During the State of the Nation address, President William Ruto quoted a range of economic growth rates attributed to a number of banks. A range is good, economic growth is unpredictable, and neither is it an exact science. He gave a range of five to 5.8 per cent in 2026.
Economic growth is driven by many factors, including our emotions, making it unpredictable. A good example, if you anticipate money, you are likely to spend what you have. Why else do we take salary advances?
It now has Fuliza (a short-term draft facility by Safaricom) as a competitor. Did I hear that there is a Bill to have Kenyans paid bi-weekly? That will make consumption a key economic driver, but saving will become harder.
In economic speak, the total value of all goods and services in a country is the gross domestic product (GDP); it’s the sum of private consumption, investment, government expenditure and net exports (less imports).
Economic growth means this total increases from one year to the next. It can also contract like during the Covid-19 pandemic period. This simple definition easily explains how we can grow the economy.
We must consume, or simply buy! Buying creates demand and jobs. We buy because we have to satisfy our basic needs and also show off (conspicuous consumption). We use money paid as wages or salaries, or from our investment, e.g rent or savings. We also borrow from those who have saved.
How do we make citizens consume? They must have confidence that tomorrow is better than today. Optimism or “feel good” is an important economic driver.
Can that explain why inflation is low today? Do we have the confidence to spend money? Do you recall the feel-good effect, optimism after the end of the KANU era?
Investment is the other driver. This is the residue after consumption. You put money in assets that can give you returns in future. Land will appreciate, houses give you rent, money in the bank gives you interest, R&D (research and development) give you innovations and patents.
You can invest in education, acquiring new skills and knowledge to get higher returns in future; being more productive, leading to higher pay or better investment decisions.
What of government expenditure? We ignore the government at our own peril. It’s expenditure like individuals create demand and jobs. Well-targeted government expenditure can grow the economy, mostly with big projects like roads, dams, highways, and not forgetting soft issues like health and education.
The only problem with government expenditure is that it’s not always driven by economic imperatives but politics, votes to be specific. That discretionary part of the government expenditure is the key attraction in politics; you control money you never earned.
The threat of being voted out in a democratic country keeps politicians in shape; they put the government money where more citizens benefit. That’s why rigging polls is so risky to economic growth.
A curious twist is which expenditure matters more, government or individuals? They are interconnected by taxes, with the government spending money on our behalf.
Taxpayers, read voters should follow their money or it’s stolen outright or through corruption or rent seeking. Free and fair voting moderates the excesses of government.
Money is more prudently spent in private hands; the more reason tax should not be excessive to mute the private sector.
In developing countries, politicians learn quickly that controlling money they never earned is sweet. They devise ways to remain in power. This mutes the stimulative effect of the government expenditure and extends to the private sector. Citizens are unhappy; angry people are not good consumers except for drugs and related items.
Finally, growth is driven by net exports. This is usually a very effective driver through trade. As you export, you create demand and jobs. It’s better if you export more than you import.
China and other countries used that trick to grow their economy. What do you export? It must be something of higher quality and unique – a product of innovation and investing in R&D.
Economic growth is not that hard if each player does his or her part. All the players are interconnected. That is why we prefer to talk of an economic system, not just an economy.
What have each of the players done to grow our economy? What should be Kenya's economic growth rate to catch up with Singapore, if it waits for us in 30 years? IMF gives Kenya a per capita as $2,550 (Sh331,500). Singapore is $94,481 (Sh12.29 million). That is about 37 times.
It’s possible to catch up. We must reach and exceed the magical 10 per cent growth rate envisaged in Vision 2030. Economic growth is not magic; it’s about the sweat of many, not a few. Who will sweat in Kenya? What are the rewards for sweating?
