NAIROBI: MANY born in the 80s and early 90s may recall that, long ago, Kenya had a sizeable, cutting-edge economy and could count on East African countries to buy its products, from body lotion to cooking oil.
It was also known to repack other countries’ products and market them as made in Kenya.
That economic authority and artificial creativity are now at a crossroads. Relinquishing them and returning would require further sacrifices that could cost their economy more than it currently possesses.
Many factors have contributed to the decline of this economic power, but as someone who monitors regional economic difficulties and challenges, I’ll focus on the top 10 that will make Kenyan attempts to regain its former glory far more difficult.
The global community needs to recognise that economic pressures on other East African Community (EAC) nations are affecting Kenya’s market, whose market share has collapsed because Kenyans have been too absorbed in their own success to notice the challenges they face.
By limiting the government’s ability to spend and diverting funds from more productive investments, Kenya’s large public debt load is stifling economic growth.
Essential services, including healthcare, education, industrial development and social protection, are underfunded because debt repayments consume a disproportionate share of tax revenue.
Private-sector growth slows and household purchasing power is diminishing as higher borrowing costs force the government to raise taxes and cut development investment.
More critically, the economy also becomes more vulnerable to exchange-rate risks, higher repayment costs and greater macroeconomic volatility when it relies heavily on debt, particularly non concessional and foreign currency loans.
From an economic perspective, the result of this debt strain is that state priorities shift from growth oriented development to short-term budgetary survival, thereby inhibiting long-term investment and undermining investor confidence, as investors observe Kenya losing the economic power and dominance it has long enjoyed.
Domestic demand is a critical driver of economic growth, but rising prices are eroding consumer purchasing power and slowing economic development in Kenya.
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Those who live in Kenya would likely agree with me that rising costs of food, fuel, power and housing are eroding household disposable income, which in turn reduces spending and limits capital accumulation among Kenyans, particularly the young.
Inflation makes it harder for companies, especially smaller and medium-sized ones and even the informal sector, to expand and hire more staff, as it raises input and operating costs while reducing profit margins.
Borrowing costs will rise as a result of the government’s efforts to rein in inflation through tighter monetary policy or higher taxes, thereby further discouraging private investment.
Taken together, these constraints undermine inclusive and long-term economic growth, thereby reducing productivity and widening income gaps among Kenyans, with those living in rural areas most affected.
Anyone keeping tabs on Kenya’s economy knows that the country’s inability to convert raw materials into finished goods, increase exports and create high-productivity jobs is a major drag on economic growth.
High energy and transport costs, reliance on imported inputs, a lack of affordable financing options and an inconsistent industrial strategy are now plaguing Kenya’s manufacturing industry, making locally made goods less competitive than imports.
Consequently, trade deficits persist and external shocks are more likely to affect Kenya’s economy, which has shifted its focus from production to services and consumption.
The economy has been unable to achieve the sustained, inclusive industrial growth that most Kenyans have long sought, owing to the underdevelopment of manufacturing, which has also hindered technology transfer, skills upgrading and innovation in non-IT sectors.
A considerable portion of Kenya’s human capital is being wasted due to high rates of unemployment and underemployment, which are particularly pronounced among the country’s young people. This, in turn, reduces overall productivity and slows down economic progress.
Despite the undeniable increase in educational attainment, a significant number of young individuals remain unable to secure well-paid positions or are confined to low-wage, informal occupations that do not align with their abilities.
As a result, the digital economy faces a severe shortage of innovation and value creation. Undoubtedly, low labour absorption reduces household incomes, dampens domestic demand and shrinks Kenya’s tax base; at the same time, it heightens social pressures and increases the country’s reliance on nonexistent government support.
In the long run, Kenya’s social cohesion, private investment and capacity to capitalise on its demographic dividend for economic growth are all adversely affected by the high rate of youth unemployment.
By putting more pressure on the country’s imports and preventing the formation of long-term, high-productivity jobs, Kenya’s economic progress is being stymied by its focus on consumption-driven growth rather than production-driven growth.
From what we can see, domestic manufacturing and agro-processing are still struggling to meet local demand, whereas household consumption, government expenditure and services are driving much of Kenya’s economic growth.
From a monetary perspective, this arrangement increases trade deficits in Kenya, depletes foreign exchange reserves and leaves the economy vulnerable to external shocks such as shifts in global prices and currency volatility.
Unless drastic measures are undertaken, Kenya will not be able to achieve the structural transformation and long-term industrial development it once enjoyed, as it lacks a robust production base to support exports, innovation and value addition.
Otherwise, growth will be unstable and short-lived and other countries viewed by Kenyans as potential consumers will catch up.
In brief, Kenya’s pride, economic strength and robustness, which previously intimidated other East African nations, have eroded.
By growing state debt without producing equivalent economic benefits, Kenya is stifling economic development by prioritising debt-financed prestige projects over investment that boosts productivity.
One might not see a direct effect on industrial production, job creation, or export competitiveness from large-scale infrastructure and signature projects, despite their symbolic and political worth, because public funds that could be better utilised in areas such as expanding agriculture, strengthening manufacturing, skill development and small and medium-sized enterprise support which have a direct impact on productivity are instead going towards the high cost of debt service for these projects.
With fiscal pressures mounting and new income-generating capacities failing to materialise, this delays structural transformation and impedes long-term, equitable growth.
The main point is that Kenya isn’t short on talent; it’s short on systemic inefficiencies that limit the country’s ability to create value, expand economically and fairly and be productive.
Among Kenya’s Generation Z, this is especially the case among the more educated members.