The World Bank published the Country
Economic Memorandum 2016 report for Kenya last week. The report is
unflattering. Our economic performance is less than stellar. Among our peers,
Kenya has had the lowest per capita GDP growth since 2003. The cost of doing business
here is too high. Transport, energy, land and labor costs are higher in Kenya
compared to competitor economies.
The two decades between 1980 and 2003 were
characterized by stagnation. The spurt of economic recovery that picked up in
earnest in 2004, after two decades of stagnation was buffeted by venomous,
demonic mayhem in 2007. Agriculture and manufacturing have stagnated, with the
consequence of limited addition of formal sector jobs for Kenya’s large
youthful and relatively well-educated youth. Most of the jobs have been created
in the informal economy and are concentrated in low productivity sectors; transport,
trade, hospitality, and jua kali.
While the rapid expansion in education at
levels – from primary through to university – is laudable there are serious
concerns about the ability of our education system to produce a critical mass
of human capital that can drive the country forward. The poor quality of our
graduates across from primary to university will exacerbate unemployment.
Although employers are generally happy with the mastery of subject matter among
graduates, most of them bemoan significant gaps in reliability, teamwork,
analytical and problem, writing, analytical, and problem solving skills.
Moreover, Kenya’s modest economic growth is
yet to trickle–down. Nearly one in two Kenyans live below the poverty line. For
hundreds of thousands in the so-called middle class tenancy is tenuous and life
is essentially paycheck-to-paycheck. It is hard to save and most middle class
families have no durable or fungible assets and are one calamity away from
economic ruin. The poor and the middle class
are on their own. Our modest prosperity
is not shared.
Shared prosperity will be hard to achieve as
long as our children’s quest for learning is subverted by teachers who cannot
teacher and are absent from school 50 percent of the time. Shared prosperity
will remain a dream as long as our health spending remains below two percent of
GDP and more than 35 percent of our children are malnourished.
But is there such a thing as trickle down? In his Apostolic Exhortation released in
November 2013, Pope Francis wrote; “Some people continue to defend trickle–down
theories, which assume that economic growth, encouraged by a free market, will
inevitably succeed in bringing about greater justice and inclusiveness in the
world”.
As noted in the Country Economic Memorandum,
the dominance of the service sector in Kenya’s growth structure is markedly
dissimilar from our competitors, especially Egypt and Ethiopia. Why is Kenya’s
growth feeble and unbalanced? Unprecedented high levels of public sector
spending in the last 14 years, especially in infrastructure have buoyed Kenya’s
economic output immensely. This has helped fuel massive expansion of the
service sector, perhaps at the expense of meaningful investment in agriculture
and manufacturing.
Kenyan goods are losing market share in the
EAC region. In 2006, Kenyan accounted for 11 percent of imports in the region.
Our contribution to imports in the EAC plummeted to a paltry six percent. We
are losing to China, Egypt, and India and guess who else, Ethiopia. Moreover,
Kenya’s export-to-GDP ratio has declined steadily since 2005. According to the
Country Economic Memorandum, our innovation standing is less than impressive.
We are outspent by Egypt, Ghana and South Africa in internal R&D, training,
expenditure on software and machinery. It is horrifying to note Kenya’s main
source of information for innovation is not intramural R&D or university or
research institution, but customer feedback and the Internet. This is interesting!
We need to examine the logic of our current
growth. While it is commendable that expansion in the service sectors accounted
for nearly 66 percent of economic output between 2006 and 2014, we must to ask
some fundamental questions. We ask fundamental questions about the boom in
wholesale and retail trade, and in the expansion in the transport sector. Who
manufactures the goods we are transporting, buying and selling? As I said in
this column recently, we are a warehouse economy.
We must strive to achieve balanced economic growth
through meaningful investment and growth in manufacturing and agriculture. And
most of all, we must leverage urbanization and our youthful population to
achieve durable and equitable economic growth.
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