Kenyan firms see opportunity, risk in rapid urbanisation

Producers of consumer goods were on Wednesday scouring the just released census results for new market opportunities or major shifts in demand for specific goods and services with the changing demographics.

Top in the radar of many entrepreneurs and companies was the shocking finding that Kenya’s urban population had risen by more than eight percentage points in a span of 10 years to hit 32.3 per cent potentially creating a large pool of consumers of essential goods such as maize meal, wheat products, milk, cooking fats, soaps, beef, clothes and footwear.

The newly urbanised population, which the census revealed are aged between 15 and 34 years, is mainly made up of primary, and high school leavers looking for jobs in towns.

This is the segment of the population that economists refer to as constituting the “demographic dividend” that will open huge opportunities in the consumer goods and services markets.

Though a large segment of this newly-urbanised group remains unemployed for an average of three years, a recent national household survey showed that the highly dynamic lot is able to significantly grow their purchasing power and become active consumers of goods and services produced and priced for the low end market.

“Essentially, the population figures point to both opportunities and threats for Kenya,” said Simon Freemantle, Standard Bank’s economist for East Africa.

Mr Freemantle argues that as far as the opportunities go, the potential benefits of a young and rising population is the possibility of kick-starting a virtuous cycle of rapid industrialisation, increased employment, enhanced productivity and ultimately rising prosperity.

He cites the example of populous countries such as China that have benefited from similar demographics moving the economy to the critical point where the maximum number of people are in the working age bracket and therefore reducing the dependency ratio.

Kenya’s dependency ratio has consistently dropped over the decades from 115.4 in 1980 to 85 according to the 2009 census.

Mr Freemantle, however, warned that seizing this opportunity sooner than later would be critical for Kenya because fertility rates tend to fall as economies grow limiting its use as a driver of human development in the long term.

“That threshold is fast approaching for Kenya and if managed well could see the emergence of an invigorated and far more competitive economy,” he said.

Wolfgang Fengler, the World Bank’s lead economist at the East African division, said that although the last few decades have shown that a large and rising population is no guarantee of success, Africa’s pattern of population growth is not the main constraint to the continent’s development and could even become a positive force.

“Population growth and urbanisation go together, and economic development is closely correlated with urbanisation,” he said. “Rich countries are urban countries.”

As is the case in many developing economies, Kenya’s population is a pyramid structure that stands on a wide base of young people and very thin at the top.