Kenya’s economy is growing, but middle income status way off

Kenya has been growing at a moderate four per cent per year. FILE 

By JEFF OTIENO, The EastAfrican

In Summary

• Over the past 10 years, Kenya has been growing at four per cent per year, slower than its neighbours

Kenya may find it difficult to become a middle-income state if it fails to achieve higher economic growth rates necessary for the provision of quality social services and creation of jobs for its youth.

The economy, with the potential to be one of the strongest in sub-Saharan Africa,  has been underperforming in recent years raising doubt about the country’s ability to achieve double-digit economic growth, shows a new assessment by the World Bank.

As a result of the slowed growth, other sub-Saharan African countries are catching up with Kenya. “Compared with its peers, Kenya is punching below its weight,” the World Bank says in a report analysing Kenya’s overall socio-economic performance.

The report, titled Achieving Shared Prosperity in Kenya, states that over the past decade, Kenya has been growing at a moderate four per cent per year.

“This is higher than in the 1980s and 1990s, but substantially lower than the growth experienced by its East African neighbours and sub-Saharan Africa as a whole, where growth has averaged five per cent per annum, and six per cent if South Africa is excluded.”

Economists have expressed concern that many African countries whose GDP per capita was below Kenya’s in 1980, including some East African Community member states, are rapidly catching up. For example, in 1990, Ethiopia’s GDP per capita was 28 per cent of Kenya’s, in 2011 it was 48  per cent.

Relative to Kenya’s GDP per capita, a number of countries grew their economies; Ethiopia (69 per cent), Ghana (71 per cent), Mozambique (104 per cent), Tanzania (46 per cent), Uganda (98 per cent), Malaysia (94  per cent), Thailand (82 per cent) and Vietnam (213 per cent).

“The growth has mainly been driven by consumption, while investments and exports have yet to be the major factors determining growth,”  said Ganesh Rasagam, the lead private sector development specialist at the World Bank.

Over the past 10 years, services have driven growth while agriculture and industry  have lagged behind. “A breakdown of the 3.9 per cent average growth over the past decade shows that services contributed 2.1 per cent, agriculture 1.1 per cent, and industry just 0.7 per cent,” says the World Bank report.

Agriculture, which has been the country’s economic growth engine since Independence, is showing signs of fatigue for various reasons ranging from poor policies to failure to adopt modern farming and production methods.

“Kenya’s share in the global export market has declined sharply in the past three decades,” Mr Rasagam said.

The economist said the country’s traditional exports namely coffee, tea and horticulture, which still accounts for 35 per cent of goods exports, are losing share in traditional markets in Europe and failing to penetrate potential emerging markets.

Ethiopia is fast becoming a large exporter of cut flowers, posing a threat to one of Kenya’s major sources of revenue. Ethiopia’s flower sector has become a $200 million cut flowers export business in the past 10 years.

Production of some of Kenya’s staple foods has also been on the decline, with maize being one of the worst hit. This year will not be any different as the Agriculture Ministry has already sounded the alarm over declining yields in some of the major crops.

A report covering January to May reveals that the country will record low grain yields due to erratic weather and crop diseases. This means the country will have to rely on imports