Encourage Kenya’s middle class to invest and grow economy

A report that Swiss food and drinks company Nestle could be scaling back its operations in Africa owing to the slow growth of the middle class calls for policy makers to encourage this segment of our society to thrive.

One of the reasons touted for the expansion of the Kenyan economy is the fact that the middle class is spending more because of cheap credit and that some of the investments they have undertaken have raised their income levels.

The Central Bank introduced the Kenya Banks’ Reference Rate (KBRR), a loan-pricing formula July last year to make information about personal and private sector credit and mortgage finance more transparent to consumers. This aims at making commercial banks and micro-finance institutions to disclose and explain to their customers what they charge.
These days, with the entry of mobile phone operators into the banking space, getting loans is as easy as clicking a button. You can now apply for a loan while taking a walk, taking tea or from the depths of your bed, and have it approved instantly. This explains the high uptake of M-Shwari, a product that Safaricom co-owns with Commercial Bank of Africa (CBA).

Also, research has indicated that much of the growth in Africa’s middle class has been as a result of greater political freedoms in a more liberalised business environment. The result of a growing middle class has been quite evident in the country’s major urban centres.

For instance, Kenya is experiencing huge demand for cars, and the younger generation has taken to the more frequent purchase of designer clothes. There is also a marked increase of younger people who are opting to buys homes.
The African Development Bank (AfDB) says about 16.8 per cent, or around 6 million Kenyans, could be in the middle class. They include in this group anybody with an annual income exceeding Sh382,200 ($3,900), or who spends between Sh196 ($2) and Sh1,960 ($20) a day.

According to the Kenya National Bureau of Statistics (KNBS), Kenya’s middle class includes anybody spending between Sh23,670 and Sh199,999 monthly. The upper class (those who spend above Sh200,000 a month) stood at 3.6 per cent last year from one per cent in 2007. The lower class (those who spend less than Sh23,670 per month) shrank to 72 per cent from 80 per cent between 2007 and 2011.

As a direct consequence, corporations that produce goods consumed by the middle class have flourished in recent years. This explains why the country has witnessed increased number of multinationals in the race to tap into this lucrative market segment of high spenders.

However, experts warn that spending must be tempered with caution – lavish living must could heighten the perception of widening inequality. Could it be what we are witnessing is a rise in consumerism — defined as a preoccupation with the acquisition of consumer goods.

There is an important distinction between these two terms. Consumerism could just be an indication that buyers are feeding off of the booming personal loans market in the banking sector. Almost all lenders have tailored credit products to suit almost anyone who has a salary, irrespective of income levels.

But then at a time when notable brands such as Cadbury are leaving Nairobi, attracting investment is paramount. To grow this class, Kenya needs to invest more in businesses that have a large impact, particularly industries.

The Government needs to come up with policies that encourage growth of business, especially the locally owned small and medium enterprises. To do this, firms need cheap electricity, and less bureaucratic process to do business with the State.

The recent directive by President Uhuru Kenyatta for government to source 40 per cent from the local market is welcome to encourage growth of industries. And the setting aside of 30 per cent of State contracts to youth and women, will help grow small businesses and in the end expand the middle class. This is what the economy needs to grow.