Kenya steps on the highway to economic success

By Patrick Maluki 

Introduction

Over the last decade, Africa has witnessed a considerable investment in infrastructure which has single-handedly triggered over half the improvements in the continent. Experts believe that the continent has the potential to grow more given a conducive environment,^[1] especially if its developing nations invest in strengthening their infrastructure which is considered critical to a country’s economic growth. Kenya is one country in the continent that has grasped this concept well, but is trailing behind in translating this knowledge into tangible outcomes. This largest and most advanced economy in East and Central Africa, is keenly aware of the increasing aspirations of its middle classes and the strong growth prospects this has stimulated.

In its Vision 2030 document, launched way back in 2008, the then Kenyan government had outlined infrastructural expansion as the key element in its three-pronged strategy to unlocking the country’s potential, and transforming it into a middle-income nation of rapid industrialisation. The current ruling Jubilee Party, which came to power in 2017, added to the Vision 2030 plan with a Big 4 Agenda of its own with a promise of food security, affordable housing, affordable healthcare and manufacturing to its people. This was a clever addition to the Vision 2030 strategy of Economic, Social and Political reform which aimed to foster national and regional economic integration, facilitate cross-border trade and facilitate an integrated transport system.^[2] Big 4 also endeavoured to develop a national transport information database, enhance public awareness and facilitate public-private partnerships.^[3]

The plans were ambitious, and got off to a great start. From 2011 to 2020, various sectors showed promise of meaningful reform and development, adding to its goods and services output. With 2030 around the corner, the time is rife to take a look at the steps taken by Kenya to meet its Vision, and gauge the progress of their efforts to reach the goal. We will use data from a cluster of repositories like economic surveys, World Development Indicators and African Infrastructure Trackers to investigate the past and determine the future.

Transport Infrastructure

Vision 2030 had targeted four critical pillars of transport, health, communication and housing for economic development, with an added mix of tourism^[4],[5] infrastructure on which the country’s economy would balance its long-term sustainable growth. This far-sighted vision started well with development of transport infrastructure.

A well-oiled transport infrastructure is always the key determinant of a country’s economic growth^[6] due to its ability to connect individuals, institutions and major nationals and international and regional markets.^[7] Kenya is no exception. Road transport accounts for over 80% of its total passenger and freight transportation, as well as value of output^[8] - the total market value of goods and services produced by firms in a financial year. The Road Transport programme received the highest allocation of funds of all transport infrastructure, representing 57% of the total spent, at US$1.69bn in 2020/2021 financial year. Spending was increased from US$823.7m in the 2011/2012 financial year to US$1459.42m in 2020. Between 2019 and 2020 alone, Kenya added 1300kms of motorable roads taking the total length of bitumen roads to 22600 kms.^[9] The length of roads categorised as superhighways also increased 157kms during the same period. Kenya’s current Road Network inventory is estimated at 177,500km comprising 63,000km classified roads and 114,500km of unclassified roads administered by various government departments.

Figure 1 gives a summary of the expenditure on the transport infrastructure.

One example of a successful road transport infrastructure is the Nairobi-Thika Expressway, which has cut commute time from three hours to just forty-five minutes. Touted as the most ambitious infrastructure project in Kenya’s history, the eight-lane superhighway stretching from Nairobi to the town of Thika some fifty kilometres north, the expressway was completed in 2012 at the cost of US$360m.^[10] The highway serves a highly populated zone of Nairobi, acting as a main artery for various satellite towns and economic hubs along the corridor. It also has areas of very high potential (social and economic) importance that extend to Central, Eastern and Northern Kenya as well as the neighbouring countries to the north. The road constitutes an important section of the Great North Road, linking the port of Mombasa and northern Tanzania to inland economic centres.

New shopping malls have sprung up along the highway, economic activity has increased, and anecdotal evidence suggests the highway has spurred the growth of business and enterprise. Figure 2 shows how the road transport sub-sector helped in the 258.16% rise in the value output from the sector from US$3732.64m in 2011 to US$13369.01m in 2020. Value output is the total value of goods and services put out by enterprises during an accounting year.

Railways transport was not far behind, increasing the value of goods and services provided by enterprises by a whopping 172.81%. The building of the Standard Gauge Railway (SGR) under Vision 2030, has connected the eastern port city of Mombasa to many regions in Kenya. The line to central Naivasha will not just ease travel within Kenya but also connect to Uganda and Rwanda eventually. On the other hand, the Madaraka Express which connects 13 cities from Mombasa to Suswa in southern Kenya, saw its passenger number increase from 806,000 in 2020 to 1,993,000 in 2021.^[11]

The LAPSSET (Lamu Port-South Sudan-Ethiopia-Transport) corridor - an ambitious programme of 7 infrastructural projects - connected Kenya to countries like South Sudan and Ethiopia; and improved accessibility for transport of goods and services between them, thus stimulating economic growth and creating employment in the region. Such linkages are known to cross country, regional and international production and distribution networks ^[12] are critical to stimulate, promote and strengthen the country’s economic growth.

The rehabilitation of Nairobi Commuter Rail service system and the refurbishment of the Nairobi Central Station contributed to the economic growth despite slowdown due to Covid 19 pandemic stalling growth in 2020. In all, the development in the railway sector contributed to the increase of the economic growth value to US$1870.15m in 2019 from US$1582.70m in 2016.  Figure 3 shows the value of the goods and services output due to railway sector.

The revenue from its passenger more than doubled from US$7.33m in 2020 to US$18.5m in 2021 and cargo revenue increased from US$84m in 2020 to US$1.09bn in 2021.^[13] The enhanced passenger and freight transport operations reduced travel time, improved transport safety and improved mobility.^[14] Land transportation, thus, contributed 9.3% to the GDP in 2020^[15], slightly down from 9.6% in 2019, but more than 7.9% in 2016, 8.2% in 2017, and 9.2% in 2018.

However, hundreds of development projects worth US$75b (Sh9 trillion) have stalled.^[16] Some of the stalled projects in Kenya which have potential to enhance the movement but are yet to be completed include Nairobi-Mombasa Highway, Bus Rapid Transit (BRT) system and the JKIA Greenfield terminal.^[17] The major causes of stalling of the projects include insufficient implementing capacity, poor project management, weak project design, and political interference.^[18] Solutions to the identified causes of failure include adaption of capacity enhancing practices and good governance principles. Air transport was not far behind. The internal and external connectivity provided by air transport has been a main source of ease of movement for people and goods. The most critical air infrastructure development was the expansion and modernisation of the Jomo Kenyatta International Airport (JKIA), which led to the creation of 10,000 jobs directly and 60,000 indirectly. Cargo traffic handled at JKIA rose from 308.1 thousand tonnes in 2020 to 361.5 thousand tonnes in 2021, while the number of passengers rose from 4.4m to 6.5m in the same period. The economic contributions from the air transport is summarised in Figure 4.

Nonetheless, the target in vision 2030 has not been met since it is anticipated that at least 500,000 tonnes per year should be transported by air by 2020. Air transport facilitation is an important aspect of aviation. Kenya has continuously enhanced the capacity of existing infrastructure to cope with future aviation demands, meet international requirements and contend with the ever-changing threats against Civil Aviation. Steps taken to narrow the deficit include enhancing the infrastructure development, safety, security, and environmental concerns.

Housing infrastructure

Kenya has an annual housing demand of 250,000 units with an estimated supply of 50,000 units - which amounts to a deficit of 2 million units. With an integrated national transport policy linking places through roads, railways and airports,^[19] a ripple flowed over the housing sector as faster transport of goods expanded employment opportunities, and spurred construction activities along the transport routes. Investment in housing and related infrastructure increased, and in turn increased the value of completed public buildings.

The National Housing Corporation (NHC) has improved the housing infrastructure. As shown in Figure 5, the actual government expenditure in housing has increased 781.08% from US$24.46m in the 2010/2011 financial year to US$215.47m in the 2019/2020 financial year.

Much focus has been directed towards developing prime housing in Kenya. Little attention has put towards affordable housing for the poor. Over 60% of the urban population lives in informal settlements, which is colloquially called the slum. The private sector arm of the World Bank - the International Finance Corporation (IFC) signed a deal last year with a local construction firm to develop such units in Mombasa. In 2020, IFC also invested nearly US$2m in Kenya Mortgage Refinance Company. It was set up to fulfil the government’s affordable housing ambition. 

But the government’s pledge to build units for the middle and lower income groups has not reached its goal of 500,000 by year 2022, with only 0.8% of the target (431 units) reached by 2021.

The Ngara Estate was to build 1,370 units of one-bedroom, two-bedroom and three-bedroom affordable houses. It has delivered 228 units so far. Allotment is to be made through lottery – a system that is somewhat similar to the one adopted the Housing Development Board (HDB) of Singapore. The project has so far created over 650 direct jobs and indirectly provided employment to more.

As shown in Figure 6, completed public buildings have significantly jumped in value to US$78.52m in 2020 from US$13.04bn recorded in 2019.

Real estate may be a capital intensive and funds may be short in supply but there are enormous opportunities for investment in this sector, for construction, manufacturing, and supply of building material and components. If the government agencies can provide land to developers at affordable costs then the rest will flow. A layered and lengthy approval process for licensing can also be cut down to address affordable housing.

ICT and communication infrastructure

The World Bank identified Kenya’s ICT sector expanding 23% annually, outperforming every other sector in the last ten years. The Kenyan government has recognised the Information and Communications Technology (ICT) sector as the key contributor to the country’s GDP growth and invested heavily in it. The sector is now six times larger than it was at the beginning of the decade.

Kenya joined hi-speed internet race when the East African Marine System (TEAMS) fibre optic cable landed in Mombasa in 20029, along with SEACOM - the privately funded fibre optic project. Information and communication technologies (ICT) play a significant role in all aspects of modern society. ICT has changed the way in which people communicate with each other, how to find needed information, work, conduct business, interact with government agencies, and how to manage our social lives. As ICT affects everyday lives, it also impacts macroeconomic growth, which in turn further affects society by enabling infrastructure and standard of living improvements.

By 2013 Huduma centres where citizen services could access e-services sprang up across the country.^[20] It took another five years for the Huduma Whitebox website to be launched. It was created by the Ministry of ICT, Innovation and Youth Affairs to encourage Kenyans to share innovative ideas by supporting them with technical and financial assistance.^[21] This has helped bolster Kenya’s reputation as a leading technology and innovation hub.^[22] The development of a large-scale telecommunications infrastructure, with the expansion of fibre optic networks to cover hospitals, schools, police stations and other public service institutions and can deliver efficient and affordable info-communications services.^[23] The summary of wage employment from Information and communication technology between 2011 and 2020 is presented in Figure 7.

Wage employment, where a person gets salaried or paid jobs under contract, increased in the information and communication sector from 78800 in 2011 to 117200 in 2020 (Figure 9). Pandemic did lead to a decline in wage employment in 2020, due to social restrictions, but the percentage contribution of ICT to the overall GDP in the nine years preceding 2020 was undoubtedly steady as demonstrated in Figure 8.

An improved ICT sector contributed at least 2.5% value output between 2016 and 2019 to the country’s GDP to US$4.65bn in 2020.^[24] Total domestic telephone traffic increased from 58.7bn minutes in 2019 to 60.3bn minutes in 2020 with mobile subscriptions standing at 126.15 per 100 persons. Internet subscriptions also grew by 7.81 percentage points from 83.38% in 2019 to 91.19% in 2020.^[25] Internet service providers grew from 302 in 2019 to 366 in 2020, driven by the demand for internet services during the period under review and digital TV subscribers increased by 7.2% to 5.5m in 2020. 

According to the Kenya National Economic Survey report of 2019 the value of the ICT sector expanded by 12.9% in 2018, driven by growth in the digital economy.^[26] By 2020, the country’s ICT sector was set to contribute up to 8 percent of the country’s GDP through IT-enabled services (ITES) and create 250,000 jobs.^[27] Internet access has continued to spur economic growth and led to the government’s launch of the Digital Economy Blueprint, a framework to improve Kenya’s and Africa’s ability to leapfrog economic growth.  Businesses in Kenya have readily adopted the e-commerce driven systems for revenue generation, mainly conducting their trade through online platforms.

Health infrastructure

A critical indicator of a country’s health infrastructure is its mortality/death rate. An enhanced health infrastructure and operational facilities can ensure more well-being of the people in a country.The Kenyan government developed its eHealth Strategy in 2011 with an  main aim of decentralising health services and provide quality specialised care. The subsequent Health Policy of 2014-2030, developed by Ministry of Health, recognised the need to take a strategic direction on use of ICT in healthcare sector, to develop, plan and budget healthcare services at all levels. At the same time, this policy aimed to realise the UN Sustainable Development Goals and foster economic growth. Decisive steps have been taken since. Kenya’s aim is to build capacity through technology transfer and training by making use of the existing ICT infrastructure and conducive environment for policy.

Figure 9 shows that operational facilities in health care from level one to level six hospitals in Kenya have been increasing over the years, with a 5.9% increase between years 2016 to 2020. 

Government expenditure, as presented in Figure 10, also implies that there has been adequate funding in healthcare and health facilities are operational.

It increased steadily between 2016 and 2021 with a 9.6% increase in hospital beds to 82,091 and 7.7% jump in hospital costs to 8,946 in 2021. This shows that people can access quality healthcare services, thus becoming more productive, positively spurring economic growth. The summary of the registered Deaths between 2011 and 2020 is summarised in Figure 11.

The results show a 8.91% reduction in registered deaths since 2015 The promotion of the good health of the people contributes is based on health infrastructure such as operational health facilities. The number of functioning health facilities has been increased from 11597 in 2016 to 14600 in 2020.^[28] National Government expenditure on health services rose by 34.5% to US$0.89bn in 2019/20, with development expenditure accounting for 41.0%. Moreover, County Governments’ spending on health services grew by 16% to US$0.92bn US Dollars in 2019/20. The ratio of Government expenditure on health to total expenditure stood at 6.2% in 2019/2.

Tourism infrastructure

The Tourism sector is a big factor in the socio-economic development of a country with its ability to reach the remotest parts of the population through job creation, and a source of foreign exchange from business opportunities^. Tourists visit Kenya for many reasons, including to go on safari and to visit its spectacular coastline around Mombasa. Wildlife viewing of animals such as lions, elephants and giraffes is the major tourist attraction in Kenya. About a million tourists come to Kenya every year and creates jobs for 11 per cent of Kenya’s workforce.^[29] Tourism sector diversifies the economy and boosts other sectors such as transport, food and beverages, entertainment, and textiles. The total tourism revenues increased in Kenya from US$97890m in 2011 to US$1413.65m in 2019, before Covid 19 put spoke in the wheels. The summary of the economic contributions (total earnings) from the tourism sector between 2011 and 2020 is illustrated in Figure 12.

Even though the total earnings from the tourism sector have been significant, tourism earnings significantly declined between 2019 and 2020 by nearly 43.9% from US$1.41bn to US$0.79bn.  Consequently, tourism earnings declined by 43.9% in 2020. International visitors declined by 71.5% from 2,035.4 thousand in 2019 to 579.6 thousand in 2020, and domestic tourism was equally constrained by restriction of movement of persons within Nairobi Metropolitan and Mombasa and suppression of most socio-economic activities during the second and third quarters of 2020.

There is an increase in annual international visitor arrivals in 2020 by 50.3 percent from 579.6 thousand in 2020 to 871.3 thousand in 2020. Kenya’s county and national governments have focused on capital-intensive tourism projects like beach resorts, grand hotels and lodges etc. The success of tourism should therefore not be measured in terms of increased numbers of international tourist arrivals and gross tourism revenues but should be evaluated according to how the industry is integrated with the local and national economy, and how the industry contributes to the overall development of local people at grassroots level.

Recommendation

There is no doubt Kenya has significantly increased its goods and services value through major development in transport, health, ICT, housing, and tourism infrastructure. After all, government investment in infrastructure is important to achieve sustainable economic growth and poverty reduction goals of any economy.^[30]

These forward and backward linkages pumped up the blood flow in the veins adding to the strength of the economic backbone of Kenya. Increase in employment led to the significant increase in services, production, marketing, and other informal sectors thus increasing national income and spurring economic growth.^[31] Improving infrastructure led to business growth, as costs of running a business reduced significantly. More companies registered on a daily basis with the number increasing from 30 in 2014 to 200 in 2020^[32] leading to growth in wealth and investment among investors. This phenomenon, known as capital accumulation, is considered one of the aggregate sources of economic growth.^[33]

Besides, like most road projects the Thika Highway Improvement Project is having major environmental impacts as well.^[34] In fact, the project is designated as a Category 1 project according to the African Development Bank’s (AfDB) environmental and social risk management system.^[35] Category 1 projects are those likely to induce important adverse and irreversible environmental and/or social impacts, such as the displacement of more than 200 people.^[36]

But this can be termed as only the beginning of a long journey ahead to reach optimal levels of output.

This is a clear indication that an efficient network of infrastructural facilities in urban and rural areas has become necessary for Kenya to emerge from its current dismal growth and achieve substantial GDP growth rates. Thus, more emphasis needs to be put in place to attract foreign investors in the country.

It is recommended that the government take advantage of the growing ICT sector by establishing Learning Management Systems in education which will improve education content and resources. Latest hardware and software will be needed to support this growth, but seeing the growing hunger among Kenyans to adopt digitally-savvy practices in all areas, this is an opportunity which cannot be let pass by.

Another sector that can benefit from immediate investment through ICT is Health sector. Kenya’s eHealth strategy can get a shot in the arm through investment in Telemedicines, Health Information Systems, and eLearning.

Kenya’s ongoing commitment to improve private participation in infrastructure financing has improved the regulatory climate and generated 69 PPPs as at 2021.^[37] Of these 11 are in the procurement stage. Feasibility studies and transactional advisory support are underway for the rest - including for the Nairobi-Nakuru-Mau Summit Highway. An estimated $10.4 billion in private investments is expected to be mobilised for some of these early projects. Investors could look at seizing the opportunities resulting from the infrastructural development to increase their investments in Kenya and other East and Central African Countries. Kenya certainly has made much progress in improving its investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations.^[38]

The World Bank’s 2020 Ease of Doing Business report ranked Kenya 56 out of the 190 economies it reviewed.^[39] Since 2014 Kenya has moved up 73 places on this index. In addition, Kenya continues to improve its regulatory framework and its attractiveness as a destination for foreign direct investment (FDI).^[40]The government should consider making policies conducive to the country's PPPs. The tax payable to multinational firms need to be adjusted from time to time to attract more investors. The tax payable determines the net profits level, showing whether the financial performance would increase or decrease, influencing the investors' decision-making. With Singapore announcing the Singapore-Africa Partnership Package Kenya could also look at the possibility of digitalisation and Smart Cities.