Kenya needs viable 21 century economic development model

Two publications covered in the media caught my eye in the past fortnight. The first tells us that Kenya’s recent growth path, while creditable, has been nothing spectacular; while the other informs us that we were one of the few countries in Africa where the number of dollar millionaires actually rose in 2015.

Let’s start with Knight Frank’s 2016 Wealth Report which offers that the number of dollar millionaires (that is, those with wealth over Sh100 million) in Kenya grew from 8,760 to 8,962 in the past year and that 72 per cent of these millionaires reside in Nairobi, 10 per cent in Mombasa, and the other 1,400 or so are (equitably?) distributed around Kenya.

In reverse shilling terms, the Business Daily noted from this report that Kenya now has 462 shilling billionaires (that is, wealth over US$10 million).

So it’s not all “doom and gloom” on the prosperity front, especially among industry captains and top professionals for whom “GDP” means “Growing Dollar Prosperity”.

Meanwhile, back on Planet Earth, the World Bank launched its latest Kenya County Economic Memorandum, titled From Economic Growth to Jobs and Shared Prosperity”.

The bank offers an interesting storyline around first, accelerating Kenya’s growth (that is, GDP as “Gross Domestic Product”), and then translating this into, primarily, jobs in a way that re-balances the economy between our current reliance on services (and construction and real estate) and manufacturing, agriculture and most important, the informal “jua kali” sector.

The essential point that strikes me from this report is that Kenya long reached the limits of the 20th Century economic growth model we applied for two post-independence generations, but we haven’t quite figured out the sustainable growth model to “deliver us from evil” in our third epoch.

My second “takeaway” is that we urgently need four complete “mindset-shifts” from what I currently observe in policy as well as practice. Let’s take a step out of Government-think, and explore these shifts.

Red herring

First, the so-called “hustler economy” is a “red herring”.

The sum total of that economic space in Kenya occupied by what we used to refer to as “briefcase businessmen” and “middlemen” – which links closely with the economic space that politicians seek to infiltrate and dominate - is the number one distortion to the efficient working of our markets.

This is the “short-cut” economy that sabotages linkages between the formal and informal sectors, prevents us from reverse-engineering our services sector success back into manufacturing in today’s world of complex, transnational value chains, and sustains the “rich-poor” gap.

Don’t get me wrong, this is not about people finding smart ways to make genuine money from second or third jobs, or “side hustles”.

I refer here to the value-destroying “hustlers” who infest the corridors and receptions of our public offices before mutating into “brokers and agents.” If our politics continues to encourage this sort of negative hustling as a means of market intermediation, then we are going nowhere.

Progressive regulation

Second, let’s stop treating “jua kali” as a sector and thinking of it as “one big blob” – or even as some form of “lower economic caste” —with a single, uniform policy solution.

If we are able to differentiate the policy problems and solutions — both inter-sectorally and intra-sectorally — between agriculture, industry and services at the formal level, then we really should do the same at the “informal level”.

This relates to my earlier “hustler” point. Our tradition of economic policy making and intervention — a “one-size fits all” approach - continually leads us into a regulatory “no-man’s land” between the formal and informal sector that non value-adding “hustlers” are quickest to exploit.

Should we not view policy, rules and regulations for business — without increasing the regulatory burden — as a progressive continuum for different players in a particular industry or sector?

Progressively from micro-enterprises to small and medium-size enterprises (SMEs) all the way up to big business?

The new flexibilities in the Companies Act are one great example on how to do this, but we need more. By example, what has been the impact on agricultural GDP growth of the hugely impressive stories I read every Saturday in the Nation’s excellent “Seeds of Gold” series?

Why isn’t all the exciting stuff going on in our ICT innovation hubs impacting the productivity numbers we need to accelerate GDP? We will not fix youth unemployment until we address the SME question.

Capital argument

Third, is what I refer to as the “capital argument”. In the private sector, the CEO’s essential task is to deliver a sustainable return on investment for long-term firm benefit.

The bank report makes the important point that there is a limit to investment in physical and human capital, and at some stage, productivity comes into play.

We also know from economic history that there’s a limit to pure “financialisation” of any economy not backed by “real” production and output.

For national and county government leaders, shouldn’t imaginations be running wild in a way that is constantly thinking about building sustainable national or local bases around physical (including land and economic), human, knowledge/intellectual, financial and (our specifically African) social capital?

Shouldn’t this also be the thinking pervading our opportunistic private sector? Every single malfeasance and misstep we have recently seen in the corporate world (Kenya Airways, Uchumi among others) is all about a disregard for capital, and long-term value. That’s what’s missing in Kenya – the long “capital” view.

Creative destruction

Fourth, where’s the innovation? I have a view about innovation not simply as “a happy choice to create new” but as “a tough decision to destroy old”. In short, innovation as Schumpeter’s “creative destruction”.

Technology is today’s “creative destroyer”, so let’s view innovation through this lens.

From mobile money —banking, payments, insurance, credit, savings and investment to mobile shopping to mobile newsmedia. Three traditional business models under threat – traditional banks, retailers and media houses.

Think mobile innovation to address social problems – m-Education or m-Health or m-Agriculture. Or Estonia-style m-Government (actually, e-Estonia). Rather than resist Uber and Airbnb, where are our own offerings in today’s fast-growing “sharing economy”?

Is 3-D printing our “leapfrog moment” in manufacturing? What’s our stake in the “Internet of Things” if we aren’t making any “things”?

These are the sorts of issues a responsible and growth-delivering private sector could be addressing to Government. They link us to the strategic choices we must make about where we want to compete, how we will compete and how we will allocate public resources in a way that dovetails with, and encourages, private sector’s own resource allocation decisions.

These two reports tell me it’s time to sever links with our “kazi mbaya kwa vijana, pesa mzuri kwa wazee” (bad jobs for the youth, good money for the old) history which often manifests as graft.

Failing this, our future m-News headlines will continue celebrating self-actualising – and mostly deserved - individual financial prosperity absent of collective and inclusive national economic progress even as we lament over “poverty, ignorance and disease” and self-flagellate over corruption.

Mr Kabaara is a management consultant. [email protected].