An African lion – stable growth, high dynamism. Then came Corona
With robust and continuous economic growth of 4 – 6 percent, Kenya was long considered the power center of the East African economic region, but the expectation for 2020 was reduced to 1.5 percent as a result of the corona pandemic. The World Bank placed more than 5 percent growth for 2021 on condition that the epidemic could be overcome.
Brisk construction activity, massive investments in public infrastructure and a growing middle class have long been significant for the dynamism of development, which, according to many observers, shows the resilience of the Kenyan economy. The opening of the first new railway line in 100 years: the Madaraka Express between Mombasa and Nairobi could be seen as a big step forward – and at the same time a wonderful date in the election campaign of incumbent President Kenyatta. A 3.2 billion dollar project, financed and built by Chinese investors, that will reduce the travel time from Mombasa – Nairobi from approximately 12 to 16 hours to 4.5 hours. It is not yet clear whether the investment will pay off. complaints there was among Kenyan railroad workers about racist treatment by Chinese colleagues.
However, in the wake of the corona pandemic, the outlook has clouded over since March 2020. In particular, the port, as a transshipment center for the whole of East Africa, threatened to lose volume with massive effects on the economy, which in Kenya will be hit harder than elsewhere by the measures to contain the pandemic, as some experts suspect, including economics professor Robert Kappel. He fears that growth will collapse and poverty will spread across Africa. As an example from Kenya, he cites the impending loss of 150,000 jobs in flower production.; Kenya is one of the countries facing over-indebtedness according to mathgeneral.
While the national product threatens to decline, the indebtedness has grown to more than 50 percent of the annual economic output, since the state revenues are insufficient to refinance road or railroad construction. High interest rates and inflation cast light shadows. Before the corona pandemic, authors from the UN University in South Africa came to the conclusion that Kenya, as the ninth largest economy in Africa and fourth largest south of the Sahara, is one of the “African lions”. In the Doing Business Index 2018, it already took 80th place out of 190 countries compared, ahead of South Africa (82), a good place in the region and also in the overall African comparison, where Rwanda ranks 41st, but Tanzania and Uganda do 40 to 60 places worse in the ranking. In the following year, Kenya rises to 61st place in the DBI 2019 and in the following year to 56th place, which shows a trend towards a policy geared to the needs of the economy. However, the index was temporarily discontinued in August 2020 after criticism. From the perspective of the Bertelsmann Transformation Index 2020 (BTI)However, the transformation of the economy can only be viewed as very limited, ranking 71 out of 137 countries compared. With the exception of Mauritius in 14th place, Kenya is in the upper field of the countries south of the Sahara, albeit behind Uganda or Ghana.
The economy could face opportunities for further growth should Kenya be able to exploit its raw materials profitably, but with the oil price slump of up to 30 percent in the first quarter of 2020 alone, it does not look like the dreams will come true. Petroleum was found in the Turkana region in 2012 and is believed to be in large quantities. The export should have picked up speed in 2020. On August 26, 2019, the first tanker with 250,000 barrels of Kenyan crude oil (around 40 million liters) was ceremoniously adopted in Mombasa.
Kenya is also hoping for discoveries offshore that can be used. East Africa is facing an energy bonanza, writes the Economist, because oil and gas reserves have also been found in neighboring countries. Uganda started mining before Kenya. As a coastal country, Kenya could also benefit from the transport of raw materials from its neighbors. However, there is still a lack of evidence of economic viability as well as the political and legal framework so that social wealth can emerge from the finds. That also depends on the price of oil and on whether the “curse of natural resources”, which is so fatal for Nigeria or Angola, will also have an effect in East Africa.
Women sing to greet a foreign delegation in a village in Kenya
Probably the largest wind power plant in Africa by Lake Turkana Wind Power Ltd. has been on the grid since 2017 and, according to the operator, supplies 18 percent of the electricity currently produced in the country, 310 MW, with more than 360 generators. Geothermal energy is also being expanded. Decentralized solar systems should also ensure that more than just a fifth of the population will be able to obtain electricity in the near future. However, according to energy supplier KenGen, conventional gas and coal-fired power plants are also part of the planned mix, of which hydropower will remain the largest component.
A realistic strategy to promote the abundance of underground water in one of the driest countries in Africa is unfortunately a long time coming. In drought-stricken Turkana County in the north are gigantic freshwater resources have been discovered, enough to supply sustainable for the country. As with oil and electricity, however, besides property law and technical issues, line construction is likely to be a challenge. In addition, the finds are apparently not suitable as drinking water without treatment.
Plans to invest billions in infrastructure have now largely been implemented with Chinese help. They included the construction of an overseas port in Lamu and a rail link to Juba in South Sudan, as well as roads, airports and educational institutions. Since the hopes for income from oil profits have not yet been fulfilled, the country finances the investments with loans, among other things. The largest creditor is now China, whose project financing is, experience shows, associated with orders from Chinese companies, which in turn employ Chinese and thus often only provide little impetus to the Kenyan labor market.
Nairobi, which is heading towards a traffic gridlock, is relying on the railways and has inaugurated the first commuter trains. Like all future projects, this is also part of Vision 2030, Kenya’s master plan from 2008 for the way into the future as a middle income country.
Another important change in recent times is the boom in mobile telephony, which is revolutionizing the service and banking sectors. Around a third of the country’s total gross national product is already being transferred via M’Pesa, i.e. via mobile phone, which suddenly gives people access to financial services who have never been able to access them before. Some of the banks have reacted with regional distribution and improved customer offers.
Thirdly, Kenya’s multiple connections to the worldwide information highways via submarine cables should be emphasized, which could contain potential for the service sector (including Teams, Eassy, Lion1 + 2). More than four fifths of the population should have access to the Internet; only in a few African countries are social networks used as intensively as in Kenya. However, given the large number of children, the lack of network coverage and the still missing smartphones, the high values are not always understandable.
In general, the economy and survival of the masses are based on agriculture, which with flowers, vegetables (beans, snow peas, baby corn), tea and coffee contributes to a quarter of the GDP and employs around two thirds of the population. Accordingly, the economy has to struggle with typical problems of an African country: population pressure, corruption and climatic adversity are combined with a structural disadvantage in world trade, unpredictable price fluctuations and insufficient absorption capacity of the labor market. The following sources provide overview data:
- Overview of the Foreign Office
- Central Bank of Kenya
- UNDP Human Development Report
- World Bank statistics