advertisement

Opinion & Analysis

How to fire Kenya’s growth to Vision 2030 ideal level

Some fresh produce on display during a farmer’s expo in Nakuru County.
Some fresh produce on display during a farmer’s expo in Nakuru County. The country continues to struggle with food security, hampering robust growth. PHOTO | SULEIMAN MBATIAH 

Kenya’s gross domestic product (GDP) growth rate has been ticking along steadily at between four to five per cent over the past five years. At no point has it hit the Vision 2030 target of 10 per cent.

Why not? Was Vision 2030 a pipe dream littered with deliberately illusory goals and targets? Why has the 10 per cent target not been reached, and how can this be changed?

There are three factors that can unlock the country’s economic growth at a fundamental level in both the long and short-term.

The first is the long-term issue of agriculture. The agriculture sector is a conundrum; on one hand Kenya’s agricultural sector is very efficient and profitable.

Kenya is one of the leading exporters of black tea in the world and the country’s floriculture and horticulture sector are important economic players in the sector.

On the other hand, the country continues to struggle with food security as the maize price dynamic has illustrated. The International Labour Organisation (ILO) makes the point that the agricultural sector employs 61 per cent of workforce, yet only contributes 30 per cent to GDP.

This conundrum can be rectified through a multi-pronged approach that links productive sectors to less productive ones, more effective deployment of agricultural subsidies to farmers (particularly small holder farmers) and the revival of technical skills transfer programmes to farmers at county and ward levels.

Doing so will allow the labour locked in the sector to enter profitable activity either in agriculture or other sectors.

The second factor is the interest rate cap which is an overarching, hopefully short-term, constraint to meeting the 10 per cent target. Earlier this year the World Bank made the point that Kenya faces a marked slowdown in credit growth to the private sector.

At 3.3 per cent growth, this remains well below the ten-year average of 19 per cent and is weighing on private investment and household consumption.

The interest rate cap has compromised two fundamental levers that support economic growth: access to credit and monetary policy.

The interest rate cap has engendered a contraction in liquidity to SMEs in particular, essentially slowing down the country’s economic engine.

Due to the cap, SMEs are unable to get the liquidity they need to expand and generate more jobs as well as income.

Volatility

A lever severely compromised by the interest rate cap is monetary policy, reducing its ability to buffer Kenyans from economic volatility.

With inflation standing at 11.7 per cent in May, the cap has made it almost impossible for the CBK to step in with remedial measures such as raising interest rates as the consequences of doing so are unclear.

Thus, in the short- term, the interest rate should be reversed so that monetary policy can play the role it ought to, and robust credit access is restored to Kenyans.

The third factor is the informal economy, which is not only important for economic growth, but also engendering equitable growth.

Some 90 per cent of employed Kenyans earn a living in the informal sector, yet it continues to be neglected.

Too much of the country’s labour is locked in micro-businesses with low levels of productivity and too inadequately skilled and resourced to drive the country’s equitable growth.

Thus financial, skills and technological resources ought to be directed to the sector to catalyse the ability of informal businesses to graduate into authentic profitability, sustainable job creation and robust income growth.

advertisement