How to improve Kenya’s economic development model

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This article first appeared in my weekly column with the Business Daily on July 31, 2016

Last week scholars from Japan shared highlights from the publication Contemporary African Economies: A Changing Continent under Globalisation in which the scholars state that growth in Kenya is not inclusive and has failed to redistribute wealth to the poor. They rightly observe that the manufacturing growth sector is becoming thinner than before and that productivity in the agriculture sector is static. They suggest government should invest in human resource development including education. Let’s look at three crucial weaknesses with the Kenyan model with regards to agriculture, manufacturing and education.

A cursory look at the agricultural sector in Kenya reveals serious productivity problems. According to the Kenya National Bureau of statistics the agriculture sector accounts for 60 percent of total employment yet contributes about 25.9 percent to the Gross Domestic Product (GDP) of Kenya. So the effort of 60 percent of employed Kenyans contribute a measly 25 percent to GDP; clearly there is a productivity problem. Systemic problems that beset the sector according to the government’s agriculture, rural and urban development sector report include the inadequate exchequer releases. So it is interesting that an analysis of the 2016/17 budget reveals that government reduced allocation to the department of agriculture by KES 1.73 billion and fisheries by KES 510 million when compared to last year. Although this was compensated by an increased allocation to livestock the reality is that agriculture, livestock and fisheries combined constituted a paltry 2.4 percent of the total budget. Although the problem in agriculture cannot be solved solely by throwing money at the problem, allocating less than 3 percent to such a crucial sector is telling.

(source: http://www.iatp.org/files/imagecache/320f/kenyaAgCarbonProject_Gates%20Foundation.jpg)

Factors that negatively inform agricultural productivity include the high cost of inputs, low absorption of new technology and low farmer skills levels. The sad reality is that this is an old story that persists; so government’s action to solving these issues is wanting. Strategies that should be front and centre is to seriously address the land holding problem, reduce the cost of inputs and provide farmers with better schemes to improve their equipment and skills levels so that productivity is boosted.

Secondly is the manufacturing question where on average the sector has been growing at just over 3 percent per year while the economy has been growing at just over 5 percent. Thus the share of manufacturing of GDP is actually declining, not static as is the common perception. To be fair government is making effort to address problems with infrastructure but the sector suffers from inadequate financing as well as challenges with skilled labour. In my view government should leverage its own strategy as well as develop Public-Private-Partnerships to develop industry and manufacturing with two factors in mind: first absorb low skilled labour given that Kenya’s population’s average years of schooling is 6.5 years, second promote labour intensive manufacturing to create jobs for Kenyans. Again, here to be fair government is focussing on labour intensive manufacturing in the Kenya Industrial Transformation Programme of which one of the key sub-sector is textiles and apparel. However, government needs to focus on reducing cost of production, facilitate access to long term patient finance, and improve curricula to ensure students are taught relevant skills so that manufacturing can play a stronger role in job creation and economic growth.

(source: http://www.businessdailyafrica.com/image/view/-/904736/highRes/138308/-/maxw/600/-/15qi0lk/-/PIX5.jpg)

The education problem translates into an informal employment and slumped growth problem. In terms of informal employment, education entry requirements are too high for most Kenyans to meet thereby barring them from the more lucrative, productive and secure formal sector jobs. As a result about 80 percent of Kenyans find less secure, lower paying and frankly low productivity jobs in the informal sector. Productivity is a particular challenge and a study by the World Bank indicates clear links to education levels. In the informal sector the education level of managers is highly correlated with the level of labour productivity. Labour productivity for firms with managers that have no education or only primary education is only 72 percent of that of firms with managers that have vocational training or a university degree. Although the formal sector tends to absorb better educated Kenyans, private sector consistently articulates there is a massive skills gap between what Kenyans are taught in schools, universities and vocational schools and what the labour market actually needs. Thus government strategies for education are to better link curricula with labour market skills needs and develop strategies to improve education and skills levels in the informal economy to boost productivity.

Anzetse is a development economist; anzetsew@gmail.com

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2 thoughts on “How to improve Kenya’s economic development model

    mgscupoftea said:
    August 1, 2016 at 10:31 am

    An interesting look at agricultural productivity

    Shrey Srivastava said:
    August 1, 2016 at 11:28 am

    Thanks for this blog post regarding economic growth in Kenya; I really enjoyed it and am definitely recommending this blog to my friends and family. I’m a 16 year old with a blog on finance and economics at shreysfinanceblog.com, and would really appreciate it if you could read and comment on some of my articles, and perhaps follow, reblog and share some of my posts on social media. Thanks again for this fantastic post.

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