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Vision 2030 key pillars fall short of projected target

FINANCIAL STANDARD
By JEVANS NYABIAGE | May 22nd 2012
By JEVANS NYABIAGE | May 22nd 2012
FINANCIAL STANDARD

By JEVANS NYABIAGE
High growth rates, technology parks, colourful airports, modern commuter trains, more fibre optics, more power, more jobs, and more engineers. That is the dream before reality kicks in.

If Mr Mugo Kibati, the Director-General of Vision 2030 Delivery Secretariat, the country’s long-term economic blueprint, had his way, every Kenyan would be happy and life would be such a bounty.

The 2008 mid-term plans were aimed at lifting the GDP that had fallen from 7.1 per cent in 2007 to 4.5 in 2008, 7.9 per cent in 2009, 8.7 per cent in 2010, 9.4 per cent in 2011 and 12 per cent by 2012.

However, when the Economic Survey 2012 was released a week ago on May 15, 2012, this dream had been tragically punctured.

In the report, the Gross Domestic Product dipped to 4.4 per cent in 2011 compared to a revised growth of 5.8 per cent in 2010.

“The growth rate is a major setback,” Mugo said. “Last year, oil prices hit our shilling and suffered shocks from the eurozone crisis.”

Compared with its peers in the region whose economies grew by between 5.5 per cent and 6.8 per cent, Kenya’s performance was disappointing.

This has sent the country’s top policy think-tank, National Economic and Social Council (NESC) and the Vision 2030 team back to the drawing board.

Although the World Bank’s lead economist for Kenya, Mr Wolfgang Fengler says the growth is in line with the bank’s projections of 4.3 per cent, there are fears the performance in 2012 might sink even further.

“If our economic performance of 2011 is anything to go by, we are headed for tougher times,” wrote Billow Kerrow in his Standard on Sunday column.
“The Economic Survey 2012 does not paint a rosy picture, and our political landscape is wilting as we rumble towards the General Election, making all less hopeful of the future ahead,” Kerrow, also an economist wrote.

By stimulating growth and fine-tuning three pillars — economy, society and politics — the government hopes to spin Kenya into the same league as South Africa, Singapore and Taiwan. In the three countries, industry and ICT drive growth.

In its Medium Term Plan 2008-2012, Kenya hoped to grow the economy by 10 per cent by 2012.

Key pillars
To drive this are six sectors that form the economic pillar — tourism, agriculture, wholesale and retail trade, manufacturing, business process outsourcing (BPO) and financial services which constitute 57 per cent of the country’s GDP and provide about half of Kenya’s employment.

According to the survey, the performance of these sectors fell short of projected targets.

With erratic weather conditions, high cost of agricultural production — rising farm inputs prices hitting on agriculture, which contributes a quarter of GDP, chances of touching even half of the envisaged growth are slim.

This is despite the government’s bid to subsidise fertiliser and farm inputs in 2011.

Agriculture, which was pummelled by post-election violence, has remained wobbly returning a disappointing growth of 2.4 per cent compared to 6.4 per cent in 2010.

While releasing the report, Mr Wycliffe Oparanya, the Minister of State for Planning, said that all the major crops registered declines in production, including maize, wheat and coffee, except for rice, cotton, pyrethrum and sisal, even though high prices for tea and coffee compensated for declining volumes.

Growth area
Also key sectors that have driven the economy in the past five years performed dismally.

Transport and Communication, a key growth area in recent years, was down to 4.6 per cent. This was in spite of a huge growth in mobile phone users from 20 to 28 million.

Wholesale & retail, manufacturing and the financial sector all recorded decline in growth.

“The drop in agriculture, which contributes a quarter to GDP, inflicted the biggest dent on the economy,” Kibati says. “We need to move away from rain-fed to irrigated farming. We also need to improve our value addition,” Kibati told Business Weekly in an interview.

Analysts say the dent in agriculture is a direct consequence of the increased frequency and duration of dry conditions.

“While erratic weather conditions are something we cannot control, we need to look deeply at our interventions and optimise them,” says Aly Khan Satchu, Nairobi-based Investment analyst.

Dr XN Iraki, a lecturer at the University of Nairobi’s School of Business, says Kenya needs to wean its economy off agriculture and move towards industrialisation and getting alternatives.

“Our best bet is skipping the smoke stacks and posting industrial age based on services,” Iraki says.
However, even as Iraki touts manufacturing —which accounts for 10 per cent of GDP — as key to heating an icy economy, the Economic Survey 2012 notes a myriad of challenges that choke this sector. In the survey, the sector marginally expanded by 3.3 per cent last year.

Unreliable power supply forced several manufacturers to operate at less than their optimum capacity. Only so few have resorted to using fuel to run their processes — which has inadvertently pushed the cost of operations through the roof.

The weak shilling through the last quarter of last year also increased the cost of imported intermediate inputs, thus adding to the final price of locally manufactured products.
Iraki says only mechanisation of agriculture can salvage the once high-net earner.

Full potential
“However, the subdivisions of land into uneconomic units make it hard to mechanise,” he says.

In tourism, the dream was to attract two million tourists by 2012, with targets of Sh200 billion a year. The survey, however, reported 1.8 million international arrivals last year from 1.6 million in 2010. Tourism raked in Sh97.9 billion last year from Sh73.3 billion in 2010.

However, Kibati says the sector’s full potential is yet to be reached. “Most flagship projects for the medium-term have yet to gather steam. Tourism is still underexploited and we have many underutilised parks,” he says.

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