Month: February 2015

This is how county leaders can attract smart investment

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This article first appeared in my weekly column with the Business Daily on February 22, 2015.

The decentralisation of government has ushered in counties complete with power previously exercised at the central level.

The African Middle Class: Too much hype?

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This article first appeared in my weekly column with the Business Daily on February 15, 2015

There is a great deal of hype about Kenya’s and Africa’s emerging middle class. Indeed Kenya is considered to have one of the largest middle-class populations in Africa.

Stories abound about global companies and investors eyeing the newest middle class in the world and how they can make handsome profits through tapping into the spending power. Indeed some say that Africa’s consumer spending is set to rise from $860 billion in 2008 to $1.4 trillion in 2020.

Shopping

(source: http://www.ventures-africa.com/wp-content/uploads/2014/01/Shopping.jpg)

But let’s take a step back and look at technical definitions of the middle class: The African Development Bank states that Africans who spend $2 to $20 (Sh92=$1) a day qualify as middle class. The Standard Bank defines it as those who spend $15 to $115 a day.  A point to note is that earning above $2 dollars a day is a commonly accepted definition of the poverty line in developing countries in general because people above the $2 dollar line are above absolute poverty. One questions the prudence of equating not being in absolute poverty as synonymous with middle class.

The first problem of pinning the definition of middle class as individuals spending $2 or $15 (Sh170 or Sh1,275) a day masks the fact that there are high levels of dependency in Africa. Because the government lacks a robust social security net, those who earn income are often supporting several relatives and friends financially. Thus, even if an individual spends Sh2,000, most of this may be spending for dependents, not the individual.

1029_money-wallet_400x400 (source: http://blogs-images.forbes.com/jennagoudreau/files/2011/05/1029_money-wallet_400x400.jpg)

In addition, there are other factors that should be looked at beyond strict figures. As an analyst pointed out, looking at figures does not answer whether this ‘middle class’ has access to affordable health care and  education, and whether they can afford leisure activities.

Those questions are more important than coming up with arbitrary cut-off points. For example, given Kenya’s high mortality rate and burden of disease exacerbated by truly poor health facilities, thousands of shillings are spent on expensive healthcare and individuals are often constrained by such obligations thereby haemorrhaging their earnings on such expenses.

Further, the reality is that poverty is still pervasive. A Standard Bank survey of 11 sub-Saharan African countries, which together account for about half of Africa gross domestic product, found that 86 per cent of their households remain in the low-income band. All these households will focus on meeting basic needs with little room for discretionary spending.

people_compressed (source: http://esango.un.org/ldcportal/documents/10179/11046/people_compressed.jpg?t=1348070174727)

So the level of truly disposable income is important to determine as the reality is that although an individual may be able to afford food from a fine restaurant he or she may have too many dependents to actually go out and make that purchase.

On the other hand, prices for apartments in fashionable districts in certain African cities match those in the global north. So is the narrative truly about the ‘middle class’ or an emerging elite?

Is the trend in Kenya actually one of economic dualism with a deep divide between rich and poor with paltry sprinklings of a middle class? The questionable nature of the Kenya middle class is exemplified by the fact that fast food chains that are fraternised by low-income groups in Europe and North America are the very same found in up-market malls and posh neighbourhoods in Kenya. So does ‘rich’ in Kenya translate to ‘poor’ in the USA?

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(source: http://i.usatoday.net/money/_photos/2011/08/27/KFC-goes-to-Kenya-first-US-fast-food-chain-MIALHF4-x-large.jpg)

The appeal here is one of caution about over-hyping Kenya’s and indeed Africa’s middle class. The commentary has to be tempered with presenting accurate scenarios on the nature of this ‘middle class’ and the depth of the pockets therewith.

 Ms Were is a development economist. Email: anzetsew@gmail.com | Twitter: @anzetse

Fraud in higher education killing Africa’s development

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This article first appeared in my weekly column in the Business Daily on February 8, 2015

In the past week there has been a buzz around institutes of higher education allegedly handing out dubious academic accreditations for a fee.

Beyond the surprise and outrage, this reality in Kenya speaks to the larger question of how poor and fraudulent education is killing economic development.

It is an absolute outrage that given the skills gap Kenya already has, institutions and ‘students’ are willing to collude in a manner that  augur ill for the youth, who are the main victims of the alleged misdemeanours, and for the economy in general.

Fake-degrees(source: http://cache.pakistantoday.com.pk/Fake-degrees.jpg)

As it stands, most employers are dissatisfied with the quality of graduates being churned out even by reputable institutions of higher education.

Employers are often struggling to fill vacancies yet hundreds of thousands of unemployed graduates exist, a situation that points to the extent of the mismatch.

In fact, in a survey among experts in 36 African countries on the major challenges youth face in the labour market, 54 per cent found a mismatch between what job seekers have to offer and what employers require.

So when the duplicity enters the sphere of education, and inauthentic students ‘graduate’, the effect is the creation of a young population with no true marketable skills and therefore limited economic promise.

The seriousness of the situation is underpinned by the fact that educated youths are seen to be the engine that would drive Kenya into economic prosperity.

STEP_framework(source: http://siteresources.worldbank.org/EDUCATION/Images/278199-1089740217618/STEP_framework.png)

Therefore, when institutions collude with ‘students’ in such a manner, it compromises the quality of the skills base on which current and future growth is predicated.

The problematic elements of tertiary education do not end there. Even when authentic degrees are earned, the composition of the same is a problem.

If Kenya is like many other African countries, there exists an imbalance with a shortage of those with degrees in technical areas such as the extractive, logistics, chemical and pharmaceutical industries as well as a surplus of workers in audits, administration, sales and communication positions.

But this is not without cause: Kenya does not produce many nuclear scientists, for example, partly because it lacks facilities but also because young people do not view such jobs as vendible in the local labour market.

This results in an imbalance that feeds into an inability of the country to build on technical skills sets that drive efficiency, technological innovation and productivity, creating positive disruptions that boost economic growth.

It is, therefore, crucial that not only fraudulent institutions of higher education are deregistered, but also a stronger connection be built between employers and the academia.

This means relevance of education will be improved, reducing the skills mismatch.

AppleMark(source: http://dreamfilm.ca/wp-content/uploads/Generation-Jobless-Title-copy.jpg)

In addition, technical and vocational skills development should be promoted as it offers the youth additional applied skills and better chances in the labour market.

Further, training should go beyond hard skills and train students in soft skills — behavioural skills — because these can have a significant positive impact on employment and earnings of young Kenyans.

Ms Were is a development economist. Email: anzetsew@gmail.com, Twitter: @anzetse

Davos shows world is watching Africa for opportunities

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This article first appeared in my weekly column with Business Daily on February 1, 2015

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At the World Economic Forum, Africa featured more prominently in discussions than in the past. The continent’s politicians and leading businessmen seem to be singing the same tune stating the importance of emphasising global trade with the continent, investing in infrastructure and reminding the world of Africa’s growth figures.

But what did Davos say about Kenya (and Africa) and what does this mean for the country?

First, there is a great deal of interest in Africa but there is still significant anxiety and concern about the conditions and environment for business and for personal safety.

South African President Jacob Zuma had to reassure participants that Africa is “relatively stable”, with “reduced areas of conflict in the continent”. Of course Ebola in West Africa and terrorism in Kenya and Nigeria were mentioned.

The basic message is this: The world is interested in making money from countries like Kenya, but many are unclear on what a fully fledged investment on the continent entails.

One could argue that had China not made deep inroads into the continent, interest in Africa would be more muted.

It is up to Kenya to increase access to information and data about the country and market the positive aspects of what investment here means, while being candid about the risks present.

Delegatebrochure_final13(source: http://www.theismaili.org/ismaili/sites/ismaili/files/4515.jpg)

Secondly, Africa is the newest kid on the block but is still largely discussed as a monolith, a single market and single investment destination.

Luckily for Kenya, a few days after Davos, Fortune magazine listed the country as one of the seven emerging markets to watch (Kenya was the only African country on the list).

There is some indication that basic differentiation is beginning to emerge, with some foreign investors distinguishing between East and West Africa, or oil importing versus oil exporting economies.

This differentiation is bound to grow and is good news for Kenya because there is space on the global stage for the country to stand out as a key investment space.

afr2004regions(source: http://www.zum.de/whkmla/histatlas/africa/afr2004regions.gif)

At the moment, it looks like investments will be made in one or two “sure bet” countries and Kenya can leverage on all its strengths to be seen to be one of those sure bets.

Thirdly, Davos made it clear that people are paying attention to Africa and thus the continent is likely to be increasingly integrated into global financial markets.

Part of the reasons behind the interest is the resilience shown during the 2008-09 financial crisis. This and the high yields has given countries like Kenya access to global financial markets in an unprecedented manner.

Ironically in trying to diversify risk, investors are integrating the continent more closely to global financial markets, perhaps compromising the relative isolation on which Africa’s past resilience was based.

Kenya and Africa will open up further and the attention of the government should be on how to attract investment but more importantly, to develop the capacity to absorb the incoming investment in a manner that builds the economy equitably and sustainably.

Ms Were is a development economist.