We must spread wealth more evenly for sustained growth

By Billow Kerrow

Last Thursday, the International Monetary Fund (IMF) launched the regional economic outlook for Sub-Saharan Africa (SSA) in Nairobi as it usually does every April. The economies of SSA countries have generally been doing pretty well in recent years and their forecast was even brighter. They were expected to grow by 5.8 per cent next year, driven largely by investments in infrastructure and natural resources. Investments in export-oriented sectors, as well as good performance in agriculture are also important drivers.

The Treasury also released its outlook for our country at the same venue, predicting a growth of 5 per cent. As we approach the Budget release, Treasury faces the challenge of addressing the escalating fiscal deficit, which is one of the key hindrances to growth.

Traditional growth areas have all underperformed in recent months. Tourism is down by 15 per cent largely due to rising insecurity. Tea, coffee and horticulture are all facing declining global prices. Recent VAT changes have also adversely affected the competitiveness of the manufacturing as well as tourism sectors. And although the government is working towards addressing it, the high cost of energy and freight continues to dampen our competitiveness, leading to lower exports in the region.

The government plans new taxes on extractive industries — oil and minerals — to raise more revenue, and is considering re-introducing capital gains tax too.

But with the huge public debt, the Treasury has little choice but to expand its tax base. The debt is expected to hit over Sh2 trillion by June, representing nearly 54 per cent of our GDP. And government’s appetite for more loans can hardly be satisfied. It is in talks with IMF for more credit, and is pursuing further loans through sovereign bonds.

Even if all the macro-economic indicators remain stable, government has to exercise prudence to avoid a debt trap.

After many years of sustained growth in most countries in the region, IMF was concerned about the quality of the economic growth in the region.

It demonstrated at the launch that the sustained growth in some countries in the region did not result in improved economic wellbeing of the citizenry, relative to similar performances in other regions of the world.

For instance, the relative reduction in poverty ratio in Mozambique was significantly lower than in Vietnam although both enjoyed same levels of economic growth over a long period. In other words, despite good growth of the economy over many years, the average life of the ordinary man has not changed much.

Many Kenyans would readily agree that the same situation prevails in our country.

Even when the economy performed well in the tenure of former President Mwai Kibaki, our poverty ratio declined only marginally from 49 per cent to 46 per cent.

The cost of living has worsened despite the declining inflation figures, and the gap between the rich and the poor has widened as reflected in the recent report in Forbes that revealed an increase in our billionaire tycoons.

So, is it our economic policies that are elitist? That’s my view, and has been for long. Our farmers have remained poor despite years of toiling in tea, coffee, maize and sugar sectors. Our SMEs that generate 80 per cent of employment have to a large extent remained stagnant. Little or no formal jobs are created by the economy even when we were registering 7 per cent growth.

The World Bank categorises Kenya as a medium performer in terms of the quality of its policies and institutions. We need a paradigm shift in the formulation of our economic policies, and prioritisation of resource allocation. We cannot continue on the same path when our economic growth does not trickle down equitably to all the citizens.