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Ideas & Debate

How to improve Kenya’s economic development model

Last week scholars from Japan shared highlights from the publication Contemporary African Economies: A Changing Continent under Globalisation in which the scholars state that growth in Kenya is not inclusive and has failed to redistribute wealth to the poor.

They rightly observe that the manufacturing growth sector is becoming thinner and that productivity in the agriculture sector is static.

They suggest government should invest in human resource development including education. Let’s look at three crucial weaknesses with the Kenyan model with regard to agriculture, manufacturing and education.

A cursory look at the agricultural sector in Kenya reveals serious productivity problems. According to the Kenya National Bureau of Statistics (KNBS), the agriculture sector accounts for 60 per cent of total employment yet contributed to 25.9 per cent to the Gross Domestic Product (GDP) of Kenya.

The effort of 60 per cent of employed Kenyans contribute only 25.9 per cent to GDP; clearly there is a productivity problem.

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Systemic problems that beset the sector according to the government’s agriculture, rural and urban development sector report include the inadequate Exchequer releases.

It is interesting that an analysis of the 2016/17 budget reveals that government reduced allocation to the department of agriculture by Sh1.73 billion and fisheries by Sh510 million when compared to last year.

Although this was compensated by an increased allocation to livestock, the reality is that agriculture, livestock and fisheries combined constituted a paltry 2.4 per cent of the total budget.

Although the problem in agriculture cannot be solved solely by throwing money at the problem, allocating less than three per cent to such a crucial sector is telling.

Factors that hit agricultural productivity include the high cost of inputs, low absorption of new technology and farmers lack of skills.

The sad reality is that this is an old story that persists; so government’s action to solving these issues is wanting.

Strategies that should be front and centre is to seriously address the land holding problem, reduce the cost of inputs and provide farmers with better schemes to improve their equipment and skills levels so that productivity is boosted.

Secondly is the manufacturing question where on average the sector has been growing at just over three per cent per year while the economy has been growing at just over five percent.

Thus the share of manufacturing of GDP is actually declining, not static as is the common perception. To be fair, the government is making effort to address problems with infrastructure but the sector suffers from inadequate financing as well as challenges with skilled labour.

In my view, the government should leverage its own strategy as well as develop public-private-partnerships to develop industry and manufacturing with two factors in mind: first absorb low-skilled labour given that Kenya’s population’s average years of schooling is 6.5 years, and secondly promote labour intensive manufacturing to create jobs.

The government is focusing on labour-intensive manufacturing in the Kenya Industrial Transformation Programme of which one of the key sub-sectors is textiles and apparel.

However, the government needs to focus on reducing the cost of production, facilitate access to long-term patient finance, and improve curricula to ensure students are taught relevant skills so that manufacturing can play a stronger role in job creation and economic growth.

The education problem translates into an informal employment and slumped growth. In terms of formal employment, education entry requirements are too high for most Kenyans to meet thereby barring them from the more lucrative, productive and secure formal sector jobs.

As a result about 80 per cent of Kenyans find less secure, lower paying and frankly low productivity jobs in the informal sector.

Productivity is a particular challenge and a study by the World Bank indicates clear links to education levels. In the informal sector, the education level of managers is highly correlated with the level of labour productivity.

Labour productivity for firms with managers that have no education or only primary education is only 72 per cent of that of firms with managers that have vocational training or a university degree.

Although the formal sector tends to absorb better educated Kenyans, private sector consistently articulates there is a massive skills gap between what Kenyans are taught in schools, universities and vocational schools and what the labour market actually needs.

Government strategies for education should link curricula with labour market skills needs and develop strategies to improve education and skills in the informal economy to boost productivity.

Anzetse is a development economist. Email: [email protected]

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