Workers of a tyres outlet on Nairobi’s Koinange Street watch, from the
safety of their shop, as police confront protesters during the election
period. PHOTO | FRancis nderitu
After what has been widely acclaimed as a difficult year for
Kenya, the conversation must now turn to how the country can recover.
The first step to doing so is acknowledging the factors that held
economic growth back and those that sustained and propelled growth.
One
sector that was hit was obviously agriculture, due to the drought,
which made many Kenyans food insecure, hit forex earnings from export of
agricultural commodities and of course led to aggressive inflation.
The
financial sector was hit due to the continued unfolding effects of the
interest rate cap and linked to that, credit growth, particularly to
small and medium sized enterprises (SMEs) shrunk considerably.
Finally,
a great deal of investment was held back over the course of the year.
Indeed, a few weeks ago, the Kenya Private Sector Alliance claimed the
business community had lost more than Sh700 billion in just four months
of electioneering.
This figure was arrived at,
reportedly, by costing not only business lost due to disruptions linked
to protest and general unrest, but deferred investment decisions as
well.
It is important to unpack the impact of
deferred investment because there are negative ripple effects linked to
this, particularly in the African context. When investors choose to hold
off on investing, several entities are hit. These include market
research companies, product developers, manufacturers, advertising
companies, suppliers, and distributors.
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The
entire ecosystem around investors suffers in case of decision to
postpone or defer investment. As a result, the multiplier effect of
suspended investment has left many Kenyans feeling particularly
financially strapped this year.
On the bright side,
Micro and Small and Medium Enterprises (MSMEs), most of whom actually
sit in the informal economy, proved resilient. The Central Bank of Kenya
said MSMEs showed ‘extraordinary resilience’ and helped cushion the
economy.
The factors behind this resilience has not
been formally unpacked, but studies on the informal economy reveal a
nimbleness, flexibility and litheness that larger, more formal
businesses may find difficult particularly within short timeframes.
Challenges
aside, informal businesses have an ability to change their business
models and adapt to a changing environment much faster than formal
businesses with more rigid structures and processes.
Going
forward, it is important to take remedial action on what emerged as
weak spots. This will begin by ensuring better coordination between
national and county government on the management of agriculture as well
as serious consideration of the repeal or adaptation of the interest
rate cap.
In terms of positive aspects, MSMEs ought to
be prioritised going forward and given the necessary support by
government, financiers and business development agencies to scale formal
MSMEs with promise, and support informal ones on the journey of
sustained profitability and formalisation.
Finally,
both government and domestic private sector have to give candid and
honest signals on the state of the political economy in Kenya. Investors
need to be given a clear indication of when and where to invest such
that the investment ecosystem is sustainably revived.
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