Kenya’s Most Difficult and Persistent Problems

Introduction

In 2003, the government of the National Rainbow Coalition (NARC) formulated a five-year development strategy. This strategy was anchored on the principles of democracy and empowerment. The strategy put a case for empowerment of the people through creation of employment and other income-earning opportunities. Despite all these interventions, creation of adequate, productive, and sustainable employment continues to be the greatest economic challenge for Kenya. For more than four and a half decades now, the Kenya government has continuously articulated the need to create sufficient employment opportunities to absorb the country’s growing labor force. Unemployment and underemployment have been identified as Kenya’s most difficult and persistent problems (Government of Kenya, 2003).

Kenya’s Most Difficult and Persistent Problems

Jobs in Kenya can be hard to find simply due to the high rate of unemployment in the country and lack of job diversity. The main industry in Kenya is agriculture, with tea, coffee, and flower farming being significant, and approximately 75% of the population is employed in that field. In terms of revenue, tourism is also substantial. The official unemployment rate in 2004 was 15%, though some estimates place the true figure much higher (International Labour Organization, 2004). People with very specialized training in fields other than agriculture may find job opportunities scarce. This has created a difficult situation as more and more young Kenyans pursue higher education, only to find the job market cannot accommodate them. Minimum wages for jobs in Kenya vary by location and skill level and are not consistent throughout the country. In 2006, the minimum wage for an urban worker was approximately 4,600 Kenyan shillings, which was $60 US per month (at 2006 exchange rates) (Central Bureau of Statistics, 2006). This is not enough income to support a family, which leaves many workers relying on additional work or subsistence farming to survive.

Economic Structure and Trade

The agricultural sector continues to dominate Kenya’s economy, although only 15 percent of Kenya’s total land area has sufficient fertility and rainfall to be farmed. Agriculture is the second-largest contributor to Kenya’s gross domestic product (GDP) after the service sector. Kenya's services sector, which contributes about 63 percent of GDP, is dominated by tourism. The tourism sector exhibited steady growth in most years. In Kenya, the service sector contributes 47.7%, the agricultural sector contributes 35%, and the industry contributes up to 17.6% to the economy's GDP (World Bank, 2009).

As an agricultural exporting and capital goods importing nation, Kenya routinely runs a balance of trade deficit that renders it highly dependent on loans and aid to finance needed imports. The balance of trade deficit varies widely, depending upon, among other things, the market success of agricultural export commodities in a given year. As we have seen, this in turn, depends on both weather conditions and international commodity prices. In 1996, for instance, the deficit stood at US$73.5 million, while this figure increased dramatically to US$251.7 million in 2000—a year of endemic drought. With a large amount of foreign exchange reserves, however, which equaled US$875 million in 2000, Kenya has been able to reduce its total external debt significantly, from US$6.9 billion in 1996 to US$5.7 billion in 2000 (International Monetary Fund, 2000). Kenya's principal exports include tea, coffee, horticultural products, and petroleum products. Exports designated to Western Europe, particularly the United Kingdom and Germany, have increased considerably (Export Promotion Council, 2005).

Agricultural and Export Dynamics

Kenya is the largest exporter of tea in the world. Tea is grown on more than 110,000 hectares of land. It’s also the 17th largest exporter of coffee. Much of the coffee is grown on farms around Nairobi. Kenyan coffee is bought and sold at the Nairobi Coffee Exchange every Tuesday of the week. Kenya's chief exports are horticultural products and tea. In 2005, the combined value of these commodities was US$1,150 million, about 10 times the value of Kenya's third most valuable export, coffee. Kenya's main trading partners include Uganda, Tanzania, Rwanda, Burundi, Egypt, South Africa, European Union (EU), United Kingdom, Saudi Arabia, United Arab Emirates, United States of America, Japan, Pakistan, and India. Kenya's other significant exports are petroleum products, sold to near neighbors, fish, cement, pyrethrum, and sisal. The leading imports are crude petroleum, chemicals, manufactured goods, machinery, and transportation equipment (Kenya National Bureau of Statistics, 2005).

Urbanization and Economic Growth

Every day, Kenya’s capital Nairobi is facing endless traffic jams. Our colleagues spend hours every day to commute to and from work. One Kenyan colleague escapes traffic by leaving home at 4.30am, others by leaving the office as late as 9pm. Given this congestion, escalating costs of living, and high crime, why are Kenyans moving into cities more rapidly than ever – more than 250,000 every year? Our fourth Kenya Economic Update titled "Turning the Tide in Turbulent Times" argues that East Africa’s largest economy can benefit from demographic change and rapid urbanization, despite the pains it entails. First, like the rest of Africa, Kenya is still predominantly rural but urbanizing rapidly. Today, 30 percent of Kenyans live in cities. From now on, most of Kenya’s population growth will be urban. While the total population will double by 2045, the urban population will more than quadruple (World Bank, 2010). By 2033, the country will reach a “spatial tipping point,” when half of Kenya will be residing in urban areas.

Second, population growth and urbanization go together. Today, Kenya has 40 million people, and it is adding more than one million each year. By 2030, there will be 63 million Kenyans, and the country will also have the opportunity to reap a “demographic dividend.” With more people in the same space, there will be more cities and bigger cities: Kenyan cities of 100,000 people and above will grow from 21 today to 37 in 2020. Third, urbanization and growth go together. As the World Development Report 2009 demonstrates convincingly, no country has ever reached high income with low urbanization. Kenya’s cities are already powering the country’s economy. Nairobi and Mombasa are home to 10 percent of the population but represent 40 percent of the country’s wage earnings. If cities thrive, the overall economy will benefit. But cities will only become true growth poles if Kenya continues to upgrade infrastructure within and between urban centers (World Bank, 2009).

The Need for a Coastal Hub and Urban Growth

Fourth, Kenya needs a coastal hub. Given the high transport costs within East Africa, only a coastal hub, i.e., Mombasa, would be in a position to become a manufacturing center for global products. Rising wages in Asia will provide incentives for manufacturing companies to locate to Africa. Mombasa could be an attractive destination, but it will only live up to its potential if it manages to tackle inefficiencies in the port, a dilapidated urban infrastructure, and the opaque system of land titling. Fifth, cities need to grow and thrive. Kenya’s new constitution prepared the ground for substantial devolution of power to 47 counties, which provides opportunities for better accountability and local service delivery. However, despite rapid urbanization, 42 out of the 47 Kenya’s new counties will be predominantly rural. At the same time, there is a risk that Kenya’s medium-sized cities with 100,000 to 400,000 people will not receive the autonomy and resources they need. Kenya needs a separate urban tier to help manage rapid urbanization successfully (Constitution of Kenya, 2010).