This week we look at Kenya and it’s economic transformation over the last two decades. The purpose of this series of articles is to highlight the progress a number of countries in Sub-Saharan Africa (SSA) have made over the last two decades and what lessons we can learn. These countries are by no means perfect examples as every country has its challenges, but we can learn as much from their failures as we should from their successes.
Ritesh Anand Column
Economic growth in a number of African countries has been driven by strong commodity prices and robust global growth. In the last two years commodity prices have fallen significantly and growth has slowed especially in China. The slowdown in global growth combined with weaker commodity prices poses significant headwinds for a number of African countries, including Kenya, Zambia and Tanzania. This certainly does not take away from the economic transformation and robust growth these countries have achieved over the last two decades. Many African countries have built a firm foundation and are better placed to manage the global economic slowdown.
Kenya shows an uneven growth pattern, with periods of promising growth overshadowed by a combination of adverse external shocks, weak internal economic management, and political unrest in 2007. As a result, per capita economic growth has been lacklustre and output and employment are not shifting from low productivity areas to high productivity areas. Per capita income in 2000 was essentially the same as in 1981, with only a modest 7,8% cumulative increase over two decades.
Kenya’s rapid growth in the 1970s, averaging 5,7% a year from 1971 to 1980, dipped to 3,6% in 1981–1990, collapsed to 1,7% in 1991–2000 and rebounded to 3,7% in 2001–2010.
Corresponding GDP per capita growth rates were 2,4%, 0,3%, –0,8% and 1,3%. GDP growth turned negative (–1%) in 2008 in the wake of the post-election violence at the end of 2007, but has since recovered, rising to an average of around 5,1% in 2010–2012 and expected to average 6% in 2013–2014.
Despite the diminishing contribution of agricultural output, employment in the sector remains high and there are few signs that workers are migrating into higher productivity areas. Agricultural output is now about a quarter of GDP, down from a third in 1980, yet agricultural employment is about 70% of total employment.
Manufacturing output has stagnated at about 10% of GDP for decades and remains largely agro-based. The services sector, now the biggest contributor to GDP, remains highly informal and except for the few large firms in finance, telecommunication and ICTs which are dominated by a large number of low productivity small firms.
Formal sector employment has grown at between 0,1% and 0,4% year-on-year since the 1980s. The informal sector constitutes about 80% of employment. Between 2000 and 2001, the prospects of new graduates getting formal sector employment averaged about 1% and improved to 10% in 2008 and 14% in 2009. Youth unemployment is high — at around 24%.
According to the 2011–2012 Global Competitiveness Index, Kenya’s strength lies in the more complex areas of innovation and sophistication in business. It ranked 73rd of 142 countries thanks to its maturing private sector, the degree of business sophistication and innovative capacity. Kenya receives good assessments for its labour market efficiency (37th) and for its relatively well-developed financial markets (26th).
The constraints that have slowed Kenya’s transformation include institutional weaknesses, infrastructure gaps and inadequate financing coupled with limited fiscal space in the government budget and low productivity of the public and private sectors. Overcoming these constraints is essential to providing a platform for economic transformation.
The 2010 Kenyan constitution and the Kenya Vision 2030 are two important documents that contain critical measures for sustaining the economic transformation agenda. Implementation of the constitutional reforms and the Kenya Vision 2030 plan is thus imperative for transformation.
By 2050, SSA will have a larger and younger workforce than China or India. With the continent’s abundant land and natural resources, that workforce can be a global competitive advantage and a great asset in driving economic transformation.
Such a transformation will come through diversifying African economies, boosting their competitiveness in world markets, increasing their shares of manufacturing in GDP and using more sophisticated technology in production. Economies will then become much more prosperous, less dependent on foreign assistance and much more resilient to shocks — mirroring the successes of Asian countries over the past few decades.
The impressive economic growth of many African countries since the mid-1990s as well as the progress in governance and the turnaround in investor confidence provides a solid foundation for transforming African economies for better jobs and shared prosperity.
Despite numerous setbacks over the last three decades, Kenya appears to have laid the foundation for a steady and sustainable recovery. Kenya has embraced technology and empowered its youth. There is tremendous innovation coming out of Kenya with some referring to Kenya as the “Silicon Savannah”.
Like Kenya, Zimbabwe has faced numerous challenges which have dampened economic growth over the last two decades. The economic costs of mismanagement are extremely high and Zimbabwe needs to learn from errors of the past. We need to move forward and work conscientiously in many areas, particularly in attracting investment to kick-start the economy.