How can Kenya boost growth?

Sixty kilometres south of Nairobi, the construction of Konza Technology City is under way. If all goes according to plan, a 5,000 acre parcel of savannah will be transformed into a bustling city by 2030. Konza is slated to boast several business parks, shopping plazas, schools and 35,000 homes. The city will also be home to an integrated network of higher learning and lab facilities designed to develop highly skilled workers, foster innovation and launch Kenyan start-ups. Fuelled by interest from dozens of firms, including Safaricom, Huawei Technologies, Google, Samsung and Telemac, the $12bn venture aims to cement Kenya’s reputation as a top African technology centre and create 200,000 new jobs.

Big and ambitious, the Konza project is emblematic of the kind of socioeconomic transformation the government is aiming for as part of its national development strategy “Vision 2030”. Established in 2008, the plan aims to have Kenya join the ranks of countries classified as middle income, among them Thailand, Malaysia and Indonesia, by 2030.

This move up the development ladder will require significant growth. Per capita gross national income (GNI) was $930 in 2013. To cross the World Bank’s middle-income threshold, GNI will need to reach $1,046; being on par with Thailand would require GNI to rise to $4,126—a figure 2.5 times larger than the sub-Saharan average of $1,624. To achieve these objectives, Kenya will have to resolve one of its most critical challenges and biggest opportunities—leveraging its people.

The Kenyan labour problem is one of both quantity and quality. In particular, the economy is struggling to create employment opportunities faster than population growth—projected to remain above 2% until 2050. This translates into 800,000 Kenyans reaching working age annually, with only 50,000 of them able to find a “modern wage” or formal sector job. The remainder will join a grey area consisting of traditional family farming and blue- or white-collar jobs. Another problem: the education system  produces too few workers with skills that industry needs. These two dynamics skew unemployment towards the young; this cohort of young people has an unemployment rate nearly three times higher than the national average (35% vs 12.7%). The African Development Bank estimates the shortage of engineers at 30,000; of technicians, 90,000; of artisans, 400,000. Overcoming the shortage of jobs and the dearth of skills is possible, but will require coordinated public and private efforts.

Developing the Kenyan private sector, especially manufacturing, will be a critical part of the solution. In 2012, manufacturing accounted for only 10% of Kenyan GDP, compared with an average of 21% for middle-income countries. To encourage investment and scale up its manufacturing base, the government is establishing special economic zones (SEZ) in Mombasa, Lamu and Kisumu. While the Mombasa SEZ is planned to serve as a centre for import and export with foreign trading partners, the Kisumu SEZ will be more regionally focused. Officials are planning an agro-industrial focus for Mombasa; businesses that blend and package fertilisers, that deal in teas and coffees, along with meat- and fish-processing plants, will be located there. The availability of limestone in Kisumu and its proximity to Lake Victoria will permit this SEZ to be both a hub for supporting the regional cement, chemicals and metals industries and also become a centre for agro-processing. The government hopes to attract foreign textile manufacturers to all three zones. With enough private investment, Kenya’s SEZs could create an estimated 10m jobs over the next 30 years.

Another effort to stimulate job growth is the creation of national funding programmes—Uwezo, for example—to provide young entrepreneurs better access to financing and also enable them to find mentors more easily. To receive Uwezo funding, groups go through an application and selection process that is managed by a government committee. They must then complete a mentoring and training certificate programme before funds are disbursed. They are expected to begin repaying their loan after a six-month grace period. Better coordination between corporate events to support entrepreneurs, like Google’s Startup Weekend Nairobi, and the national funding programme could further expand both initiatives.

Bridging the many skills gaps will also be crucial. Kenya will have to prepare workers for the tech sector it is trying to build, while also aiming to develop its largely informal SME workforce. In the short run, incentivising private firms to create training institutes, like Samsung’s Engineering Academy, will help ensure that course material is relevant and targeted to the needs of employers. Moreover, many Kenyan students lack practical experience when they graduate–universities and polytechnic institutes often have outdated equipment. Therefore, increasing the number of firms with apprenticeship programmes will be another key strategy for closing the skills gap in the near term.

In the long run, the government is betting on current efforts to strengthen and focus the education system to yield more capable workers. Still being developed, a major initiative of Vision 2030’s second midterm plan is a programme to emphasise STEM (science, technology, engineering, math) skills across all curriculum levels. It also hopes to help students develop more advanced scientific skills and to foster innovation with the establishment of two new national technology institutes. To build these institutes (the Kenya Institute of Nanotechnology and the National Physical Science Research Laboratory for Engineering and New Production Technologies), the government plans to raise funds through PPPs.

Without a doubt, Kenya is at a crossroads in its development. Over the past decade, the rapid expansion of the mobile market and the runaway success of the mobile banking platform M-Pesa have inspired generations of Kenyans to imagine a future fused with technology. Vision 2030 could get them there, but its success will largely depend on how well the government can implement its ambitious plans. Standing in its way are private sector concerns about political stability, corruption and an overly complex regulatory environment that make Kenya less than attractive to investors. To allay these fears, the government must continue its planned market reforms, emphasise fighting corruption and remain transparent about implementation.

This article is published in collaboration with GE Look Ahead. Publication does not imply endorsement of views by the World Economic Forum. 

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Author: Jennifer Silvi writes for GE Look Ahead.

Image: An aerial view of Kenya’s capital city Nairobi. REUTERS