IMF regional economic outlook report highlights ways to increase trade, jobs

Last week I attended the launch of the IMF Regional Economic Outlook report for sub-Saharan Africa (SSA).

Although it was an aggregated regional report, there were definite policy areas that Kenya can implement to competitively position its economy for regional and global advantage. I will here discuss the human capital and external trade.

According to the report, the SSA region has a population that is both growing in numbers while becoming younger due to declining mortality and a slower decline in fertility rates.

The working age population in SSA is increasing by the day. On the other hand, the working age population in the developed and emerging economies is fast declining.

According to the IMF report, this demographic shift will climax around 2030 when the working age population in SSA shall be larger than in the rest of the world.

Some policy makers will view the growing working-age population as a socio-political threat and challenge. Others will, however, see it as an economic opportunity to be harnessed.

The opportunity lies in the future global labour supply gap when developed and emerging economies shall be seeking to “import” skills either directly or through outsourcing of various economic activities.

Kenya can therefore plan to leverage this global working-age population gap by ensuring that we have a surplus supply of high productivity skills that are exportable after meeting local requirements.

However, for the skills to be exportable (or outsourced) their quality and standards should equal or surpass the global average.

Experience can never go to waste. Skilled workers can transfer across economic sectors or go into self-employment. Today Kenya is far from having surplus skills.

Local content

Nearly all the productive sectors are searching for appropriately trained and experienced young persons to engage. Local content clauses in many contracts are now insisting on recruitment of trained Kenyans instead of importing skills.

Creating a large reservoir of technical and professional skills at both the graduate and the technician levels should be a nagging pre-occupation in the minds of all education and training planners.

We have to urgently recreate the lost glory of technical and vocational training. However, the proof of commitment to the upgrade of our human capital is how much funds we direct to training.

The other critical and relevant subject contained in the IMF regional report is how SSA countries can increase integration of their trade into the global value chains.

Specifically for Kenya the first line of entry into the global value chains is through enhanced local value addition of our exports. This is the “tail end” of global supply chains and it increases value of exports. It also boosts local industrialisation while increasing local jobs and incomes.

Local value addition is mostly within our control to plan, promote and implement. We should target on maximising foreign direct investments into local value addition.

There is no doubt that local value addition on our produce and minerals can have a significant economic multiplier effect.

The other way, according to the IMF report, of entering into the global value chain is when developed and emerging economies outsource our human capital for foreign value addition.

This shall no doubt be the case when the global labor supply gap becomes more pronounced and the developed world looks to the SSA to plug the gap.

Outsourcing is common in local assembly of foreign goods for either local sales or re-export. Outsourcing can also take the form of professional and technical services as happens in India in ICT-related areas.

Foreign value addition provides the significant benefit of technology and knowledge transfer to a country, and this further enriches our human capacity.

Labor intensive activities gradually transform into higher value jobs due to new capabilities and knowledge spillover.

There is no doubt that for Kenya to maximise opportunities in the areas of local and foreign value addition, the country needs to invest heavily in basic professional and technical training.

Although the IMF regional report emphasised exports more than imports, I kept on wondering how Kenya can in reality increase its value-addition capacity in the face of unimpeded imports, especially from the East.

I guess it is within the jurisdiction of Kenyan policy gurus to limit imports to what the country can afford and to protect its local productive capacity. We have to choose between local jobs and unfettered imports.

To sum up, my key takeaways from the IMF briefing last week are up-skilling of our young Kenyans, and increased local and foreign value addition through industrialisation. Global trade opportunities exist and we need to go after them.

Courageous and creative strategic economic planning, strong governance standards, and a conducive business climate can make it happen.

The target end product should be sustainable economic growth that delivers high value jobs for our youth, and which can ultimately usher in a middle income Kenya.

Mr Wachira is director Petroleum Focus Consultants. Email: [email protected].