There has been a lot of talk about how to grow economies globally under the Building Back Better strategy. The US administration has been championing a middle-out economic growth strategy with a hint of bottom-up philosophy as well. Joe Biden is quoted saying, “Wall Street didn’t build this country… You, the great middle class, built this country.” He declared that his infrastructure plan would “build a fair economy that gives everybody a chance to succeed, and it’s going to create the strongest, most resilient, innovative economy in the world.”
In Kenya, there has been talk of bottom-up economics as the country prepares for the 2022 elections. It is important to note that the main goals of any economic policy are uplifting the lives of the populace, alleviating poverty, and improving the human development indicators of the citizens. Therefore, any discussion about economic model needs to be in the context of the current economic and social situation of a country to determine which model has the greatest, most suitable impact in resolving its problems.
Let us begin by stating some facts about the Kenyan economy:
What does the above highlight?
From the above, one can see that Kenya has a very thin labor force with 29% of the population in the age of productivity. This cohort has a serious skills gap limiting the mobility of labor to higher productivity sectors. This is highlighted in the 18-and-above age group where 43% of the 25 million people either never went to school or didn’t finish school. Of the 45% that finished school, the majority (61%) have pre-primary or primary as their highest level of education.
Another major highlight from the above statistics is that of the 28.3 million people below the age of 24, 14 million are in primary or secondary school. This means that half of this age group will be entering the labor force at various stages in the next 8 years. The economy, therefore, needs to have grown immensely to absorb this group.
The data above also brings out the informality of the business space in the country. 40% of the 5.85 million unlicensed MSMEs operate with no structure i.e. in the open. This excludes digital firms. 25% of the MSMEs operate in temporary structures. The majority of the licensed and unlicensed MSMEs are in wholesale and retail trade which mainly involves importing from outside and reselling. Only around 11% are involved in manufacturing.
What does it mean for the next government?
No economic policy, whether termed as bottom-up, trickle-down, middle-out, or abracadabra, will move Kenya forward unless it addresses the future based on the current status.
To summarize the current status:
- Kenya suffers from an Income and Rural Poverty.
- The rate of upward mobility is either very low or stagnant
The areas that will have the greatest impact in addressing the above points I the coming years will be:
- Agricultural income growth and transformation that is paramount to alleviate poverty with great impact. Growing value chains, increasing production yields, mechanization (opportunity for local manufacturing of agri-equipment for local and regional consumption), dealing with land subdivision issues, and research and development. All these need an enabling environment to do that and less regulatory impedments. The top 7 food importers are the US ($158 billion), China ($ 136 billion), Germany ($98 billion), Japan ($70 billion), Netherlands ($67 billion), UK ($63 billion), and France ($61 billion) totaling $653 billion. With these numbers bound to increase, every industry should revolve around agriculture as we have natural advantages, such as climate, soil, and a port.
- Investment directed at ensuring the operating environment for MSMEs is conducive for growth. This would present a vehicle that could catapult employment growth with great impact in Kenya. Since a majority of the people are employed in the unlicensed MSME sector, diversifying this sector from retail buying and reselling to being export-oriented is also key. There is also a need for investment in capacity, increased market access (SMEs will not grow if they can’t get access to larger regional markets), and provision of long-term patient capital.
- Transformation of the education system to reflect 21st-century requirements. Investment in the right training will ensure a high transition from each stage of education. We cannot be churning out more people with business and social related skillsets and less IT, engineering, and scientist skills in this day and age and expect to grow, modernize and diversify the economy.
- Indirect taxes. The informality of the economy means direct taxation might not be effective in increasing coverage, making indirect taxes a better short-term strategy.
- Complete debt restructuring both in terms of tenure and interest rates. If the debt over hang is not delt with then there is a serious constrain in implementation of any economic policy.
It is therefore prudent to select areas with the greatest impact from investment when selecting an economic model. For example, investing in SMEs and MSMEs to increase capacity and investing in access to markets will lead to an MSME employing more people. A mama mboga will have additional new clients, she will purchase more tomatoes to meet demand, the farmer will have more orders and will have to increase production. The farmer will begin to mechanize and buy equipment from a local manufacturer, who will then hire more people creating a ripple effect.
While this may sound simple, it is complex. However, with strategic targeted planning and proper execution, it can be done over a period of time. Governance has been defined as “the manner in which power is exercised in the management of a country’s economic and social development”, therefore for one to define how Kenya will grow they will have to be in government, it is important then to understand the thinking of anyone you give power as their management can either make or break a country.