The Parliamentary Budget Office (PBO) has raised the alarm over the rising spend on imported products by the middle class, warning that the trend is slowing down economic growth.
The office, which advises MPs on economic and budget issues, said a small number of Kenya’s middle class is not investing its money in ventures like real estate and enterprises that can drive growth and generate jobs.
The middle class is splashing cash on cars, electronic devices and clothing, with increasing taste for trendy fashion attracting luxury brands to set up shop in Nairobi.
The PBO said this type of consumption has had a negative effect on the economy, including putting pressure on the current account deficit which partly contributed to the shilling losing 11 per cent of its value against the dollar last year.
“Given that high investment is generally associated with low consumer spending and vice versa, it is likely that the high consumer spending has crowded out investment and as such, the economy is not growing as fast as it should,” the PBO said in its January report.
“Most of Kenya’s consumer spending is import driven and may therefore not have much impact in terms of boosting economic growth to a sustainable level,” said the budged office.
It added that Kenya must strive to improve the quality of its products to a level that meets the needs of the wealthy for it to benefit from the burgeoning middle class.
Kenya’s imports stood at Sh1.5 trillion last year, having eased from Sh1.6 trillion in 2014, largely due to lower oil prices. Exports stood at Sh580 billion last year, up from Sh537 billion a year earlier.
This narrowed the current account deficit — difference between value of exports and imports — to Sh920 billion in 2015 from Sh1 trillion a year earlier.
But the value of merchandise such as clothes, cars and electronics increased by 13.3 per cent to Sh128.5 billion, highlighting the appetite of the middle class for this goods.
The number of Kenyans classified as middle class doubled in the last decade to almost a fifth of the population or 6.5 million, data from the African Development Bank (AfDB) shows.
This has created a legion of savvy consumers given their exposure to global trends due to foreign travel experiences, subscription to premium pay-TV and access to the Internet.