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The economy is growing, but where is the money?

While foreign direct investment has substantially increased from $100 million in 2000 to $1.4 billion in 2015, and companies have set up shop in the country, the number of jobs created has not matched the attrition, and barely scratches the surface in terms of demand.

fdi

Source: World Bank

Mohamed Wehliye, Senior Vice President Financial Risk at Riyadh Bank, says the problem is that the country’s growth is being felt in the services sector which doesn’t add too many jobs.

“Almost 80 percent of our growth is in services that include financial services which add a lot to GDP but employ a few people. On the other hand, almost 80 percent of employment is in agriculture and manufacturing which is shrinking. The combination of these two scenarios is what you are witnessing and what economists refer to as jobless growth,” he explained.

He says there is a need for Kenya to prioritize on competitive manufacturing by bringing the cost of power significantly lower even as processes and infrastructure are continually upgraded.

According to the Kenya National Bureau of Statistics, Kenya‘s 6.2 percent growth in Q2 was buoyed by tourism which grew by 15 percent while manufacturing experienced the slowest growth at 3.2 percent.

The agriculture sector grew by 5.5 percent compared to 4 percent recorded in the same period last year owing to well-distributed rainfall that greatly enhanced agricultural production.

Wehliye says no country has attained a high standard of living on the basis of services alone.

“Countries that have escaped poverty have had to put a lot of workers through factory gates. China, US, Germany, Japan, Europe. There is a traditional path where an economy transitions from an agricultural one to an industrial one and then to a service economy. There are no shortcuts to economic development,” Wehliye added.

In spite of the lopsided growth, the World Bank considers Kenya as one of the bright spots in Sub-Saharan Africa outgrowing the 2016 regional average of 1.7 percent.

In a report titled – Beyond Resilience – the WB identifies a vibrant services sector, robust construction industry, low inflation, currency stability and low fuel prices as factors underpinning Kenya’s economic growth of 5.9 percent in 2016.

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Diarietou Gaye, World Bank Country Director for Kenya, said the prevailing macroeconomic stability means that Kenyans can now enjoy more stable prices for essentials like food, fuel, housing and transportation.

The Bank says the economy has largely been fueled by consumption and public investment.

However, the same report says the returns on these infrastructure projects are falling due to raising projects costs and project management hurdles.

READ: Kenya Risks not getting return on Infrastructure investment WB.

The country has continued to heavily invest in infrastructure as investments on infrastructure now averages at 21 per cent of Gross Domestic Product (GDP).

But efficiency and effectiveness of public investments in Kenya have been declining in recent years.

According to the report, total factor of productivity has stagnated at about 1.1 per cent with projections indicating a decline to about 0.5 per cent.

Another proxy for productivity, the incremental Capital Output Ratio (ICOR), which measures the additional amount of investment necessary to generate an additional unit of production, has been rising.

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