Keith Hansen - Afrikan Heroes

Kenya Can Build on Past Success to Make Growth More Inclusive and Accelerate Poverty Reduction

December 15, 2023

Keith-Hansen-World-Bank-Country-Director-for-Kenya

Kenya has in the past been successful in translating economic growth into improved living standards of its citizens. Despite progress, the challenge going forward is to ensure the poor and vulnerable benefit equally from progress, addressing the stark and persistent disparities across space and income groups.

According to a new World Bank report titled Kenya Poverty and Equity Assessment (KPEA) 2023 – From Poverty to Prosperity: Making Growth More Inclusive, which covers the period between 2005 and 2021, the progress Kenya has made in reducing poverty and raising living standards of its citizens has not been equally shared. As a result, economic growth has not sufficiently translated to more people escaping poverty and in recent years, poverty has become less responsive to economic growth.

“While Kenya’s economic growth is commendable, it is important to ensure that it is inclusive and benefits everyone, especially the poor and vulnerable,” said Keith Hansen, World Bank Country Director for Kenya. “An inclusive growth strategy will accelerate poverty reduction and equalize opportunities through smart economic policies and efficient and equitable public spending that raise the productive capacity of the poor.”

A combination of interconnected factors contributes to the uneven progress. Creation of productive jobs and economic opportunities is limited especially for the poor. The incidence of shocks, especially extreme weather shocks, is growing, with exposure and vulnerability highest among the poor. In addition, inequality of both opportunity and outcomes dampens the translation of economy-wide growth to income growth of the poor.

The recent slowdown in the pace of poverty reduction point to the need for an inclusive growth strategy that brings widespread growth in people’s disposable income, says the KPEA. It recommends three broad interconnected policy pathways to inform such a strategy. These include (i) connecting the poor to economic growth (ii) strengthening households’ resilience to adverse weather shocks, and (iii) leveraging fiscal policy to support poverty reduction objectives.

“More disposable income in the hands of more people, especially amongst those who are at the bottom of the income distribution, will create lasting pathways to prosperity. Such widespread prosperity is also good for the economy because it can translate into higher tax revenues and greater fiscal space but also support a vibrant domestic demand and private sector.” said Precious Zikhali, Senior Economist, and co-author of the report.

The KPEA says that Kenya can build on past success to accelerate poverty reduction and boost equity. Connecting the poor to the country’s economic growth calls for a policy focus on raising the working poor’s productivity in agriculture, manufacturing, and services sectors where most are deployed, it adds.

“A broad range of public policy instruments, spanning agricultural policy, Micro, Small and Medium Enterprises policy, and urban development as well as interventions from the private sector will also be needed to raise the poor’s productive capacity,” said Nistha Sinha, Senior Economist, and a co-author of the report.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Kenya’s Economy Crawls Back to Recovery Mode

July 3, 2021

Kenya is expected to witness a return to economic growth with a gross domestic product (GDP) projected to grow by 4.5 percent in 2021, signaling a partial recovery from the COVID-19 (coronavirus) pandemic which caused growth to stall last year. Economic activity is estimated to accelerate to above 5 percent in 2022 and 2023, according to the latest World Bank analysis.

The prospects for Kenya’s continuing recovery, which is uneven across sectors with some still heavily affected by the pandemic, hinge on the progress of the vaccination effort. The base case is for adequate agricultural harvests and a pick-up in industrial activity aided by rising demand from the recovering global economy. However, many service activities face a longer path to recovery. According to the 23rd edition of the Kenya Economic Update, Rising Above the Waves, private consumption is expected to strengthen, supported by a recovery in wages and household incomes, and strong remittances. The report notes that consumer confidence and business activity should be supported by ongoing vaccination efforts and, over time, the return of mobility to pre-pandemic levels. Monetary policy accommodation is likely to continue in the near term, in the absence of inflationary shocks. The fiscal deficit is projected to shrink from 8.7 percent of GDP in FY2020/21 to 4.2 percent in FY2023/24 due to fiscal consolidation efforts.

“The outlook remains unusually uncertain and contingent on the course of the pandemic. We expect that Kenya’s economy will continue its recovery, albeit unevenly and for some sectors only gradually, supported by the government’s plan to vaccinate the entire adult population by mid-2022,” said Keith Hansen, World Bank Country Director for Kenya.

A slower deployment of vaccines due to supply challenges, logistical impediments to domestic distribution, and vaccine hesitancy, could weaken the recovery. Furthermore, external factors such as setbacks to the global economy due to a resurgence in infection rates could adversely impact the projected recovery in Kenya’s goods exports, tourism, and capital inflows. A slower than anticipated vaccination rollout, fiscal slippages, adverse weather conditions, and a weaker global economic backdrop could all challenge the projected recovery. In an adverse scenario, near term average growth would be lower, at 3.7 percent. On the upside, the pandemic’s economic impacts could fade faster than anticipated, including due to accelerated vaccination, leading to a faster recovery in economic activity.

Against this backdrop, policymakers face the challenge of controlling the pandemic, supporting economic recovery, and laying the foundation for green, resilient, and inclusive development, while reducing macro-financial vulnerabilities.

“Policymakers can support Kenya’s economic recovery by remaining responsive to the still very fluid pandemic situation, whilst prioritizing vaccination in the short term and fiscal consolidation over the medium term,” said Alex Sienaert, Senior Economist for Kenya. “The proposed FY2021/22 Budget reflects these priorities and its implementation would contribute to beginning to rebuild fiscal space.

The special focus section of this economic update provides an update on the labor market in Kenya as the country moves into a crucial period of its demographic transition. Over the next decade, Kenya’s labor force population will increase by an average one million per year, as the largest youth cohorts move into working age. To reap a potential demographic dividend, it will be imperative to build on Kenya’s development progress to date, reinvigorate economic transformation, and shift the labor force progressively into more productive activities. The COVID-19 pandemic has added to this already considerable challenge by disrupting economic activity and causing job losses. On the labor supply side, investments and reforms to strengthen human capital and social protection are at the center of enabling Kenya’s fast-growing workforce to participate in and drive jobs and economic transformation.