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Why Kenya’s strong economic growth is not matched by jobs

BUSINESS NEWS
By Dominic Omondi | March 14th 2021
Jua kali artisans work on their metal products in Gikomba, Nairobi on March 3, 2021. [Boniface Okendo, Standard]

Numbers, just like words, can be weaponised by politicians. Because numbers do not lie, political leaders have perfected the art of using them to cover up the truth.

One of the economic concepts that has been panel-beaten to fit a political narrative is that of gross domestic product (GDP), loosely defined as the monetary value of all finished products in an economy.

The current administration, like many others around the world, has particularly been fond of using the big leap in GDP growth to demonstrate its exemplary economic achievement compared to the previous governments.

This has happened even as Kenyans continue to raise concern about the lack of decent jobs, and without access to such basic necessities as clean drinking water, quality healthcare or education.

Experts have described this trend - where the economy is growing at fast pace while employment lumbers on far behind - as jobless growth.

In the 10 years to December 2019, Kenya’s nominal GDP (not adjusted for increase in prices) expanded by a staggering 240 per cent.

By dividing the country’s GDP of around Sh9.74 trillion by its population of 47.4 million, the National Treasury has found that by end of 2019 every Kenyan was worth Sh204,783, a five-fold increase from an income per capita of Sh40,292 in 2009.

However, data from the Kenya National Bureau of Statistics (KNBS) showed that the number of workers in wage employment - or those with some kind of decent job with a regular paycheck - increased by only 46 per cent to 2,928,300 in 2019 compared to 1,999,300 in 2009.

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In addition, tens of thousands of graduates pour into the labour market each year, joining an army of jobless Kenyans that will ‘tarmac’ for years non-existent jobs.

This phenomenal growth in GDP masks an uncomfortable truth: jobs, especially quality jobs, have not grown as fast as the economy.

Jobs have been generated largely in the ubiquitous Jua Kali sector where government policy, including during the current pandemic environment, has not reached, according to Mbui Wagacha, a former senior economic advisor to President Uhuru Kenyatta.

Among hard-nosed economists, GDP is the holy grail of any economy. For example, the United States of America is not a superpower only for its superior military force but also because of its huge GDP.

GDP is a term that will often be thrown around in political campaigns - but even emphatically when political parties are launching their manifestos - to prove or disprove the country’s current economic fortunes.

Developed in 1934 by American economist Simon Kuznet, GDP calculation will take into account the price you paid for this newspaper, fueling your car, medical treatment or the school fees you paid for your child.

Ideally, increased production of the goods and services should translate into more jobs. After all, you need more hands and heads to offer additional healthcare services or to produce more houses or roads.

Analysts reckon that recent development in technology has meant that less money is funneled to workers, with machines taking over most of the jobs.

Dr Wagacha noted that some of the agile sectors such as finance and ICT have made vast advances in digital delivery.

“So, (these sectors) employ much more selectively. They are able to show growth without necessarily having big numbers in employment,” he told Weekend Business.

Banks have recently been sending employees home as mobile phones replace the brick-and-mortar branches.

One of the largest local banks, in a bid to save costs, is said to have outsourced most of its operations at its headquarters to India. About 200 people will lose their jobs by April.

Almost every other bank wants to restructure after going through a rough patch owing to the negative effects of Covid-19, which has resulted to a lot of borrowers struggling to repay their loans.

Assuming that an increase in the number of people in wage employment earning Sh100,000 and above is a reflection of growth in quality jobs, official data shows that this cadre of employees grew by only 76 per cent between 2009 and 2019.

Gerishon Ikiara, an economist and former Transport permanent secretary, said employers are simply rewarding other factors of production such as technology, equipment and capital more than labour as they are the source of most of the output.

Dr Ikiara, formerly an Economics lecturer at the University of Nairobi, noted that if employees were more productive, employers would have been able to pay higher wages.

“If the productivity is not that high, then obviously the employers will not be able to increase the salaries,” he said, noting that the increase in salaries is normally related to the worker’s productivity.

Part of the the money is going to payment of other factors of production such as technology and equipment.

“That benefit is not being passed to the employees because their productivity is not rising as much and the companies have to compensate the suppliers of technology, equipment and so forth. And also pay themselves,” said Ikiara.

There are also other factors of production such as a bank loan which will take up some of the earnings in terms of repayment in principal and interest.

Employees could also be underpaid because there are many competing for the same jobs.

“The high levels of unemployment in Kenya could suppress or depress the wages because there is surplus labour and, therefore, employers can bargain hard against the push for higher wages,” Ikiara said.

But part of the country’s jobless growth story has been that most of the jobs have been shifting towards the informal sector. Unfortunately, policy has not followed these jobs there.

Wagacha argues that former President Mwai Kibaki’s numbers reveal an interesting trend where the macro-economic policy mix developed was appropriate for each type of business cycle.

As a result, Kibaki managed to increase GDP growth from negative 0.2 per cent in 2002 to a high of 8.4 per cent in 2010.

“That GDP growth translated into jobs. But if you look at the years since then, we stagnated at about 5.4 and 5.6 per cent,” Wagacha said.

While there has been some job creation since 2013 when Uhuru took power, the economist said, “it has diverted to other sources that are not necessarily created by policy-driven decisions.”

About nine in 10 of all jobs are in Jua Kali sector.

“The key driver for jobs is a diversion to informality. Even if we follow people there to help them with policy, the tools we could use are taxation and training to increase the income, productivity and development of people working in those sectors,” Wagacha said.

“We haven’t really spent money on them. In fact, we have been trying to tax them and they don’t pay taxes because they are there because they ran away from a system that doesn’t give them jobs.”

Without support, productivity is very low in the small enterprises sector so they would need training, he said. “That is another thing the Government can do.”

Examples include the bailouts that were given under Covid-19 reliefs to tourism and the tax breaks to formal enterprises.

“We didn’t have a major policy assistance to MSMEs, and that is where jobs have grown,” said the economist. “They merit the same seriousness of policy as other segments of the economy.”  

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