I recently found myself in a debate about the policy remedy measures that Kenyan can adopt to lift half of its population out of poverty within ten years. So, I will use this column to give my argument.
First, let’s talk about poverty in Kenya'. According to the Kenya National Bureau of Statistics (KNBS) Integrated Household Budget Survey 2015/2016, the overall poverty headcount rate for individuals at the national level was 36.1 percent implying that 16.4 million individuals lived in overall poverty.
Looking at overall poverty incidence, it remains highest in rural areas where 40.1 percent of residents (11.4 million individuals) were overall poor compared to 27.5 percent (900,000 individuals) and 29.4 per cent (3.8 million individuals) in peri-urban and core-urban areas, respectively.
Therefore, reducing the number of people living in poverty by half translates to eight million individuals within ten years, which is 800,000 individuals yearly.
Now, the policy recommendations from those at the opposite side of the debate were simply premised on reducing the size of government, which is always followed by tax cuts and the potential proposals given were a flat tax of 25 percent for all incomes, privatisation of 80 percent of state-owned firms, privatizing government payroll management and modest tax on private land. Just to be clear, I am a lieutenant in the advocacy for a small government and tax cuts but if we are talking about lift 800,000 people out of poverty annually, we need a 3D kaleidoscope.
A look at Kenya’s tax incidence shows that the heavy tax burden is carried by an identifiable group of Kenyans that carries the dependency burden.
So, a small government will be a stimulus policy substantially targeting this cohort of income earners with less effect on transforming the targeted income of people living in poverty. Coming to my argument, it is simply that small government is just a stimulus but to lift half of people living in poverty means Kenya must structurally transform from an agrarian economy into an industrial economy.
The sad fact is that Kenya is a peasant society. According to the World Bank, Kenya’s rural population is 73 percent or three-quarters of the population. Out of this, 70 percent are employed in agriculture, meaning Kenya is an agrarian economy.
Looking at the poverty numbers further, almost half (22) have their poverty headcount rate at and above the national level. Poverty incidence seems evenly spread that arable counties like Kisii, Bomet, Uasin Gishu, Busia, Vihiga, Kajiado fall above the national level.
Hence for Kenya to lift eight million individuals out of poverty, it has to make a tectonic shift from an agrarian economy to an industrial economy. Unfortunately, industrialisation in this case seem to be ignorantly understood as merely working on ease of doing business and attract industrial investment.
These are not paper tiger games we are talking about. Industrialisation here means extraordinarily mobilising resources (capital, labour and infrastructure) more than just the conventional strategy whose output is not only to transform the economy to a sustainably high growth era, but also substantially raise per capita income by driving masses out of rural farms to formal employment in an urbanisation transformation.
This is the structural transformation China used to lift 740 million of its rural poor out of poverty from 1978 to 2017 and Singapore’s economy grew at 8.5 percent per annum between 1966-1990.
All said, the Kenyan economy has one structural defect strangling its desperate efforts to industrialise.
The labour cost per unit in Kenya is quite high for the size of its economy and stage of economic development and concern is that the defects is de-industrialising the economy even before industrialisation takes off. Sustainable economic growth and transformation is based on expansion of inputs, of which labour is one. Unless Kenya addresses the labour cost per unit defect it will remain an economic paper tiger.