global construction output is probably closer to U.

S $ 4. 5 trillion in 20041. The construction industry is also a prime source of employment generation offering job opportunities to millions of unskilled, semi-skilled and skilled work force. Global picture of construction output and employment in developing and developed countries can be seen in table -1 below. It can be seen from the table-1 that total construction output worldwide was estimated at just over $3,000 billion in 1998. Output is heavily concentrated (77 per cent) in the high income countries (Western Europe, North America, Japan and Australasia).

The contribution of low and middle income countries was only 23 % of total world construction output (ILO Geneva2001). The data in employment situation table 2 tells a rather different story so far as employment is concerned. It can be seen that there was an excess of 111 million construction workers worldwide in 1998 and most of them were in the low- and middle-income countries. The distribution of construction employment is, in fact, almost the exact reverse of the distribution of output. The high-income countries produce 77 per cent of global construction output with 26 per cent of total employment.

The rest of the world (comprising low- and middle-income countries) produces only 23 per cent of output but has 74 per cent of employment (ILO Geneva2001). ———————————————— 1 Source: Engineering News Record, USA 281 1. 2 Construction Industry in Kenya; The housing and construction sector in Kenya plays an important role in developing aggregate economy and reducing unemployment. It provides substantial employment opportunities as it contributes through a higher multiplier effect with a host of beneficial forward and backward linkage in the economy.

The sector through linkages affects about 40 building material industries, support investment and growth climate and helps reduce poverty by generating income opportunities for poor household. It provides jobs to about 5. 5 per cent of the total employed labor force or to 2. 43 million persons, (2. 41 million male and 0. 2 million female) during 2003- 04 (Economic Survey 2004-05) Unfortunately the construction sector is one of the most neglected sectors in Kenya. It is at low ebb, which can be judged from the fact that per capita consumption of cement in Kenya is one of the lowest among the developing countries. 2.

Literature Review: Construction in any country is a complex sector of the economy, which involves a broad range of stakeholders and has wide ranging linkages with other areas of activity such as manufacturing and the use of materials, energy, finance, labor and equipment. The contribution of construction industry in the aggregate economy of a country has been addressed by a number of researchers and valuable literature available on the linkage between construction sector and other sectors of the economy. Several researchers conclude that the construction sector has strong linkages with other sectors of the national economy.

Hirschman (1958) first defined the concept of ‘linkage’ in his work The Strategy of Economic Development. He emphasized the significance of ‘unbalanced’ growth among supporting sectors of the economy as opposed to a balanced development of all interrelated economic activities (Lean, 2001). Park (1989) has confirmed that the construction industry generates one of the highest multiplier effects through its extensive backward and forward linkages with other sectors of the economy. It is stated that the importance of the construction industry stems from its strong linkages with other sectors of the economy (World Bank, 1984).

However, interdependence between the construction sector and other economic sectors is not static (Bon, 1988; Bon, 1992). Strout (1958) provided a comparative inter-sectoral analysis of employment effects with an emphasis on the construction. Ball (1965) and Ball (1981) addressed the employment effects of the construction sector as a whole. Many studies (Fox, 1976; Bon and Pietroforte, 1993; Pietroforte and Bon, 1995) use the strong direct and total linkage indicator to explain the leading role of the construction sector in the national economy. . 1 Construction Industry and National Economy: Construction activities and its output is an integral part of a country’s national economy and industrial development. The construction industry is often seen as a driver of economic growth especially in developing countries. The industry can mobilize and effectively utilize local human and material resources in the development and maintenance of housing and infrastructure to promote local employment and improve economic efficiency.

Field and Ofori (1988) stated that the construction makes a noticeable contribution to the economic output of a country; it generates employment and incomes for the people and therefore the effects of changes in the construction industry on the economy occur at all levels and in virtually all aspects of life. This implies that construction has a strong linkage with many economic activities, and whatever happens to the industry will directly and indirectly influence other industries and ultimately, the wealth of a country.

Hence, the construction industry is regarded as an essential and highly visible contributor to the process of growth (Field and Ofori, 1988). The significant role of the construction industry in the national economy has been highlighted by Turin (1969). On the basis of cross section of data from a large number of countries at various levels of development, Turin (1969) argued that there is a positive relationship between construction output and economic growth. Furthermore, as economies grow construction output grows at a faster rate, assuming a higher proportion of GDP.

In a recent article Drewer returns to the ‘construction and development’ debate. Using data for 1990 similar to that assembled by Turin for 1970, he shows that global construction output has become increasingly concentrated in the developed market economies. He goes on to argue that this new evidence does not support Turin’s propositions. The issue of concern here is whether the construction sector and the aggregate economy are fragmented or mutually dependent, and whether construction activity contributes to economic growth and /or vice versa.

Studies have shown that the interdependence between the construction sector and other economic sectors is not static but changes as the nation’s economy grows and develops 2. 2 Tools for Measuring Strength of Linkage: Two analytical tools, which most widely used for measuring the strength of the linkage, sector vise economic performance and production interdependence and to analyze economic relationships, are: (i) Leontief’s (1936) Input–output analysis and ii) The new econometric methodology developed by Engle and Granger Bon (1988) is one of the few researchers who applied the concept of Leontief input-output matrix to the construction industry. He considered the input–output technique to be ideal, for it provides a framework with which to study both direct and indirect resource utilization in the construction sector and industrial interdependence. He also found that the input–output tool can be used for studies of the construction sector in three broad aspects: employment creation potential, role in the economy, and identification of major suppliers to the construction industry.

Rameezdeen et al, (2006), also used input283 output table to analyze the significance of construction in a developing economy and its relationships with other sectors of the national economy. With the popularity of the new econometric methodology presented by Engle and Granger, many modeling studies related to economic and financial issues have applied this new technique to analyze economic relationships. Green (1997) applied the Granger causality test to determine the relationship between GDP and residential and non-residential investment, using quarterly national income and gross domestic product data for the period 1959–1992.

His results showed that residential investment causes, but is not caused by GDP, while non-residential investment does not cause, but is caused by GDP. He concluded that housing leads and other types of investment lag the business cycle (Lean, 2001). Tse and Ganesan (1997) is also used the same econometric technique (Granger causality test) to determine the causal relationship between construction flows and GDP using quarterly Hong Kong data from 1983 to 1989. They found that the GDP leads the construction flow and not vice versa. 2. Research Objective: The objective of the present paper is to examine the specific lead lag relationships between construction flow and gross domestic product (GDP). For obtaining this goal we will use annual data for construction sector and economic GDP of Kenya from 1950 to 2005. Granger causality methodology is commonly applied to investigations on the relationships among money supply, stock prices and inflation, but very few researchers tested the linkages between the construction sector and the aggregate economy using this method.

Here we will use the same approach to identify whether there is a unidirectional or bidirectional causal relation between construction sector and economic growth in the case of Kenya. In addition, we will use unit root tests to examine the stationarity of both series (construction sector and GDP) and co integration test will use to find out the existence of long run relationship between these variables. It is a powerful concept, because it allows us to describe the existence of an equilibrium or stationary relationship among two or more time series, each of which is individually non- stationary. . Methodology: A simple statistical and econometric analysis will be used to know the general properties of data and to see the relationship among variables of interest like construction sector (LCNS) and aggregate economy of Kenya (LGDP). This study uses time series annual data (1950 to 2005) to demonstrate the causal relationship between construction sector and GDP in Kenya. A time series is a sequence of values or readings ordered by a time parameter, such as hourly and yearly readings.

When time series data is used for analysis in econometrics, several statistical techniques and steps must be undertaken. First of all unit root test has been applied to each series individually in order to provide information about the data being stationary. Non-stationary data contains unit roots. The existences of unit roots make hypothesis test results unreliable. If the data are non-stationary, then frequently stationarity can be achieved by first differencing (Granger and Newbold, 1986) that is, obtaining the differences between the current value and that of the previous period.

Once stationarity is determined, structural modeling of the variables or testing for causality can take place. The causality test aims to verify whether historical variations of the construction data follow or precede the GDP. To test for the 284 existence of unit roots and to determine the degree of differences in order to obtain the stationary series of LGDP and LCNS, Augmented Dickey- Fuller Test (ADF) has been applied. If the time series data of each variable is found to be non-stationary at level, then there may exists a long run relationship between these variables, LGDP and LCNS.

Johansen’s (1988) co-integration test has been used in order to know the existence of long run relationship between these variables. A series is said to be integrated if it accumulates some past effects, such a series is non-stationary because its future path depends upon all such past influences, and is not tied to some mean to which it must eventually return. To transform a co-integrated series to achieve stationarity, we must differentiate it at least once. The number of times the data have to be differenced to become stationary is the order of integration.

If a series is differenced d times to become stationary, it is said to be integrated of order I(d). However, a linear combination of series may have a lower order of integration than any one of them has individually. In this case, the variables are said to be co-integrated. The following section presents the results of the simple descriptive statistical analysis and then unit root analysis to study the stationarity of GDP and construction flow. Accordingly, we employ Granger causality methodology to investigate the lead lag relationships between the construction flow and the GDP. . 1 Data and Descriptive Statistical Analysis: The annual data for the period 1950 to 2005 is being used for empirical analysis. Construction industry flows (LCNS) and Gross Domestic Product (LGDP) data in local currency is employed to analyze the dynamic relationship between GDP and construction sector. All the variables are expressed in natural logarithms so that they may be considered elasticity of the relevant variables. We examine the contemporaneous correlation and check for the evidence of Granger causality between these two variables.

Table-3 presents summery statistic of the data and table- 4 tell us that there is a strong correlation between construction sector and GDP of Kenya during 1950 to 2005. Annual observations of GDP and construction sector are taken from Handbook of Statistics of Kenya Economy, 2005 and various issues of Economic Survey of Kenya. Table 3 Descriptive statistics LCNS LGDP Mean 8. 605299 11. 98993 Median 8. 996238 11. 90110 Maximum 11. 87699 15. 62865 Minimum 4. 976734 9. 126524 Std. Dev. 2. 184803 2. 082374 Skewness -0. 140903 0. 195506 Kurtosis 1. 651252 1. 664931

Jarque-Bera 4. 429918 4. 515697 Probability 0. 109158 0. 104575 Observations 56 Apparently as the government is geared to enhance rural development in its development agenda, the construction industry faces the daunting task to be part of the development philosophy. The construction industry has to ensure that it has the capacity to deliver development projects as per the needs of the government and in the time scale specified. Many a development projects are in the pipeline, most notable, road projects, schools, police and teachers’ houses, boreholes, among many others.

The construction industry would add value to the country’s development agenda through successfully undertaking the said projects. Certainly, the construction industry loses credibility, trust and reputation in the eyes of the publics if projects it undertakes do not live to the expectations of the people. The government’s rural development project could further spur the growth of indigenous construction companies which will in the end trickle-down economic benefits to the country and the citizens.

The mushrooming of indigenous construction firms with capacity to handle large scale jobs will save the country from losing forex as most projects will be handled locally, hence requiring no need for forex to pay international construction firm. This could certainly write a new chapter in the history of the construction industry in the country. As the small construction firms will be developing they will certainly be competing for construction jobs in other countries within Africa and possibly beyond. This could make the construction industry a reliable partner in bringing into the country the required forex.

The exposure of the construction industry abroad could as well play the ambassadorial role of marketing services that Malawi can offer in Africa and beyond. If one sector successfully storms the international market, other sectors stand an easy chance as they actually ride on the success of the pioneer service provider. References Anaman K. A and Amponsah. C, (2007). Analysis of the causality links between the growth of the construction industry and the growth of the macro economy in Ghana, Institute of Economic Affairs, Accra, Ghana Ball, C. M. 1965) Employment effects of construction expenditures, Monthly labour Review, 88, 154- 158. Ball, R. (1981) Employment created by construction, expenditures, Monthly labour Review, 104, 38-44. Bon, R. (1988). Direct and indirect resource utilization by the construction sector: the case of the USA since World War II, Habitat International, 12(1), 49–74. Bon, R. (1992). The future of international construction: secular patterns of growth and decline. Habitat International, 16(3), 119–28 Census and Statistics Department of HKSAR (1985–2002) Hong Kong Monthly Digest of Statistics, Census and Statistics Department of HKSAR, Hong Kong.

Bon, R. and Pietroforte, R. (1990) Historical comparison of construction sectors in the United States, Japan, Italy, and Finland using input-output tables, Construction Management and Economics, 8, 233- 247. Bon, R. and Pietroforte, R. (1993) New construction versus maintenance and repair construction technology in the USA since World War I. , Construction Management and Economics, 11, 151–62. Bon, R. , Birgonul, T. and Ozdogan, I. (1999) An input– output analysis of the Turkish construction sector, 1973– 1990: a note. Construction Management and Economics, 17, 543–51.

Chen, J. J. (1998) The characteristics and current status of China’s construction industry, Construction Management and Economics, 16, 711-719. Dickey, D. A. and Fuller, W. A. (1979) Distributions of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427- -31 Drewer, S (1997) Construction and development: Further reflections on the work of Duccio Turin. Proceedings of the First International Conference on Construction Industry Development, Singapore 9- 11 December. Engle, R. F. and Issler, V. 1993) Estimating Sectoral Cycles Using Co integration and Common Features, Working Paper No. 4529, National Bureau of Economic Research. Field, B. and Ofori, G. (1988) Construction and economic development – a case study. Third World Planning Review, 10(1), 41–50. Fox, L. P. (1976) Building construction as an engine of growth: an evaluation of the Columbian development plan. Ph. D. dissertation, The University of North Carolina. Granger, C. W. J. and Newbold, P. (1986) Forecasting Economic Time Series, Academic Press, Orlando, FL. Granger, C. W. J. and Newbold, P. (1974) Spurious regressions in econometrics.

Journal of Econometrics, 2, 111–20. Green, R. K. (1997) Follow the leader: how changes in residential and non-residential investment predict changes in GDP. Real Estate Economics, 25(2), 253–70. Harris, R. (1995) Using Cointegration Analysis in Econometric Modeling, Prentice-Hall, Englewood Cliffs, NJ. Hassan. S. A. (2002) Construction Industry. (Kenya) published by Economic Review 2002. Hillebrandt, P. (1985) Analysis of the British Construction Industry, Macmillan, London. Hirschman, A. O. (1958) The Strategy of Economic Development, Yale University Press, New Haven, CT.

Hua. B. G. (1995). Residential construction demand forecasting using economic indicators: a comparative study of artificial neural networks and multiple regression School of Building and Estate Management, National University of Singapore ILO Geneva (2001), The construction industry in the twenty first century: Its image, employment prospects and skill requirements, International Labor Office Geneva Lean, S. C. (2001), Empirical tests to discern linkages between construction and other economic sectors in Singapore, Construction Management and Economics, 13, 253-262 290

FOUR APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT Presented by: Kemeasoudei Fanama (u0856287) WHAT IS INFORMATION TECHNOLOGY? Information technology is defined as the study, design, development, implementation, support or management of computer- based information systems, particularly software applications and computer hardware. IT deals with the use of electronic computers and computer software to convert, store, transmit, process, protect and securely retrieve information. APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT 1.

Fundamental Approach: The basic tenets of the fundamental approach, which is perhaps most commonly advocated by investment professionals, are as follows: There is an intrinsic value of a security and this depends upon underlying economic (fundamental) factors. The intrinsic value can be established by a penetrating analysis of the fundamental factors relating to the company, industry, and economy. At any given point of time, there are some securities for which the prevailing market price would differ from the intrinsic value.

Sooner or later, of course, the market price would fall in line with the intrinsic value. ? ? ? Superior returns can be earned by buying under-valued securities (securities whose intrinsic value exceeds the market price) and selling over-valued securities (securities whose intrinsic value is less than the market price). APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT (continued) 2. Psychological Approach: The psychological approach is based on the premise that stock prices are guided by emotion, rather than reason.

Stock prices are believed to be influenced by the psychological mood of the investors. When greed and euphoria sweep the market, prices rise to dizzy heights. On the other hand, when fear and despair envelop the market, prices fall to abysmally low levels. Since psychic values appear to be more important than intrinsic values, the psychological approach suggests that it is more profitable to analyse how investors tend to behave as the market is swept by waves of optimism and pessimism which seem to alternate. The psychological approach has been described vividly as the ‘castles-in-air’ theory by Burton G.

Malkiel. Those who subscribe to the psychological approach or the ‘castles-in-the-air’ theory generally use some form of technical analysis which is concerned with a study of internal market data, with a view to developing trading rules aimed at profit-making. The basic premise of technical analysis is that there are certain persistent and recurring patterns of price movements, which can be discerned by analysing market data. Technical analysts use a variety of tools like bar chart, point and figure chart, moving average analysis, breadth of market analysis, etc.

APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT (continued) 3. Academic Approach: Over the last five decades or so, the academic community has studied various aspects of the capital market, particularly in the advanced countries, with the help of fairly sophisticated methods of investigation. While there are many unresolved issues and controversies stemming from studies pointing in different directions, there appears to be substantial support for the following tenets. Stock markets are reasonably efficient in reacting quickly and rationally to the flow of information.

Hence, stock prices reflect intrinsic value fairly well. Put differently: Market price = Intrinsic value Stock price behaviour corresponds to a random walk. This means that successive price changes are independent. As a result, past price behaviour cannot be used to predict future price behaviour. In the capital market, there is a positive relationship between risk and return. More specifically, the expected return from a security is linearly related to its systematic risk. Stock price behaviour corresponds to a random walk. This means that successive price changes are independent.

As a result, past price behaviour cannot be used to predict future price behaviour. In the capital market, there is a positive relationship between risk and return. More specifically, the expected return from a security is linearly related to its systematic risk APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT (continued) 4. ? Eclectic Approach: The eclectic approach draws on all the three different approaches discussed above. The basic premises of the eclectic approach are as follows: Fundamental analysis is helpful in establishing basic standards and benchmarks.

However, since there are uncertainties associated with fundamental analysis, exclusive reliance on fundamental analysis should be avoided. Equally important, excessive refinement and complexity in fundamental analysis must be viewed with caution. ? Technical analysis is useful in broadly gauging the prevailing mood of investors and the relative strengths of supply and demand forces. However, since the mood of investors can vary unpredictably excessive reliance on technical indicators can be hazardous.

More important, complicated technical systems should ordinarily be regarded as suspect because they often represent figments of imagination rather than tools of proven usefulness. The market is neither as well ordered as the academic approach suggests, nor as speculative as the psychological approach indicates. While it is characterised by some inefficiencies and imperfections, it seems to react reasonably efficiently and rationally to the flow of information. Likewise, despite many instances of mispriced securities, there appears to be a fairly strong correlation between risk and return. ? THANK YOU!!!

Commerce is the exchange of goods and services for a consideration, commonly money. Thus e-commerce is exchange of goods and services facilitated electronically. For the purpose of this paper we will adopt the broad definition of e-commerce to mean any use of information and communications technology by a business that helps it improve its interactions with a customer or a supplier (Payne E. J 2003). E-commerce uses the internet, telephone and fax. This are all those that allow for business to be conducted in near real time conditions.

In advanced countries, e-commerce has led to a boom in Business Processing Operations (B.P. O’s) and Call Centers. While the developing world is gearing itself to catch up to e-commerce, some countries have displayed outstanding achievements; India is worth mentioning in this context.

Indeed India’s advancements in e-commerce even rival those in advanced countries, and in some cases, surpass them. Today, maybe as a consequence, India is emerging as a technological superpower. One crucial benefit that developing countries are envisioning to gain from e-commerce is the expanded market for commodities and services while at the same time eradicating the role played by middle men in traditional distribution chains.

For example, in Kenya the mobile phone has helped the farmer many kilometers from major markets access the current prevailing prices thus avoid exploitation by the middlemen. Developing countries are keen to replicate the achievements made by advanced countries together with India in e-commerce. This is with the view of reaping the economic gains that are obvious to all stake holders to date. However certain difficult decisions have to be made in the journey to establishing a vibrant e-commerce sector in these countries.

Worth noting is that the infrastructure in the developing world is in dire need of a major upgrade. For example, the internet and the World Wide Web are absolutely vital for the realization of successful e-commerce. The systems in place in majority of the developing world are both costly and far below the expected standards necessary for the implementation of near real time trade. These costly infrastructural improvements will bring about the following: ? Faster connection speeds to the internet to facilitate data transfer.

? Clearer and superior voice and sound clarity to enable fulfillment of intra global trade involving conferencing and discussion over the World Wide Web. ? Extremely low operating costs together with higher output capacities which facilitate business profitability and sustainability. This paper is of the view that though e-commerce has high set up costs, major organizational adjustments and infrastructural considerations, developing countries stand to gain massive economic benefits offered by a successful harnessing of the e-commerce sector. Main Text

Modes of E-commerce There are different modes of e-commerce – Phone, Fax and Internet. Phone e-commerce happens where the provider of the goods or service communicates with the buyer through a phone. Phones come in various application modes such as satellite phone, mobile phone, telephone etc. Fax e-commerce is where communication between the buyer and seller is done over the fax. Its advantages are in the speed of transactions, the reach available and the lower cost implication compared to face to face conversation or other traditional modes.

The Internet and the World Wide Web are the latest major additions to e-commerce and they have brought remarkable solutions in voice and data communications that were erstwhile unimagined. For example, the concept of a twenty four hour mobile office where goods and services are available to all and sundry on the globe in the comfort of ones residence is still strange in many business people in the developing world. Arguments against E-commerce in developing countries. There has been much of the debate on e-commerce especially regarding the role played by the internet and the World Wide Web.

The major issues raised are listed below: ? Infrastructural cost. ? Change of mindsets to embrace the new forms of technological advancement. The present infrastructure needs major adjustments to enable it support e-commerce. Firstly, energy costs in developing countries are among the highest in the world. Per unit charge in consumption of electricity in the developing countries need to be brought down to levels comparable to those in advanced nations. For this to happen, the systems for power generation need to be upgraded to the latest technologies which tout higher efficiency at extremely low operating and maintenance costs.

In addition to this, it has become almost general knowledge that much of the populations in the developing countries do not have access to electricity in the homes. The situation is grave since electricity supply can only be guaranteed in urban centers only, while the majority of the people live in rural areas. Secondly, the technology that supports internet and World Wide Web connections is inferior to those employed in advanced countries. This inferiority is in terms of its weak performance characteristics whereby it is slow and expensive in terms of data exchange, and cannot support a consistent voice dialog over the internet.

This is issues can only be rectified with the introduction of the technology available abroad that includes installation of fiber optic cable connection, and inexpensive commercial satellite uplink among other technologies geared towards cutting down the cost of communication while improving performance. Other considerations take the nature and form of those that Pare D. J. (2002) brings to light. The cost of doing business will include, but not confined to network security and regulatory environment.

Where as the business in a developed country would comfortably produce goods or services in the standards of the environment it operates in, it is forced to adopt standards of the buyer (receiver of the goods and services) who happens to be based in a more advanced country. Problems therefore emerge such as how to remit payments in a secure way, how to confirm that the items selected for purchase are as those displayed over the World Wide Web and other security oriented fears. ARGUMENT FOR E-COMMERCE IN DEVELOPING COUNTRIES.

Developing countries are faced with surging unemployment levels that cause discontent and saps development gains by straining resources and amenities. These economies have long held the notion that by expanding the sectors in there economy, they will be able to have more participation of its people in viable income generating activities. E-commerce is touted as one such sector that, as evidenced by the Indian success, millions of people can be absorbed in this sector which has positive trickle down effects and sound complementarities with other existing sectors in the economy.

In addition, a positive labour diffusion process will arise were by now-skilled laborers from developing countries migrate to advanced countries to get jobs that promise higher wages. It has been found that these nationals are responsible for shipping large amounts of foreign currency back home to assist there relatives. This foreign income is enables these countries to improve there balance of payments, hence accelerating development. A case in point is the dynamic tertiary sector in India that is spurred by the computer technology industry.

India has remarkable strength in software development, which employs a large number of Indian technocrats. In fact, India produces such a large number of skilled personnel that major multi national firms in IT set up base in India. The dynamics here are that the large number of skilled labor concentrated in one area pushes down wages as competition for employment thrives. Due to these dynamics, India has at its disposal an abundance of relatively less expensive and highly learned work force.

There is, as a consequence, a high population of Asians of Indian origin fulfilling duties in the IT sectors of major world powers, including the United States of America and Great Britain. This export of human labor accounts for a significant amount of foreign currency transfer back home. I agree with (Humphrey J. et. al) when he argues that e-commerce will create a new culture. By embracing the way the world wants things done, developed countries will by extension be taking the initiative in creating home grown solutions to global problems, thus providing unique solutions that are customized to suit local contexts.

This will create anew breed of workers unique to the developing countries. It is thus clear that where as e-commerce will be pretty expensive to embrace in the short term. In the long run however, the benefits accruing easily outweigh the costs. By embracing e-commerce the developing countries will be killing two birds with the same stone; generating economic growth and expansion by providing the necessary infrastructure and creating a new economy and culture for the learned in the country.

Added to this is the bonus of providing a bigger market for its entrepreneurs, and a break away from the well known reliance that developing countries’ economies have in there primary and secondary sectors. THE KENYAN CASE In Kenya, the pioneer company in e-commerce is Kencall Ltd. Its basic vision is to lead the way in outsourcing business [Kencall. com]. Being the first major outsourcing company in Kenya, it was faced with a myriad of problems. Some of these problems are listed below: ? Lack of a pool of experienced labor force as is the case in India and South Africa.

? Attempting to change local mindsets with its new concept, largely unknown in that part of the world. Where as BPO was already been taken to developing countries namely India and South Africa this was still a very strange idea in Kenya. ? Expensive telecommunication infrastructures, coupled with slow reforms in the Kenyan communications sector to enable it adjust to global developments. There was need for fast internet uplink to allow for real time transfer of data and voice to the clients. This particular problem was not easy to overcome.

With the gateway controlled by the government and operating on obsolete technology with a knack for breaking down. It was another eighteen months before Internet gateways were liberalized and the company could now get good speeds courtesy of dedicated satellite uplinks. ? Under performance of the Kenyan economy coupled with a less than friendly relationship atmosphere that existed between Kenya and its development partners. Although this situation was improving, the pace was slow as the government pledged top implement much needed reforms in government.

These altogether impacts negatively on investments and industry expansion. ? An unstable political climate in Kenya that was characterized by an over politicized climate. This has the effect of shifting concentration from economic growth and development issues to politics. With the implementation of certain reform pledges that led to restored confidence between Kenya and its development partners, there came a turn around in the Kenyan economy. It started to grow. The industry specific results were a marked expansion in investment, higher employment and an increase in per capita incomes.

In addition there was a wider pool of returning graduates from developed countries who knew what BPO was all about. They came with much needed know how and information on the role of e-commerce in development. These included the directors of Kencall Ltd, in particular Mr. Nick Nesbitt [Kencall. com]. His contribution to the Kenyan economy has led him to be recognized by the government in through an honorary award bestowed to him by the president of the republic. With the realization by the government that in e-commerce lay a ‘goldmine’ [kencall.

com], they sought to exploit it by first laying a fiber optic cable all around Nairobi. By connecting to this the speeds were greatly enhanced although the costs still remain high. To reduce cost the government sought to lay an underground fiber optic cable. With partnership of Southern African countries they wanted to have the cable running from Cape Town to Somali. Politics has put this noble idea in the back burner. The Kenyan government on its part has chosen to go it alone, as it recognizes the importance of e-commerce. Plans are already at an advance stage to have a cable between Mombasa and Fujaira in Oman.

In anticipation of this, a fibre optic cable has already been laid between Nairobi and Mombasa with the rest of the nation in the pipeline. All this has lead to a proliferation of BPO providers. Skyweb and Pacis have already joined into the fray. Smaller firms are doing the same but on a small scale. On Wed 11th July, Skyweb launched into the market a solution that allows a firm offer BPO on the strength of only 5 computers. Expect in the next year to be a growth in this area. Safaricom, the biggest mobile phone operator has thrown a challenge to BPO providers.

To show they can handle around 100,000 calls a day while maintaining quality and they will be given the account. This is a challenge to be taken seriously if e-commerce is to grow to match if not pass the pioneers like India and China. Due to the time difference, while other one part of the world sleeping the other is in the middle of a trading day, while another is waking up. There is need for a 24 hr approach to e-commerce in order to take advantage of all situations arising. Kencall has overcome this by operating on 8hr shifts for 24 hrs. This has been made possible by the good security provided by the government.

Kencall Ltd [Daily Nation (2007)] has grown from an initial work force of 20 members to the present over 300 staff. The have also had to move location to a more spacious building where growth is possible. The amount of work handled ahs also grown six fold. This has led to Kenya been recognized as an upcoming force in e-commerce. By extension businesses in Developed countries feel comfortable when dealing with Kencall since they have the capacity to deliver. With the technological strides, Kencall can with a degree of certainty claim to be in a position to guarantee the integrity of its business partner’s information.

In addition, Ken call has with itself the unique opportunity of spinning itself into and e-hub provider. With its wealth of experience, it can mitigate high turnover by providing training to would be e-commerce players. This way it will eliminate the need for people to seek employment only for them to quit after six to twelve months once they are trained and have an understanding of e-commerce and by extension BPO. CONCLUSION: Pare D. J 2003 is of the opinion that the mere bringing of total strangers together in an online environment will not necessarily reduce overall transactional cost to achieve long-term economic gains.

This paper has tried to disprove this by clearly showing that the opposite is true. By improvement of the working environment, the long term economic gain is clear for any to see. The fibre optic link currently being enjoyed by all not only Kencall Ltd. More effective security is but one of the major achievements being enjoyed by Kenyans. On their part Kencall Ltd is reaping the fruits of persistence. They are defining the parameters in e-commerce simply because they have been longer in the game on the Kenyan context.

Any new entrant will have to start form a point of disadvantage as compared to Kencall at present. With the present business environment where businesses are looking to outsource labour intensive operations, Kencall stands at an advantage. In addition, with all the people trained by Kencall, Kenya is at an advantageous position to exploit new business in e-commerce. The completion of the fibre optic link will greatly enhance this. Not only will the cost of doing business come down, it will also enable Kenya position itself as the regional hub of e-commerce.

The reference point to all who desire to enter into this business – this will be all who know what is geed for them. The local producers now have the whole world open to them. The floriculture industry is a good example of successful exploitation of e-commerce in sourcing markets. It has taken only a decade for Kenya to command a healthy 30% of cut flowers sold in the world. This growth and success can be replicated in other areas. For example the floriculture industry is faced with rapid expansion problems and it is investing in technology from Israel and other countries leading in floriculture to fulfill this needs.

Kenya can turn the big swaths of land on the northern part of Kenya to be great producers of horticulture as the global demand in Kenyan cut flowers increases, albeit stimulated by the easy access to market information facilitated by e-commerce. Hence a concerted effort involving both the citizens and the government is needed to enhance awareness and accelerate infrastructure provision to enhance the benefits of e-commerce in providing remarkable industry specific economic solutions. As Annan K. rightly put it, e-commerce is the most visible example to how ICT can contribute to economic growth.

By improving trading efficiency and helping developing countries integrate into the world economy. Allowing entrepreneurs to compete more create more jobs and by extension create more wealth. REFERENCE: Payne, Judith E. [2003]. E-Commerce readiness for SME’s in developing Countries: A guide for development professionals. Pare, Daniel J. [2003]. Does this site deliver? B2B E-Commerce services for developing countries: Humphrey, J. Mansell, R. Pare, and D Schmitz, H. [2003] . The reality of E-Commerce in developing countries: Does e-commerce provide developing country businesses with easy access to global markets?

Annan, K [2003]. UNCTAD Secretariat, E -Commerce and Development Report 2003, United Nations Conference on Trade and Development, United Nations, New York and Geneva. (In Forward). Okuttah. M. Outsourcing: The latent goldmine: http://www. kencall. com/goldmine. htm OTHER SOURCES http://www1. worldbank. org/devoutreach/spring00/article. asp? id=79 E-commerce for Developing Countries: Expectations and Reality, Volume 35, Number 1, 1 January 2004 , pp. 31-39(9) http://learnlink. aed. org/Publications/Concept_Papers/ecommerce_readiness. pdf