Kenya’s looming problem is bigger than debt and graft, and Government must quickly pivot to address economic gaps while meeting the needs of a burgeoning youth population
BY FRANCIS GITAU
Three major drivers of an economy are capital allocation, energy availability and consumption, and population age demographics. Sadly, in Kenya there is not much discussion on population demographics as a major factor in government development planning.
When it comes to national development, political stability and the future economy, the demographics cannot be ignored. As at the end of 2022, Kenya is estimated to have had a population of 54,027,487, split between 49.95% males, which is equal to 26,743,606 and 50.05% females (27,283,881).
With only 4.4% (2,377,209) of the entire population being above 60 years, and 1.6% (864,139) at 70 years, it is difficult to predict economic success in the near future. The fact that 49.3% (26,625,551) of the population is below 20 years, 58.9% (31,822,189) below 25, 67.1% (36,252,443) is below 30 years of age, 74.4% (40,196,450) is below 35 years as 21.2% (11,453,827) of the population oscillate between 35 and 60, also says a lot.
Other data points to look at that will paint a clear picture of the mess the country is into include urbanization, which was around 29% as of 2022. About 15,667,971 of the population lives in urban areas. Poverty headcount ratio, defined as “Households whose overall consumption expenditure fell below Sh 3,947 in rural and Sh 7,193 in urban areas per person per month were considered to be absolute poor”, was 38.6% in 2021.
Simply, the country’s age demographics continues to be a big challenge. I turned 35 years old earlier this year and to think that 74.4% (40,196,450) of our population is below my age is something to think about. Out of a population of approximately 54 mn, 40mn are below the age of 35. This means very youthful population age takes control. Economists call this a demographic dividend, which implies that a youthful age provides an abundant supply of future labour and innovation.
Therefore, Kenya is seen to be at its demographic window of opportunity, but the optimism comes with a caveat. If the governance and capital structure of the country do not recognize the value of the young population early enough, and set policies that are supportive of investment, then this optimistic outlook will turn into total gloom.
A youthful population is also associated with increased poverty, radicalization, violent conflict, and political change. Another disturbing thing is the 58.9% (31,822,189) of population, which is currently below 25 years of age – good, but the irony is that over the next 25 years we expect to see, on average 1.27 million young people leave their homes on an annual basis seeking jobs and other opportunities to engage in the economy. Most of the young lot will prefer to live in urban areas and this will put a strain on already existing amenities. Transition of youth from dependence on their parents to seeking independence in an already struggling economy, is likely to significantly increase the poverty headcount ratio.
Governance and capital allocation will continue to be the make-or-break factors in either allowing us to take advantage of the growth opportunity presented by the youthful demographic. It would be unfair if it deteriorates into socio economic challenges. The Arab spring that ran from December 2010 to 2012 is an example of what could happen in terms of socioeconomic and political changes in a society that has a youthful and under engaged population.
Economic progress
In Kenya, there is a governance structure that is not supportive of economic progress. It is important to point out that the dissociation between business and politics in the country is caused by three primary factors. A ballooning government structure (that needs to be funded via taxation and borrowing), swelling debt, and graft/political opportunism and parasitism on the economy.
To fund a ballooning government structure, more finances are required, a move which in turn leads to more taxation on businesses, and more borrowing. Our new government structure as per the 2010 constitution was a transition that was needed at that time to bring equity in national development.
However, the change, so it seems, did not consider the state of economy and how its taxation was going to be the basis of funding the new government structure. The result was an increasing demand on the government to collect taxes from an infant economy, in order to fund its operations. The state, as a result, diverted its efforts from building an economy to taxing it more. This slowed down the progress in economic growth.
With a big government embroiled in debt, the pressure to collect taxes has become the order of the day. In some cases, to the detriment of businesses, more so as we see companies shutting down their operations. This vicious cycle ignores the age demographics and the need to build an economy that will allow us as a country to take advantage of the youthful population.
Government debt
According to data from the Central Bank of Kenya, the total public debt stood at Sh10.2 tn as of June 2023, compared to Sh8.6 tn recorded in June 2022. Government has failed to contain its debts, and this has in turn increased the debt to GDP ratio to 70.2% as of June 2023, 20.1% points higher than the International Monetary Fund threshold of 50% for developing countries. In June 2022, the ratio was at 66.7%. It is time to look at the current government debt separately as a factor that has negative impact on the economy. The government should embark on a mission to reduce the amount of public debt because her debt structure is mainly through direct borrowing from Eurobond markets and other governments/multilateral institutions and internal borrowing through bond issues.
Traditionally, government issued bonds are bought by a central bank as a monetary policy tool in a bid to increase monetary supply in the economy (quantitative easing). In Kenya, our central bank issues the bonds on behalf of the treasury for the public and private institutions to purchase (they themselves do not buy the bonds). This different approach in monetary policy means that when the government issues bonds, the effect is that money is withdrawn from the economy through the purchase.
That is why there is less capital in the economy for reinvestment. Over the years this has led to economic stagnation. Again, with the need to fund its objectives, the government continues to borrow directly from the economy (in form of capital allocators, pension funds and banks) rather than the funds being reinvested back in the economy. This again requires the government to turn a blind eye on developments on age demographics and the need to build a future economy that would provide opportunities for a youthful population.
From corruption to political opportunism
Thirdly, another factor that has hindered economic progress in Kenya has been corruption / political opportunism and parasitism on the economy. In Kenya, we continue to see a cartel centered broker led parasite that sucks the economy. From individuals importing sugar to the extent of killing an entire industry, to government supported brokers import of maize at the expense of farmers, to wheat importation, to the capturing of tea/coffee produce by brokers at the points of export resulting in meagre earnings for the farmers.
One common factor surrounding the trend in Kenya is that it is perpetrated by politically connected individuals, and is largely at the expense of building the economy. In the absence of the short sighted and short-term profit seeking push, Kenya would have by now experienced agricultural transformation. Besides manufacturing, agriculture has often been the first big step towards building a more robust. This transition from an agricultural economy into a manufacturing and service economy post agricultural transformation is what we should be experiencing now as the economy prepares to utilize the youthful population.
Looking at our age demographics (40 million people under the age of 35) and the need to have seen an economy that should have adapted to provide opportunities, these three factors above have significantly hindered the ability of our economy to grow and provide opportunities. And without opportunity, an increasing number of disengaged youth will prove to be a national security issue in the near future.
Looking at the current state of affairs, the one question that begs for an answer is; what can we do to salvage the narrow window of opportunity that we have to start building the economy and adapt it to engage the youth?
The government can bank on three intervention mechanisms – a builders’ fund, a technology fund, and a talent fund.
Builders fund
The Kenyan government launched the hustlers fund earlier on this year, a good political initiative. It now needs to consider a builder’s fund, an economic initiative. This fund should focus on providing grants / capital to mid-sized businesses that are established and need capital for growth / expansion or for investment in technology. This fund can focus on areas of our economy that our government sees as a priority to expand. The funded businesses could be required to demonstrate their ability to grow and provide employment in the future.
Our government in 2023 is projected to collect over Kes 2.1 trillion in tax revenue. The government can reserve on an annual basis 10 billion shillings (0.5% of its revenue) towards this fund and target to fund up to 30 mid-sized businesses annually, located in different counties. This government fund can be managed through a bank and with business technical support from a tier one or tier two audit firm. Together they can provide business analysis and guidance on technology, business growth and financial management to the funds recipients.
This type of fund can allow us to take a longer-term horizon in fast tracking the building of our economy, with the guiding hand of the government deliberately defining priority areas and charting the course of our future economy. Through smaller, specialized cottage industries, we can be a manufacturing front for Africa and take advantage of the Africa Continental Free Trade Area (ACTFA) by offering consumer products and services in demand continent wide. Over time, the benefits can be immense, more so in job creation and stabilizing Forex through increasing export volume.
Tech fund
In addition to a builder’s fund, the government needs an equivalent allocated fund focused on technology (tech fund). Technology is becoming a core component of our economy, from Safaricom Mpesa, to Uber and other ride hailing apps, to Airbnb, to motorbike delivery apps, to online shops like Jumia, to mobile money financing to creators on social media platforms. Over the last 20 years, technology has been one of the largest
employers in Kenya.
A decade ago, in 2013, if you mentioned to anyone in Kenya that today, we will be having over 30,000 people embracing taxi hailing apps in Nairobi and making over 120,000 trips in a day, supported by technology, they would not believe it. In the 90’s, if you explained to the tourism sector that with time, tourists would come to Kenya and board on rooms in people’s houses, they would laugh at you. Not anymore, because, AirBnb has filled that
market gap.
Kenya as an economy is ahead of most counties in Sub Saharan Africa in terms of technology adoption. The question is whether as a country we will continue to only consume technology or whether we will provide solutions directly for the marketplace.
Tech and innovative startups are the domains of young people. Facebook was started by Mark Zuckerberg at 28 years, Airbnb by Brian Chesky (27), Uber by Travis Kalanick (33), and bytedance (tiktok) by Zhang Miying (35). This fund will allow us as a country to use the creativity and capability of our youth to provide solutions for the future. They are the best people to interpret what the future could possibly look like.
The internet has leveled the playing field in terms of skill acquisition and development. Today, you can learn from you tube / free code camp / coursera / udemy, the same skills that someone is learning in a top tier university in the world. This is a phenomenon that we should take advantage of by introducing learners to technology and its capabilities early. The only market gap that continues to be a hinderance in the technology field is startup funding. The government can use the tech fund to fast track local products that offer solutions for industries and allow us as a country to breed the next technology platforms.
Talent fund
Historically, the Kenyan society has not appreciated talent and development of talent. We have been an education (rote learning, minimal critical thinking, non-innovative) focused country. As a society we need to understand that talent has in build dividends that are naturally leveraged. This is something that we have chosen to ignore.
From the dad who reprimands their boy or girl child for playing sports in school (seen as a distraction from learning) to a government that fails to make travel arrangements in time for athletes traveling for international competitions. To an underfunded sports ministry, to lack of early talent identification structures. These characteristics in our society reflect how we view talent.
With the country still searching for equilibrium, legislators ought to understand that what makes some countries succeed in leveraging talent is early identification and structures to develop, and perfect the same. The gold medalists for the 2024 Olympics in Paris have been training over the last 10 years. China has camps dedicated to training talent for their future participation in Olympics. This is the same case for Russia, Japan, the US, the UK, Europe, talent is identified early and developed over time.
Kenya too can structure its education system to identify talent early, and have specific education institutions that are dedicated towards developing talent alongside normal education.
Succinctly, the government needs to take a longer-term view and a wider scope on the economy today and engage the youth in developing the economy of the future, through taping into their creativity and preferences.
In doing so, the survival of the country and its stability in the longer term will be, somehow, guaranteed – 40 million Kenyans under the age of 35 out of a possible 54 million persons should not be taken for granted. And that is why it is better for a country to do careful planning, out think, and strategise in order to get right the issue of societal disintegration which has always been characterized by increased poverty, radicalization, violent conflict, and political change is to be .
