A conversation about Kenya’s Economy - Follow up

By Jessica Colaço
  Published 27 Feb 2012
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On the 10th of January 2012, the World Bank hosted an online discussion about Kenya's economy? The session was led by Wolfgang Fengler, the World Bank's Lead Economist for Kenya. Here is a follow up on the questions asked by the community during the online debate: Dr. Wolfgang Fengler is the World Bank’s Lead Economist in the Nairobi office of the World Bank where he covers Kenya, Rwanda, Eritrea, and Somalia. A native German, Wolfgang has been a staff member of the World Bank for over 12 years, during which he lived in three continents: First in America working at the World Bank’s headquarters in Washington DC, then in Asia as a Senior Economist in the Indonesia office and now in Kenya, which hosts the World Bank’s largest office in Africa. Wolfgang published extensively on social and economic issues. Since August 2011, he also hosts the “Economic for Everyone – Development Discourse…” column in the Saturday Nation. Prior to joining the World Bank, he set up Africa Consulting, LLC, and was a Fellow at the Research Institute for International Relations.  Wolfgang gained a PhD in political economy from the University of Hamburg (Germany). He is married to Petra Fengler and has three children. Q and A Africa 1. Where will Africa be two years from now - economy wise? Answer.  Sub-Saharan Africa’s economy is projected to grow at 5.7 percent for the next 2 years. 2. Which are some of the Sub-Saharan countries that have attained middle-income status? Answer. We use GDP per capita of US$ 1,000 as the threshold for middle income status; various countries in Africa are way above that - Gabon (US$ 8,643), Botswana (US$ 7,403), South Africa (US$7,275), Egypt (US$ 2,698), Ghana (US$ 1,283) and Nigeria (US$ 1,222).   Kenya’s economy 3. What is the World Bank's definition of a middle class economy, considering that over 50 percent of Kenya's population is still living on less that $2 per day? Answer. The Bank’s definition of MIC status is based on GDP per capita but there are obviously other measures of well being that matter and better capture the prevalence of poverty and inequality. If Kenya played its cards wisely (a well educated work-force, a vibrant service sector, and a good coastal location with the Mombasa Port), it achieve 6 percent average growth and become a middle income country by the end of the decade. 4. Can World Bank help Kenya to produce renewable energy? Answer. Yes, and it has been doing so by helping the government to develop its geothermal resources - already a capacity of 163MW has been installed. 5. Under what circumstances can a high population growth boost Kenya's economic growth and development? Answer. There are two types of population growth drivers: high fertility and increasing life expectancy. Kenya is just shifting from the first pattern to the second. Kenya is now adding about 1 million people to its population every year, the large majority of which translates into additional urban and (better educated) adult population. However, it comes down to jobs. If these young better educated adults live in an environment where they can find and create jobs, Kenya will benefit from a growing population. 6. How will the projected urbanization bolster Kenya's economic development? Answer. Urbanization is net-positive for economic development. No country has ever reached high income with low urbanization. This provides a great opportunity for Kenya to advance its economy if it is managed well (see next question). 7. How is the country doing in readiness to increased urbanization? Answer. Urban centers need to be managed well to reap the benefits from urbanization. Cities with high congestion, significant crime and poor services won't help Kenya to advance. Mombasa, especially has had a disappointing track record in attracting business and industries. Over the last years connectivity between cities and villages has improved but infrastructure within cities is still poor. In a next phase Kenya will also need to shift from building roads to improving road systems. The railways will have an important role to play. Urbanization should be anticipated and planned for through provision of infrastructure: water, roads, energy and affordable housing Kenya is now trying to retrofit and catch up on all the above.   8. Should Kenya enact laws to control births? Answer. My personal opinion: No. Kenya's population growth has already declined, especially in cities where the average number of children per woman is 2.9. However, women need to be empowered to put their lives in their own hands and to be able to decide how many children they like to have. The best tool to control births is to give girls good education. 9. Mr. Wolfgang put Kenya's chances of turning into a middle income economy this decade at 40 percent: a). What should be done to upgrade this rating and how urgently should these measures be implemented. Answer. If Kenya would grow at an average of 6 percent, it could reach Middle Income Country status by 2019. Growth in 2011 was only at an estimated 4.3 percent and in 2012-13, Kenya will need to navigate through economic and political challenges. This is why I have put the likelihood of Kenya reaching an average income of US$ 1000 this decade at 40 percent. If growth in 2012-13 remains moderate, it would need to accelerate sharply - consistently above 6 percent - for Kenya to become a middle income country by 2019. b). When are we likely to hit the 10 percent annual growth target of Vision 2030? Answer. Kenya will only reach 10 percent growth if it does not experience any shocks - domestic or external -, if it addresses its infrastructure bottlenecks and if it becomes a prime investment destination. Over the next decade, Kenya and other African economies have great opportunities to benefit from East Asia's growing wealth. The World Bank estimates that more than 75 million manufacturing jobs will leave China alone. Kenya can benefit from these developments if it truly kick starts its "export engine" which has been too weak until now. 10. He added: "China will certainly overtake the US in this decade.......they (China) have come through transition like this (as in Kenya).": a). What similarities does China share with Kenya on its (China's) journey to global economic powerhouse? Answer.  In 1997, China's GDP was at US$ 775 per capita – which is where Kenya is at today. China, like other emerging economies, has been transitioning out of agriculture into manufacturing, and its service sector is also growing rapidly.  China also shifted from consumption to savings and investments, which have spurred the export orientation. China has also urbanized rapidly. Today, half of Chinese live in cities. The World Bank projects that Kenya will also be a majority urban country by 2033. b) Roughly, what year in China's economic development history can you compare to present Kenya's economic performance, and how did China do it differently? (In other words, when did China implement what Kenya is doing today in key economic sectors and how different did they do it?) Answer. It is also important to note that there is not one single way to economic success. China followed a particular strategy with focus and determination. India is following a different path and seems to be succeeding as well. Kenya now has a growth centered strategy - Vision 2030 - which is not so different from the Chinese 5-year plans in the objectives and targets it lays out. The main difference is that China is implementing its plans, while Kenya is slower to do so. (See also my recent blog on a related topic: http://blogs.worldbank.org/africacan/is-democracy-bad-for-kenya-s-economic-development) Kenya’s devolution 11. What are some of the measures that can be used in building transparency during the implementation of devolution? Answer. Transparency is critical to effective service delivery; it is also provided for in the new constitution. The next step for the government is to ensure that this information isn't simply made public, but also clearly communicated to citizens in a timely and useful way. With such information, citizens can best work with government to address their particular development needs. Moreover, the county governments must receive support to be able to produce information, which requires greater attention to financial systems and service delivery tracking data. 12. I read your KEU report and one thing that struck me was the issue of accountability and transition in the county governments. What active role will the World Bank play in this? Answer. Accountability is one key to successful devolution, but accountability relationships must adapt to the particular country system. As such, the role of the World Bank, which has provided technical advice in the devolution process of numerous countries all over the world, is to present a series of policy options to the government that it can then tailor to their context. We also foresee this process as long term, and so our projects and technical advice should support the construction of effective accountability relationships once county governments come into effect. 13. Practically, a new administrative system for Kenya means a bigger personnel. Do you think this will reduce the cost of administration? Answer. Whereas the Constitution provides for each county government to have/appoint its own public service/servants, our understanding is that significant numbers of personnel currently performing devolved functions (e.g. health, agriculture and urban service delivery) might move across from national to county governments. Thus, “a new administrative system” does not necessarily mean “bigger personnel”.  However, due to the loss of scale economies, which come from central personnel management, the new administration system could  lead to higher total administration costs. Certainly, should county governments decide to operate outside a framework of uniform national standards as far as personnel recruitment/management is concerned, personnel and overall administration costs will escalate. 14. Kenya's devolution is meant to bring about more equality in the country. What is your recommendation on how the government should distribute resources to the counties? Answer.  Considering the country’s lengthy history of spatial inequalities, the question correctly captures the expectation by Kenyans that devolution will bring about a more balanced model of development.  Our first recommendation is for a careful management of these expectations –especially, we see the need for realism about the timeframe within which re-distribution of resources can be successfully achieved. Experience from countries which have tried to redistribute resources shows that there is neither a simple nor clear-cut approach. Kenya will have to learn by doing. Secondly, we recommend an adherence to Kenya’s Constitution, which suggests the need to make growth more inclusive.  Our recommendation to Kenyans is that redistribution of resources to counties might be better achieved through public investments and services (e.g. education, healthcare and adequate water and sanitation).  
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