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Why is the economy growing but inequality persists?



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The Launch of the Economic Survey 2018 in April by the Kenya National Bureau of statistics attracted little attention from the Kenyan populace, despite indicating that the country had a robust economy in the 2017/18 period.

Kenya’s economy, according to the report, expanded her Gross Domestic Product by 6.3 percent in 2018 up from 4.9 percent in 2017. This means that the country enjoyed a growth curve. This is unusual in any economy in an electioneering period.

The same report indicates that 83.6 percent of Kenyans work in the informal sector, while 15.3 are engaged in the formal sector. It includes a one percent that is in neither category and is listed as self-employed. Again it is not clear who these Kenyans are and what exactly they do, that in not in formal employment and cannot be included in micro, small or medium enterprise.

The large number of Kenyans operating in the informal sector, perhaps explains the government’s regular policy reviews for financial inclusion by whatever means including capping and uncapping of interest rates. These majority are in danger of being locked from mainstream financial services.

There is however a salient distinction between inclusivity in access to finance and access to financial services that is often either ignored or not understood, creating an economic model that looks smart from the outside, but is messy from the inside.

It looks smart because many more Kenyans can access financial services, such as our own world renowned M-Pesa model. But it also places the burden of the cost of these inclusion on the majority poor, who seem to be convinced that inclusion in financial services is a privilege, yet it is a basic right for anyone making a contribution to the economy of a country.

What many do not consider is giving priority in developing the ability to generate value first ahead of inclusion. You cannot make someone without an income bankable. Urging that they can now move the less than one dollar a day more easily, ignores the fact that they bear the cost of that movement, increasing expenses before productivity. This is just not a viable business model. It is, as a matter of fact, oppressive.

It also deliberately ignores that the richer segments of society can move copious amounts of money at no cost at all or at, on average the same cost as Micro enterprises can move, say, one thousand shillings. Aren’t the majority poor paying too high a price for this inclusivity?

The biggest source of revenue for government remains income, followed by value added tax. This means the 2.7 million formally employed Kenyans remain the biggest and most reliable source of government revenue. They also bear the biggest burden of any additional taxes imposed on the public such as the controversial housing levy. But it also means that any further formal employment should not be created by government, as it creates a vicious cycle of collecting and consuming revenue.

The education sector remains the highest single source of employment in the country absorbing close to 18 percent of formally employed Kenyans. This makes a lot of sense given that our demographics show that close to 60 percent of the Kenyan population are young people.

Tea is the leading foreign exchange earner for the country. It is followed by horticulture then, surprisingly, cloths (these must be from the export processing zones) and then coffee. This means that Kenya is still selling her best for the lowest price. Value addition would multiply this income by a wide margin.

The report therefore forces one to ask – what is all the fuss with tourism? In 2017 the bed occupancy was only thirty one percent, yet the total number of beds increased in 2018 by about five percent. This shows that Kenya has been left out of the world movement that hopes to look at life beyond tourism. The minute an area or a facility is designated for tourism, locals can no longer afford even a cup of tea in that space.

Yet the country continues to designate large areas of land as conservancies. The survey tells us these areas are devoid of humans and therefore economic activity. An inclusive economic model must be created probably by incorporating cultural expression and affordable pricing. The annual discounts mostly at the coast are not doing enough to encourage bed occupancy obviously.

Overall the report has the good news that GDP per capita has increased, which essentially indicates that the economy is growing faster than the population. But since poverty remains a prevalent situation with close to 40 percent of Kenyans falling in demography, it also means that the benefits of these growth are accrued to a small section of the population.

Inequality or the gap between the haves and have-nots is not getting any better.

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