Why you’re struggling to make ends meet - a case study on Kenya

The end year public opinion polls are in. The prognosis is not good.

More than half the people think the country is headed in the wrong direction.

The foremost concerns that Kenyans have are ugali and mboga issues. Cost of living tops the concerns followed by employment. The economy trumps all other concerns by a wide margin.

Why, after a decade of economic resurgence, are these basic issues still the biggest worries for Kenyans? 

The mandarins tell us that it is because the economy is not growing fast enough. We need to grow by at least 7 percent, but preferably 10 percent per year to reduce unemployment and poverty. 

But why is it not growing at 7 percent, despite our sleek new roads? Will the new railway do the trick? 

And why is it that the ordinary Tanzanian is also struggling, despite more than a decade of 7 percent growth?

A decade ago, I was tasked to help the Narc government formulate the Economic Recovery Strategy (ERS). 

WEALTH CREATION

As you may recall, Narc, in its election manifesto, had promised to create 500,000 jobs every year. This, free education and zero corruption tolerance, were the pledges that momentarily made Kenyans the most optimistic people in the world. 
 

Upon election, Planning Minister Prof Anyang Nyong’o constituted a three-man task force to help the Government to formulate a strategy to implement its economic programme. 

The other two members of the taskforce were Harris Mule, one of Kenya’s most accomplished and globally respected technocrats and Caleb Opon, a brilliant young banker turned policy analyst.

The assignment was to be a bigger challenge, and melodramatic, than we could have imagined. I do not mean formulating the strategy. 

That was relatively straightforward as we had spent the preceding 10 years in opposition thinking about, debating, and writing on these issues.

We had a significant body of work, going back to the 1992 Post-Election Action Programme (PEAP) by the Institute of Economic Affairs which Prof Anyang’ Nyong’o, Mr Robert Shaw and myself, among others, had co-founded in 1993. 

I also had formidable brain trust of peers — Betty Maina, Sam Mwale, Wachira Maina, John Githongo, Gem Kodhek, John Kashangaki, Richard Ayah and Duncan Okello, to name a few — who had ideas galore on how to fix every aspect of the country’s governance and economy.

The Narc government had won election on a mandate to create jobs and we did not like this poverty business, so we decided to call the ERS a strategy for employment and wealth creation. 

The Kanu regime was addicted to aid. Aid was tied to adopting a donor template known as the Poverty Reduction Strategy Paper (PRSP). 

We strongly advised Narc against going in for a big aid funded programme too early, as these had the habit of unraveling and destabilizing the budget and the economy. 

We argued that a “governance dividend” of reducing corruption, inefficiency and wastage would be sufficient to finance the recovery. 

The donors and the mandarins insisted that the economy could not recover without a massive infusion of aid.

We fought hard. In the end we got our way, or so we thought. The ERS was launched, and we returned to our private lives. 

BUREAUCRATIC SOLUTION

The bureaucrats were down but not out. Soon, the Narc government relented, and agreed to mobilise massive amounts of aid.

But there was a problem. The government did not have a PRSP. A bureaucratic solution was found. The PRSP was repackaged, put in a cover similar to the ERS, and renamed the Investment Programme for the ERS (IP-ERS). 

Its authors claimed that the ERS had “embraced the positions of the PRSP”, but went on to smugly assert that IP-ERS reflected “the serious thinking from Kenya Government experience over the years.”

In fact, no thinking was required to produce a PRSP—it was simply a standard structural adjustment programme with ring-fenced education and health budget. 

The ERS on the other hand was quite unequivocal that employment was the pivotal link between growth and poverty reduction. It was to take Washington another decade to catch up with that prognosis.

The government had a successful donor conference at which over $4 billion (Sh340 billion) was pledged. But the smugness was short lived. 

Shortly thereafter, Anglo Leasing blew up. For the eighth time, an ambitious reform programme predicated on aid unraveled. So much for serious thinking. 

In the aftermath of the constitution referendum, all the progressives were booted out of government and President Kibaki’s conservative wing of the coalition took charge. 

The result was complete triumph of capital fundamentalism, in the name of Vision 2030: growth above all else, fuelled by mega infrastructure projects.

DEATH OF PEOPLE-CENTRIC AGENDA

While many Kenyans appreciated the referendum fallout as the end of the Narc dream of inclusive politics, few realised that it was also the end of the promise of an inclusive, people-centered economic agenda.

By 2007, corporate profits were booming, the stock market went through the roof and property millionaires were popping up everywhere. The word on the cocktail circuit was that the economy had been finally divorced from politics.

But a few blocks down the road from the cocktail lounges, things were not as rosy.

While economic growth rate of Kibaki’s first term more than doubled to 5 percent from 2 percent in Moi’s last term, employment growth actually slowed down from 15 percent to 9 percent.

The poor did not share the growth, but they bore the brunt of inflation.

During Moi’s last term, inflation for the low income and middle income groups had increased more or less equally, by 24 percent and 28 percent respectively. 

During Kibaki’s first term, low income group cost of living rose 70 percent as compared to 40 percent for the higher ups. 

Farmers’ purchasing power as measured by the agricultural terms of trade (prices of inputs versus outputs) was eroded by 20 percent.

The gasoline was all over the floor. All it required was the spark that the 2007 election fiasco provided.

The only people who could not have smelled it were the pinstripe brigade whose heads were up there in the stratosphere with the NSE Index.

This is why we find ourselves where we are after a decade of growth, mesmerised by one mega infrastructure project after another, as the ordinary person wonders why the struggle to make ends meet gets more difficult by the day. 

It’s not for want of knowledge. In fact, we have fairly good idea as to where we should be investing to create jobs and reduce poverty. Let me illustrate. 

NO PRODUCTIVE CAPACITY

We spent Sh30 billion on the Thika highway, most of it borrowed, of course. 

The project was based on an expected economic rate of return of 30 percent, most of it from the benefits in saved commuting time and vehicle operating costs, and road maintenance costs. 

This then means that no new productive capacity was expected from the investment, rather its economic benefit was to boost the bottomlines of existing businesses.

We also invested a meagre Sh2 billion in the aquaculture (fish ponds). This, by the way, was by pure luck.

Had the need for an economic stimulus to mitigate the post election violence and global financial crisis not arisen, this project would still be languishing on the shelves of Fisheries Department where it had been gathering dust for years.

This initiative has catapulted our aquaculture fish production fivefold from 4,000 metric tons per year to 22,000 tons. 

Now even at a conservative value of Sh200 per kilo of fish, this translated to Sh4 billion production.

This alone would give an economic return of 80 percent, excluding the additional economic activity and jobs created in the entire value chain from breeding fingerlings to transport, distribution and processing — as well the indirect benefits especially nutrition, food supply, and agricultural productivity.

In effect, had we invested Sh30 billion in similar agricultural productivity projects, and there is no shortage of them, we would have expanded the economy by at least Sh60 billion a year, close to two percent of GDP, or more graphically, enough to finance a Thika highway every year—debt free.

This is not an isolated example—it validates countless research findings. 

One such is a recent study by Kenya Institute of Public Policy Research and Analysis (KIPPRA), a government think-tank, providing estimates of the job creating potential of different industries. 

It calculates — as shown in the graph on the facing page — that other than the hospitality sector, the highest job creation potential is in agriculture (the employment multiplier is the percentage increase in employment that would result from doubling the output of the industry).

Note also, that the highest job creating potential industries are also the sectors which have the highest incidence of poverty—beef and goats have the highest job creating potential, and pastoralists are also the poorest people in Kenya. 

And, of course, food is the biggest driver of cost of living, particularly for the poor. 

This tells us that a pro-poor agricultural investment will hit all our three birds with one stone—job creation, poverty and cost of living.

This is what the ERS was supposed to be about, a strategy “focused on job creation and expansion of economic opportunities for resource poor farmers, informal enterprise, and economically disadvantaged communities.”

Will the Jubilee Government turn the tide? As I am not a jubilant, I can be forgiven for not holding my breath. But I do have reasons.

First, with close to a year gone, it is hard to see policy substance beneath the digital hubris.

Jubilee has floundered even on its flagship digital pledge, the laptop project, as good a no-brainer as I have ever seen. Second, in terms of budget, Jubilee is already locked into Kibaki legacy projects for at least the next three years.

Third, its look East foreign policy can only pile up on the mega infrastructure projects, more so now that we have oil and other underground goodies to pay for them. 

Of note, the study cited above, says construction has the lowest employment multiplier of all the industries in the economy.

Fourth, Jubilee is itself a child of the same conservative economic interests as its predecessor.

Its DNA is Kanu. Last but not least, I see the same old “serious thinking” mandarins — with their faces to Washington and their backsides to wananchi—still firmly in the driver’s seat.

So, there you have it.

Dr Ndii is Managing Director of Africa Economics

http://mobile.nation.co.ke/blogs/Why-Kenyans-are-getting-poorer-despite-rapid-growth/-/1949942/2133782/-/format/xhtml/-/npnat7z/-/index.html