New investment landscape emerges from economic recovery

Kenya’s economy is this year delivering a new kind of growth, rooted in the productive sectors that support some two-thirds of the labour force, and offering the prospect of widespread job creation and a narrowing in the gulf between the nation’s wealthiest and poorest citizens.

Official data shows agriculture and manufacturing, which had performed poorly on the combination of post-poll turmoil in January 2008 and 2009’s drought, grew robustly in the first half of the year to become the main drivers of growth – overtaking the communication, financial service and retail sectors that have driven the economy in the last four years.

Growth in manufacturing and agriculture made the highest contributions to Kenya’s 5.2 per cent first half growth, at 21.2 per cent and 12.8 per cent respectively, with the share in the of agriculture in the economy rising from 21.7 per cent in 2007, to 24.4 per cent this year.

The twin sectors are the country’s biggest employers, with agriculture offering a livelihood to more than half of Kenya’s labour force directly and through auxiliary sectors.

The growth comes against the backdrop of a gap between the elite and the poor that last week saw the UN label Kenya the 66th most unequal country in the world, which is typical of most African countries.

Middle class

However, the robust growth of Kenya’s service sector, including real estate, financial services and telecoms, has in recent years spawned a growing middle class and fuelled an ongoing real estate boom and increased appetite for luxury goods and services.

Save for financial service, these sectors have returned single digit growth this year compared to double digit growth in the three years to 2009, and continue to fuel an expansion in the number of middle class Kenyans, which economists now estimate at some 3.5 million of Kenya’s 40 million population, and growing at around 5 per cent a year.

“Growth in income levels has been faster in the service industry, and this is behind the emerging middle class community,” said Dr Joseph Kieyah, an analyst at the Kenya Institute of Public Policy Research and Analysis (Kippra).

“Agriculture, which offers employment to majority of Kenyans, is not generating adequate incomes, because of its status as either subsistence or small holder farming,” added Dr Kieyah.

Reflecting this, total wage payments in the agricultural sector stood at Sh46.1 billion in 2009, at a time when the sector was contributing over a fifth of national wealth. Yet the transport and communication sectors delivered twice the total wages, at Sh85.8 billion, despite accounting for only a tenth of GDP and employing just 2.1 per cent of the labour force. Official data show that financial and telecom’s 210,000 employees earned averages of Sh802,874 and Sh688,018 in 2009.

By contrast, low product pricing, mostly during harvest time, and a lack of value addition and mechanization has denied Kenya’s weather-dependent agricultural community sufficient returns to push farmers into higher income brackets.

For these reasons, an estimated 38 per cent of Kenya’s national wealth remains in the hands of 10 per cent of the population, according to 2009 UN data.

In 2010, as the broader population now feels the first breath of economic take-off, the expanding upper 10 per cent - which comprises expatriates, businessmen and employees in blue chip firms – continues to emerge as a key market for sellers of luxury products and real estate.

The prices of apartments in Nairobi’s middle-income areas more than double in the five years as this emerging class of consumers raced to own homes, selling at an average price of 19.3 million - according to Hass Consult, a real estate consultancy firm.