Kenya 2007:ECONOMY; Better conditions for growth

ECONOMY: Better conditions for growth
By Barney Jopson

Published: June 13 2007 10:41 | Last updated: June 13 2007 10:41

Armed with a PowerPoint presentation, a battery of statistics, and an upbeat story, Amos Kimunya is the consummate travelling salesman. In March he took a roadshow to Toronto, Atlanta, Washington and Brooklyn Park, Minnesota. The sole item on his sales list: the Kenyan economy.

Mr Kimunya is the country’s finance minister and cheerleader-in-chief for an economic bounceback that began in 2003. He was on the road to persuade members of the Kenyan diaspora to dig deep and invest money in the country that they, or their forebears, had left behind. In the minds of many, Kenya is still characterised by the wretched economic performance that marked the final years of Daniel arap Moi’s rule: in 2002 the economy grew by a mere 0.5 per cent and gross domestic product per head shrank.

But Mr Kimunya told his audiences that this was a thing of the past. Since the watershed election that brought his government to power, the economy has expanded at an ever-increasing rate that last year hit 6.1 per cent.

Whether this is in spite of, or because, of president Mwai Kibaki is open to debate – and an increasingly fractious one as the political temperature rises ahead of this year’s election. But there are equally important questions about whether the growth is good enough, whether it is sustainable and whether it is doing anything to reduce chronic poverty.

Beyond doubt, however, is that parts of the economy are buoyant. The manufacturing sector – which accounts for 10 per cent of GDP and is dominated by canned vegetables, oils, drinks and tobacco – expanded by 7 per cent. That performance reflected not only activity in Kenya, but also rising regional demand. Agriculture, which represents a quarter of the economy, put in a below par performance due to the effects of a drought that hit many parts of the country in early 2006: the sector expanded by 5.4 per cent compared with 7 per cent the previous year. But tourism positively boomed. The country received 1.6m international visitors last year, up 8 per cent on 2005, and made roughly $800m from them – putting the sector ahead of horticulture and tea as the country’s best hard currency earner.

Underlying the sector stories are deeper changes that have helped create the conditions for growth. One is a gradual process of economic liberalisation that began under Mr Moi and has begun to bear fruit (though it originated more from international donor pressure than the former president’s own policy instincts).

The Kibaki administration has not launched any sweeping economic reforms of its own, but it has resisted the urge to interfere in business. It has slimmed down cumbersome licensing regimes, and pushed ahead with a privatisation programme. On corruption, a dead weight on the Moi economy, the government wins fewer plaudits. Bribery has become less acceptable, but only moderately less common, and continues to eat up public funds, private profits and consumer earnings.

In his presentation, Mr Kimunya chose to focus on the country’s new-found macroeconomic stability, which has arguably given business people more confidence to plan and invest for the future. The government, for its part, is keen to claim the credit.

Independent economists, however, caution against getting over-excited by growth of 6 per cent. Compared with what has gone before in Kenya, it is an improvement. But compared with the rest of Africa, it is not remarkable: the continent as a whole grew by 5.5 per cent last year, according to the Organisation for Economic Co-operation and Development and the African Development Bank.

Robert Shaw, a Nairobi-based businessman and economist, says that as long as the government does not do anything clumsy it is “easy” for Kenya to achieve 5 to 6 per cent growth. “It’s dynamic here. You see the entrepreneurship. Anything you want can be done. The big question is going beyond 6 per cent.” It is a point the government recognised in its Vision 2030 development plan, launched last month, which aims to lift annual GDP growth to 10 per cent from 2013.

If that is to happen, Kenya’s economic base has to be broadened. Given the vulnerability of agriculture to commodity prices and the weather, and of tourism to crime, terrorism and travel fashions, growth driven by those two sectors alone is not sustainable.

In the search for alternative engines, much hope has been invested in agro-processing, call centres, IT and the banking and insurance sectors. But so far the optimism has not been matched by finance. True, overseas Kenyans are sending money home to build houses in their villages. But while the likes of Unilever have been around for years, the country has failed to attract the kind of multi-million dollar investments that can kick-start whole sectors.

According to the United Nations Conference on Trade and Development, Kenya attracted only $21m of FDI in 2005. Tanzania, with an economy two-thirds the size, sucked in $473m.

Why the poor record? Because Kenya is perceived as a difficult and dangerous place to live and work – a notion reinforced this year by a spate of brutal carjackings in Nairobi.

To achieve transformative growth – with or without foreign direct investment (FDI) – economists say the government must prioritise spending on water supplies, power, roads, railways and ports. For all the talk of supercharging growth, however, an unwavering focus on GDP as a measure of success carries pitfalls. Last year, the United Nations Development Programme noted critically the government prioritised economic growth over alleviating poverty and unemployment.

“For me the most worrying thing about Kenya is the disequilibrium,” says Mr Shaw.

“The problem is the wealth is so skewed. This growth has affected the privileged class and certain farmers. But the people on the other side of the fence are increasing percentage-wise and population-wise.”