Molding the Middle Class: Kenya's Path to Greater Economic Growth

Article excerpt

An announcement by Kenya's Central Bank indicating that the country had experienced 5.8 percent economic growth in 2006 was dismissed by the media and the government opposition as political propaganda. Under former President Daniel Arap Moi's government in the late 1990s, Kenya's economic growth fluctuated from negative values to highs of 2.3 percent. In spite of an upturn in economic growth, however, other indicators were not as promising. The number of people unable to afford 2,250 calories per day hit a staggering 14.4 million out of a population of 32 million. This represented an increase in poverty levels from 47 to 53 percent in rural areas and 29 to 49 percent in urban areas.

Despite these signs of increased poverty levels, Kenyans have sent a strong signal to the government that they would like to control and take over state-owned corporations. This was manifested in the overwhelming response received when Kenya Generating Electricity Company offered shares to the public; shares were over-subscribed by 233 percent. Scan Group, a privately owned company that floated shares to the public, was also over-subscribed by 521 percent. The Nairobi Stock Exchange has witnessed a beehive of activity in recent months, with many ordinary Kenyans moving to invest in shares.

The Kenyan middle class constitutes the majority of the people investing in ordinary shares in the Nairobi Stock Market. The middle class population, coupled with remittances from Kenyans in diaspora that constitute an estimated US$700 million, has played a crucial role in the growth of the economy. Another key factor has been the entry of China and India as major players in the global economy. It is estimated that Africa as a whole has witnessed a five percent increase in economic activity due to China and India's quests for raw materials in Africa.

However, ending dependence of economic growth on the export of raw materials poses one of the continent's greatest challenges. Africans have no reason to settle for economies that are driven by raw-material export after three centuries of being in contact with wealthier civilizations. Continuing this type of relationship with developed countries will limit the ability of local entrepreneurs to diversify their local industrial bases and offer products in the global market. Kenyans wanting to own shares in businesses run by the government is a sure indicator that if given a chance, Africans would be eager to invest in value-added industries. Kenyan government policymakers ought to give their citizens the opportunity to stem the tide of raw-material exports to emerging and developed economies by creating an environment that rewards business initiatives. Instead of engaging in agricultural, mining, and service-oriented industries, African governments should facilitate their citizens' ownership of such industries. They could do so by offering shares in already existing enterprises and opening their markets to new competitors.

Addressing Poverty

In order to fight poverty, Africans must not wait for others to generate wealth for them. Each aspect of government failure in service delivery has the potential to turn into a business opportunity. For instance, in areas that receive sufficient rainfall, individuals can invest as little as US$300 to protect springs and ensure for the clean provision of water. Clean water will not only keep populations from incurring the expenses caused by water-borne diseases, but will also provide jobs for rural people in water services. A similar approach can be used in the fight against diseases such as malaria. Individuals need US$800 to purchase pumps for indoor spraying, certified chemical sachets, protective gear, and spray against mosquitoes. After this expenditure, individuals would earn an estimated US$5 per sprayed house.

Tackling poverty effectively requires transforming the 70 percent subsistence-farmer population into a society with a substantial middle and upper class. …