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Kenya’s competitiveness improves on checked inflation, favourable business conditions

Embakasi Inland Container Depo
Embakasi Inland Container Depo. FILE PHOTO | NMG 

An improved business environment and strong inflation controls have boosted the competitiveness of the Kenyan economy, a new survey showed, pointing to the future focus areas for policymakers.

The World Economic Forum’s Global Competitiveness index (GCI) Report 2019 — which tracked 141 global markets — placed Kenya at position 95, down from previous year’s 93. This was despite Kenya having improved its index score from 53.6 percent to 54.1 per cent.

The World Economic Forum (WEF) attributed Kenya’s loss of two positions to being “overcome by faster climbers”.

Introduced in 2018, the report provides a detailed map of the factors and attributes that drive productivity, growth and human development in given economies. It relies on 103 indicators distributed across 12 pillars.

Kenya was awarded more than 50 points in 10 of the 12 gauges.

By analysing more than 100 indicators of competitiveness, the ranking aims to showcase what a given economy is doing well in and to encourage policymakers to improve in the areas of lower scores.

Macroeconomic stability pillar was an area of excellence for Kenya where it scored 72 points out of possible 100 points for being able to keep inflation in check. This was followed by 64 points on business dynamism pillars for improved business conditions in the country.

A country’s performance on the overall GCI or specific metric is reported as a ‘progress score’ on a zero to 100 scale, where 100 represents the ‘frontier’, an ideal State where an issue ceases to be a constraint to productivity growth. The overall good score in macroeconomic stability pillar was driven by a score of 93.5 in managing inflation while debt dynamic scored 50 points.

The Central Bank of Kenya (CBK) has been successful in keeping inflation within the targeted range of between 2.5 percent and 7.5 percent despite some incidences of erratic weather that has driven food prices up.

Inflation fell to 3.83 percent in September, being the lowest in 18 months, majorly driven by a marked deceleration in transport prices. The last time Kenya witnessed double digit inflation rate was in November 2012 at 10.67 percent. Kenya’s rate of inflation compares favourably with the rest of Sub-Saharan Africa countries and especially its peers such as Nigeria and Ghana whose inflation rates were 11.1 percent and 9.4 percent, respectively in July 2019, according to National Treasury.

The high score on business dynamism was chiefly driven by improved ease of doing business. Kenya scored 87.6 points on the cost of starting a business as a percentage of gross national income per capita.

It scored 77.4 points on the time taken to start a business while its strong insolvency regulations gave it 81.3 points. It, however, scored poorly (31.2 points) on insolvency recovery rate, showing that more needs to be done in helping insolvent firms get back to business.

The country was ranked 9th on the continent after Mauritius, South Africa, Seychelles, Tunisia, Algeria, Botswana, Egypt and Namibia.

The score was above Sub-Saharan Africa’s average score of 46.3 percent, but below the 60.7 percent average GCI score across the 141 economies. It is far distance from Singapore, which scored highest in competitiveness at 84.8 percent.

According to the report, a country’s economic fortunes are the result of proactive choices taken over time and therefore the GCI offers direction for policy intervention for countries to improve attractiveness.

“Economic growth does not happen in a vacuum. Some basic building blocks are required to jump-start the development process, and more are needed to sustain it,” says the report.

“The GCI makes it possible to identify specific constraints to growth or bottlenecks, as well as the causes behind episodes of economic recession or high volatility.”

Despite Kenya’s improved score, the index identified areas that require improvement for it to be more competitive. Its lowest scores came from ICT adoption and innovation capability pillars, each at 36 points.

Kenya was seen lagging in areas such as access to Internet, churning out new ideas worth patenting and applying critical thinking in class. Despite Kenya’s mobile phone penetration handing it a score of 80.3 points, Internet users as a percentage of adult population was low, giving the country only 17.8 points.

The country scored 44.1 points in preparing its future workforce, pointing to skills gaps that will have to be addressed by the recently rolled out competency-based education curriculum.

On trade, it scored 41.33 points on boarder clearance efficiency, showing a possibility of delays on importers and exporters. Kenya was also found lagging in active labour market policies and having a lower number of salaried women in labour market.

Overall, global competitiveness has improved by 1.3 points year-on-year, driven mainly by increased in ICT adoption.

However, over the past year, 41 economies became less competitive, including the US, Japan, Germany, UK and Canada. The report notes that US’ decline was the largest, while Germany’s and the UK’s were among the largest 10.

Singapore was ranked as the country closest to the frontier of competitiveness, scoring 85 points. The country was awarded more than 90 points in four of the 12 gauges and scored more than the Organisation for Economic Co-operation and Development average in all areas.