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Don’t lose sight of struggling economy

By Ken Opalo | November 7th 2020

The process to change Kenya’s governing infrastructure is an invitation to think about our economic infrastructure. Economic development requires significant amounts of private and public coordination. Private coordination can be in the form of cooperatives, business associations, trade unions, and chambers of commerce. Public coordination comes in the form of policy, regulations, infrastructure, and support for innovation and risk-taking through the budget process.

Most successful economies, however “market-oriented” they may be, invariably have these important features of private and public coordination. Unfortunately, for us, for too long our political and economic elites have operated with a narrow conception of their roles.

As a result, we are a 10 trillion-shilling economy that remains fairly uncoordinated and therefore inefficient. Our farmers, industries, and workers are not as productive as they could be. And our government continues to make policy that does not match the objective state of our economy. 

So here are the facts. According to the Kenya National Bureau of Standards, as of 2019, about 337,000 Kenyans worked in the agricultural sector (including forestry). That compared against 15,000 in mining, 308,000 in manufacturing, 260,000 in trade, 76,000 in finance, and 77,000 in professional activities.

In total only about 2.8 million Kenyans were employed in wage-earning jobs, against a total working age population of about 18 million. The vast majority of those not captured in the employment data are either in the so-called “informal sector” or in agriculture. Notice that even in the wage-earning sector, the plurality of workers is in the agricultural sector. The dominance of agriculture is a direct result of the fact that we are still largely a rural country.

Less than a third of Kenyans live in urban areas. And even then, fewer than 50 urban areas have populations of more than 50,000 residents. To put it bluntly, we are still very much a rural agrarian country. We should also understand the reality of private sector employment. The median Kenyan worker makes between Sh30,000-49,999 per month. Only 133,000 employed workers make more than Sh100,000 per month.

This means the “formal” sector is not only too small to create mass employment, but is also characterised by low productivity. In addition to workers not getting a fair share of incomes, the industries they work in are also not generating enough value per worker. This calls for investments in increasing the productive capacity and efficiency of the formal sector. 

How should the government step in? While the journey to more dependable jobs and higher incomes will take a while, there are specific policy prescriptions that we should be thinking about. First, the government should adopt a more people-focused basis of policymaking. No more “we will build and they will come” approaches to facilitating economic growth and development.

Instead, policy mandarins at Treasury and other ministries should internalize the realities of real Kenyan lives all over the country. And it is those realities that should inform our policymaking. Second, the government should have a coherent long-term plan, with each planning cycle dedicated to specific sectors. To this end, the focus should be on where Kenyans work and live – which in this case means agriculture.

Revolutionising production and value addition in the agricultural sector would provide a solid foundation for advances in the trade, manufacturing, and services sectors. Growth in agriculture would create jobs in finance, logistics and transportation, trade, manufacturing, and services. And given the sheer number of Kenyans who are engaged in the sector, increasing incomes in the sector would be a great anti-poverty effort. If we want real economic development, this is what we should do. 

-The writer is a professor at Georgetown University

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