This article was first published in the Business Daily on January 11, 2015
Last year’s Q3 gross domestic product (GDP) figures show the economy expanded by 5.5 per cent compared to a revised 6.2 per cent in the same period in 2013. The growth was mainly supported by strong activity in construction, finance and insurance, trade, information and communication, and agriculture and forestry.All sectors recorded positive growth except accommodation and food services (hotels and restaurants) that have consistently been on a decline since last year.
But what do these growth figures really mean? Underlying the GDP growth snapshots are some long-term structures that should be analysed and of which Kenyans must be cognisant.The first question is the extent to which all Kenyans are benefiting from growth. The latest UN Human Development Report ranks Kenya 147 out of 187 countries and although there has been a rise in human development since the 1990s, only a small section of the population has gained.To illustrate, the incomes of the richest 20 per cent have risen steadily and now stand at 11 times more than those of the poorest 20 per cent.In fact, a country report by the Africa Development Bank states that the biggest challenge is not raising GDP but ensuring inclusion.There is a widening gap between the rich and poor with the creation of a dual economy where the rich prosper and the poor continue to struggle.This can be attributed to an underdeveloped social security net that does not provide consistent and sufficient income support to the poorest.The core concern with inequitable growth is not just the ideological issues around fairness and justice but the reality that while the poor have a high propensity to consume, they lack the disposable income to engage in many of the spending and profit-making activities that spur investment and growth.
As a University of Nairobi analyst said, this creates a vicious cycle in which low growth results in high poverty that in turn abets low growth.Today, each of the 42 million Kenyans would earn Sh189,624 ($2,158) yearly if income was distributed equitably. Sadly, the manner in which GDP growth is currently structured only encourages economic dualism.In addition, the growth structure ensures that the youth are at best fringe beneficiaries of the economic largesse, which elicits the feeling that they are in a no-win situation with the older generation.The International Labour Office (ILO) points out that while young women and men account for 37 per cent of the working-age population, their participation in employment is less than 20 per cent.Due to difficulties in securing jobs, the youth feel the best option is to leave the labour market. This leaves them more vulnerable to chronic unemployment or eking out a living in a tough economy.The result of this skewed system is frustration and dissatisfaction, coupled with security concerns as the jobless youth engage in crime to survive. Their exclusion from mainstream economic activity can create discontent and another “Arab Spring”.
Linked to the youth issue is the fact that these relatively healthy GDP figures mask the reality of jobless growth. This is where the economy experiences growth amidst decreasing employment.Indeed, the ILO released a report last year stating little progress is being made in reducing working poverty and vulnerable forms of employment such as informal jobs and undeclared work.Unemployment in Kenya stands at more than 13 per cent, masking the enormity of the labour market challenges where a significant proportion of the population is inactive rather than unemployed. Of the employed, many are engaged in informal jobs.So while GDP figures are important, it is crucial we foster equitable and inclusive growth as well as develop job creation strategies to address the burgeoning chronic unemployment and underemployment.