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
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