Why Kenya’s economic power is waning

Last week, the World Bank released the country's economic update which bore very salient realities. The pandemic has increased poverty — an additional two million Kenyans have fallen below the poverty line after their livelihoods were heavily impacted.

The unemployment rate has increased sharply, estimated to have doubled to 10.4 percent in the second quarter. Many wage workers who are still employed have faced reduced working hours, with average hours decreasing from 50 to 38 per week.

Also, one in three household-run businesses are not operating, and between February and June average revenue from household-run businesses decreased by almost 50 percent.

These statistics about the economic and social impact of the pandemic on Kenyans are grim, bearing in mind that Kenya offers very little social safety nets to its population, meaning these households are left exposed to harsh food, health, financial insecurity.

What this also means is that the quality of human welfare will be deteriorating drastically since this also signals higher dependency levels, denting efforts to improve the general standards of living.

It is my prognosis that there will be a generation of Kenyans, currently in their early thirties that will not be able to achieve financial freedom and security as they age into their late 40s. This prognosis is not entirely linked to the pandemic but the structural problem of Kenya's economy.

The economy is creating less jobs, the formal job market is shrinking instead of expanding, and incomes in terms of real value are falling. The economy is only working for the few patrimonial elites.

But for a period now, we are constantly seeing commentators and pundits miss the structural problem of the Kenyan economy. Any punditry that assigns Kenya's economic problem to the country importing goods like tomatoes, onions and oranges from neighbouring countries should be flagged as economic illiteracy misleading the public with populism.

Import substitution is a 1970 economic school of thought that shouldn't be floating in 2020 as an economic blueprint. It is an oxymoronic economic blueprint because no country can survive without imports. In fact, the more a country industrialises the more it imports.

A story is told about when Tullow Oil was setting operations in Turkana, and among the tenders it floated was for supply of 10,000 eggs daily that meet international standards and certifications. The tender was closed for locals only but at the end of it no local supplier had the capacity.

It was a South African company that won the tender. Yes! 10,000 eggs had to be airlifted all the way from South Africa. We seem to be in a race but running whilst looking backwards to see who is catching up with us instead of worrying about catching up with those ahead of us.

As pundits are worried about Kenya importing onions and tomatoes for Marikiti market, Kenyan producers can't meet high value market locally, which says a lot more about Kenya's competitiveness as a middle income country.

Kenya enjoyed its economic powerhouse status for years in the region because political instability around it made those economies dependent on it, with Tanzania stuck in the socialism hangover for a long period of time. But these economies are maturing, becoming self-sustaining and competitive.

One only needs to look at the cost of farming in Uganda and Tanzania to know that Kenyan farmers can't compete with them in the low value market under an economic bloc that allows free movement of goods and people. Kenya lost its competitive advantage in producing low value goods years ago and failed to transition to high value production, which has become an anaemic economic problem.

If we are talking about Kenya's competitiveness, we should be looking at Kenyan farmers competing with South Africans in the high value markets but not Ugandan or Tanzanian farmers especially with the coming of the Africa Continental Free Trade Agreement.