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Ideas & Debate

Why Kenyans can’t feel effects of rosy economic growth data

I have been getting questions on what is ‘really’ happening in the Kenyan economy. Many Kenyans see incongruence between economic growth statistics and own experience.

According to the World Bank, the economy is expected to grow by 5.9 per cent in 2016. The Kenya National Bureau of Statistics reported that Kenya’s economy expanded by 6.2 per cent in the second quarter of this year. 

However, several companies have closed down and thousands of jobs have been lost this year alone. There are numerous variables that may be informing why Kenyans do not seem to be feeling the positive effects of growth.

The first is that gross domestic product growth and Ease of Doing Business data do not capture the reality of the expansion in the informal economy where more than 80 per cent of employed Kenyans earn a living.

Therefore, one cannot extrapolate positive overall statistics as reflective of performance of the informal economy. To what extent does Ease of Doing Business research reflect improvements in the informal businesses?

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Parameters such as increased ease with regard to tax compliance and business registration inform efficiency in doing business, but they do not affect informal businesses much.

Thus, perhaps the incongruence stems from the fact that the economy from which millions earn is largely ignored by official data.

Concerning closure of companies and job losses, several factors are at play. I will focus on manufacturing and the banking sector.

Manufacturing is under threat because the high cost of doing business due to erratic electricity, transport, cross-county taxes and corruption.

We have also allowed the entry of subsidised cheap goods, particularly from Asia, to flood the market. The combination of these factors is making Kenya an increasingly uncompetitive location which is diametrically opposed to the government’s industrialisation agenda.

For banking sector, job shedding seems to be informed by automation and the interest rate cap. Mobile and e-banking means that many customers do not need direct human contact to effect the transactions they require.

The interest rate cap has removed a key risk management tool that banks used to manage information asymmetry. Thus banks seem to have limited space to make numerous loans as the risk buffer is no longer present. Fewer loans means fewer staff.

Kenyans are also concerned that economic growth is not associated with job creation — we seem stuck in the ‘jobless growth’ rut. Again, this is informed by several factors.

Firstly, Kenya’s economic growth is services driven, and services produce far less jobs than manufacturing, for example. The main service sub-sectors that are labour intensive are health, education and hospitality.

Sub sectors such as telecoms and financial services need far less labour. It is no secret that tourism in has been hit leading to job losses and even when there is marginal recovery, a limited number of seasonal jobs are created.

Until the manufacturing sector is given the attention it requires such that economy is driven by export-led manufacturing, the ‘jobless growth’ will continue.

Then, education system is doing a gross disservice to the youth by making millions of young people essentially unemployable. Sixty-two per cent of Kenyan youth aged 15-34 years have below secondary level education.

Further, Kenya is characterised by a persistent mismatch of skills between what is taught and requirements of the labour market. Thus most youth are poorly educated and the well educated are not trained in skills the labour market seeks.

Finally, financial mismanagement at both national and county levels is compromising growth. It seems that government funds meant for economically productive activity do not reach the intended projects.

As long as this continues, jobs and growth that could have been created by government investment will not materialise.

These factors inform disconnect between rosy economic statistics and the lived reality. This will persist if there is no change in financial management and economic development strategy going forward.

Ms Were is a development economist. Email: [email protected]

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