Why Kenyans and Africans do not feel economic growth

President Uhuru Kenyatta. FILE PHOTO | NMG 

By ANZETSE WERE
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Summary

• As a development economist, I am often asked why Kenyans and Africans do not feel the effects of the economic growth of their countries.
• Last year, Kenya’s economy grew at about six percent, East Africa’s at 6.1 percent, and Africa’s at 3.2 percent.
• There are several factors behind the disconnect between growth and feelings of economic welfare in Africa.

As a development economist, I am often asked why Kenyans and Africans do not feel the effects of the economic growth of their countries.

Last year, Kenya’s economy grew at about six percent, East Africa’s at 6.1 percent, and Africa’s at 3.2 percent. Yet, many are of the view that incomes continue to be strained and financial stress more accentuated. So where does all the growth go? There are several factors behind the disconnect between growth and feelings of economic welfare in Africa.

The first is that, in some countries, while the economy is growing, gross domestic product (GDP) per capita growth is in negative figures.

The GDP per capita basically divides the country's GDP by its total population. Some argue that it’s a useful gauge to determine how prosperous a country feels to each of its citizens.

To be clear there are problems with using GDP per capita alone to determine economic wellbeing as it does not account for purchasing power parity or inequality, but it does give a general sense of whether the economy is growing such that each citizen has more when the total GDP is divided evenly.

And here Africa has a mixed picture. While most countries are registering increases in GDP per capita, some are not.

Some African countries have negative GDP per capita growth, which means GDP growth is not keeping pace and in some cases, citizens are economically worse off than the years before.

But this is not the case in most of Africa and certainly not East Africa. GDP per capita has been growing in most of Africa and East African economies are top performers according to some estimates.

Kenya has certainly been registering positive GDP per capita growth.

So the question is why, even in cases where the economy is growing well, and GDP per capita is increasing, do most Kenyans and Africans not feel these effects? The simple answer is income inequality but in Africa, it is useful to unpack this through the lens of informality.

In Kenya, 83 percent of employed Kenyans are in the informal sector, which contributes about 35 percent to the country’s GDP — highest estimate I have found.

Data problems aside, the bottom line is that when 83 percent of employed labour contributes 35 percent to GDP, it means that 17 percent of employed labour contributes to and enjoys more than 65 percent of GDP.

Thus, profits, income growth and economic prosperity are skewed towards formal labour.

And while there is still significant income inequality in the formal sector, the formal sector is far better at being an anchor of economic welfare than the informal sector in terms of wages paid, wage growth, job security, and job quality.

This imbalance is why many do not feel the effects of economic growth. The returns of the hard work and effort of millions of Kenyans and Africans in the informal sector are paltry and keep most at a subsistence level of living.

The irony is that despite being the biggest employer in the economy, African governments continue to neglect this sector.

The economic welfare of Kenyans and Africans would improve if the informal sector was provided with the concerted support it requires to become a powerful engine of economic growth everyone can feel.

Ms Were is a development economist.