Kenya’s Policy Options for Steady Economic Growth during the Transition

December 10, 2021 - 5 minutes read

Kenya’s economy has been on a path to recovery in 2021 following the easing of Covid-19 containment restrictions. As the economy rebounds, the country heads into an election year. Against this background, the Parliamentary Budget Office recently released the 13th edition of the Budget Options for 2022/2023 and the Medium Term (Budget Options). The document focuses on the critical budget and policy options that Kenya can implement to achieve a higher economic growth target.

For the past decade, except for 2020, the economy registered an average growth rate of 5 percent. During this period, the highest registered growth was 8.1 percent in 2010 and was mainly driven by growth in the agriculture sector. The 2021 GDP growth is estimated at 5.7%. Significant recovery of two of the three key sectors which registered negative growth in 2020, namely: the Transport and storage sector (which contracted by -7.8%) and the education sector (which contracted by -10.8%), is expected to have boosted 2021 economic performance.

Nevertheless, there has been a substantial increase in poverty, unemployment, and gender inequality, as well as a reduction in per capita income. Therefore, it is imperative to identify and focus on priority sectors for investment by both the government and private investors, which will lead to a sustainable economic recovery and inclusive growth.

Is it possible to achieve higher economic growth? The key intervention areas likely to have the highest impact on growth are agriculture, manufacturing, and exports. To this end, the Budget Options sets out policy options for enhanced economic growth:

  1. Re-orienting agriculture:
  • Provision of adequate funds may be in the form of conditional grants to counties for agricultural extension services. The National government should also prepare an agriculture extension services policy to guide these services.
  • Provision of funds in the form of conditional grants to the 38 Counties to provide relevant subsidized inputs to targeted small-scale farmers.
  • Provision of funds and increased efficiency and accountability in the construction of small dams for water storage and small-scale irrigation projects across various parts of the country.
  • Operationalize the National Drought Management Fund and ensure the county drought management committees are working. 

2. Supporting Kenya’s foreign policy on trade and investments – Restructuring the foreign service through enhanced usage of Honorary Consuls instead of fully-fledged missions. Honorary Consuls are cost-effective as they serve for free and only require reimbursement of expenses incurred in offering their services. Further, their knowledge of local conditions and personalities provide them with an invaluable ability to leverage local and regional networks. 

3. Addressing Challenges in Land Transfers to encourage investment

  • Provision of funds for final survey and vesting programmes. This will go towards the final survey and vesting programme for compulsorily acquired public land, the mapping of public land in all counties, and the development of a Public Lands information depository by June 2023.
  • Ensure roll out of Ardhisasa digital registries to all counties.

4. Supporting Suitable Forest Management

  • Provide funds for rehabilitation of Kenya’s five major forest Water Towers, which have deteriorated over the last few decades.
  • Develop a Policy on Sustainable Forest Management that will Include neighbouring communities.

5.  Linking education to the labour market needs

  •  Learning should be aligned with labour market needs and should primarily be geared towards access to the key industries which have consistently supported economic growth. Among the top industries which contributed to growth in the last five years are Agriculture and allied industries (20.8%), Transport (10.8%), and Real Estate (9.3%).
  • The existing labour market requires a blended set of skills in areas such as agriculture, manufacturing, ICT, construction, retail, health, and education, amongst others, for economic growth.
  • Re-orienting agriculture productivity through modernization by supporting agricultural-related technical courses.
  • Investing in training related to manufacturing to upscale the contribution of manufacturing in the country.
  • Expansion of access to STEM to learners and ensuring the quality of learning.

6.  Access to quality healthcare

  • The funding to the five National referral hospitals be increased to support the critical areas of operations, especially in managing health workers and supporting health commodities acquisition.
  • The National government to consider coming up with a health support package for counties to establish level 3 health facilities, especially in the counties with a low number of health facilities in the country.
  • Enhance the NHIF cover to the vulnerable, including older persons, persons with disabilities, orphans, and poor households

7.       Supporting MSMEs

  • There is a need to create a multi-agency task force to synchronize government efforts that promote the MSMEs through the various stages of the business cycle. The multi-agency team will monitor and report the progress made by each institution towards progressing beneficiaries to the next stage of incubation.
  • Through the proposed multiagency coordination team, the relevant institutions will be tasked to undertake specific interventions based on the nature of the business and requisite needs assessment to support eligible beneficiaries to the last stage.

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