By Kosta Kioleoglou
One of the biggest challenges to sustaining growth in Kenya is accelerating productivity—yet it also presents opportunities.
Changing demographics
Age has been the world’s growth driver, the growth champion. For the past 50 years, most countries in Asia and Africa have grown faster than their North American and Western European counterparts.
China is only the most noteworthy; growing more than 7% a year, but it’s by no means alone. Emerging countries, including Kenya, Tanzania, Korea, Indonesia, and India, amongst others are all growing with more than 5% per annum. All these countries have been growing faster than the US and Western Europe.
As we go forward, many of the demographics, the change that was motivating some of that growth, is going to slow down. We see Africa and Asia, similar to the rest of the world, as having just simply much less of that fertility-driven, longer-life-span-impacted population growth.
That means that kind of growth is going to slow. We’re just not going to see that level of demand. As a result, if it’s all up to historical productivity, growth is going to be slower. It is going to slow down not just in the older countries, like Japan, but also across the board to several Asian and African countries.
The productivity opportunity
Kenya has a good record of several years of growth of an average of 6%. This growth has been produced mainly by a huge public expenditure and, of course, due to the fantastic period of the real estate boom over the last few years. Public expenditure is welcome for the wellbeing of an economy but requires also the support of a sustainable economic environment that will increase productivity, jobs, exports and will create a powerful economy.
Real Estate is a passive sector of the economy and for a country like Kenya, it is not one of the sustainable sources of the economy. There is a lot of upside for making Kenya more productive and inclusive.
Unemployment is the biggest challenge for this country.
As we look at what kind of work people are doing, and the productivity opportunity, there’s still a transition going on from agriculture to industry, to cities and services. That means tremendous upsides in agriculture, through mechanization. In Kenya, we’re still at the stage where we’re replacing one family with one tractor.
We’re still nowhere near the large mechanized farming that we see as being most productive in the rest of the world. There is a big transition going on as Kenya becomes urban. But beyond that, in many sectors, there’s simply an opportunity to do more with more—that there will be more people in the city.
Helping people become more professional and more skilled, whether we’re talking about agriculture, manufacturing industries and food processing, which can in turn lead to better quality for urban citizens through food safety, or services, and simply delivering professional services on time at a quality that people expect—these are all great opportunities to increase the productivity of Kenyan society and its economy. That’s where the real challenge and opportunity lies for Kenya.
Driving growth
Businesses first of all need to be businesses. They need to take advantage of the opportunities that are in front of them, increase their productivity, be attackers, disrupt existing industry structures, challenge the status quo, and deliver a better product or service.
In some cases, we’ve seen industry structures in Kenya that are holdovers literally from the colonial era. We have the same companies doing the same things in much the same way as they have for hundreds of years. This is no longer going to be sufficient to deliver the same rate of economic growth that Kenya has had. So there’s a real opportunity for business to question itself.
On the same token, government and the public sector have equally an opportunity and a requirement to increase there own productivity, to deliver again public services, and to do more with less for its newly empowered urban citizens. This is true in everything from education to healthcare to the basics of providing business licenses to helping people resolve their disputes. Across the board, we see 40%, 50%, 60% in opportunities for government to do better with what its existing resources allow.
Kenya’s future
Where does Kenya go from here? Well, the first thing is, of course, Kenya is still growing. There’s still a long way to go before Kenya becomes world class in regard to infrastructure productivity.
Logistics costs, as a share of GDP—the amount of cost that it takes you to ship something from A to B, including cargo, financing, and administration—remains extremely high compared to other countries around the world.
There’s a long way to go before Kenya reduces its logistics costs to the level that will make its production competitive to the markets. It looks like the country is moving towards that direction. There is a lot of public investment such as the road networks, the SGR, the port of Lamu etc. So there is a lot of investment but that is not going to pay back immediately.
It is an incredible investment that will only pay off in 30, 40, or 50 years through greater productivity of the country. These kinds of things are great upsides for the medium term. In the short term, they represent a large allocation of capital, which, in turn, needs to be done as productively as possible.
Kenya has been traditionally one of the countries where agriculture has been playing a key role supporting the economy, creating jobs, increasing exports and sustainability. Today there is a need to look into agriculture more carefully. Things are changing fast. Modern technologies, science, evolution of the markets are creating new standards and new rules for the global markets. It is time to reconsider the strategy that is required in order to take this market to the next level.
Kenya has good soils, reasonable weather conditions, great human resources and brilliant scientists. Today, one of the biggest challenges, which is logistics is about to become a problem of the past with all the ongoing infrastructure around the country. This is the ideal moment to invest in this sector of the economy. Modern economies require large-scale projects in technology, integrated farming, innovation and creation of lucrative value chains.
Around the world companies are following a vertical production line model, a vertical integration model that helps reduce costs, increase productivity, better management and of course better returns. In Kenya several companies are implementing this model and they seem to be performing very well.
Locally today things are not following this sequence and it is obvious that we have an abnormal none-sustainable growth. In the current environment, the public expenditure and consumption, mainly of imported goods are the two key factors that are boosting growth. Same time, the local companies, most of the times are not internationally competitive because they do not follow local and international regulations and standards, choosing a different model of operations.
One of the sectors of the economy that Kenyans should focus more on is agriculture and forestry. Kenya has a huge potential to increase productivity and create sustainable jobs if this sector of the economy is managed properly. Initiative and policies are required to enable the creation of large-scale farming. Using a value addition chain to any agricultural product creates a very interesting potential. As a first priority, Kenya needs to be able to feed Kenyans. To achieve sustainable growth, autonomy is required.
It is important to prioritize the increase of primary production sector of the economy. This is the sector that makes direct use of natural resources. It includes agriculture, forestry, fishing and mining. When the primary sector is well established then it is a natural progress to see the secondary sector, which produces manufactured goods increasing too. After the healthy growth of these two then the tertiary sector of the economy which is the one providing services is also growing as part of a sustainable economic environment and growth.
The reality today commands all of us to take no shortcuts; companies have to comply with local and international laws and standards. That is a must in order to create a sustainable and competitive environment, which will provide the required foundation for prosperity and a better future.
Finally, I cannot forget to mention the importance of education to the future not only of the agriculture but also for this country. Today it is unacceptable for any entrepreneur, business or any private or public entity not to use skilled and well-educated personnel.
Writer is REV Valuer – Civil Engineer Msc/DBM
RMD for Africa Plantation Capital
