The Kenya Institute for Public Policy Research and Analysis (KIPPRA) recently released the 2024 Kenya Economic Report. The report highlights various segments of the economy and its performance. The economy grew by 5.6% in 2023 compared to 4.9% in 2022. This was driven by a strong rebound in the agriculture sector, expanding by 6.5%, supported by favourable weather conditions and timely implementation of fertiliser and seed subsidy programmes. 

The average growth rate for the services sector was 7.0%, supported by the resilient performance of accommodation and food services, which grew by 33.6%. Industrial activities moderated, with the manufacturing growth rate declining from 2.6% in 2022 to 2.0% in 2023. The total number of new jobs created in the economy increased to 848,200, compared to 816,600 new jobs in 2022.

Inflation averaged 7.7% in 2023, primarily due to a surge in fuel prices and the implementation of a 16% VAT on petroleum. The Monetary Policy Committee raised the Central Bank Rate (CBR) by 3.75 percentage points to stabilise inflation expectations. In August 2023, the Central Bank of Kenya (CBK) introduced an interest rate corridor to reduce market volatility and uncertainty.

Total government revenue declined from 17.3% of GDP in 2021/22 to 16.5% in 2022/23. Similarly, total expenditure declined from 23.9% of GDP in 2021/22 to 22.6% in 2022/23. Fiscal consolidation continued, with the overall fiscal deficit projected at 4.9% in 2023/24 compared to 5.6% in 2022/23. Pending bills amounted to KSh539.9 billion or 3.3% of GDP.

Public debt increased due to depreciation in exchange rates, putting pressure on external debt payments. Total debt service as a share of revenue increased from 47.9% in 2021/2022 to 58.8% in 2022/23. 

Diaspora remittance inflows increased from KSh478.5 billion in 2022 to KSh591.2 billion in 2023. However, savings and investments fell short of the Medium-Term Plan III targets, with domestic savings to GDP showing volatility. Investment activity exceeded 19% of GDP between 2018 and 2021 but slowed down to 18.6% and 17.2% in 2022 and 2023, respectively.

Growth is projected at 6.2% in 2024 and 6.7% in the medium term, with inflation remaining within government policy targets. The projected growth is likely to accelerate due to favourable weather and economic partnerships. County governments are expected to focus on increasing investment in infrastructure, promoting agro-processing and agribusiness, and encouraging innovations in manufacturing processes.

To drive productivity growth and sustain overall economic recovery, the government ought to encourage innovations in manufacturing processes and technologies to improve the sector’s efficiency. In addition, trade policies that are favourable for the sector, including reducing tariffs on imports of machinery, equipment, and raw materials, will help lower production costs and improve manufacturing capacity.

The manufacturing sector

This sector is crucial for GDP growth, employment creation, and innovation, but its contribution to GDP has remained below the target of 15% and is in decline compared to previous years. According to the Kenya National Bureau of Statistics (KNBS), food manufacturing contributed 4.5% to the GDP, while non-food manufacturing contributed 3.4%  in the third medium-term plan (2018-2022).

Micro and small enterprises make up 97% of firms in the sector. However, medium and large industries contribute over 60% to the sector’s GDP, while micro and small firms contribute an estimated 20%. Manufacturing is concentrated in low-technology, labour-intensive industries like agro-processing and fabricated metals. 

Firms rely on basic skills, thus limiting workers’ productivity. Low investment in research and innovation limits the ability of micro and small manufacturers to upgrade technology and hire skilled workers. 

To enhance labour productivity, the government should equip and upgrade existing industrial development centres, establish an Industrial Development Fund, and upskill existing skills through the Industrial Training Levy Fund.

The agricultural sector

Between 2000-2009 and 2010-2020, this sector’s growth and contribution to GDP averaged 2.3% and 22.4%, respectively.  Food and cash crops production and yields have declined due to low investment and the growing effects of climate change. Additionally, labour productivity, especially among the youth, has declined over time. Most farmers have a low skill set, which hampers the quality and quantity of their yields. Government spending on agriculture also falls below the Malabo commitment of 10%. The Kenya Vision 2030 identifies agriculture as a key driver towards 100% food and nutrition security.

The Medium-Term Plan IV and the Bottom-up Economic Transformation Agenda (BETA) outline measures to address these challenges, focusing on increasing productivity and developing high-return value chains in livestock, dairy, tea, rice, edible oils, and textiles. 

To enhance productivity, the government should focus on timely procurement of seeds and fertiliser, allocating adequate budgets to agriculture, investing in human capital, revising the school curriculum, implementing agro-processing and value chain projects, fully implementing value chains for prioritised crops, and developing crop and livestock insurance schemes.