Enhancing Kenya's competitiveness key to growth
By Daniel Kamande
Kenya has made remarkable improvement in economic performance in the recent past. In the year 2010 per capita income of Kenyans exceeded the levels registered in 1990. Kenya is in path of economic transformation into “a newly-industrialising, middle income country providing a high quality of life to all its citizens in a clean and secure environment”. The sustainable growth, as envisaged in the Vision 2030, requires that the growth strategy that takes into account social and environmental concerns.
While it is clear that competitiveness is an important ingredient for welfare improvement, the challenge of enhancing it is also enormous. It requires a multifaceted approach. The key factors that determine and enhance the country competitiveness include social and political stability, an efficient and predictable legal system, macroeconomic stability and an enabling microeconomic environment, especially improved infrastructure, efficient regulatory framework, skilled manpower, efficient government services and processes, clusters and technological readiness. Some scholars believe that nations compete in offering an enabling investment environment for businesses to invest and grow.
In the Kenyan context, key interventions necessary for improving competitiveness should focus on enhancing productivity of the various inputs and processes involved in the economic production processes. Based on the foregoing analysis, enhancement of total factor productivity will need interventions in respect of the microeconomic environment and the quality of infrastructure. In respect of the business environment, the country faces the challenge of enhancing macroeconomic stability, especially with regard to lowering overall inflation.
Kenya economic growth reveals that although there has been some increase in external demand for Kenyan products, growth has largely been supported by increase in domestic demand, especially private consumption and investment. However, lack of diversification, low value exports and supply side constraints related to the investment climate constrains growth in exports. Concomitant with the strong growth in aggregate demand is an emerging trend of increasing savings-investment deficit, fiscal deficit and current account deficit. Hence, the need for a balanced growth in aggregate demand and the potential or capacity of the economy to produce goods and services. In this regard, there is need to refocus efforts towards the supply constraints in the different sectors of the economy and to adopt policies that exploit and enhance domestic inter-linkages in the economy and further boost productivity growth.
Despite recent improvements in investment growth, Kenya has one of the lowest investment rates among comparator countries. The key challenges to improving the investment climate include insecurity, corruption, poor infrastructure (including roads and energy/electricity), and limited access to credit by small and medium enterprises.
Although the labour force is relatively well educated, skills upgrading and addressing of the mismatch between skills development and labour market demands is critical. It is also important to link wage increases to productivity performance. To ensure the larger proportion of un-banked population accesses affordable financial services, there is need to revamp other non-traditional financial service providers such as savings and credit cooperative societies, and micro finance institutions. To enhance development cooperation between the government and other non- State actors, the government should fast track public-private partnerships to enhance their ability to mobilize capital for investment, for example in large infrastructure projects. There is also need to fast track the operationalization of public-private partnerships framework.
The business environment needs urgent upgrading especially with regard to business regulation, procedures and licenses, service delivery by public institutions, law and order and resolution of commercial disputes. Finally, there is need to concentrate on improving technological readiness, especially innovation and adoption/adaptation of improved technologies. The Cluster Development Strategy is increasingly being adopted as an economic tool for improving growth and competitiveness. It is, therefore, advisable that the country considers the use of this strategy in its development efforts.
Daniel is advisory manager at EY, East African Region; views expressed here are solely his and not necessarily that of EY.