On Wednesday, the national statistics body released the 2023 Economic Survey report. This is the most significant annual economic data for any country.
It not only provides a nationwide outlook of the economy, but also disaggregates individual sector performance, tracks key macroeconomic variables and draws comparatives among the performance of the economy with global and regional trends.
The easy part for economic analysis is tracking and reporting the hard numbers which everyone does anyway. The difficult part is in drawing inferences/insights behind the numbers, understanding the significance of the trends and relating this with the current policy initiatives of the government.
The substance of this article will be on three important questions: One, what is the story in between the numbers and the trends of the past five years? Two, what should consumers expect going forward? and three, what are the remedial policy actions?
At the macro perspective, the economy returned a better performance at a real growth rate of 4.8 per cent compared to the global average growth at 3.4 per cent. Among the East Africa Community (EAC) member states, this growth was second after Rwanda at 6.0 per cent, with Tanzania, Uganda and Burundi trailing at 4.5, 4.4 and 3.3 per cents respectively.
The flipside of this good news are the triggers behind the slowed global growth and its implications. The main reasons advanced for the slow down of global growth and predicted to continue on the decline path through 2023 are the tightening of monetary policy by most advanced economies post Covid-19, projected slow down of the Chinese economy and the Russia-Ukraine conflict.
The net impact is suppressed global consumption that has direct impact on our horticulture exports, tourism sector and heavy reliance on imports. Thus, it may be a long and painful journey ahead before we see easing of pressure on the shilling against the dollar.
A second bright spot on the domestic economy is on the tourism sector, but more so not from the overall numbers, but the source of the tourist. Compared to 2021, bednights available increased from 27.6 million to 30.5 million with the occupancy increasing from 5.5 to 7.0 million. EAC and Central Africa accounted for 519,000 of the tourists, outperforming Europe at 416,000 and North America at 216,000.
This underscores the growing need to promote domestic and intra-regional tourism at policy level. It is unfortunate that to this date, both products and government taxes and levies in the hospitality industry are designed with a foreign tourist in mind.
This has created huge barriers for the middle class who can afford a holiday, but not at the top dollar charges in hotels within the popular tourist destinations.
Scratching beneath several sector-specific statistics reveals bad trends that must worry both consumers and policy makers. Here, we highlight six things that demonstrate the root cause on the ongoing economic crisis and that demand remedial policy shift as a matter of priority.
First is the consistent decline of agricultural productivity and its relevance in the economy. The sector continued on a decline path of negative 1.6 per cent in 2022. This speaks directly to the cost of living crisis in the country given the cost of food is a key driver. The woes in the sector are complicated by the systemic drop on average annual rainfall in the country, dropping gradually from 1,164mm in 2018 to 63 mm in 2022.
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It is instructional to remember that official policy still leans towards an agriculture-based economy. The sector also accounts for a significant number of the informal employment jobs, excluding millions of smallholder farming and pastoralists’ economic activities not included in official data. The ongoing fertiliser subsidies and other interventions to improve farm productivity are all predicated on rainfed agricultural activities when the official data is clearly indicating there is trouble in paradise. The evidence demands an immediate and sustained shift towards irrigation based agriculture system.
Second, the employment data as expected affirms we are indeed a country of hustlers. Continuing with previous trends, the informal sector accounted for 82.9 per cent of jobs with the formal sector only accounting for 17.1 per cent or a paltry 3.2 million jobs. The informal sector cannot be the official policy of any responsible government for obvious reasons. The fact that it is informal means that it is very difficult to verify this data and also mainstream it into the government systems for taxation and other revenue measures. This component of data has actually been exploited to misrepresent the true unemployment rate in the country.
Third is the debt burden and credit distribution in the economy. Public debt transaction costs in 2022 were the largest expenditure item for the government at Sh676 billion, ahead of economic affairs, education and county governments. The total revenues for the government including grants totaled Sh2.5 trillion against a budget of Sh3.6 trillion, indicating a budget deficit of over Sh1 trillion.
The debt binge of the government is confirmed by the credit distribution with credit to national government growing by 133 per cent from Sh862.5 billion in 2018 to Sh2.0 trillion in 2022. Private sector credit grew by only 43 per cent over the period from Sh2.9 trillion to Sh4.1 trillion.
This obviously means sustained crowding out of the private sector from the country’s loan market in favour of lending to the government. Yet, sound economic logic dictates that it is the private sector that must drive growth and employment creation. Government steps in only to stimulate and stabilise the economy in troubled times.
Fourth and the main shocker is on the mobile money transaction indicators. The mobile money transactions declined by 24 per cent from 2.28 billion in 2018 to 1.74 billion in 2022. The actual mobile money transferred declined by 50 per cent over the same period from Sh7.91 trillion to Sh3.98 trillion. It’s important to notice mobile money transactions transcend both the formal and informal sector, thus a good indicator on what is going on across the board.
The government has increasingly raided these transactions with taxes and levies over the recent past. It appears consumers are responding by pulling back from mobile money transactions that not only negates the government’s revenue targets but also derails the gains made towards the digital economy.
Fifth is on the government spending on health that shadows other sectors despite consistent impressions of attaining a Universal Health Coverage. Ironically, while primary healthcare is a fully devolved function and accounts for the bulk of the burden of healthcare, the national government spend Sh117 billion compared to a total of Sh109 billion by the counties. With hindsight, this explains the woes in the provision of health services where the largest responsibility moved to the devolved units while the money remained with the national government.
Finally, the statistics point that there is a long journey ahead towards attainment of economic inclusion and gender equity, especially in the executive and legislature. Of all the appointive and elective positions at both the National and County Governments, only the Judiciary has attained a 50 per cent gender balance across all senior positions. The scale actually tilts slightly in favour of women – kudos to the Judicial Service Commission.