According to figures recently released by the Kenya National Bureau of Statistics (KNBS), the Kenyan economy in 2023 grew at the fastest rate in 5 years driven largely by a recovery in agriculture and tourism while real wages contracted for the fourth year in a row.
Did the state deliberately give priority to agriculture and tourism in its short and medium-term plans?
In agriculture for example, you would expect to see very vibrant supporting ecosystems such as universities conducting agriculture-related research, laboratories that train people who can work in the sector, and well-functioning communications between universities and agricultural industries so that new innovations can reach the market. Market, specialized extension services for agricultural products, access to agriculture-related financing and other existing infrastructure that can quickly deliver goods and services to local, regional and international markets.
In fact, proponents of industrial policy point out that once a country achieves such high levels of value chain alignment, it is relatively easy to start producing products that need related technology, for example the food subsector, because similar skills, technology and infrastructure Required. Hence, industries producing these technologies can benefit from a supportive ecosystem, with an equipped skills base, existing supply chains, retail networks, broad footprints, and infrastructure that suits their needs.
However, many investors (existing and potential) I deal with across East Africa say there is no longer an incentive to invest in the country's agricultural sector. Emerging issues such as climate change, sustainability requirements, declining domestic demand, and lack of regional and international competitiveness make the task more difficult.
At this stage, a coherent industrial policy becomes a tool for shaping the sector through incentives and disincentives. The Government of Kenya in the recent past has deployed incentives such as import subsidies, tax incentives through special economic zones, industrial parks, input subsidies (fuel and fertilisers) among others in an attempt to address some of the key concerns.
In short, what is our problem? Market players tend to invest where ecosystems are best developed and where investment risks are lowest, because deviating from them is costly.
If a government, with limited fiscal space, is serious about building the agriculture sector, then tax cuts, exemptions, or even rebates may not necessarily be the solution. It must combine incentives (carrot) and regulations (stick) so that certain sectors are prioritized over others. The basis of social performance, because real wages in the country are shrinking rapidly.
For example, since the government is now reducing spending on education, it makes sense to support agricultural sectors that have the highest component of mass employment of those without formal skills.
Likewise, as both agriculture and tourism have strongly emerged as major economic drivers, it is necessary to promote new industrial development policies that lie at the intersection of agriculture and tourism or perhaps consider swapping suspended tax refunds for a mix of well-defined social and environmental policies. Performance factors etc
Beyond obsession with repaying public debt, successfully coordinating Kenya's delicate economic situation is essential to ensuring a prosperous and resilient economy that meets the basic needs of citizens and future generations and provides long-term stability.
But again, as a country, do we have the political, cultural and administrative discipline and maturity, free from corruption, rent-seeking tendencies and careful practices of state capture, to implement medium and long-term planning.