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Ideas & Debate

World Bank report highlights worrying economic disparities

Last Tuesday, the World Bank launched the Kenya Country Economic Memorandum with the theme ‘From Growth to Jobs and Prosperity’.

Apurva Sanghi, lead economist and programme leader at the global lender, made three core points during his presentation.

The first is that economic growth in Kenya is volatile, non-inclusive and marked by stagnation in agriculture and industry.

In terms of volatility Kenya’s growth has been volatile since independence and domestic shocks such as political instability — especially during election years — affect gross domestic product (GDP) growth more than external ones.

The second point was that growth is not inclusive and the country continues to register high poverty levels, estimated between 36-42 per cent in 2016.

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Further, job creation has been marginal and slow, clearly only able to absorb a fraction of the working-age population entering the market yearly. Again, of the jobs created, the vast majority are informal.

Another point made by Sanghi was that economic growth in Kenya has been led by services which has been resilient, with stagnation in agriculture and manufacturing.

Service exports are catching up with goods exports and this is partly because the sector is less dependent on raw materials and not truly affected by changes in commodity prices.

In terms of agriculture, the main factors informing the stagnation include over-involvement of government in maize and sugar which keep prices high.

In terms of manufacturing, it has marginal contribution to GDP, and Kenya has dropped eight places in the rank of economic complexity of goods produced by the sector; in fact our top exports are among the least complex.

Sanghi also said achieving the Vision 2030 growth rate target of seven per cent has thus far been elusive with the country reaching seven per cent only four times since independence.

In order for Kenya to grow more robustly and with less volatility, both savings and productivity have to increase, the performance of manufacturing and agriculture need to improve, and public investment management has to improve.

How feasible is this? Well with regard to savings numerous factors negatively inform Kenyan saving habits among which is the reality that there is no real social security net in Kenya.

Yes government has a cash transfer system for the very vulnerable and poor but the reality for most Kenyans is that they cannot usually rely on government when they fall ill or lose a job.

As a result, middle income pockets are under immense pressure for it is the middle and upper class that finance costs such as school fees, hospital bills and funerals for friends and relatives.

Coupled with high dependency ratios linked to high levels of unemployment and underemployment, Kenya’s middle class has limited disposable income which of course makes saving very difficult.

In terms of productivity, the report itself makes the point that levels of productivity vary greatly between sectors and within sectors.

Further, most Kenyans are employed in the informal sector which is characterised by low productivity due to a myriad of factors such as poor management skills, poor education levels and the lack of access to finance, technology and innovations.

Therefore, the question on which government ought to be focused is how to increase productivity, particularly in the informal sector.

This is not synonymous with pushing for the formalisation of the informal sector but rather, supporting Kenyans trapped in the primarily low income informal sector by skilling up the population in informal labour, developing apprenticeship programs and loosening finance into the sector.

Finally, public investment must improve with a preponderance of development rather than recurrent expenditure.

Public investment strategies must be devoid of corruption in order to test the hypothesis that government spending can be strategic and effective.

Mr Were is a development economist; [email protected]

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