Government has allocated a significant percentage of annual budgets to infrastructure.
This begs the question as to what Kenya is getting wrong. Why isn’t infrastructure investment notably boosting economic growth?
The harsh reality is that the link between infrastructure and economic growth is more tenuous than previously assumed.
It is not a secret that the current and previous Kenyan governments (Kibaki and Kenyatta administrations) prioritised investment in the development of infrastructure for the past 15 years.
As the Brookings Institution points out, there is a view that investment in infrastructure — energy, transport, communication, irrigation, and water supply — propels economic output.
The direct effect is raising the productivity of land, labour, and other physical capital. For example, steady supply of electricity reduces disruptions and time wasted at the work place. It complements the contributions of education, health, marketing, and finance. Infrastructure investment is seen as a foundation for and enabler of economic growth.
Government has allocated a significant percentage of annual budgets to infrastructure. Indeed, between FY 2016/17 to FY 2019/20, it committed about 30 per cent of total budget; compare this to 2.8 per cent to agriculture.
The concern is that despite this fiscal commitment, we have not seen the attendant economic growth; the economy has never even approached the 10 per cent target of Vision 2030.
So this begs the question as to what Kenya is getting wrong. Why isn’t infrastructure investment notably boosting economic growth? There are several reasons that provide insights to answer this conundrum.
The first, harsh reality is that the link between infrastructure and economic growth is more tenuous than previously assumed.
The London School of Economics points out that the most recent studies tend to find smaller effects of infrastructure investment on growth than those reported in the earlier studies. This is linked to improvements in methodological approaches.
Kenya shouldn’t assume the investment will automatically lead to significant improvements in economic growth. Yes there is a link between the two, but less pronounced than was previously assumed.
The second reason that could explain the muted effect of infrastructure spend is that Kenya has such a massive infrastructure deficit that current investment has barely had any notable effect.
According to the Capital Markets Authority, Kenya’s current estimated infrastructure funding gap is $2-3 billion per year over the next 10 years.
However, the reality is that the infrastructure deficit of our neighbours is likely more pronounced, yet the fact that countries such as Ethiopia have emphasised infrastructure investment and routinely hit double-digit growth questions the plausibility of this argument.
The final question to ask is: Is Kenya investing in the right infrastructure? The Brookings Institution makes the point that a push for more infrastructure only raises economic growth and people’s well-being if the focus is on quality and impact and not on the quantity and volume of investment.
Has Kenya fallen short here? Has the government conducted an audit of the impact of investment infrastructure investment and development thus far? Has there been an audit on the quality of the infrastructure developed thus far?
Is Kenya investing in the right infrastructure? How efficient is our investment into infrastructure? Without an answer to these questions, the country will not learn from past mistakes and thus infrastructure development will not be recalibrated to be more effective.
It is therefore crucial that the government undertakes a thorough analysis on the nature, scale, efficiency and impact of infrastructure investment and developments made thus far so that the required improvements can be effected.
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