Industrial path the best bet for Kenya

Industrialization Principal Secretary Peter Kaberia (left), is guided by Prof. Thomas Kipkurgat (centre), Managing Director of Rivatex East Africa Limited in Eldoret town, Uasin Gishu during a visit to check on the modernization progress of textile factory on September 09, 2021.

Photo credit: Jared Nyataya | Nation Media Group

It is that season, once again, when Kenyan voters go to the polls to determine who will run the affairs of the country for the next five years.

By casting their votes, the electorate choose the candidates who offer the best promise for tackling such socioeconomic problems as poverty, unemployment, security, infrastructure, health and education.

Different economic models and interventions have been deployed across the world to tackle poverty and youth unemployment.

Those that have been most successful in tackling the problem of poverty and joblessness have entailed a shift from agro-based to industrialised economies.

In Kenya, for example, agriculture is by far the biggest employer, yet earnings in the sector have stagnated at an average of Sh110,000 per year, or less than Sh10,000 per month.

In comparison, annual industrial incomes average Sh770,000, which is seven times the agricultural wages.

The number of new formal jobs created annually has for years been outstripped by the number of entrants into the job market, pushing the majority to informal, low-paying jobs.

New formal jobs created annually have consistently clocked below 150,000 since 2016, while entrants into the job market have averaged above 700,000 in this period, according to the World Bank’s economic data on Kenya.

Kenya has a lot to learn from the industrialisation path advanced economies pursued in their economic transformation journeys.

The population carrying capacity of a country is determined by its economic structure. Societies have evolved from hunter-gatherer set-ups that could support only one or two people per square metre to pastoralism, with slightly more, to agriculture, with about 100, to industry, trade and commerce in cities with much higher population densities.

One can, therefore, for example, begin to understand the source of the security challenges we’re having in Laikipia and northern Kenya. The political incitement witnessed there may be more opportunistic rather than the root cause. It is simply a resource conflict and, in my view, this is where our private and public interests begin to meet.

Few countries, if any, have raised agricultural productivity without simultaneously raising industrial activity. The first lesson from the developed world is that there is great synergy between industrialisation and agriculture. That, when agriculture shares a market with industry, there is a basis for commerce.

Secondly, there are significant synergies between industry, advanced services and agriculture. Thirdly, industry and advanced services can be taxed more than agriculture and therefore subsidise agriculture. Finally,  when surplus labour goes to agriculture, the laws of diminishing returns set in.

Marshall Plan

Germany’s experience with the Morngethau Plan and the Marshall Plan after the Second World War mirrored what Italian economist Anthonio Sera observed in Italy in 1613, when writing about the uneven economic development and comparing wealthy but swampy Milan, which was engaged in manufacturing, and poor Naples, which leveraged its agricultural land to focus on agriculture. His basic conclusion was that economic activities are different as creators of wealth, and the production of raw materials and manufactured goods obey different laws.

China and India perhaps offer the most recent examples. China followed the mantra that it is better to have an uncompetitive industry than none at all. Over a period of 30 years, Beijing progressively improved its uncompetitive industry and only ventured into the WTO in the early 2000s. The same story applied to India and South Korea.

Their experience shows that free trade between nations at extremely different levels of growth tends to destroy the most efficient industries in the least efficient economies.

Industrialisation is not spontaneous. Industrial activities have largely been created by conscious targeting, nurturing and protection of industrial activity.

The big takeaway for Kenya here is that no country in the world has raised real wages without bolstering return activities such as manufacturing, as opposed to being productive in diminishing return activities such as pastoralism and peasantry.

Redistributive policies from the rich to the poor will not work. This is because, on average, Kenyans are poor and even if we share all our wealth equally, the average annual GDP per capita will be still less than US$1,900.

Welfare distribution through the government to the poor and the counties through increased allocation is, as well, constrained by the size of the pie.

Economic history teaches us that human welfare can only be sustainably improved when the poor are enabled to create their own wealth by shifting them from diminishing return to increasing return activities.

This shift in the production structure of the economy can only happen through conscious and deliberate government policy.

The Kenyan business class and the political class must jointly work to bring the ingredients of capitalism together through conscious policy that enables creation of wealth to the entire populace.

Dr James Mworia is Group CEO at Centum Investment Company Plc. @MworiaJ

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