How president William Ruto can transform Kenya’s economy and alleviate poverty

Despite William Ruto’s narrow win to become Kenya’s president in August last year, the transition occurred peacefully. Now his challenge is to transform the economy in a country with numerous developmental challenges.

According to Kenya’s medium-term plan III (2018-2022), these problems include low manufacturing and export growth, persistent trade and balance of payments deficits, low investment levels and high unemployment. Steep costs associated with doing business, energy, living and food are also obstacles.

The World Bank identified high levels of poverty and inequality, weak private sector investment, corruption, climate change and susceptibility to internal and external shocks as Kenya’s key development challenges.

In 2020, when Covid-19 hit, the economy shrank by 0.3% from its 5% growth rate in 2019. With declining revenue and increased government expenditure, total public debt grew from 59.5% of GDP in 2019 and was forecast to reach 72% by the end of 2022. The country is now at risk of debt distress with rising debt servicing costs. The estimated fiscal deficit for 2021 was 8.2%, with the current account deficit widening to 5.5% by the end of 2021.

The Institute for Security Studies’ African Futures and Innovation team recently concluded an analysis and forecast of Kenya’s growth prospects. Kenya’s GDP per capita using purchasing power parity in 2019 was 52% ($3,466) of the average of $6,630 for its lower-middle-income peers in Africa. This is projected to reach $6,249 on the Current Path (or business as usual forecast) by 2043 when the African Union’s third 10-year implementation plan of Agenda 2063 ends.

By this time, Kenya’s GDP per capita will be 42.5% lower than the projected average of $8,902 compared to its lower-middle-income peer group. So there’s some prospect of reducing the gap, but only modestly. Using the World Bank benchmark of $3.20 for extreme poverty for lower-middle-income countries, as of 2019, 32.2 million Kenyans — 61.5% of the population — lived below this threshold. This number jumped by several million in 2020 with Covid-19.

On the Current Path, the number in poverty is expected to drop to 23.5 million, or 29.1% of the population, by 2043. Kenya is thus forecast to reduce extreme poverty, but slowly.

Turning the economy around and reducing poverty faster requires strategic investment in sectors delivering the most development dividends. Kenya Vision 2030 aims to transform the country into an industrialising middle-income state providing a high quality of life to all. To achieve this, the government must focus on three sectors. 

First is governance and stability. While Kenya appears to be doing well on security and inclusion, its governance capacity is low, and it lags in fighting corruption. Kenya ranks 29th in Africa on the Transparency International Corruption Perceptions Index and 16th among the 23 lower-middle-income countries. In 2019/2020, the Ethics and Anti-Corruption Commission received only 2,221 graft-related cases for investigation, and 448 reports were forwarded to other public institutions. So, in reality, accountability is limited, with only the small fish being prosecuted.