This article first appeared in my weekly column with the Business Daily on June 18, 2017
Manufacturing can play a crucial role in Kenya’s inclusive growth by absorbing large numbers of workers, creating jobs indirectly through forward and backward linkages to agriculture, raising exports and transforming the economy through technological innovation.
It is with this in mind that the Overseas Development Institute and the Kenya Association of Manufacturers coordinated a multi-stakeholder process to determine how the manufacturing sector can create 300,000 jobs and increase the share of manufacturing in GDP to 15 percent in 5 years.
A plan titled ‘10 policy priorities for transforming manufacturing and creating jobs’, has been developed focused on key actions that can be taken to build the manufacturing sector and achieve the aforementioned goals. The plan is rooted in the Kenya Industrial Transformation Programme and the Vision 2030 Manufacturing Agenda targeted at priority sectors of both formal and informal manufacturers (jua kali) as both sectors need support if Kenya is to industrialise equitably.
The first issue to address is the business environment in Kenya. While Kenya has moved up 21 places, in its position World Bank’s Ease of Doing Business Rank, considerable constraints exist particularly in dealing with construction permits, paying taxes and registering property. Thus further action is needed to improve the business environment. Additionally, for manufacturing to flourish the country needs a fiscal regime that is more articulated to support the sector. Fiscal policy at both national and county level needs to be more deliberately leveraged to support industrialisation through, for example, developing fiscal incentives that drive investment into manufacturing.
The third action point concerns making land more accessible and affordable. Research by Hass Consult reveals that the price of land in and around Nairobi has increased by a factor of 6.11 to 8.05 since 2007. Aggressive increases in land price dampen investor appetite for investment in manufacturing which tends to be land intense. Thus there is a need to prevent inflationary speculation on land prices, and develop government land banks earmarked for industry.
Energy costs continue to be punitive in the country and make Kenya’s manufacturing sector less competitive than even its East African neighbours. Government efforts need to not only target increasing energy generation but also lower energy prices and increase the quality and consistency of energy to the industrial sector. This should be coupled with a key gap constraining the sector- access to finance. Manufacturing companies, particularly SMEs and informal industry, are undercapitalised and face multiple obstacles to obtaining access to finance. Bespoke financing mechanisms aimed at the sector, such as through an Industrial Development Fund, need to be fast-tracked.
Kenya cannot leverage manufacturing for economic development without creating a more aggressive export push into regional and international markets. Kenya’s exports to the EAC are declining and opportunities such as AGOA can be tapped into more effectively. Additionally, Kenya needs to reorient education policy and skills development towards STEM subjects so that the skills in the labour pool drive the growth of manufacturing.
Finally, overall coordination in the sector is crucial. An agency in government should be created that coordinates all government entities relevant to industrialisation such as agriculture, education and the National Treasury. The private sector also needs to better coordinate particularly along value chains to drive sub-sector growth in a more robust and targeted manner. Finally, there is a need for better coordination between public and private sector through fostering trust and reciprocity to drive industrialisation forward.
Anzetse Were is a development economist; firstname.lastname@example.org
On May 1, 2017, I was part of a panel on NTV talking about labour and employment issues in Kenya
This article first appeared in my column with the Business Daily on March 30, 2017
Someone once told me that there are three types of foreign investors in Africa. The first are those who invest in the country in order exploit raw natural resources and direct them to their projects outside the country. The second are those who invest in countries in order to flood the country’s markets with their products. The third are investors who invest in the country for the long-term in a manner that creates employment, builds incomes, contributes to GDP growth and of course, generates profits. Africa seems to have little problem in attracting the first two investor type, but often struggles to secure the third type. The question for Kenya is, which type of investor is the country attracting? And what can be done to attract the third type of investor?
These questions are important in the context of fiscal policy, of which a key event will take place today when the National Budget 2017/18 will be read. Fiscal policy ought to and can play an important role in attracting the right type of investor to Kenya.
Over the past ten years, the government has been on an investment drive to build the country’s infrastructure. In principle, efficient public investment in infrastructure can raise the economy’s productive capacity by connecting goods and people to markets. The national budgets over the past few years have thus has allocated significant amounts to energy and transport infrastructure such as LAPSSET, the Standard Gauge Railway (SGR), Rural Electrification and the Last Mile Project. With the SGR due to be completed this year, it will become clear what dividends the country will reap from such heavy fiscal commitment to infrastructure. That said, infrastructure investment is a prerequisite to attract the third investor type as the ease and cost of transporting goods are an important business cost and variable.
The second fiscal strategy that can bring long term investors as well as bolster food security and manufacturing is tax incentives to create productive agricultural value chains. Fiscal policy can more effectively engender a shift from subsistence to commercially productive farming by identifying commercially viable agriculture value chains and linking small holder farmers to manufacturers. Through incentives such as tax remissions along key food and beverage manufacturing value chains, fiscal policy can incentivise higher productivity in farming and contribute to making manufacturing more dynamic than is currently the case. The key however, is consistency in fiscal policy with no abrupt changes in tax remissions or other incentives so as to engender long term investment in food value chains.
Thirdly, the right investor type can be attracted to the country through investment in Kenya’s human capital. As the IMF points out, more equitable access to education and health care contributes to human capital accumulation, a key factor for growth and an improvement in the quality of life. Fiscal policy has two roles here; the first is creating incentive structures for private sector investment into the country’s private and public education and health networks and the second being the country’s own fiscal commitment to health and education sectors. National budget allocations to education stand at about 23 percent, while commitments to health are at about 6 percent of the national budget. Health allocations are paltry and while the education allocations look impressive, a great deal of the funds are directed to free primary education. In order to develop a healthy, highly skilled and productive labour pool, government ought to consider reorienting the almost obsessive fiscal commitment to infrastructure towards more robust allocations to health and post-secondary education. This should be complemented by the creation of incentive strategies that attract investment into national priority nodes for the sectors.
The fourth means through which fiscal policy can attract the right investors is by managing tax rates at national and county levels. At the moment, private sector is facing numerous tax burdens due to the lack of harmonisation of tax rates between national and county governments. Fees and charges at county level are unpredictable, non-standardised and onerous; business face multiple payments for advertising and transporting goods across county borders. While these are not technically taxes, they are a form of tax exerted on private sector with no clear link to the service that should be expected for such payments. At national level, the main concern for private sector beyond VAT refunds, is that a small segment of business and individuals are onerously taxed due to the narrow tax base in the country. Thus national government ought to develop a long-term strategy for broadening the tax base.
A key component of broadening the tax base is addressing informality in the economy where millions of informal businesses do not pay taxes. The aim here is not to tax informal businesses, as most are micro-enterprises barely making profits, but rather creating an ecosystem that encourages the development of informal business. Again, fiscal action can be taken by government to direct financing focused at developing micro, small and medium enterprise through more the strategic deployment of the Youth, Uwezo and Women’s Funds. The financing architecture of these three funds has to be fundamentally rethought to focus on building technical skills and business management capacity, and improving productivity and profitability in the informal sector.
Additionally, the government ought to develop a strategy for Kenya’s cottage industry which is the Jua Kali (informal industry) sector linked to solid fiscal commitments. Through fiscal action, the government should create an investment environment that attracts traditional investors as well as non-mainstream financing such as angel investors, impact investors and venture capitalists to invest in Jua Kali. In this manner, action will not only invest in the informal sector, it will create incentives for investment into a sector in which over 80 percent of employed Kenyans earn a living, in a manner that complements fiscal policy.
Anzetse Were is a development economist; email@example.com
This article first appeared in the Business Daily on February 12, 2017
The election year in Kenya is contextualised in two conflicting realities: on one hand the country is among those growing the fastest in Africa and the world and is successfully attracting mega investment. On the other hand, companies have shut down or left the country, poverty and unemployment levels remain high and cost of living continues to rise. How do we reconcile these two conflicting realities?
The first is to acknowledge that the economy is growing; by 6.2 percent in Q2 and 5.7 percent in Q3 of last year. Juxtapose this with an African GDP growth rate of about 1.4 percent and a global growth rate of about 3.4 percent in 2016. Analysts point to several sources for this growth; agriculture, forestry and fishing; transportation and storage; real estate; wholesale and retail trade as well as mining and quarrying. Kenya was not only buffered from the decline of commodities, Kenya saved nearly KES 50 billion in the first half of 2016 alone due to low global petroleum prices. Further, the Kenya Shilling remained steady with regards to major currencies, standing at around KES 100 to the US Dollar. This is important for Kenya which is an import economy; currency depreciation places upward pressure on inflation. With regards to inflation, the country remained within the Central Bank of Kenya’s (CBK) inflation target range of 5 plus or minus 2.5 percentage points; annual average inflation dropped from 6.5 percent in November to 6.3 percent in December, the lowest reading since November 2015. In addition, the country made progress on the Ease of Doing Business Index. Kenya ranked 92nd up from 113 in 2015; this is the first time in seven years Kenya has ranked among the top 100.
Further, Kenya’s profile as an attractive investment destination grew in 2016. FDI Markets ranked Nairobi as Africa’s top foreign direct investment destination with inflows surging by 37 percent in 2015. Indeed, reports indicate that Kenya recorded the fastest rise in FDI in Africa and the Middle East. The FDI intelligence website indicates that a total of 84 separate projects came into Kenya in real estate, renewable and geothermal energy as well as roads and railways worth KES 102 billion, all of which provided new jobs for thousands of Kenyans. Additionally Peugot announced a contract to assemble vehicles in the country joining Volkswagen which opened a plant last year, Wrigley invested KES 5.8 billion in a plant in Thika and a contract worth KES 18.74 billion was signed with the French government to build a dam.
However, the reality elucidated above seems theoretical in the minds of millions of Kenyans, most of whom are not feeling the positive impact of all these rosy statistics. Media reports indicate that that thousands jobs were lost last year due to company restructuring or company shut down altogether. 600 jobs were lost when Sameer Africa announced that it would shut down its factory. Flourspar Mining Company also shut down, leading to a loss of between 700-2000 direct and indirect jobs. Oil and gas logistics firm Atlas Development also wound up operations and the Nation Media group shut down three of its radio stations and one television channel. But perhaps it is in the banking sector where job losses were most pronounced. This paper reported that more than six banks announced retrenchment plans in 2016: Equity Bank released 400 employees; Ecobank announced it would release an undisclosed number of employees following a decision to close 9 out of its 29 outlets in Kenya; Sidian Bank, formerly known as K-Rep, made plans to release 108 employees, and the local unit of Standard Chartered announced plans to lay off about 600 workers and move operations to India.
Why is this happening? How can economic growth be juxtaposed with massive lay-offs and economic hardship? There are several factors at play here. With regards to the employment cuts in the banking sector, these are linked to two factors, the adoption of technology and the interest rate cap. Technology adoption has translated to the reality that millions of Kenyans no longer have to visit banks to access financial services as they can make financial transactions digitally, transactions that range from money withdrawals and transfers, to loan applications and disbursement, and the payment of bills. This automation has led to the attrition of jobs.
Secondly, the interest rate cap has placed pressure on the profit margins of banks leading to job forfeiture. The interest rate cap effected by the government stipulates that banks cannot charge interest rates above four percentage points of the Central Bank Rate (CBR). Interest rate spreads have several functions for banks, of which perhaps the most important is insulating banks from bad borrowers. There is an asymmetry of credit information in Kenya due to the fact that the creditworthiness of most Kenyans cannot be established. As a result, when banks make loans to Kenyans, they often do not know if the borrower will be a good or bad one. Thus to insulate themselves from the risk of lending to bad borrowers, interest rates are raised in order to ensure that the bank recovers as much money from the borrower in as short a time as possible. In removing this provision, the interest rate cap is essentially forcing banks to lend money to both good and bad borrowers at the same rate. This in turn threatens profit margins as there is a real risk that the bank now has no buffer against bad borrowers. As a result, some banks have responded to the interest rate cap by shedding jobs to cut down operating costs and safeguard profits.
However, the interest rate cap is having a more insidious effect on the economy. A report by the IMF released last month states that the interest rate controls introduced in Kenya could reduce growth by around 2 percentage points each year in 2017 and 2018. The IMF also expects a slowdown in the growth of private sector credit linked to the cap. Additionally, the growth of the economy has been revised downwards due to the cap. What does this mean for the average Kenyan? The interest rate cap means that SMEs and individuals who used to get loans, albeit at higher rates, are likely to get no credit at all. Banks will simply not lend to individuals and businesses whom they think cannot service the debt credibly at that capped ceiling. Sadly it is the most vulnerable who will be disqualified first as these are seen as high risk and high cost borrowers. As they are shut out of credit SMEs cannot implement growth plans and are unable to create jobs and wealth. The contraction in liquidity engendered by the cap may also mean there will be less money moving in the economy; Kenyans will feel that there is less money around and feel more broke as they cannot get loans to grow their business or meet personal costs.
However, one of the biggest factors behind why Kenyans don’t feel the rosy statistics is because most Kenyans operate in the informal economy whose performance is generally not captured in official figures. GDP growth and Ease of Doing Business data do not capture the reality of dynamics in the informal economy where over 80 percent of employed Kenyans earn a living. Therefore, one cannot extrapolate positive overall statistics as reflective of performance of the informal economy. Perhaps the incongruence Kenyans feel stem from the fact that the economy from which millions earn a living is largely ignored. The hardship and challenges of Kenyans living and working in the informal economy continues to be neglected and thus policies and action that could help most Kenyans are never developed or implemented. Until the gross negligence of the informal economy is addressed, one can expect the average Kenya to feel a disconnect between economic growth and their lived reality in the informal economy.
An additional factor leading to the disconnect between economic growth and the lived reality of most Kenyans, is that the country seems to be in a ‘jobless growth’ rut where GDP growth doesn’t lead to formal job creation. This is partly because Kenya’s economic growth is services driven, and services produces far less jobs than manufacturing. Until the manufacturing sector is given the attention it requires such that economy is driven by export-led manufacturing, the ‘jobless growth’ challenge will continue. Bear in mind that manufacturing in this country is under threat because the cost of doing business for manufacturers in Kenya remains high particularly with regards to electricity, transport, cross-county taxes and, frankly, corruption. Kenya is currently deindustrialising as the manufacturing sector grows at a slower rate the economy. The manufacturing sector grew 3.6 percent in the Q1 and at 1.9 percent in Q3 of 2016. Compare this with a GDP growth rate of 6.2 percent in Q2 and 5.7 percent in Q3 of 2016; this means the share of manufacturing in GDP is shrinking. This should be of concern because, as analysts point out, industrial development is crucial for wealth and job creation. Exacerbating the already slow growth of the sector this year are the drought and cheap imports. As the Kenya Association of Manufacturers points out, the drought is having an impact on raw materials in sectors that rely on agricultural products. The drought will also lead to a higher cost of goods and services for Kenyan as electricity tariffs are adjusted upwards. The manufacturing sector is also threatened by the fact that the country has allowed the entry of cheap goods, particularly from Asia, to flood the market; goods that benefit from protection and subsidies in their home economies which is not reflected here. These constrain the growth of the sector in Kenya.
Finally, financial mismanagement at both national and county levels is compromising growth. The top allegations of the financial mismanagement of public funds according to media reports include the laptop tendering debacle, NYS scandal, Ministry of Health and the GDC tendering scandal. It seems that government funds that are meant to be economically productive and generate economic activity do not reach intended projects. Thus the economic stimulus that ought to be garnered from public never happens because projects are either under-financed or not financed at all as public officials siphon money away from them. Further, business routinely complain that bribes have become a basic expectation of county officials around the country. A report released by the Auditor General last month revealed that Kenyans are asked to pay up to KES 11,611 by county officials; Mombasa County officials top the list of bribe-seekers followed by Embu, Isiolo and Vihiga. As long as this continues, jobs and wealth that government investment and financing could have created will not materialise.
So what should Kenyans demand from those vying for power in this year’s general election? The first and foremost is ending financial mismanagement where even opposition is culpable as counties under opposition engage in corruption as well. Kenyans must demand a clear plan that will take serious steps to make financial structures more robust and punish those engaged in the financial mismanagement of public funds. Secondly, Kenyans should push for the government to provide a detailed analysis on the impact the interest rate cap is having on Kenyans and the economy. If the analysis elucidated herein is anything to go by, Kenyans should also seek the reversal of the interest rate cap as soon as possible. Thirdly, Kenyans ought to demand the development of a policy aimed at supporting and developing the informal economy at both national and county level. The gross neglect of this sector must end given that it is in the informal economy where most Kenyans earn a living and are employed. Finally, Kenyans should push for a detailed plan on industrialisation for the country. While the Ministry of Industrialisation has developed the Kenya Industrial Transformation Programme, a detailed work plan and timeline of deliverables ought to be developed and shared so that Kenyans can reap the dividends that green industrialisation can create.
Anzetse Were is a development economist; firstname.lastname@example.org
This article first appeared in my column with the Business Daily on January 1, 2017
As 2017 starts it is important to take note of key dynamics that will define the year in Kenya. Most of the dynamics will be related to the elections at both national and county levels. There are several issues married to this concern the first of which is political and civil stability. There are already signs that the race for office at both national and county levels will be intense with potential for unrest. It is important that all aspirants as well a security minimise any instability that may emerge from the elections to limit its potentially negative effects on the economy. Kenya’s election year tends to be associated with lower economic growth. It is time to break away from this by securing stability regardless of whether it is an election year or not. This can only be achieved if aspirants from both sides of the political divide are responsible in their speech and actions and are all committed to well governed elections.
Secondly, there has been and will continue to be an intensification of tribalism associated with the elections. The problem with tribalism is not only that is it morally abhorrent, it is foolish. The folly of tribalism related to electing leaders is that is engenders a culture of unaccountability in leaders. Regardless of how the leaders of the ruling or oppositions parties behave and perform, they are guaranteed that Kenyans will vote for them depending on tribal bent. Thus leaders do not need to meet promises made, develop the country or be accountable because they know when elections come around, none of the aforementioned will affect their vote; only tribe will. Thus it is wonder that Kenyans complain about poor leadership yet it is the obsession with tribe in this country that feeds that culture of unaccountability in leadership. This year Kenyans should start the process of ending the culture of tribalism by demanding ideological positions from aspirants on how they will rule at national and county levels.
Another big dynamic will be fiscal policy and management. With regards to fiscal policy, the budget will be read in the middle of the year at the height of electioneering. It is important that Kenyans pay attention to fiscal policy to understand the financial plan for the country going forward. This is important as there may be a change of guard before the end of the fiscal year either at the political or technocratic level. Secondly, election year is a good time for Kenyans to ask hard questions on the management of public budgets. The issue of fiscal management or the lack thereof has beleaguered Kenya for the past five years both at national and county levels. The allegations of graft at national level have been well publicised yet those at county level are essentially ignored. This is a dangerous dualistic mind-set as continued graft at county level poses a clear and present danger to the ability of devolution to deliver on development. Counties in both ruling party and opposition dockets are culpable; this is a non-partisan issue. Therefore this year Kenyans should demand, at both national and county level, clear strategy by all aspirants on how they will address this issue of fiscal mismanagement. This should be coupled with an expectation from aspirants to devise prudent fiscal policy at national and county level.
The final big issue is the development agenda for the next five years; what theme will define the next era of rule? It is clear that over the past five years, infrastructure has been a key theme for the government. Will this be continued for the next five years? My view is that there should now be a shift from infrastructure to manufacturing and green industrialisation. The share of manufacturing in GDP in Kenya has been stagnant for decades. As a result, Kenyans have not fully benefitted from the related job creation, rise in disposable income and penetration of Kenyan products in the African market. The time is now for the next administration to develop a clear strategy and plan for manufacturing and green industrialisation as the theme that will define the next five years.
Anzetse Were is a development economist; email@example.com
This article first appeared in my weekly column in the Business Daily on November 20, 2016
I have been getting several questions pertaining to what is ‘really’ happening in the Kenyan economy. Many Kenyans see incongruence between economic growth statistics and their own lived experience. According to the World Bank the economy is expected to grow by 5.9 percent in 2016; the Kenya National Bureau of Statistics reported that Kenya’s economy expanded by 6.2 percent in Q2 2016. However, several companies have closed down operations in the country and thousands of jobs have been lost this year alone. There are numerous variables that may be informing why Kenyans do not seem to be feeling the positive effects of economic growth.
The first is that GDP growth and Ease of Doing Business data do not capture the reality of the growth and Ease of Doing Business in the informal economy where over 80 percent of employed Kenyans earn a living. Therefore, one cannot extrapolate positive overall statistics as reflective of performance of the informal economy. To what extent does Ease of Doing Business research reflect improvements in the business environment for informal businesses? Parameters such as increased ease with regards to tax compliance and business registration inform Ease of Doing Business performance, yet these are parameters with which informal businesses largely do not intersect. Thus, perhaps the incongruence stems from the fact that the economy from which millions earn a living is largely ignored by official data gathering and analytical efforts.
With regards to companies closing and job loss, several factors at play; I will focus on manufacturing and the banking sector. Manufacturing in this country is under threat because the cost of doing business for manufacturers in Kenya remains high particularly with regards to electricity, transport, cross-county taxes and, frankly, corruption. Additionally, the country has allowed the entry of cheap goods, particularly from Asia, to flood the market; goods that benefit from protection and subsidies in their home economies which is not reflected here. The combination of these factors is making Kenya an increasingly uncompetitive location for manufacturing which is diametrically opposed to the Government’s industrialisation agenda. With regards to the banking sector, job shedding seems to be informed by automation and the interest rate cap. Mobile and e-banking means that many customers do not need direct human contact to effect the transactions they require. The interest rate cap has removed a key risk management tool that banks used to manage information asymmetry with regards to credit worthiness. As a result, banks seem to have limited space to make numerous loans as the risk buffer is no longer present. Fewer loans means fewer staff are needed to monitor loan compliance.
Kenyans are also concerned that economic growth is not associated with job creation; the country seems to be stuck in the ‘jobless growth’ rut. Again, this is informed by several factors. Firstly, Kenya’s economic growth is services driven, and services produces far less jobs than manufacturing for example. The main services sub-sectors that are labour intense are health, education and hospitality; sub sectors such as telecoms and financial services need far less labour. It is no secret that tourism in the country has been hit leading to job losses; and even when there is marginal recovery, a limited number of jobs are created and those are seasonal. Until the manufacturing sector is given the attention it requires such that economy is driven by export-led manufacturing, the ‘jobless growth’ challenge will continue. Finally, the education system in the country is doing a gross disservice to the youth by making millions of young people essentially unemployable. 62 percent of Kenyan youth aged 15-34 years have below secondary level education. Further, Kenya is characterised by a persistent mismatch of skills between what is taught and the skill requirements of the labour market. Thus most youth are poorly educated and those who are well educated are not trained in skills the labour market seeks.
Finally, financial mismanagement at both national and county levels is compromising growth. It seems that government funds that are meant to be economically productive and generate economic activity do not reach intended projects. As long as this continues to occur, jobs and growth that could have been created by government investment and financing will not materialise.
All these factors inform the disconnect between rosy economic statistics and the reality Kenyans feel on the ground; and these will persist if there is no change in financial management and economic development strategy going forward.
Anzetse Were is a development economist; firstname.lastname@example.org
This article first appeared in my column in the Business Daily on October 16, 2016
Last week South Africa’s President Zuma made a state visit to Kenya highlighting the relations between the two countries. Beyond the agreements that have been reached, there are key lessons each country can learn from the other in terms of fostering robust and sustainable economic growth.
One key lesson for Kenya from South Africa is education; South Africa’s literacy rate is about 98 percent, Kenya’s is about 82 percent. But the real disparities reside in tertiary education. Currently only 4 percent of Kenya’s student population make it to tertiary education; in South Africa this figure is 20 percent. In terms of leading universities on the continent, South African institutions regularly top the list. In the Times Higher Education Ranking of the top ten universities in Africa, half are South African; and none are below number six. Only one Kenyan university (University of Nairobi) features in the top ten, and at number eight.
Beyond ranking, a key concern of the Kenyan education is curriculum relevance. A report released by the World Bank this year stated that tertiary education in Kenya is characterised by a persistent mismatch of skills between what is taught and the requirements in the labour market. This is not to say that South Africa is perfect but at least there is an active, public interrogation of curriculum with active participation from government. Kenya could certainly learn from South Africa here.
A second lesson for Kenya from South Africa is manufacturing and industry. South Africa is the continent’s most industrialized economy. Manufacturing contributes about 15.2 percent to South Africa’s; while in Kenya this figure has been stuck at 10 percent. This is not to say South Africa’s manufacturing sector is perfect, but Kenya could learn about increasing diversity in manufacturing. Manufacturing in South Africa is diverse constituting of numerous industries such as agro-processing, automotive, chemicals, ICT and electronics, metals and, textiles, clothing and footwear. Kenya’s manufacturing sector is dominated by food and beverages which constitute up to 70 percent of the sector according to some estimates. Again, Kenya can look to South Africa and learn how to diversify the complexity and build the role of manufacturing in the economy.
Now let’s look at what South Africa can learn from Kenya. East Africa is a bright spot in Africa largely because region is not commodity reliant. As the biggest economy in East Africa, Kenya’s resilience against the commodities slump is an important lesson for South Africa. A senior researcher at the South African Institution of International Affairs argues that the importance of commodities to South Africa’s economy cannot be overstated as they generate approximately 60 percent of South Africa’s foreign exchange earnings through exports. Indeed, the analyst makes the point that the commodities slump poses serious economic problems for South Africa, not only because of the extensive connectedness between mining and the rest of the economy, but the financial services sector was built on mining.
A look at South Africa’s export profile reveals that the top exports of South Africa are gold, diamonds, platinum, and iron ore. The commodities slump has fundamentally negatively affected the economy particularly in managing the current account deficit. South Africa’s economy shrunk by 1.2 percent in the first quarter of 2016; juxtapose this Kenya’s robust growth Q1 growth of 5.6 percent. South Africa could learn from Kenya better buffering its economy from commodities slumps.
The second lesson for South Africa from Kenya is black entrepreneurship. Given the complex history of South Africa and the legacy of apartheid, the face of South African private sector does not reflect the racial composition of its population. In fact there is a story that some in South Africa say that if whites knew how much money they would make by ending apartheid they would have voted against it a long time ago. And while programmes such as Black Economic Empowerment sought to rectify economic racial inequality, all it seems to have delivered is a few blacks contributing to white owned companies and hopping from company to another collecting dividends. South Africa has an important lesson to learn from Kenya in building black entrepreneurship. Indeed, some estimates state that the South African economy could grow by five percent in the future if the government and private sector invest R12 billion into 300,000 black-owned small businesses.
Kenya understands the power of black entrepreneurship and as an article in the Mail and Guardian states, perhaps the most meaningful economic change for millions of South Africans can come from a focus on developing small enterprises.
Anzetse Were is a development economist; email@example.com