Government’s unemployment strategy won’t work; alternatives must be sought

The dire state of unemployment in Kenya continues to attract attention in both international and local media, reminding us of the burning economic issues crying out for attention. PHOTO/FILE 

In Summary

• Considering that Kenya’s unemployment rate in 2013 was around 40 per cent, the possibility that even those thought to be employed are engaged in disguised employment is another reason to be concerned.
• The Narc government did it in 2003, determined to reverse decades of slow economic growth through an economic blueprint entitled Economic Recovery Strategy for wealth and employment creation.
• While Kenyan economic policies have been based on economic theories of tax and spend, the interest shown by Mr Ruto in the interest rate regime could turn out to be the stimulus the economy needs.

By Githieya Kimari
More by this Author

The dire state of unemployment in Kenya continues to attract attention in both international and local media, reminding us of the burning economic issues crying out for attention.

One such story, which featured on Aljazeera in November last year focused on the explosive problem of youth unemployment in Kenya.

Aptly titled “Kenya’s ticking time bomb”, the feature highlighted how Kenya is skating on thin ice due to a record 70 per cent youth unemployment rate.

Acknowledging that Kenya has made steady development over the years relative to other African countries, the feature warned how this is now being imperilled by a high rate of youth unemployment that is creating disillusionment.

In the local media, stories of unemployment were equally gloomy. One of the reports based on a survey by the Kenya Bureau of Statistics described how three-quarters of the employed in Kenya do not get a salary.

Considering that Kenya’s unemployment rate in 2013 was around 40 per cent, the possibility that even those thought to be employed are engaged in disguised employment is another reason to be concerned.

To add to the dismal picture, the government has announced intentions to carry out retrenchment in the civil service to reduce the wage bill.

As a labour union leader observed, it is ironic that an administration that came into office vowing to reduce unemployment is promising to lay off workers.

To be fair, the Jubilee government is not the only administration which has come into office promising to reduce unemployment.

The Narc government did it in 2003, determined to reverse decades of slow economic growth through an economic blueprint entitled Economic Recovery Strategy for wealth and employment creation.

This was followed by Vision 2030 during President Kibaki’s second administration, which sought to sustain the development momentum through increased government spending, especially on infrastructure.

The Jubilee government came into power promising to create a million jobs every year.

To address youth unemployment, it promised to promote the appointment of young people, the disabled and marginalised groups to public positions, and to introduce a policy to give 10 per cent of government procurements to entities established under the Youth Enterprise Fund.

To its credit, the Jubilee government has embarked on various projects to address unemployment and wealth creation in line with its campaign promises.

COST OF BORROWING

In this regard, it has already initiated the Uwezo Fund to address youth unemployment and has embarked on ambitious infrastructure projects under the Vision 2030 blueprint.

To fund its ambitious vision, the government has embarked on cost-cutting measures by off-loading unproductive parastatals as well as rationalising the size of the public service.

To raise revenues, the government has rationalised the VAT regime to improve tax collection and has solicited offshore loans to fund its projects.

Other measures to raise revenue have included the creation of a new levy to fund the construction of the standard gauge railway line, and an increase in NSSF deductions to create a social safety net for the aged without dipping into its coffers.

There is, however, a limit to the efficacy of these interventions.

For instance borrowing from external sources is not sustainable because Kenya’s debt to GDP ratios is too high while borrowing from the domestic market will put pressure on interest rates, which are already unacceptably high.

Similarly, increases in tax whether indirectly through VAT or NSSF deductions reduces household demand for goods and services.

During the launch of the Sh50 coin to commemorate Kenya’s 50 years of independence, Deputy President William Ruto raised the issue of high interest rates and how they have adversely affected investments.

While Kenyan economic policies have been based on economic theories of tax and spend, the interest shown by Mr Ruto in the interest rate regime could turn out to be the stimulus the economy needs.

For a government that came promising a generational change, shifting to monetary policy will be a welcome departure from former President Kibaki’s Keynesian economics that was abandoned in the 1970s.