BBI’s Promise on Shared Prosperity & Kenya’s Chequered Economic Performance

Published on 3rd December 2019

Chapter 7 of the BBI report exclusively focuses on shared prosperity with nothing totally new if previous or existing policy and legal documents are to go by.

The report points out existential economic challenges such as extreme poverty and hunger, unemployment and underemployment especially among young people, extreme income inequality, lack of decent income and rent-seeking.

In due course, the report puts forth a number of recommendations such as establishing initiatives for the youth to embrace innovation and entrepreneurship, better use of scarce resources, stamping out corruption, addressing unsustainable debt and environmental destruction, building the economy from the grassroots, and the need to ignite an economic revolution.

Productivity of Kenya’s economy is highly questionable and hence the persistence of relatively high rates of unemployment and underemployment. Mandarins at The National Treasury have over the last five or so years presented a rosy picture of a growing and resilient economy but the reality suggests otherwise.

No doubt that a growing and robust economy is one that is highly productive and generates a high number of meaningful, decent and sustainable jobs. The 2019 Economic Survey published by the Kenya National Bureau of Statistics (KNBS) indicates that a total of 840,600 jobs (formal and informal) were created in 2018 of which 78,400 were formal jobs. This translates to a paltry 9.3% of the total number of jobs created.

In fact, a local daily reported earlier this year that “the number of formal jobs generated by the economy fell to a six-year low in 2018” with “the economy having expanded over the same period by 6.3%.”

Recently, the Central Bank of Kenya Governor, Dr. Patrick Njoroge, castigated the suspended duo of Henry Rotich and Kamau Thugge of distorting revenue figures. The same could be said of the GDP figures which as elaborated in a previous article, is a powerful political tool that governments use to score political points.

Persistence of a high number of informal and indecent jobs is firmed up by a news feature published by the Business Daily highlighting that “the number of Kenyans earning below Shs.30,000 per month has risen to nearly half of the total employed workers.” This amounts to a total of 1,279,982 workers.

Statistical data by KNBS also indicates that three quarters of Kenyans (about 2 million) employed in the formal sector earn less than Shs.50,000 per month. The dire status of employed Kenyans is corroborated by an article published by Boston Review which indicates the reality of the zero-balance economy.

Accordingly, the zero-balance economy refers to the economic situation where economic agents or individuals find it difficult to meet the daily or regular costs with the available cash. This is the norm for majority of Kenyans in the formal and informal sectors resulting into an increase in the level of private/household debt.

While the BBI report recommends implementation of policies that would lead to creation of a high number of jobs, it is important to mention that the recommendations would be best addressed through the existing institutional framework(s). For instance, the National Employment Authority (NEA) established in April 2016 has the mandate of enhancing employment management, facilitating employment promotion interventions, and enabling the youth, minority and marginalized entities to access employment opportunities.

So far, NEA has failed in its mandate and the BBI report should instead vouch for strengthening of its institutional capacity.

Additionally, the BBI report recommends raising the “national savings rates beyond 25% of GDP.” This is simply not feasible with the prevailing economic conditions. Existence of a zero-balance economy, having more than a half of the total number of employed Kenyans earning below Shs.30,000 per month, and most jobs generated by the informal sector certainly makes it impossible for the majority to save.

CEIC Data estimates Kenya’s Gross Savings Rate to be 6.1% of the GDP as at December 2018 compared to 11.7% in December 2007. While the figures should not be interpreted in absolute sense, they are indicators of the chequered performance of Kenya’s economy. The relatively high Gross Savings Rate recorded in 2007 is alluded to the robust economic growth buoyed by implementation of the Economic Recovery Strategy for Wealth and Employment Creation.

An increase in the national savings rate will only be possible if a large proportion of government-sourced capitation is directed to sectors where majority of Kenyans eke out a living. In recommending the need for an economic revolution, the BBI report documents structured lending “to priority sectors such as micro, small and medium businesses, export credit, manufacturing, housing, education, health, renewable energy, sanitation and waste management, and agriculture.”

The aforementioned recommendation does not require any sort of legislation or policy for its operationalization. Instead, it is a matter of the Executive and Parliament at both levels of government to implement existing policy documents that advocate for robust, grassroots-led economic growth. For instance, the Jubilee administration should have fully implemented the Agricultural Sector Development Strategy 2010-2020.

We are accustomed to brick-and-mortar type of economic model with politicians well aware that the significant majority tend to rejoice with the sight of construction of roads, sea ports, airports, railway lines among others. This is the model adopted by the Jubilee administration with billions channeled to construction of very expensive existent and non-existent infrastructural projects.

If only a half or a quarter of the total amount of money borrowed by the Jubilee administration from the East and West was directed to the agricultural sector, then the country’s economic performance would be visible leading to an increase in creation of decent jobs and the national savings rate.

More importantly, the BBI report recommends securing Kenya’s future generations from unsustainable debt. A bit reasonable but ridiculous considering the economic policies on debt management pursued by the same administration and government that will possibly lay the framework for implementation of the stated recommendation.

Kenya’s public debt is currently estimated to be Shs.6 trillion. Kenya’s Parliament has since 2013 voted to increase the debt ceiling at the behest of the faltering Executive. Recently, Parliament approved raising the debt ceiling to Shs.9 trillion which is almost equivalent to the country’s GDP. The motive for increasing the debt ceiling is to enable the government settle expensive debts with the approval premised on the recently assented Finance Act of 2019.   

The stated recommendation seeks to contain the upward debt spiral which is a positive move that could have long been implemented by The National Treasury in collaboration with Parliament. But as long as an irresponsible national government is in place, effective debt management is just a mirage.

The BBI report promises shared prosperity but this can hardly be achieved with an irresponsible government. Effective political goodwill will guarantee efficient implementation of existing policies and legislations. Therefore, the BBI report is just a reminder of the institutional failure that characterizes Kenya’s governance system. Shared prosperity can only be engendered by enlightened voters and a competent political leadership.

By Sitati Wasilwa

The writer is a political economist and consultant/analyst on governance, geopolitics and public policy, and a youth leader at Kenya YMCA.

Twitter: @SitatiWasilwa. Email: [email protected]

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