Services Drive Kenya’s Growth in the Past Decade

March 8, 2016

NAIROBI, March 8, 2016—Since 2005, services exports in Kenya have accounted for over 50% of the increase in total exports, and are poised to overtake goods exports, says a new World Bank report launched today. Trade, transport, ICT and financial services lead the pack.

The Kenya Country Economic Memorandum: From Economic Growth to Jobs and Shared Prosperity (CEM) reviews the country’s growth: past, present and future.

Kenya’s growth model has been well-regarded for a number of reasons. Unlike most of its African peers, the country embraced the role of the private sector from the start. One major accomplishment and often under-appreciated aspect of the country’s growth story is that Kenya has lived within its means. The country has never sought or received debt relief, but has opted for better economic policy - raising revenues, liberalizing trade and the forex market.

However, there are distinct features of Kenya’s growth model that upset its growth story. Firstly, agriculture’s share in GDP declined from 26.5% in 2006 to 22.0% in 2014 while manufacturing stagnated at 11.8% of GDP on average during the same period. Secondly, growth has not been inclusive: poverty, unemployment, and informality remain prevalent.

Reviving agriculture remains Kenya’s main pathway to poverty reduction. On jobs, improving the business environment, the education system, and reforming dated labor laws will help. On informality, the real gains come from increasing productivity in the Jua Kali sector” says Diarietou Gaye, World Bank Country Director for Kenya.

Thirdly, economic growth has been uneven and volatility is high. Domestic shocks have had bigger and longer-lasting effects than external shocks. Hence, reducing volatility becomes primarily a question of domestic policies.

“To accelerate short-term growth, the current savings rate needs to be doubled, primarily by mobilizing domestic savings. The report also identifies three long-term growth drivers: Innovation, Oil, and Urbanization. But, underpinning these recommendations is one overarching theme; that of functioning institutions” says Apurva Sanghi, World Bank Lead Economist and Program Leader for Kenya.

The Country Economic Memorandum is a strategic World Bank product that analyzes key aspects of the country’s economic development with the main aim of providing an integrated and long term perspective of the country’s development priorities. This particular edition of the CEM has benefitted from extensive review from various stakeholders, including the government, academia and private sector. 

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