Thinking Policy Together

Kenya Economic Report 2024

Enhancing Productivity for Sustained Inclusive Growth

KER 2024 Technical Committee:

Kenneth Malot
Dire Dika Bilala
Daniel Omanyo
Joshua Laichena
Paul Odhiambo
Cecilia Naeku
Melap Sitati
Violet Nyabaro
Jacob Nato
Jecinta Ali

June 2024

To create a globally competitive and prosperous nation with a high quality of life by 2030
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

2024 Kenya Institute for Public Policy Research and Analysis (KIPPRA)

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ISBN: 978 9914 738 58 2

Other Available Kenya Economic Reports

2023: Cost Of Living And The Role Of Markets

2022: Building Resilience and Sustainable Economic Development in Kenya
2021: Kenya in COVID-19 Era: Fast-Tracking Recovery and Delivery of the “Big Four” Agenda
2020: Creating an Enabling Environment for Inclusive Growth in Kenya
2019: Resource Mobilization for Sustainable Development of Kenya
2018: Boosting Investments for Delivery of the Kenya Vision 2030
2017: Sustaining Kenya’s Economic Development by Deepening and Expanding Economic
Integration in the Region
2016: Fiscal Decentralization in Support of Devolution
2015: Empowering Youth through Decent and Productive Employment
2014: Navigating Global Challenges While Exploiting Opportunities for Sustainable Growth
2013: Creating an Enabling Environment for Stimulating Investment for Competitive and
Sustainable Counties
2012: Imperatives for Reducing the Cost of Living in Kenya
2011: Transformative Institutions for Delivering Kenya Vision 2030
2010: Enhancing Sectoral Contribution towards Reducing Poverty, Unemployment and
Inequality in Kenya
2009: Building a Globally Competitive Economy

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 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

TABLE OF CONTENTS

LIST OF FIGURES ..................................................................................................................... IV

LIST OF TABLES ....................................................................................................................... IX
STATEMENT BY CABINET SECRETARY, THE NATIONAL TREASURY AND
ECONOMIC PLANNING ............................................................................................................ XI
FOREWORD .............................................................................................................................. XII
PREFACE.................................................................................................................................... XIII
ACKNOWLEDGMENTS.............................................................................................................. XIV
ABBREVIATIONS AND ACRONYMS.......................................................................................... XV
EXECUTIVE SUMMARY............................................................................................................. XVIII
1. INTRODUCTION................................................................................................................... 1
2. MACROECONOMIC PERFORMANCE................................................................................ 11
3. MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA................................... 41
4. LABOUR PRODUCTIVITY IN MANUFACTURING.............................................................. 61
5. ENHANCING PRODUCTIVITY THROUGH TRADE............................................................ 85
6. ENHANCING AGRICULTURAL SECTOR PRODUCTIVITY THROUGH A
TRANSFORMATIVE AGENDA............................................................................................. 121
7. DEVELOPING SKILLS FOR PRODUCTIVE AND FUTURE READY WORKFORCE........ 159
8. PRODUCTIVITY AT COUNTY LEVEL: FOCUS ON ARID COUNTIES.............................. 183
9. LEVERAGING STRATEGIC PARTNERSHIPS IN UNLOCKING TECHNOLOGY
TRANSFER........................................................................................................................... 221
10. ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE................................................ 243
11. LEVERAGING ON DIGITALIZATION TO INCREASE PRODUCTIVITY IN THE
INFORMAL ECONOMY........................................................................................................ 291
12. CONCLUSION AND POLICY RECOMMENDATIONS......................................................... 313
REFERENCES............................................................................................................................ 329
ANNEXES................................................................................................................................... 343

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LIST OF FIGURES

Figure 1.1: Trends in sector value added, 2018-2023 ................................................................ 3

Figure 1.2: Trends in performance for leather, textile, apparel, and dairy products in
Kenya (%) ....................................................................................................................... 3
Figure 1.3: Trends in performance for other key value chains under the BETA ......................... 4
Figure 1.4: Conceptual framework on enhancing productivity for sustained inclusive growth ... 8
Figure 2.1: Trends in macroeconomic stability indicators (1995-2023) ...................................... 12
Figure 2.2: Aggregate demand components (2018-2023) .......................................................... 16
Figure 2.3: Gross investments and savings as % of GDP, (2016-2023) .................................... 17
Figure 2.4: Real GDP growth, GDP per capita growth, and poverty rates (1965-2023) ............ 18
Figure 2.5: Shares of Kenya’s total employment (%) (1990-2023) ............................................ 19
Figure 2.6: Growth-employment elasticity (1992-2023) ............................................................. 21
Figure 2.7: Trends in consumer and producer price inflation (2018-2024) ................................ 22
Figure 2.8: Inflation Trends (2018-2024) .................................................................................... 23
Figure 2.9: Policy stance, interest rates, and core inflation (2018-2024) ................................... 24
Figure 2.10: Exchange rate movements (2018-2024) ................................................................ 25
Figure 2.11: Contribution to annual growth in domestic credit (%) (2016-2023) ........................ 26
Figure 2.12: Sectoral credit growth (%) (2015-2023) ................................................................. 26
Figure 2.13: Movements in banking sector asset quality (%) (2016-2023) ................................ 28
Figure 2.14: Fiscal trends (2016/17-2023/24) ............................................................................ 29
Figure 2.15: Trends in domestic revenues (2016/17-2023/24) .................................................. 30
Figure 2.16: Trends in recurrent expenditure (%) (2016/17-2023/24) ........................................ 30
Figure 2.17: Trends in development expenditure (%) (2016/17-2023/24) .................................. 31
Figure 2.18: Public debt (Ksh billion), (2016/16-2022/23) .......................................................... 33
Figure 2.19: External and domestic debt structure (2016/17-2022/23) ...................................... 34
Figure 2.20: Debt service (2016/17-2022/23) ............................................................................. 35
Figure 2.21: Current account performance (2016-2023) ............................................................ 38
Figure 2.22: Trends in official reserves holdings (2017-2023) ................................................... 38
Figure 3.1: Productivity scores for world and selected countries, 2018-2022 ............................ 42
Figure 4.1: The relationship between labour productivity in manufacturing and share of
manufacturing in GDP, globally, 2021 ...................................................................... 62
Figure 4.2: Share of manufacturing and services in GDP by income level and productivity
levels (%), 2005-2022 ............................................................................................. 63
Figure 4.3: Share of manufacturing in GDP and productivity by income level (%), 2021 .......... 64
Figure 4.4: Performance of Kenya’s manufacturing sector (%), 2000-2022 .............................. 65
Figure 4.5: Contribution to GDP by type of manufacturing (%) (2002-2022) ............................. 66
Figure 4.6: Trends in share of manufacturing value added, 2017-2022 (constant 2015, US$)... 67
Figure 4.7: Trends and growth rates in MVA, 2002-2022, Kenya ............................................... 68
Figure 4.8: Share employed in manufacturing (2000-2022) ....................................................... 70
Figure 4.9: Labour productivity in manufacturing (constant 2015 US$), 2000-2022 .................. 72
Figure 4.10: Labour productivity in selected countries, 2000-2022 ............................................ 73
Figure 4.11: Labour productivity and growth rate in labour productivity (%) 2002-2022 ............ 74

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 LIST OF FIGURES

Figure 4.12: Financial capital investment per worker by firm size, 2016 .................................... 77
Figure 4.13: Electricity connection in MSMEs, 2016 .................................................................. 77
Figure 4.14: Electricity demand and supply, 2018-2022 ............................................................ 78
Figure 4.15: The relationship between investment in research for development and labour
productivity ............................................................................................................. 79
Figure 4.16: Granted patents, industrial designs, utility models, and trademarks (2000-2022).. 80
Figure 4.17: Correlation between investment in research for development and labour
productivity ............................................................................................................ 80
Figure 4.18: Skill distribution by type of processing (%), 2021.................................................... 82
Figure 5.1: Average transit and cargo dwell time at the Port of Mombasa 2010-13, and
2014-20 .................................................................................................................... 97
Figure 5.2: Trends in border and document compliance time and costs (2014-2020) among
Northern Corridor member States ............................................................................ 98
Figure 5.5: US imports of goods from Kenya, by programme, 2000-2022 ................................ 102
Figure 5.4: Access to markets by MSEs, 2016 .......................................................................... 105
Figure 5.5: MSMEs contracting arrangements for inputs, 2016 ................................................. 106
Figure 5.6: MSMEs contractual arrangements for goods and services, 2016 ........................... 107
Figure 5.7: Share of exports and imports to GDP, 2000-2022 ................................................... 111
Figure 5.8: Kenya exports by stages of production, 2013-2022 ................................................. 112
Figure 5.9: Kenya imports by stages of production, 2013-2022 ................................................. 113
Figure 5.10: Index of export market penetration index for Kenyan exports, 2000-2021 ............ 114
Figure 5.11a : Market concentration index for Kenyan exports, 2000-2023 ............................... 116
Figure 5.11b: Market diversification for Kenyan exports in 2022 (No. of equivalent
markets), 2023 ..................................................................................................... 116
Figure 5.12: Kenya’s export diversification index (EDI), 2000-2022 .......................................... 117
Figure 6.1: Agricultural growth, contribution to GDP, and GDP growth (2000-2023) ................. 112
Figure 6.2: Intermediate input used from 2000 to 2022 (Ksh million) ........................................ 131
Figure 6.3: Highest level of education reached by region, 2010 ................................................ 133
Figure 6.4: Youth labour in agriculture (1990-2020) ................................................................... 134
Figure 6.5: Skills level for the agriculture sector, 2021 ............................................................... 135
Figure 6.6: Output per work in the agriculture sector, 2002-2022 .............................................. 138
Figure 6.7: Agriculture labour income share (% of GDP), 2010 to 2020 .................................... 139
Figure 6.8a: Area under production and output levels for cereals (2017-2021) ......................... 140
Figure 6.8b: Cereals yield (MT/Ha) for 2017-2021 ..................................................................... 140
Figure 6.9a: Area under production and output levels for legumes (2017-2021) ....................... 141
Figure 6.9b: Legumes yield (MT/Ha) for 2017-2021 .................................................................. 142
Figure 6.10a: Tuber’s production, and area under cultivation (2017-2021) ............................... 143
Figure 6.10b: Tuber crop yield (MT/Ha) for 2017-2021 .............................................................. 143
Figure 6.11a: Horticultural production and yields (2017-2021) .................................................. 144
Figure 6.11b: Horticultural area under production (2017-2021) ................................................. 145
Figure 6.12a: Nuts and oil crops area under cultivation (2017-2021) ........................................ 146
Figure 6.12b: Nuts and oil crops production (2017-2021) .......................................................... 146
Figure 6.12c: Nuts and oil crops yields (2017-2021) .................................................................. 147
Figure 6.13a: Coffee, tea, cotton, sisal, and sugarcane area under production (Ha),
2017-2021 ............................................................................................................ 148

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Figure 6.13b: Coffee, cotton and sisal production (MT), 2017-2021 .......................................... 148
Figure 6.13c: Tea and sugarcane production (MT), 2017-2021 ................................................. 149
Figure 6.13d: Coffee, tea, cotton, sisal, and sugarcane yield (MT/Ha), 2017-2021 ................... 150
Figure 6.14: Agriculture expenditure share of total government expenditure, 2001-2022 ......... 151
Figure 6.15: Average annual growth rates for crops sub-sector under BAU and accelerated
growth scenarios, 2023-2027 ................................................................................. 152
Figure 6.16: Average annual growth for livestock sub-sector (2023-2027) ................................ 154
Figure 6.17: Average annual growth for food processing (2023-2027) ...................................... 155
Figure 7.1: Output per worker and education attainment in 2018 and 2022 .............................. 161
Figure 7.2: KCSE mean grade, 2017-2022 ................................................................................ 165
Figure 7.3: Sectoral skills demand status in Kenya (%), 2021.................................................... 172
Figure 7.4: Skills gap for health workforce in Kenya in 2021...................................................... 173
Figure 7.5: Vertical qualification mismatch in Kenya, in 2021..................................................... 177
Figure 8.1: Average size of county gross value added (Ksh millions), 2013-2022 ..................... 185
Figure 8.2: Overall county GVA growth rate, 2014-2022 ............................................................ 185
Figure 8.3: Average GVA per capita ........................................................................................... 186
Figure 8.4: Overall poverty (%) .................................................................................................. 186
Figure 8.5: Percentage of theft of livestock in total county crime, 2016-2020 ............................ 188
Figure 8.6: Percentage of terrorist attacks in total county crime, 2016-2020 ............................. 188
Figure 8.7: Share of broad sectors in the county GVA, 2013-2022 ............................................ 189
Figure 8.8: Agriculture sector GVA growth rate, 2014-2022 ....................................................... 190
Figure 8.9: Area harvested (hectares) for maize production, 2012-2020 ................................... 191
Figure 8.10: Maize production (metric tons), 2012-2020 ............................................................ 191
Figure 8.11: Maize yield (MT/HA), 2012-2021 ............................................................................ 191
Figure 8.12: Percentage of livestock across the county categories, 2019 ................................. 193
Figure 8.13: Total value of main livestock products (Ksh million) ............................................... 193
Figure 8.14: Total value of other livestock products (Ksh million) .............................................. 193
Figure 8.15: Services sector GVA growth rate, 2014-2022 ........................................................ 194
Figure 8.16: Share of service sectors in service broad sector GVA, 2013-2022 ........................ 195
Figure 8.17: Industry sector GVA growth rate 2014-2022 .......................................................... 196
Figure 8.18: Share of industry sectors to industry GVA, 2013-2022 .......................................... 197
Figure 8.19: Average development budget absorption rate (2013/14-2021/22) ......................... 198
Figure 8.20: Energy generation by source (Gwh) ...................................................................... 199
Figure 8.21: Percentage of working age population to total county population, 2019 ................ 200
Figure 8.22: Employment to population ratio by county category, 2019 ..................................... 201
Figure 8.23: Employment to population ratio by gender, 2019 ................................................... 201
Figure 8.24: Employment to population by age category, 18-34 and 35-64 years, 2019 ........... 202
Figure: 8.25: Percentage of persons (5-17 years) working by county category, 2019 ............... 203
Figure 8.26: Unemployment rate by county category, 2019 ....................................................... 203
Figure 8.27: Unemployment rate by age category, 2019 ........................................................... 204
Figure 8.28: Unemployment rate by gender, 2019 ..................................................................... 204
Figure 8.29: County labour inactivity by age categories, 2019 .................................................. 205
Figure 8.30: Inactivity rate by gender ......................................................................................... 206
Figure 8.31: Reasons for inactivity by county category, 2021..................................................... 206
Figure 8.32: Share of employment by broad sectors per county category, 2021........................ 207

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 LIST OF FIGURES

Figure 8.33: Employment in agriculture sub-sectors by county category, 2021.......................... 208

Figure 8.34: Employment in the services sector by county category, 2021................................ 209
Figure 8.35: Employment in the industry sector by county category, 2021................................. 210
Figure 8.36: Arid counties’ share of employment in the manufacturing sector, 2021.................. 210
Figure 8.37: Semi-arid counties (30-84%) share of employment in the manufacturing
sector, 2021............................................................................................................. 211
Figure 8.38: Semi-arid counties (10-29%) share of employment in the manufacturing
sector, 2021............................................................................................................. 212
Figure 8.39: Non-ASAL counties’ share of employment in the manufacturing sector ................ 212
Figure 8.40: Labour productivity by county category, 2021......................................................... 213
Figure 8.41: Labour productivity per broad sector by county category, 2021............................. 214
Figure 8.42: Labour productivity in the industry sectors, 2021.................................................... 214
Figure 8.43: Labour productivity in the services sectors, 2021................................................... 215
Figure 8.44: Labour productivity in maize production ................................................................ 216
Figure 8.45: Average maize yield ............................................................................................... 216
Figure 8.46: Labour productivity in livestock production ............................................................ 216
Figure 9.1: Trend in aggregate global GDP of major economic powers (%),
2005 - 2022 .............................................................................................................. 224
Figure 9.2: Frontier technology index against productive capacity for developing and
developed countries, 2008-2021............................................................................... 228
Figure 9.3: Share of vaccine volumes by manufacturer WHO region (%), 2023 ........................ 229
Figure 9.4: Values of exports of apparel and clothing, 2013-2022 (US dollar in thousands),
2013-2022 ................................................................................................................ 232
Figure 9.5: Chinese investments in the Belt and Road countries, 2013-2022,
US dollar billions ...................................................................................................... 237
Figure 10.1: Public administration growth rate and contribution to GDP/GVA (%), national
and county, 2012-2022 ........................................................................................... 245
Figure 10.2: Counties public administration contribution to GCP (%), 2013-2022 ..................... 246
Figure 10.3: Trends and composition of employment in the public service, national and
county governments, 2012-2022 ............................................................................ 247
Figure 10.4: Labour force in the public service growth rate at the national level,
(2012 - 2022) .......................................................................................................... 248
Figure 10.5: Labour force in the public service growth rate at county level (2016-2023) ........... 248
Figure 10.6: Labour productivity in public service (public administration), national level
(2002-2022)............................................................................................................. 249
Figure 10.7: Public service productivity (GVA (millions) per person employed) at the county
level, 2021 .............................................................................................................. 250
Figure 10.8: County scores for public affairs index, 2022, Kenya .............................................. 251
Figure 10.9: Correlation between labour productivity in public administration and public
affairs index at county level .................................................................................... 252
Figure 10.10: CPIA public sector management and institutions score (1=low to 6=high),
2012-2022, selected African countries ................................................................. 253
Figure 10.11: Correlation between labour productivity and CPIA public sector management
and institutions score, national level, 2012-2022 ................................................. 254

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Figure 10.12: Estimate of governance effectiveness ( -2.5 (weak) to 2.5 (strong) governance
performance) in selected African Countries, 2012-2022 ...................................... 255
Figure 10.13: Correlation between labour productivity and governance effectiveness,
national level, 2012-2022 ..................................................................................... 255
Figure 10.14: Number of public officers trained and certified in the KSG 2011/12-2022/23....... 259
Figure 10.15: Number of customers served daily at Huduma centres, 2013-2022 .................... 263
Figure 10.16: The e-government development index and e-participation index in selected
African countries and aspirator countries outside Africa, 2012-2022 ................... 266
Figure 10.17: CPIA rating (1=low to 6=high), 2012-2022 ........................................................... 272
Figure 10.18: Scores for fiscal management indicators, county level, 2022 .............................. 272
Figure 10.19: Revenue collection, national level, 2012/13-2022/23 .......................................... 273
Figure 10.20: Growth rate (%) in the amount of own source revenue collected from the first
government to the second government, 2013-2022 ............................................ 274
Figure 10.21: Correlation of labour productivity in public service with the change in own
source revenue ..................................................................................................... 275
Figure 10.22: Wages and salaries spending, national level, 2013/14-2022/23 .......................... 276
Figure 10.23: Wages and salaries spending, county level ......................................................... 277
Figure 10.24: Correlation of productivity in public service with salaries and wages .................. 277
Figure 10.25: Operational and maintenance spending, national level, 2013/14-2022/23 .......... 278
Figure 10.26: Operational and maintenance spending, county level ......................................... 279
Figure 10.27: Correlation of productivity in public service with operational and maintenance
spending ............................................................................................................... 280
Figure 10.28: Capital expenditure spending, national level, 2013/14-2022/23 .......................... 280
Figure 10.29: Development expenditure spending, county level ............................................... 281
Figure 10.30: Correlation of productivity in public service with development expenditure ......... 282
Figure 10.31: Pending bills at the national level, 2019/20-2022/23 ........................................... 283
Figure 10.32: Pending bills, county level......283
Figure 10.33: Ease of doing business scores in selected African countries, 2012-2022 ........... 285
Figure 10.34: The overall county business environment for MSEs score, 2022 ........................ 286
Figure 10.35: Correlation of productivity in public service with county business environment
for MSEs score ..................................................................................................... 286
Figure 10.36: The Global Peace Index (GPI) scores in selected African countries,
2017-2023 ............................................................................................................ 288
Figure 11:1 Internet connectivity in Kenya, 2023 ....................................................................... 293
Figure 11.2: Type of informal establishments operating structure, 2016 .................................... 294
Figure 11.3: Employment contribution by sector (2017-2022) (%) ............................................. 295
Figure 11.4: Persons engaged in the informal sector by activity, 2017-2022 ............................. 295
Figure 11.5: Internet connectivity across counties informal sector (%), 2022 ............................ 298
Figure 11.6: Electricity connection across counties informal sector (%), 2022 .......................... 299
Figure 11.7: Use of digital tools by sector, 2016 ......................................................................... 301
Figure 11.8: Source of technological advice (%), 2016 .............................................................. 302
Figure 11.9: Main reason the business does not use ICT (%), 2016 ......................................... 303
Figure 11.10: Establishments’ reasons for not using ICT (%), 2016 .......................................... 303

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LIST OF TABLES

Table 2.1: Contribution to productivity growth by broad sectors (1992-2023) ............................ 13

Table 2.2: Economic growth performance (2018-2023)....14
Table 2.3: Estimated sectoral real average wage earnings per employee, 2013 and 2022 ....... 20
Table 2.4: Exchange rate effect on external debt stock (Ksh billion) .......................................... 32
Table 2.5: Debt sustainability indicators (%) .............................................................................. 35
Table 2.6: Effect of public spending on productivity ................................................................... 36
Table 3.1: Selected GDP growth rates (2022-2025) .................................................................. 42
Table 3.2: Medium-term economic outlook (baseline scenario) ................................................. 43
Table 3.3: Summary of downside and upside risks .................................................................... 45
Table 3.4: Medium-term economic outlook (optimistic scenario) ................................................ 49
Table 3.5: Annual average growth under baseline and accelerated growth scenarios
under BETA ................................................................................................................ 49
Table 3.6: Medium-term economic outlook (depressed scenario) .............................................. 51
Table 3.7: Direct and indirect impacts of TFP on sectoral value-added ..................................... 53
Table 3.8: Sectoral total factor productivity improvements on selected macroeconomic
indicators ................................................................................................................... 54
Table 3.9: Individual factor productivity and sectoral linkages on value-added .......................... 55
Table 3.10: County GCP growth rate for the medium-term (optimistic outlook) ......................... 56
Table 4.1: World share of manufacturing in industry, 2017-2022 ............................................... 68
Table 4.2: Share of type of processing value added in MVA (%), 2002-2022 ............................ 69
Table 4.3: Employment by type of processing, 2002-2022 ......................................................... 71
Table 4.4: Labour productivity in manufacturing sub-sectors, 2002-2022 .................................. 74
Table 4.5: Labour productivity by firm size and type of processing in MSMEs (‘000) ................ 75
Table 4.6: Labour productivity by technology intensity, 2016 (‘000) ........................................... 81
Table 4.7: Skill distribution by firm size and technology intensity (%), 2016 .............................. 82
Table 5.2: Policy and legislative framework for external trade ................................................... 92
Table 5.3: Time to export and import before and after implementation of SCT .......................... 99
Table 5.4: Cost to export and import before and after the implementation of SCT .................... 99
Table 5.5: Number of retail market branches of Kenya’s supermarkets, 2018-2023 .................. 104
Table 5.6: GVC participation index by sub-sector ...................................................................... 110
Table 5.7: Average growth rate and percentage share of Kenya exports, 2010-2022 ............... 112
Table 6.1: National and sectoral policies linked to agricultural productivity ................................ 124
Table 6.2: Agricultural professionals and tasks performed ......................................................... 132
Table 6.3: Length of roads constructed (2020-2022) .................................................................. 136
Table 6.4: BETA priority commodities ......................................................................................... 137
Table 6.5: Implication of implementing the BETA programmes on crops ................................... 153
Table 6.6: Implication of implementing the BETA programmes on livestock and livestock
products .................................................................................................................... 154
Table 6.7: Implication of implementing the BETA programmes on food processing .................. 156

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Table 7.1: Enrolment trends in education institutions (2018-2023) in numbers .......................... 162
Table 7.2: Tracing cohort completion from grade one to Form four, 2009-2023 ........................ 163
Table 7.3: Enrolment in universities by field of education and training in 2022 .......................... 164
Table 7.4: Description of the skill levels ...................................................................................... 171
Table 7.5: Skills distribution status in the health sector (%) ....................................................... 173
Table 7.6: Selected occupational skills level status in the agriculture sector in 2021................. 174
Table 7.7: Selected occupational skills level status for the manufacturing sector in 2021 (%) ... 175
Table 7.8: Skills gap analysis for occupations in ICT (years) in 2021......................................... 175
Table 7.9: Selected occupational skills demand status for the ICT sector ................................. 176
Table 7.10: Sectors demanding advanced skills with data indicating available skill levels
in 2021...................................................................................................................... 178
Table 7.11: Population and employment forecasts, 2022-2028 .................................................. 179
Table 7.12: Projected additional workers required by sector, 2024-2028 ................................... 179
Table 7.13: Projected workers required in textile, leather, and pharmaceuticals sub-sectors..... 181
Table 8.1: Classification of counties by level of aridity ............................................................... 184
Table 8.2: Natural resource endowment by county category ..................................................... 187
Table 8.3: Essential infrastructure and capital ........................................................................... 187
Table 8.4: Tourism sites .............................................................................................................. 195
Table 8.5: Human capital indicators ........................................................................................... 200
Table 9.1: Major countries, regions, and their shares in aggregate GDP (%), 2005-2022 ......... 224
Table 9.2: Frontier Technologies Readiness Index for selected countries, 2021 and 2022......... 226
Table 9.3: Frontier Technologies Readiness Index for top ten Sub-Saharan African countries,
2021 - 2022 ............................................................................................................... 227
Table 9.4: Vaccine manufacturing capacity in Africa .................................................................. 230
Table 9.5: Africa’s top exporters of apparel and clothing, US dollar million, 2013-2022 ............. 233
Table 9.6: Top ten world’s exporters of second-hand clothing (US dollar million), 2013-2022.... 234
Table 9.7: Major importers of second-hand clothing (US dollar million), 2013-2022 .................. 234
Table 9.8: Inbound International Students, 2000-2021............................................................... 238
Table 9.9: Outbound international students, 2000-2021............................................................. 239
Table 10.1: Courses designed to cater to different levels and areas of expertise in the
public service ........................................................................................................... 256
Table 10.2: Oversight bodies strengthening public service delivery ........................................... 266
Table 11.1: Distribution of innovative firms in the informal and formal sectors ........................... 296
Table 11.2: Owners’ highest level of education achieved (%) .................................................... 296
Table 11.3: Minimum wage earning within formal and informal sector rates (2016) .................. 304
Table 11.5: Level of digitalization across broad sectors and business sizes (%) ....................... 307
Table 11.6: Electricity Connectivity across sectors ..................................................................... 308
Table 11.7: Average labour productivity across Gender in business ownership (%) .................. 308
Table 11.8: Average labour productivity across age of business ................................................ 309

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 STATEMENT BY CABINET SECRETARY,
KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

THE NATIONAL TREASURY AND

ECONOMIC PLANNING

T
he Kenya Economic Report is prepared investing in the development of relevant skills
annually by the Kenya Institute for to improve productivity and support in achieving
Public Policy Research and Analysis the national development agenda.
(KIPPRA), pursuant to Section 23(3)
of Kenya’s KIPPRA Act Cap 112A Laws. This Further, the report analyses productivity at the
is a statutory report, that annually reviews county level. Enhancing labour productivity
Kenya’s economic performance and provides in arid and semi-arid counties by growing
prospects for the medium-term. The Kenya private sector activity and integrating relevant
Economic Report 2024 is themed “Enhancing value chains is a pathway to achieving the
Productivity for Sustained Inclusive transformative development agenda. In
Growth”. addition, given the dominance of micro and
small enterprises in manufacturing, enhancing
The theme is in line with the national labour productivity by upgrading the technology
development goals of enhancing productivity for used and investing in skills development will
inclusive growth. Enhancing labour productivity go a long way in strengthening manufacturing.
will ensure the growth of economic activity from For agricultural productivity, reducing the cost
a broad sector approach, resulting in improved of intermediate goods, skills development,
lives and livelihoods of Kenyans as enshrined and insurance for agricultural products will
in the Bottom-up Economic Transformation contribute to enhanced crop and livestock
Agenda (BETA) and the Fourth Medium Term yields. Finally, with a significant informal
Plan (MTP IV). sector, supporting digitalization will play a key
role in improving production and distribution
The report captures productivity in agriculture, processes. Considering the informal sector in
manufacturing, and informal sectors, which are the scope of the universal service fund will be
the key sectors identified by the government necessary to mobilize adequate funding.
in eradicating poverty and sustaining inclusive
growth. Macroeconomic stability, strategic The Government is committed to enhancing
partnerships, effective public sector, and economic productivity in achieving inclusive
relevant skills development play an enabling growth. The Kenya Economic Report 2024,
role in improving productivity. Macroeconomic therefore, provides rich and timely evidence
stability with prudent fiscal and monetary policy to policy makers in driving the government’s
will help build and sustain market confidence. development agenda. I therefore call upon
Deepening public sector reforms through all the stakeholders at national and county
capacity building, appropriately equipping the levels to consider and implement the policy
workforce at all levels, and adopting digital recommendations provided in this Report.
technology will support productivity in the
delivery of public services. Moreover, leveraging
strategic partnerships will unlock technology
transfer and improve the capabilities of various
sectors. Further, deepening domestic and
international trade will play a catalytical role
in enhancing productivity in other sectors by Hon. CPA John Mbadi Ng’ongo, EGH
helping them to expand and diversify markets Cabinet Secretary
and promote specialization. Most important is The National Treasury and Economic
Planning

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FOREWORD

T
he Kenya Economic Report 2024 provides evidence-based policy recommendations
to support initiatives in enhancing economic productivity for achieving sustained and
inclusive growth at the national and county levels. The preparation of this Report enables
the Institute to fulfil the statutory requirement under the KIPPRA Act Cap 112A Laws
of Kenya, Section 23(3), which requires the Institute to develop the Kenya Economic Report in
consultation with the Ministry responsible for Economic Planning, Finance, National Development,
and the Central Bank of Kenya.

The KIPPRA Board of Directors provided oversight and strategic leadership in the preparation of
the Report. I thank the management and staff, especially the KER Committee for their devotion,
diligence, and professionalism that went into the preparation of this Report. I recognize and
appreciate the contributions and insights from the stakeholders through the various consultative
forums during the development of the Report.

I also thank the Government of Kenya for the continued financial support to KIPPRA. The support
has enabled the Institute to undertake objective policy research and analysis that facilitates
the Institute’s role in providing advisory and technical services on public policy issues to the
Government, the private sector, and other stakeholders.

Prof. Benson Akong’o Ateng’, MBS

Chairperson
KIPPRA Board of Directors

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PREFACE

T
he KIPPRA Act No. 15 of 2006 mandates the Institute to undertake public policy research,
analysis, and economic forecasting to inform the formulation of medium and long-term
development plans and goals in Kenya. To achieve this mandate, the Institute reviews the
macroeconomic and sectoral performance through the preparation of the annual Kenya
Economic Report (KER). The Kenya Economic Report 2024 is the 16th edition in the series of this
flagship report.

The KER is prepared through a participatory and inclusive process as spelt out in the KIPPRA Act
No. 15 of 2006, Section 23 (3). This legislation requires the Institute to collaborate with the Ministry
responsible for Economic Planning, Finance, and the Central Bank of Kenya in developing the
report. The Institute conducted consultations and organized a validation workshop to ensure the
accuracy and relevance of the report’s content. In addition, the technical team responsible for
preparing the report engaged in discussions with KIPPRA staff, management, and the Board to
enhance the quality and comprehensiveness of the report.

This Report comes at a time when policy makers are seeking evidence for informed policy decisions
on accelerating economic activity to achieve the development agenda. With the launch of the MTP
IV, the policy discussions in the KER come in handy to offer options on possible policy directions to
attain and sustain an inclusive growth trajectory. Improvement of livelihoods requires the creation
of decent jobs. As such, a focus on productivity holds a significant role in enabling the country to
maximize output with the available resources.

The Report covers key sectors including manufacturing, agriculture, and informal sectors. In
addition, it captures the key enablers to enhancing productivity, which include vibrant trade that
facilitates distribution; skills development linked to development priorities; exploring strategic
diplomatic partnerships to enhance technology transfer; productivity of public service; and the role
of digitalization in bolstering productivity in the informal economy.

The Kenya Economic Report 2024, therefore, offers key policy recommendations for the country
to consider in enhancing productivity for sustained inclusive growth. Exploiting the opportunities
brought out in the policy recommendations is pivotal in promoting productivity at national and
county levels. This serves to contribute to the improvement of productivity towards the achievement
of the country’s medium-term development plans at national and county levels.

Dr Rose W. Ngugi, OGW

Executive Director
KIPPRA

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ACKNOWLEDGMENTS

T
he Kenya Economic Report 2024 was prepared through the participation of various
stakeholders. We acknowledge and appreciate the KIPPRA Board Chairperson, Prof.
Benson Ateng’; the Board of Directors; and the Executive Director, Dr Rose Ngugi, for
their leadership and guidance during the preparation of this statutory Report.

The Institute acknowledges the exceptional dedication and teamwork of the Kenya Economic
Report 2024 Technical Committee under the leadership of Kenneth Malot (Chairperson) and Dire
Dika (Secretary). The other members of the Technical Committee and authors of the report were
Daniel Omanyo, Joshua Laichena, Paul Odhiambo, Cecilia Naeku, Melap Sitati, Violet Nyabaro,
Jacob Nato, and Jecinta Ali. The Institute is also grateful to other KIPPRA researchers who
generously provided their support and insights during the peer review processes, and quality
control processes and workshops.

Further, the Institute sincerely appreciates the support of the Kenya National Bureau of Statistics,
County Governments, Ministries, State Departments, and Government Agencies that availed
data and information used in this Report. The Institute particularly appreciates the insights of the
National Treasury and Economic Planning, the Central Bank of Kenya, and the Kenya National
Bureau of Statistics for reviewing the Report. The Institute acknowledges the contribution and
participation of all other stakeholders who participated in the validation of this Report.

The financial support to KIPPRA by the Government of Kenya facilitated the preparation of this
Report.

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ABBREVIATIONS AND ACRONYMS

AFA Agriculture and Food Authority COVID-19 Coronavirus Disease 2019

AfCFTA African Continental Free Trade CPI Consumer Price Index
Area CPIA Country Policy and Institutional
AGOA African Growth and Opportunity Assessment
Act DPP Director of Public Prosecutions
AGPO Access to Government DSF Debt Sustainability Framework
Procurement Opportunities EAC East African Community
ASALs Arid and Semi-Arid Lands EACC Ethics and Anti-Corruption
ASTGS Agricultural Sector Transformation Commission
and Growth Strategy ECF Extended Credit Facility
BETA Bottom-up Economic ECOWAS Economic Commission for West
Transformation Agenda African States
BPS Budget Policy Statement EFF Extended Fund Facility
BRICS Brazil, Russia, India, China, South EPZ Export Processing Zones
Africa ERS Economic Recovery Strategy
BROP Budget Review Outlook Paper FAO Food and Agriculture Organization
CA Communications Authority FDSE Free Day Secondary Education
CAD Current Account Deficit FPE Free Primary Education
CAIP County Aggregation and Industrial FSD Financial Sector Deepening
Park GCP Gross County Product
CAK Competition Authority of Kenya GDP Gross Domestic Product
CBC Competence-Based Curriculum GFCF Gross Fixed Capital Formation
CBEM County Business Environment for GOK Government of Kenya
MSMEs GPI Gender Parity Index
CBET Competence-Based Education and GVA Gross Value Added
Training GVC Global Value Chain
CBK Central Bank of Kenya G2B Government-to-Business
CBR Central Bank Rate G2C Government-to-Citizen
CES Constant Elasticity of Substitution G2G Government-to-Government
CIDP County Integrated Development HELB Higher Education Loans Board
Plan ICT Information and Communication
CGE Computable General Equilibrium Technology
COMESA Common Market for East and IFPRI International Food Policy Research
Southern Africa Institute
COP Conference of Parties ILO International Labour Organization
COTU Central Organization of Trade IMF International Monetary Fund
Unions

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IPOA Independent Policing Oversight KTMM KIPPRA-Treasury Macro Model

Authority MDAs Ministries, Departments and
IPRs Intellectual Property Rights Agencies
ISCED International Standard MSMEs Micro, Small and Medium
Classification of Education Enterprises
ITC International Trade Centre MT Metric Tonne
JRC Joint Research Centre of the MTP Medium Term Plan
European Commission MTRS Medium Term Revenue Strategy
JSC Judicial Service Commission MVA Manufacturing Value Added
KALRO Kenya Agricultural and Livestock NEMA National Environment
Research Organization Management Authority
KAM Kenya Association of NGOs Non-Governmental Organizations
Manufacturers NPLs Non-Performing Loans
KCHS Kenya Continuous Household NPCC National Productivity and
Survey Competitiveness Centre
KEBS Kenya Bureau of Standards NTMs Non-Tarif Measures
KEMRI Kenya Medical Research Institute OCOB Office of the Controller of Budget
KEPHIS Kenya Plant Health Inspectorate OECD Organization for Economic
Service Cooperation and Development
KEPSA Kenya Private Sector Alliance OLS Ordinary Least Squares
KER Kenya Economic Report OPEC Organization of Petroleum
KeSCO Kenya Standard Classification of Exporting Countries
Occupations OSR Own Source Revenue
KICD Kenya Institute of Curriculum PAI Public Affairs Index
Development PCI Productive Capacities Index
KIHBS Kenya Integrated Household PPF Production Possibility Frontier
Budget Survey PPG Public and Publicly Guaranteed
KIPI Kenya Industrial Property Institute PPI Producer Price Index
KIPPRA Kenya Institute for Public Policy PPPs Public-Private Partnerships
Research and Analysis QEBR Quarterly Economic Budget
KNBS Kenya National Bureau of Review
Statistics RECs Regional Economic Communities
KNQA Kenya National Qualifications RIAPA Rural Investment and Policy
Authority Analysis
KRA Kenya Revenue Authority RoA Rest of Africa
Ksh Kenya Shillings RPL Recognition of Prior Learning
KSG Kenya School of Government RTCP Retail Trade Code of Practice
LAPSSET Lamu Port-South Sudan-Ethiopia R4D Research for Development
Transport SCT Single Customs Territory
LMICs Lower Middle-Income Countries SDG Sustainable Development Goal
LP Labour Productivity SEZ Special Economic Zone

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 ABBREVIATIONS AND ACRONYMS

SGR Standard Gauge Railway UNCTAD United Nations Conference on

SNE Special Needs Education Trade and Development
SRC Salaries and Remuneration UNEP United Nations Environment
Commission Programme
SSA Sub-Saharan Africa UNIDO United Nations Industrial
STEM Science, Technology, Engineering Development Organization
and Mathematics US United States
TFP Total Factor Productivity US$ United States Dollar
TIFA Trends and Insights for Africa VA Value Added
TVET Technical and Vocational VAT Value Added Tax
Education and Training VAR Vector Auto Regression
TTI Technical Training Institute WEF Women Enterprise Fund
UAE United Arab Emirates WEO World Economic Outlook
UK United Kingdom WHO World Health Organization
WTO World Trade Organization

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EXECUTIVE SUMMARY

Trends & developments in macroeconomic The government continued its commitment to

performance the fiscal consolidation path, where the overall

T
fiscal deficit narrowed from 5.6 per cent of GDP
he economy recorded stronger in 2022/23 to an estimated 4.9 per cent of GDP
growth in 2023. The GDP growth rate in 2023/24. This was achieved through prudent
increased from 4.9 in 2022 to 5.6 expenditure management and enhanced
per cent in 2023. Across the sectors, revenue mobilization efforts. Spending on
activities in agriculture rebounded strongly education, housing and settlement, healthcare,
after four failed seasons. The agriculture sector and general economic affairs are strong drivers
expanded by 6.5 per cent in the period on the of productivity growth. Externally, the current
backdrop of favourable weather conditions and account balance narrowed in 2023, supported
reduced farm input costs following the timely by a resilient secondary income account
implementation of the government fertilizer (dominated by remittances) and improvement
and seed subsidy programme. The average in merchandise trade balance triggered by 15.4
growth rate for the services sector was 7.0 per per cent growth in exports.
cent, supported by the resilient performance of
accommodation and food services, which grew The Bottom-Up Economic Transformation
by 33.6 per cent. Industrial activities moderated Agenda (BETA) aims to foster accelerated
during the year, with manufacturing growth rate and sustained growth, enhance investment
declining from 2.6 per cent in 2022 to 2.0 per in climate-smart agriculture to increase
cent in 2023. This reflects the negative impact productivity, improve food security, and
of surging production costs as input prices and sustain low food inflation. Further, it seeks to
borrowing costs rose owing to a weakening scale government investment in healthcare,
shilling and slow growth in the global economy. housing and settlement, and education, which
will strengthen workers’ resilience, enhancing
Pressure on domestic prices continued in 2023 productivity and growth. Timely monetary
as inflation rates crossed the government’s response to domestic price development remains
upper target band of 7.5 per cent. In the past, a priority in anchoring inflation expectations.
inflation rates crossed the target band during In addition, a front-loaded fiscal policy stance
drought conditions, adversely affecting the will sustain the fiscal consolidation momentum
availability and cost of food. In 2023, the inflation and mitigate public debt vulnerabilities. Further,
rate averaged 7.7 per cent compared to 7.6 per diversification of exports and addressing export
cent in 2022. This was due to a surge in fuel market supply-side bottlenecks is vital in
prices, driven by external oil market dynamics improving merchandise trade and the current
and, domestically, the implementation of the account position.
16 per cent VAT on petroleum. The Monetary
Policy Committee raised the Central Bank Rate Medium-term macroeconomic outlook
(CBR) by 3.75 percentage points in 2023 to
anchor inflation expectations. Further, in August The economic growth forecast projects growth
2023, the Central Bank of Kenya introduced an at 5.7 per cent in 2024, averaging 6.0 per cent in
interest rate corridor spanning ±2.5 per cent the medium-term, assuming normal conditions
around the CBR as a measure to reduce market prevail. Exploiting emerging opportunities such
volatility and uncertainty while improving the as favourable weather and growing economic
transmission of CBR to other interest rates. partnerships is likely to accelerate growth to

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6.1 per cent in 2024 and an average of 6.6 of micro and small manufacturers to upgrade
per cent in the medium-term. However, should their technology and hire skilled workers,
the downside risks materialize, including poor resulting in low labour productivity. Access to
rainfall patterns and debt vulnerabilities, growth and affordability of electricity is also a critical
could be depressed to 5.3 per cent in 2024 and factor that affects labour productivity.
5.6 per cent in the medium-term. Inflation will
remain within the government target range. To enhance labour productivity, there is a need
Gradually improving total factor productivity to equip the existing Constituency Industrial
and individual factor productivity, especially Development Centres (CIDCs) and the County
labour, capital, and intermediate inputs in the Aggregation Industrial Parks (CAIPs) with
agrifood, manufacturing, services sectors, and incubation facilities to promote an innovation
home production and consumption would result culture among MSMEs. The government could
in boosting the overall gross value added and provide incentives to MSMEs participating in the
sectorial value added through backward and Industrial Innovation Programme, whose focus
forward linkages. is to commercialize viable innovations among
MSMEs. Skills development could include
It will therefore be important to remain vigilant on upskilling the 1st and 2nd level skills and creating
the economic risks to enable timely and adequate awareness among MSMEs on the benefits
policy action. To enhance factor productivity, of the Industrial Training Levy Fund, which
there is a need to invest in appropriate and can help to upskill training, apprenticeship,
enhanced technology in production processes. and industrial attachment of those working in
Further, there is a need to enhance the quality MSMEs. Further, there is a need to develop
of education and training to upscale the skills 3rd and 4th level skills by providing scholarships
of workers. Continued government support and bursaries to educational programmes
in reducing the cost of production through necessary to drive the design of innovative
subsidized inputs will support agro-processing technologies. To improve access to affordable
and domestic manufacturing. financial capital by MSMEs, it is important to
spearhead the establishment of the Industrial
Labour productivity in manufacturing Development Fund as envisioned in the
Industrialization Policy. There is also a need to
The manufacturing sector through its overall promote the use of off-grid productive use of
linkages with other sectors of the economy energy in micro firms by providing incentives to
plays a significant role in its contribution to firms that use off-grid energy in the production
GDP. However, the contribution of the sector processes.
has remained below the targeted 15 per cent of
GDP. The contribution of food manufacturing to Enhancing productivity through trade
manufacturing value added increased from 15.0
per cent during the Economic Recovery Strategy Trade acts as a catalyst for sustained economic
(ERS) to 28.4 per cent in the third medium- development. It drives productivity growth by
term plan (MTP III). Non-food manufacturing promoting specialization and expanding market
declined during the same period. Low labour access by domestic producers. However, the
productivity in the sector is because the low contribution of domestic trade to the overall
technology industries use outdated machinery productivity of the country is constrained by the
and processes. Also, firms rely on 1st and 2nd high informality, proliferation of counterfeits,
level skills, where most employees have basic limited product diversification with over-reliance
skills, which limits workers to perform basic on the primary sector (agriculture), unconducive
operation of machinery, thus constraining business environment, which has led to the
labour productivity. There is low investment in closure of several supermarket branches in
research for development and innovation due the country, and gaps in market infrastructure.
to low financial capital, which limits the ability On the international front, trade facilitation

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measures such as the Single Customs spending on agriculture has been below the
Territory (SCT) have played a significant Malabo commitment of 10 per cent. Though
role in reducing import and export costs and the use of intermediate inputs such as fertilizer,
time. Trade agreements such as the African seeds, and pesticides has been increasing, this
Continental Free Trade Area (AfCFTA) and the has not translated into increased production or
African Growth and Opportunity Act (AGOA) productivity in the sector, especially for priority
have played a crucial role in enhancing the crops such as rice, cotton, and oil crops.
country’s exports, with even greater benefits Timely delivery and distribution of inputs such
realized with the elimination of tariffs and Non- as fertilizer has been an issue, with reported
Tariff Measures (NTMs). Exports are reliant on delays in procurement and distribution of inputs
agricultural commodities, making export trade occasioning late use of these inputs and,
susceptible to fluctuations in global prices. therefore, affecting output and productivity.
Limited value addition for the outputs and
To boost domestic trade and enhance overall market access by the farmers, and inadequate
productivity growth, critical measures include post-harvest management have resulted in
fast-tracking market infrastructure development losses and wastage for various crops, with
by prioritizing tier-one markets, establishing an estimated loss of about 20 per cent to 30
warehouses and cold storage facilities, and per cent of harvested crops. Other challenges
developing and improving rural road transport include gaps in skills for most farmers to use
networks for small-scale farmers market access. inputs and adapt to new technologies that may
There is a need to empower MSMEs to expand increase productivity. Various policies such
export trade through certification, Industrial as the Kenya Vision 2030, Agricultural Sector
Property Rights (IPRs), entrepreneurship Transformation and Growth Strategy (ASTGS)
training, and value addition. For international of 2019-2029, the BETA, and the MTP IV have
trade, more emphasis should be on trade been developed to address the gaps. However,
facilitation measures, including reducing border the implementation of these policies will need to
documentation requirements, expediting cargo address gaps and coordination challenges that
release times, and strengthening regional have curtailed the achievement of the expected
agreements such as the AfCFTA and AGOA. In outcomes.
addition, there is a need to diversify exports into
high-technology sectors, identifying emerging To transform the agriculture sector and ensure
markets with growth potential and establishing increased productivity, timely procurement
trade relationships. and distribution of seeds and fertilizer and
monitoring access and use by farmers is key to
Enhancing agricultural productivity through ensuring productivity. Furthermore, allocating
a transformative agenda adequate spending on agriculture from the
national budget and encouraging counties to
Agricultural productivity plays a crucial role allocate resources for the sector will be key
in the country’s economy and is a critical to achieving the Malabo commitment for the
measure that impacts food security, economic agriculture sector. Implementation of agro-
growth, and environmental sustainability. processing and value chain projects envisioned
In the last two decades, the sector growth in MTP IV, such as the establishment of storage
and its contribution to GDP averaged 2.3 and cooling plants, will be crucial in providing
per cent and 22.4 per cent, respectively. The the required infrastructure to reduce wastage
production of food and cash crops and their and increase productivity. Livestock and crop
yields has been declining over time, driven by insurance schemes are key in protecting
low investment in the sector and the effects farmers from the vagaries of weather. Further,
of climate change. Labour productivity, crop investment in human capital by ensuring the
yields, and efficiency of input use have been revision of the curriculum to make agriculture
declining over time. Furthermore, government a compulsory subject in secondary schools will

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be key in ensuring skills development from an and digital superhighway and creative economy
early age. Moreover, facilitating training and by mobilizing funding to provide targeted
monitoring the supply and the requirement scholarships, loans, and bursaries to students to
of various professionals in the agriculture pursue priority programmes, including through
sector, such as extension officers, plant and establishment of a National Skills and Funding
crop breeders, and other scientists will ensure Council for resource mobilization towards skills
adequate well-trained labour for the sector. This development; retooling workers in the priority
will help farmers access extension services and sectors and strengthening training centres
adopt modern technology and innovations to of excellence by allocating adequate funding
increase productivity. for infrastructure and equipment; providing
outreach programmes to enhance enrolment and
Developing skills for a productive and retention at all levels of education and training;
dynamic labour market reviewing the free primary education policy to
include universal pre-primary education and
Kenya has made significant investments in skills removal of indirect costs on uniforms, transport
development through education and training, and textbooks; implementing the Recognition of
apprenticeship and internship programmes, Prior Learning (RPL) policy through increased
and workplace training approaches. Despite public awareness and implementing tax rebates
these investments, skills development through for training expenditures to incentivize skills
education and training show disparities in development; and finally, providing adequate
access to education especially in arid and semi- financial resources to support the competency-
arid lands, inadequate education outcomes, based curriculum and competency-based
and low transition rates from basic education education and training curriculum. In addition,
to tertiary education level. The apprenticeship there is a need to improve data management and
programmes offered in the informal employment enhance industry and academia partnerships
sector suffer from structural limitations and to bridge skills gaps.
inadequate standards, resulting in variations in
training. The workplace training approach faces Labour productivity at the county level
financial constraints borne by organizations
in providing staff training. Further, the current County labour productivity is important for the
approach to skills development does not country to achieve sustainable and inclusive
adequately align with the national priorities economic growth. Economic activities take
outlined in BETA, leading to skills shortages in place at the county level and, therefore,
vital sectors such as health, manufacturing, and interventions to enhance labour productivity
ICT. There is low enrolment in courses related at this level would increase productivity at the
to the BETA pillars, which could hinder the national level. Although arid counties have
achievement of development goals. Therefore, the smallest size of economic output (as
there is a need for a more targeted and aligned measured by Gross Value Added-GVA), they
approach to skills development. Additionally, have latent natural resources such as land,
a significant disparity exists between wildlife, and renewable energy resources that
qualifications attained and job requirements, hold the potential for sustainable economic
highlighting the need for improved alignment growth. However, climate change, insecurity,
between education outcomes and industry and inadequate infrastructure constrain the
needs. growth and optimal utilization of their potential.
In addition, arid counties have a comparative
Skills development could be aligned with the advantage in livestock production, which is
evolving needs of the labour market, through the yet to be fully utilized. The services sector
following: first, focus attention on the national dominates the share of county GVA for all
priority areas, namely agriculture; micro, small, county categories, but a significant proportion
and medium enterprises (MSMEs); healthcare; is non-market services that dominate in arid

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counties with lower output from the private the acquisition of technology to enhance
sector. As such, with low quality and quantity of productivity and boost the country’s strategies
labour coupled with low labour utilization, arid for realizing the development goals. Technology
counties have the lowest labour productivity. transfer is critical for the establishment of an
effective healthcare ecosystem and vaccine
Therefore, it is important to optimize the production, revitalizing the textile industry,
livestock production potential in arid counties expansion of infrastructure, and ensuring that
and grow the county economies by building Kenya’s Diaspora contributes to innovation
climate resilience in the arid counties and cooperation.
integrating livestock production into the leather
value chain. To reduce the dominance of non- To unlock technology transfer and innovation
market services in arid GVA, there is a need to cooperation, it is important to strengthen
create an enabling environment for the private strategic partnerships with emerging and
sector to exploit the latent natural resources advanced economies for the acquisition of
and expand market-oriented activities available technologies, boosting research
across counties to facilitate growth in labour for development, and harnessing frontier
productivity. Further, there is a need to prioritize technologies for enhancing productivity and
investments in human capital development to inclusive growth. Improvement of policy and
enhance the quality of labour in all counties. In institutional environment is also imperative for
addition, full integration of livestock production the use, adoption, and adaptation of frontier
into the leather value chain is required. technologies for the country to optimize
opportunities in technological invention
Leveraging strategic partnership to unlock and advancement. Investment in local
technology transfer technological absorptive capabilities is crucial
for the establishment of a reliable and adequate
Technology is central to human life as it healthcare system and vaccine production,
contributes to socio-economic transformation, a sustainable textile industry, infrastructure
increased productivity, and overall development development, and maximizing technology
of societies and countries. Similarly, technology transfer, knowledge, and skills development
has an enormous influence on international accruing from Kenyan students and experts in
affairs and political and economic dimensions the diaspora.
as it plays a considerable role in the distribution
of wealth and power. Since technology is among Enhancing productivity in the public service
a few states and multinational corporations,
it can be used as a strategic instrument to The implementation of a devolved system
advance the interests of a State. Technology of government in 2013 brought significant
transfer and innovation are fundamental changes to the public service, necessitating
drivers of economic growth, industrialization, adjustments in employment practices as
and development. However, unequal access responsibilities were decentralized to the county
to technology is one of the major bottlenecks level. However, the process was hampered
to achieving sustainable and inclusive by freezes on public service recruitment,
development. Kenya’s economic diplomacy leading to challenges in labour management.
aims at the enhancement of technological The differences among counties highlight the
advancement by exploring new sources of critical role of strategic policies, infrastructure
affordable and appropriate technology. The development, investment in human capital, and
emergence of major economic powers in the governance reforms in driving productivity and
past two decades, revitalization of South- economic growth. While national productivity
South and Triangular Cooperation, and rebirth has increased, disparities across counties
of diplomatic engagement through strategic persist, emphasizing the need for targeted
partnerships are potential opportunities for interventions in technology access, personnel

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quality, infrastructure, and governance. businesses will help to improve productivity

Improving public service delivery requires because high labour productivity is linked to
a comprehensive approach that includes a high digitalization level in a business. The
capacity building, performance management majority of the informal sector establishments
contracting, technology integration, and have a low level of digitalization attributed to
the establishment of oversight bodies. factors such as low digital skills, low digital
The challenges in budgetary and financial literacy levels, and high cost of digital tools.
management, such as revenue shortfalls and Furthermore, enabling factors such as
low allocations to wages, operational and infrastructure development are still low, with
maintenance costs, capital expenditure, and Internet coverage averaging 3.94 per cent
mounting pending bills influence the quality of and electricity connection at 32.48 per cent
public service. Public satisfaction depends on across counties. There is also a gender divide,
creating a favourable business environment, with labour productivity in female-owned
promoting national values, and ensuring good businesses being lower compared to their
governance practices. male counterparts. This is linked to lower levels
of education, balancing multiple roles, and
A coordinated and strategic approach to financial constraints by women in the informal
capacity building and human resource sector making them unable to obtain physical
management is essential across all government assets such as digital tools. The age of firms in
levels. This involves developing standardized the informal sector influences the willingness,
training programmes, streamlining recruitment readiness, and capacity of businesses to adapt
processes, offering competitive salaries, and to digital technologies. Consequently, medium-
implementing performance management aged firms are more inclined to enhance
systems. Targeted interventions focusing their productivity by embracing the use of
on technology access, personnel quality, technologies, while older firms tend not to adapt
infrastructure development, and governance easily as they have established traditional ways
practices should be prioritized to enhance of operating their businesses.
productivity. Additionally, a comprehensive
approach to public service delivery should In enhancing the digitalization of the informal
include the expansion of training programmes, sector, expanding investment in digital skills
leveraging technology for digitization and and digital literacy development programmes
automation, and promoting citizen engagement. is necessary for the population in rural
Strengthening budgetary and financial and underserved areas. Furthermore, the
management practices is crucial, including government could enhance the affordability,
improving revenue collection strategies, accessibility, and competitiveness of
enhancing budget execution, and addressing digital infrastructure by fast-tracking the
pending bills. Creating an enabling environment implementation of programmes on Internet
for businesses, promoting national values, and connectivity, broadband fibre, and electricity
upholding good governance practices are also connectivity in different parts of the country.
crucial in improving public satisfaction and This includes ensuring County Aggregation
enhancing productivity. Industrial Parks are adequately equipped and
expanding the universal service fund to cover
Leveraging on digitalization to increase the needs of the informal sector. Finally, it is
productivity in the informal economy important to accelerate the production of locally
produced or assembled digital tools such as
The informal economy contributes over 80 mobile phones to increase affordability for such
per cent of the total employment but is faced tools. The government could subsidize costs
with low labour productivity. Integrating digital and provide incentives for digital investments
technologies into the operations of informal in the country.

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ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

xxiv
 CHAPTER

1
INTRODUCTION

INTRODUCTION

1.1 Background agriculture sector contracted by 1.6 per cent in

T
2022, mainly due to the prolonged drought and
he Kenya Economic Report (KER) increased fertilizer costs resulting from supply
2024 is prepared in compliance with chain shocks partly due to the Russia-Ukraine
the provisions of Section 23 (3) of war. The industry sector grew by 3.9 per cent
the KIPPRA Act Cap 112A Laws of after a strong rebound in 2021, while growth in
Kenya. This report provides a comprehensive the services sector stabilized at 7.0 per cent in
analysis of Kenya’s economic performance 2022 after a 10.1 per cent rebound in 2021.
in the previous financial year and economic
prospects for the next three years. In line with its The recognition of productivity and productivity
objective, the KER 2024 focuses on the theme growth in Kenya as a critical driver for sustained
‘Enhancing Productivity for Sustained Inclusive economic growth and transformation was
Growth’. The overarching goal is to present through Sessional Paper No. 3 of 2013 on
evidence-based public policy options that can National Productivity Policy. The policy aimed
foster sustainable and inclusive economic at providing a paradigm shift in productivity
growth in Kenya by boosting productivity management in the country. The key objective of
across various sectors of the economy and the policy was to achieve an annual productivity
counties. This theme is particularly important growth of 4.5 per cent for the public sector, and
as Kenya strives to maintain its economic 5.5 per cent for the private sector. Before this
momentum while implementing the national policy, the country had been implementing
development commitments stipulated in the various strategies. The strategies included the
Bottom-up Economic Transformation Agenda Economic Recovery Strategy for Wealth and
(BETA) Plan. Kenya is confronted with various Employment Creation (2003-2007); and later,
factors that could impact its growth trajectory, the 2007 national blueprint for guiding national
including global economic uncertainties, growth and transformation (Kenya Vision 2030),
climate change pressures, and technological which focused on science, technology, and
advancements. Through this Report, the innovation to drive productivity improvement for
Institute aims to contribute valuable insights Kenya towards a middle-income country with
and recommendations to support informed a high growth rate of 10 per cent by the year
decision-making and policy formulation, 2012 and sustain the growth rate up to 2030.
ultimately contributing towards supporting the The policy acknowledged that higher levels
country in sustaining its economic growth, and of productivity can be associated with higher
economic productivity and in building a resilient economic growth, increased incomes, better
and prosperous future. working conditions, and high quality of life.

The country has recorded a recovery in Since 2022, the government has been
economic performance since 2020 when the implementing the Bottom-Up Economic
economy contracted by 0.3 per cent. However, Transformation Agenda (BETA) (2022-2027)
the recovery momentum was disrupted by and MTP IV (2023/24-2027/28), aimed at
weaker global growth attributed to the Russia- attaining economic growth for the country by
Ukraine war, tightened international financial focusing on the key sectors of agriculture,
markets, and the prolonged drought resulting micro, small and medium enterprises (MSMEs),
in low growth in the agriculture sector. The digital economy, creative economy, health,

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 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

infrastructure, manufacturing, and social therefore, the achievement of more inclusive

protection. To attain the development goals, growth. The focus of KER 2024 on enhancing
productivity improvement has an important role productivity is critical towards not only producing
in improving economic growth and enhancing more with fewer resources but also achieving
the country’s competitiveness and standards growth that is inclusive and sustainable.
of living. This means that measurement of
productivity is critical in understanding how it can The majority of the population entering the
be leveraged to improve the country’s economy. labour force is absorbed in agriculture or service
This Report provides a comprehensive analysis sector jobs, which are low-productivity sectors
of productivity to identify specific strategies for (Kenya Integrated Household Budget Survey,
leveraging productivity to achieve sustainable KIHBS, 2015/16). Available evidence shows
growth, prosperity, and the overarching goals that industry is the most productive sector in
of sustained inclusive growth, eliminating Kenya, meaning that the sector has the highest
inequalities, and promoting social inclusion. average value of output per worker compared
to agriculture and services. For instance, based
Inclusive growth represents growth that is on data from the World Bank indicators and for
fairly distributed across the society and that purposes of international comparison, between
which creates equal opportunities for all1. It is 2015 and 2019, the average real value added
growth that enables more people to contribute per worker in the industry was US$ 9,140
to it and benefit from it (Arezki, Pattillo, (Ksh 1,371,090) compared to US$ 4,050
Quintyn and Zhu, 2012). This means that the (Ksh 607,545) and US$ 1,720 (Ksh 258,015)
process of generating growth and sharing it recorded in services and agriculture sectors,
includes various segments of the population. respectively. Dieppe (2021) notes that lower
Furthermore, inclusive growth raises the productivity limits the ability of economies to
living standards of a wide cross-section of the generate growth of real incomes in the long-
population. There is, therefore, a very close term. This means that while agriculture and
relationship between productivity growth and services absorb most job market entrants in
inclusive growth. By boosting the productivity Kenya, their real income is likely to be lower
of factor inputs, more output is generated with compared to industry workers, who account for
existing factor inputs, which in turn shifts the only a small share of jobs. Figure 1.1 presents
production possibility frontier outwards. Thus, the trends in sector value added in Kenya for
more goods and services are made available, agriculture, industry, and services for the period
resulting in growth in GDP. Ensuring that the 2017-2023. Productivity measurement will be
output is equitably produced and distributed undertaken in the Report and actual productivity
to the population, improves welfare for all and, data for each sector estimated.
1
OECD, Inclusive Growth.

2
 INTRODUCTION

Figure 1.1: Trends in sector value added, 2018-2023

16,000 23
Current prices, Ksh (billions)

Value added (% of GDP)

14,000 23
12,000 22
10,000 22
8,000 21
6,000 21
4,000 20
2,000 20
0 19
2017 2018 2019 2020 2021 2022 2023

Agriculture Industry Services Agriculture share

Data Source: KNBS (2023; 2022), Economic Survey

In addition to the key economic sectors materials. These value chains are critical to
analyzed in Figure 1.1, the report identifies the enhancing productivity growth, as they have
nine (9) key value chains that the government is the potential to drive economic growth, create
focussing on to develop, which include: leather jobs, and improve livelihoods for Kenyans.
and leather products, textile and apparel, dairy, Figures 1.2 and 1.3 present an analysis of the
tea, rice, edible oils, the blue economy, minerals performance of these key value chains in the
including forestry, and construction/building economy.

Figure 1.2: Trends in performance for leather, textile, apparel, and dairy products in Kenya
(%)

Leather and related products growth Textiles growth

Wearing apparel growth Dairy products growth
25
20
15
10
5
0
2019 2020 2021 2022 2023*
-5
-10
-15
-20

Data source: KNBS (2024), Economic Survey

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 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Leather and related products, textiles, wearing Figure 1.3. Enhancing productivity in these key
apparel, and dairy registered a contraction in value chains is essential for sustained inclusive
2020 largely due to the COVID-19 pandemic, growth, as it can lead to increased economic
which disrupted various economic activities, efficiency, improved resource allocation, and
and had improved performance following the higher economic returns. By focusing on these
resumption of economic activities. The products value chains, the government can develop
recorded improved growth in 2023 following the targeted policies and interventions to enhance
greater focus by the government to develop their performance and competitiveness, thereby
their respective value chains. The performance driving economic growth and development.
of the other five (5) value chains is presented in

Figure 1.3: Trends in performance for other key value chains under the BETA

3000

2500

2000

1500

1000

500

0
Tea marketed Production of rice Forestry & logging Mining & quarrying Landed fish values
production 000' paddy 000' tonnes GDP Ksh Billion GDP Ksh Billion Ksh Billion
tonnes current prices current prices

2019 2020 2021 2022 2023*

Data source: KNBS (2024), Economic Survey

Against this background, it is evident that there production systems. The following are the key
is still a wider scope for economic transformation chapters of the report:
to occur, driven by productivity growth. The
KER 2024, therefore, assesses sectoral 1. Trends in Macroeconomic Performance;
contexts, policies, and institutional frameworks 2. Kenya’s Medium-Term Macroeconomic
that influence productivity and explore options Prospects;
for enhancing sustainable growth in Kenya. 3. Increasing Labour Productivity in
The objectives of the report were addressed Manufacturing;
by focusing on the key drivers of productivity,
4. Enhancing Productivity through Trade;
including macroeconomic stability, trade, skills
development, public sector, and strategic 5. Investing in Skills for a Productive and
partnerships. The report focuses on the key Dynamic Workforce;
productive sectors, including agriculture, the 6. Transforming agriculture for Enhanced
informal sector, and industry. Further, the report Productivity;
covers county-level productivity, given that 7. Leveraging Strategic Partnerships in
the counties play a critical role in supporting Unlocking Technology Transfer;

4
 INTRODUCTION

8. Assessing Productivity at the County 1.2 Definition of Key Concepts and

Level; Rationale of the Theme
9. Enhancing Productivity in the Public
Service; and The key concepts used in this Report are
outlined in Box 1.1. The box describes
10. Leveraging on Digitization to Increase
productivity, total factor productivity, labour
Productivity in the Informal Economy.
productivity and capital productivity.

Box 1.1: Key concepts used in the report

Productivity: Productivity refers to the measure of output per unit of input within a given
timeframe. It assesses the efficiency with which resources (such as labour, capital, and
technology) are utilized to produce goods and services. Productivity plays a significant
role in determining a country’s economic performance and competitiveness (OECD, 2018;
Jorgenson, 2008).

Total factor productivity (TFP): TFP measures the overall efficiency with which all factors of
production (including labour, capital, and technology) are used to generate output. It reflects
technological progress, innovation, and the ability to make more efficient use of available
resources. Enhancing TFP is crucial for sustaining economic growth and achieving higher
productivity levels (Amjad and Awais, 2016; Chen et al., 2010).

Labour productivity: Labour productivity specifically focuses on the output generated per
hour of work or per worker. It is an essential component of overall productivity and is influenced
by factors such as skills, education, training, and the quality of labour inputs. Improving
labour productivity often involves enhancing human capital development, promoting skills
acquisition, and fostering innovation.

Capital productivity: Capital productivity examines the efficiency with which capital inputs,
such as machinery, equipment, and infrastructure, are used to generate output. It involves
maximizing the output derived from a given amount of capital investment. The strategies to
improve capital productivity can include technological upgrades, effective asset management,
and infrastructure development.

Economic Growth (Mankiw and Romer, 1992): Economic growth refers to an increase in
a country’s real gross domestic product (GDP) over time. It represents the expansion of an
economy’s production capacity and is typically measured by the rate of change in GDP.

1.3 Rationale for the Theme Plan (MTP IV). The broad aim of the agenda is
to enhance inclusive growth and improve the
The theme of the KER 2024 focuses on general welfare of Kenyans for the sustainable
sustaining economic growth through enhanced development of the country. This can be
productivity. It is relevant, especially in achieved through the provision of employment
the context of the government’s priority of opportunities as a means of poverty reduction,
improving the lives and livelihoods of Kenyans affordable housing, improving agricultural
in various sectors of the economy as enshrined production, boosting micro, small and medium
in the Bottom-Up Economic Transformation enterprises (MSMEs), and enhancing the
Agenda (BETA) and the Fourth Medium-Term digital economy. This will require adequate

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 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

resources to deliver on the BETA. Improvement heart of more inclusive and sustained growth.
of productivity will be a critical enabler towards
the achievement of the MTP IV. Productivity improvement plays a pivotal role
in driving economic development, reducing
Economies globally have focussed on poverty, and creating opportunities for all
expanding their economies by attaining segments of society. By increasing productivity
economic growth and making use of the limited levels across various sectors, a country can
resources available. In line with the definition unlock its full potential and propel the economy
of productivity, as outlined above, productivity towards a path of sustained and inclusive
holds an important role in enabling countries to growth. However, for deeper analysis and
produce more output in the context of available based on the understanding of critical sectors
inputs, thereby achieving higher economic where productivity can be upscaled, the KER
growth. This is in line with the assertion of the 2024 emphasizes manufacturing, agriculture,
famous US economist Paul Krugman, who and digitalization of the informal sector.
observed that productivity is not everything, Furthermore, with devolution marking 10
but in the long-run it is almost everything. The years in the country, the report examines how
theme of productivity growth is thus critical for devolution can be strengthened by improving
enabling long-run sustainable economic growth productivity at the county level and how
using the scarce resources available and as international engagements and collaborations
a basic goal for economic policy (Australian can be leveraged to boost productivity. In
Treasury, 2009). Furthermore, the OECD addition, it looks at the key factors that can
(2015) observes that productivity is the ultimate enable productivity, including trade, which
engine of growth in the global economy. facilitates distribution, skills development, and
the public sector in the provision of public
Productivity growth has generally weakened service.
in the global economy due to adverse shocks
such as epidemics, wars, financial crises, and Achievement of the government agenda and
natural disasters (World Bank, 2021). Kenya development programmes calls for enhanced
has made significant strides in recent years, productivity. Specifically, the focus on productivity
but there are still pressing issues that need to is based on four main reasons: productivity
be addressed. Gaps such as low productivity improvement holds the key to expanding and
levels in some sectors, limited access to sustaining economic growth in the face of
finance, inadequate infrastructure, and a high scarce resources; secondly, strengthening
level of informality in the economy hinder productivity is a critical element to making
the country from exploiting its full economic growth more resilient and sustainable (Akhtar,
potential to achieve inclusive growth. There Hahm and Hasan, 2016); thirdly, achievement of
is a need to revive productivity growth across the SDGs and other government agenda, such
all sectors given its role in enabling sustained as BETA, is premised on boosting productivity
growth and development. Furthermore, the growth; fourthly, productivity has been
achievement of the Sustainable Development recognized as the main driver of future growth
Goals (SDGs) depends on how a country can and prosperity through investment in innovation
productively use its resources to expand its and knowledge-based capital (OECD, 2015).
output. More specifically, SDG 8 mentions the However, productivity improvement alone will
importance of promoting sustained, inclusive, not be the only solution for enhanced economic
and sustainable economic growth, full and growth. It will need to be supported by adequate
productive employment, and decent work for resource mobilization and prudent utilization of
all. Productivity improvement is thus at the the available resources.

6
 INTRODUCTION

1.4 Conceptual Framework growth, which complements efforts in resource

allocation, effective governance, sectoral
Sustained economic growth is crucial for investment, peace, and stability, among other
achieving long-term development goals and interrelated factors.
improving the standard of living for its population.
One of the key drivers of sustainable economic Productivity improvement focuses on making
growth is enhanced productivity across various more efficient use of inputs or resources to
sectors. The conceptual framework aims to achieve output and, overall economic growth.
outline the key elements and inter-relationships By making efficient use of available resources,
necessary to enhance Kenya’s productivity for the resource envelope widens, and with wider
sustained inclusive growth. resources, there is more output. Consequently,
productivity improvement enables the economy
Enhancing productivity for sustained inclusive to operate on the production possibility
growth is vital for achieving robust economic frontier (PPF) and shift the PPF outwards.
development. While factors such as resource Productivity growth involves three types of
mobilization, governance, investment, and productivity: partial factor productivity, total
stability contribute to economic growth, the factor productivity, and multifactor productivity.
role of productivity improvement as a catalyst Partial factor productivity is about improving the
for enhanced economic performance has productivity of one factor of production, such
often been overlooked. The report focuses on as labour or capital. Total factor productivity
boosting productivity across critical economic encompasses all the factors of the productivity
sectors and within the context of devolution equation. Multifactor productivity deals with the
and international engagement. By emphasizing volume of output from a bundle of both labour
productivity improvement in these sectors, the and capital inputs (Australian Treasury, 2009).
report aims to enhance their growth prospects Sustained productivity improvement requires
and, consequently, foster overall economic an enabling environment. The report, therefore,
performance. It acknowledges that sustained conceptualizes productivity growth as a driver
inclusive growth hinges on robust productivity for sustainable economic growth (Figure 1.4).

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 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 1.4: Conceptual framework on enhancing productivity for sustained inclusive growth

Sustainable Inclusive
Growth

Productivity Growth
(Factor productivity growth and
total factor productivity growth )

Land Labour Capital

Sustainable resource Human

Infrastructure
management development
capital development
1. Sustainable 1. Improved transportation
1. Quality education
agricultural networks
2. Skill development
practices programmes 2. Access to energy and
2. Responsible 3. Access to healthcare power supply
resource services 3. Better water supply and
extraction 4. Availability, sanitation systems
3. Investment in accessibility, and 4. Enhanced
renewable energy affordability of human telecommunications and
capital development digital infrastructure
sources
services
5.

Enablers

1. Government policies and support: (Effective governance, macro

stability, transparent regulations)
2. Leveraging on technological advancements (digital infrastructure,
research and development, and innovation)
3. Access to markets
4. Institutional support

Source: Authors’ conceptualization

8
 INTRODUCTION

Sustaining Kenya’s economic growth through factor productivity, total factor productivity, and
enhanced productivity requires a comprehen multifactor productivity. The interplay between
sive approach that addresses the key a conducive policy environment, infrastructure
determinants. The conceptual framework in development, human capital investment,
Figure 1.4 has sustainable economic growth as technology and innovation, market access, and
the core focus supported by productivity growth. sustainable resource management is crucial.
To realize productivity growth, emphasis should Human capital development focuses on the
be on the three key factor inputs; that is, land, availability, accessibility, and affordability of
labour, and capital. Technology is also a crucial human capital services, such as education and
factor that promotes productivity growth. healthcare. By strategically focusing on these
However, technology is useful when augmented elements, Kenya could foster a productivity-
with the other factor inputs, and therefore driven economy that ensures long-term
technology is an enabler. There are also three sustainable economic growth, job creation, and
sub-indicators for productivity; these are partial improved living standards for its people.

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10
 CHAPTER

2
MACROECONOMIC PERFORMANCE

MACROECONOMIC
PERFORMANCE

Significant progress has been made in poverty reduction in the last two
decades. This progress has been supported by increased productivity,
output, and income growth. However, there is a need to accelerate sector-
wide productivity growth for an accelerated pace of poverty reduction. The
5.6 per cent economic growth in 2023 was driven by a rebound in agriculture
and resilient service activities. After two years of declining growth, agriculture
grew by 6.5 per cent due to above-average precipitation in 2023, and the
timely provision of production subsidies by the government. In the period,
food inflation eased, but the soaring fuel inflation pushed average overall
inflation to 7.7 per cent, which was above the government target band of 5±2.5
per cent, putting pressure on the cost of living. The Central Bank of Kenya
increased the monetary policy rate by 375 basis points in 2023 to anchor
inflationary expectations. During the year, the Kenya shilling depreciated
against the dollar, mainly driven by tight global financial conditions. Fiscal
consolidation continued in 2023/24, with an overall fiscal deficit projected at
4.9 per cent of GDP compared to 5.6 per cent of GDP in 2022/23, supported
by improved expenditure management and revenue enhancement. Public
debt increased, attributed to the depreciating exchange rate that put pressure
on external debt stock. External accounts improved, as the current account
deficit narrowed on the backdrop of improved merchandise trade and
resilience performance of secondary income balance, which supported the
current account to narrow to 4.0 per cent of GDP in 2023 compared to 5.1 per
cent of GDP in 2022. Looking ahead, increased investments that enhance
productivity, especially in the agriculture sector are important as this is not
only pro-growth but also has moderating effects on food inflation. Proactive
monitoring of monetary developments and timely response by the Central
Bank of Kenya remains a priority. In the near to medium-term, front-loaded
fiscal consolidation efforts will be crucial to mitigate debt vulnerabilities.
Strengthening the external sector will require increasing export revenues
by exporting value added products, removal of supply-side bottlenecks,
facilitating diaspora remittances, and revitalizing the tourism sector.

2.1 Introduction stability, encompassing price stability, fiscal

M
sustainability, and external balance, is
acroeconomic stability is a instrumental in promoting long-term economic
prerequisite for national economic growth. It provides the foundation for a
prosperity and sustained productivity conducive business environment, ensuring
growth. As emphasized in BETA and predictability, reducing uncertainties, and
various Medium-Term Plans, macroeconomic ensuring optimal resource allocation.

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 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.1: Trends in macroeconomic stability indicators (1995-2023)

10 9.0 9 16.0
Over al l , cur r en t accoun t an d pr i m ar y ( % of GDP)

8 8.0 8
14.0
6 7.0 7
4 12.0
6.0
6

GDP Growth (%)

2
5.0

GDP growth (%)

10.0
- 5

Inflation (%)
4.0
-2 4 8.0
3.0
-4 3
2.0 6.0
-6
2
-8 1.0 4.0
1
-10 -
2.0
-12 (1.0) -
2011
1997
1995

2017
1999

2015
2013

2021
2019
2001

2023
2007
2005
2003

2009

-1 0.0

2011
1997
1995

2017
1999

2015
2013

2021
2019
2001

2007

2023
2005
2003

2009
Overall deficit Primary deficit
Current account deficit GDP Growth Inflation GDP Growth

Data Source: KNBS (Various), Economic Survey

Despite its resilience, the economy has faced were followed by drought that resulted in
a multifaceted confluence of shocks, ranging power rationing in 2000. These exogenous
from the COVID-19 pandemic to climatic shocks were accompanied by macroeconomic
shocks, which have implications for productivity imbalances that hurt the economy.
and growth. This chapter reviews Kenya’s
macroeconomic performance with a focus on The period after 2002 marked the implementation
productivity and broader economic stability. The of bold economic and structural reforms under
analysis covers economic growth, monetary the Economic Recovery Strategy for Wealth
policy framework, and the evolving landscape and Employment Creation (2003-2007), the
of the financial sector. Concurrently, this chapter development of the Kenya Vision 2030, and the
examines fiscal performance, with a particular start of implementation of Medium-Term Plans
emphasis on its implications for productivity (MTPs). The reforms were geared towards
and sustainable growth. In addition, the chapter addressing macroeconomic vulnerabilities,
reviews the external sector developments. structural weaknesses, and improving living
Throughout this chapter, productivity is defined standards. In the period 2003-2007, economic
as output (gross value added - GVA) per input growth averaged 5.4 per cent, with productivity
of a unit of labour. growth averaging 5.0 per cent (Table 2.1).

2.2 Economic and Productivity Growth During the MTP I (2008-2012), economic growth
averaged 4.4 per cent while productivity growth
Productivity growth closely tracks economic averaged 7.1 per cent. During MTP II (2013-
growth (Table 2.1). Before 2002, productivity 2017), economic growth averaged 4.4 per cent
growth was low, reflecting the prevailing harsh while productivity growth averaged 8.7 per cent.
economic environment. During that period, The substantial productivity growth was mostly
the economy faced challenges such as the driven by a conducive business environment
aid embargo of 1997-2000, ethnic clashes in underpinned by improved ease of doing
1997, and the 1997/98 El Nino rains, which business, a supportive policy environment,

12
 MACROECONOMIC PERFORMANCE

and the implementation of devolution, which A strong contribution of agriculture sector

supported the movement of labour and capital productivity growth to aggregate productivity
to areas that previously experienced low- growth is observed over the 1992-2022 period.
capacity utilization. During the MTP III (2018- Importantly, agriculture sector productivity is
2022), economic growth averaged 4.6 per cent mainly driven by sector-specific innovations
and productivity growth averaged 6.4 per cent. such as improved product mix, use of modern
While recent developments have shown good farming technologies, enhanced farmer
prospects, productivity growth is facing some education, increased access to agricultural
challenges. Low-capacity utilization, limited finance, increased use of fertilizer, and
capital formation, rising domestic prices, and expanded market access. The services sector
increasing demand for wage hikes have had the second largest growth in productivity,
all had an adverse impact. Additionally, the emanating from productivity gains within the
economy has struggled with persistently high sector and labour reallocation gains from
unemployment, particularly among the youth. other sectors. It is observed that whenever
As highlighted in the Labour Force Basic Report productivity growth in agriculture strengthened,
2015/16, youth unemployment was at 8.5 per inflation declined, thus indicating the importance
cent for the period 2015/16, which was higher of agricultural productivity on increased food
than the national average of 7.4 per cent. availability, which in turn results in lower food
prices and overall inflation.

Table 2.1: Contribution to productivity growth by broad sectors (1992-2023)

Broad Annual Contribution to productivity GDP growth Inflation (%)

economic productivity growth (%)
sector growth (%)
Sector- Labour
specific movement
factors effects
1992 - 2002 Agriculture 1.7 1.7 -0.4
Industry 2.5 2.5 -0.9
Services 4.1 4.1 0.8
All 3.3 1.8 14.1
2003 - 2007 Agriculture 3.3 3.2 -0.5
Industry 6.3 6.3 -0.9
Services 4.9 4.9 0.8
All 5.0 5.4 8.4
2008 - 2012 Agriculture 9.9 9.7 -0.6
Industry 6.7 6.8 -0.8
Services 5.3 5.4 0.9
All 7.1 4.4 10.7
2013 - 2017 Agriculture 17.0 16.7 -0.7
Industry 4.4 4.5 -0.8
Services 4.4 4.5 1.0
All 8.7 4.4 6.7
2018 - 2022 Agriculture 8.1 8.0 -0.8
Industry 4.6 4.6 -0.7
Services 5.3 5.3 1.0

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ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

All 6.6 4.6 5.8

2022 - 2023 Agriculture 12.6 12.4 -1.2
Industry 4.1 4.1 -0.9
Services 5.7 5.7 1.1
All 7.1 5.6 7.7
1992 - 2023 Agriculture 6.9 6.9 -1.1
Industry 4.4 4.5 0.4
Services 4.7 4.7 0.9
All 5.7 3.7 10.7

Source: Author’s computation based on data from KNBS

Note: Productivity is defined as output per worker in Kenya shillings (Ksh)

The post-COVID economic recovery continued towards the end of 2022 under the Bottom-
with the economy growing by 5.6 per cent in up Economic Transformation Agenda (BETA),
2023 compared to a growth rate of 4.9 per cent which saw subsidized fertilizer prices fall by
and 7.6 per in 2022 and 2021, respectively half. The industry sector growth contracted by
(Table 2.2). Economic growth in 2023 was 1.9 per cent compared to 3.9 per cent in 2022
supported by improved production in the while the services sector growth remained
agriculture sector, which registered a growth of stagnant at 7.0 per cent in 2023. However,
6.5 per cent following relatively good weather overall economic activities grew by 5.9 per cent
conditions experienced during the period, and in 2023 compared to 4.7 per cent attained in
the fertilizer subsidy programme that began 2022.

Table 2.2: Economic growth performance (2018-2023)

2018 2019 2020 2021 2022 2023

1. Agriculture 5.7 2.7 4.6 -0.4 -1.5 6.5
2. Non-agriculture 5.6 5.9 -0.6 9.3 6.2 5.7
2.1 Industry 3.8 3.9 3.3 7.5 3.9 1.9
Mining and quarrying -4.7 4.3 5.5 18.0 9.3 -6.5
Manufacturing 3.6 2.6 -0.3 7.3 2.6 2.0
Electricity and water supply 3.6 1.7 0.6 5.6 5.5 2.8
Construction 6.1 7.2 10.1 6.7 4.1 3.0
2.2 Services 6.2 6.5 -1.8 9.8 7.0 7.0
Wholesale and retail trade 5.9 5.3 -0.4 8.0 3.5 2.7
Accommodation and food 15.6 14.3 -47.7 52.6 26.8 33.6
Transport and storage; 6.0 6.3 -8.0 7.4 5.8 6.2
Information and communication 7.9 7.0 6.0 6.1 9.0 9.3
Financial and insurance 2.7 8.1 5.9 11.5 12.0 10.1
Public administration 7.9 8.4 7.0 6.0 5.1 4.6
Professional, administrative 5.4 6.9 6.8 -13.7 7.1 9.5
services
Real estate 6.5 6.7 4.1 6.7 4.5 7.3

14
 MACROECONOMIC PERFORMANCE

Education 6.8 5.7 -9.2 22.8 5.2 3.1

Health 5.4 5.5 5.6 8.9 3.4 4.9
Other services 4.0 4.9 -19.5 18.9 7.1 3.6
FISIM 3.7 9.5 -1.8 5.3 0.2 2.7
All economic activities 5.6 5.2 0.5 7.2 4.7 5.9
2.3 Taxes 5.9 3.9 -8 11.9 6.7 2.2
GDP growth 5.6 5.1 -0.3 7.6 4.9 5.6

Data source: KNBS (Various), Quarterly GDP Reports

There was mixed performance in the growth through micro, small, and medium enterprises
of the services sub-sectors. Improved growth (MSMEs) as a key for job and wealth creation
performance was observed in accommodation and driving growth. Manufacturing activities
and food services (33.6%), professional and grew at a slower pace by 2.0 per cent in 2023
administrative services (9.5%), information compared to 2.6 per cent in 2022, attributed
and communication (9.3%), real estate to the high cost of importing inputs for the
(7.3%), transport and storage (6.2%), and production process.
health (4.9%). The other service sub-sectors
witnessed contracted growth compared to the The aggregate demand reveals that the
performance of the previous period. These economy relies on private consumption as a
included financial and insurance (10.1%), major engine of growth. Private consumption
mining and quarrying (-6.5%), manufacturing accounted for nearly 76.2 per cent of
(2.0%), electricity and water supply (2.8%), aggregate demand in 2023. The composition
construction (3.o%), wholesale and retail trade of government expenditure in total expenditure
(2.7%), public administration (4.6%), education has been largely constant at an average of 12.2
(3.1%) and other services (3.6%). Performance per cent between 2019 and 2023. Empirical
in the accommodation and food services sub- studies have shown that government spending
sector was enhanced by the improved security is key for enhancing productivity in the
situation in the country, improved tourism economy, especially development spending,
activities, and muted political activities. which raises capital productivity while spending
on social sectors such as education and health
The industry sector, which comprises of mining raises labour productivity. The implication for
and quarrying, manufacturing, construction, this is that higher government consumption
and electricity and water supply activities of productivity-enhancing sectors can raise
recorded a slower growth of 1.9 per cent in 2023, aggregate productivity and contribute to
compared to 3.9 per cent in 2022. The BETA improved economic growth.
prioritizes enhancing manufacturing activities

15
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.2: Aggregate demand components (2018-2023)

100.0 8.0
7.0
Percentage point contribution

80.0
6.0

GDP Growth (%)

60.0 5.0
76.4 75.4 74.6 74.9 76.2 4.0
40.0
3.0
20.0 2.0

12.2 12.5 12.1 12.2 11.9 1.0

0.0
-8.9 -8.0 -9.3 -9.3 -8.7 0.0
-20.0 -1.0
2019 2020 2021 2022 2023
Government final consumption expenditure Private final consumption expenditure
Final consumption expenditure by NPISH Gross fixed capital formation
Changes in inventories Net Exports
GDP Growth

Data source: KNBS (2024), Economic Survey

2.2.1 Savings and investment that projected savings and investment ratios
to GDP to rise from 12.4 per cent and 17.5
The share of domestic savings in GDP displayed per cent, respectively, in 2017 to 21.2 per
volatility, reaching a high of 16.5 per cent in cent and 25.4 per cent in 2022. The savings-
2021 and demonstrating a need for sustained investment gap, expressed as a percentage
growth to support savings. Investment activity of GDP, exhibited a negative trend throughout
was robust during the period of analysis, the period, indicating a reliance on external
exceeding 19 per cent of GDP between 2018 financing for investment. The gap narrowed to
and 2021. However, it slowed down to 18.6 and -1.4 per cent of GDP in 2023, consistent with
17.2 per cent in 2022 and 2023, respectively. the MTP III target of -4.2 per cent of GDP, which
This performance is below the MTP III targets emphasizes the enhancement of domestic
resource mobilization.

16
 MACROECONOMIC PERFORMANCE

Figure 2.3: Gross investments and savings as % of GDP, (2016-2023)

25

19.1 19.0 19.3 19.7

20 18.6
16.5 17.2
16.3 15.9
15.3
14.5 14.1
15
% of GDP

10

-1.4
-2.3
-5 -3.1
-4.6 -4.0
-4.9

-10
2018 2019 2020 2021 2022 2023
Investments as % of GDP Savings as % of GDP Savings-investments gap (% of GDP)

Data source: KNBS (Various), Economic Survey

2.3 Economic Growth and Poverty savings and investment/capital accumulation.

Reduction Therefore, a high rate of economic growth is
considered one of the most effective strategies
The link between economic growth and poverty to reduce poverty, especially when this growth
reduction was explored. Economic growth is is inclusive. Figure 2.4 presents the trends
expected to generate adequate and well-paying in GDP growth, GDP per capita growth, and
employment opportunities, which are in turn poverty trends.
expected to lead to poverty reduction through

17
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.4: Real GDP growth, GDP per capita growth, and poverty rates (1965-2023)

11 36.1 42.9 70
33.6
57.2 38.6
9 52.3 60
Real GDP growth (%)

48 46.8

Poverty rate (%)

7 44 43.8 50

5 40
30 29
3 30

1 20

-1.0 10

-3.0 0
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Real GDP Growth Real GDP per capita growth Poverty Head Count

Data source: KNBS (Various), Economic Survey

The real GDP and per capita GDP growth Since the turn of the millennium (2000-2023),
trajectory over the past six decades is marked by the growth story has been more encouraging,
periods of significant expansion and contraction. punctuated by multi-party democracy and
The early years after independence, with a increased focus on economic reforms. Figure
focus on state-led development (1965-1978) 2.4 reveals a significant acceleration in real
witnessed a promising start, when the average GDP growth averaging 4.5 per cent and steady
growth reached 7.1 per cent with per capita growth in per capita GDP averaging 2.0 per
GDP rising by an average of 3.3 per cent. This cent. This period reflects successful economic
robust economic performance coincided with reforms, improved governance, and increased
low poverty rates, suggesting the effectiveness foreign direct investment. Significant progress
of these initial development efforts. However, in poverty reduction has been achieved in the
the subsequent two decades (1979-2001) last two decades. Poverty levels dropped from
witnessed a period of stagnation. Economic 57.2 per cent in 1992 to 46.8 per cent in 2006
growth stagnated at approximately 3.4 per and to 36.1 per cent in 2016 and further down
cent, with per capita GDP experiencing minimal to 33.6 per cent in 2019, meaning that poverty
growth, averaging 0.1 per cent. This economic dropped by 0.8 percentage points per year
slowdown coincided with a rise in poverty between 1992 and 2019. Notably, the economic
rates, peaking at 57.2 per cent in 1992. The growth rate is commensurate with real GDP
stagnation was underpinned by a confluence per capita growth, which means that enhanced
of factors, including external economic shocks, productivity of economic activity is crucial in
policy missteps and challenges, and internal improving economic welfare as depicted by
conflicts. This period underscored the critical improved GDP per capita and poverty declines.
need for economic reforms and a shift towards
sustainable and inclusive growth strategies.

18
 MACROECONOMIC PERFORMANCE

Over time, the country has witnessed a bottom of the pyramid, this is an avenue for
reduction in poverty and a decline in deprivation enhancing inclusive growth and economic
rates. Whereas multidimensional and monetary transformation for Kenya.
poverty were at 68.2 per cent and 45.7 per
cent, respectively, in 2009, these rates declined 2.4 Labour Market, Employment, and
significantly in 2019 to 50.0 per cent and 33.3 Growth
per cent, respectively, at the national level.
Deprivation incidences have also declined 2.4.1 Labour market structure,
over time. For instance, recent data reveals employment, and wages
that deprivation incidence in economic activity
decreased from 74.1 per cent in 2009 to 55.4 The labour market has been dominated by
per cent in 2019, among persons aged 26- informal sector employment since 1994. Before
34 years, while the deprivation incidence in then, the workforce was dominated by formal
secondary school education among children jobs, accounting for slightly over half of the total
aged 14-17 years dropped from 49.7 per workforce. However, over the years, informal
cent in 2009 to 29.0 per cent in 2019. These jobs have increased, accounting for over 80
positive trends in poverty indicators underscore per cent of total employment since 2009. At the
the importance of further upscaling the end of 2022, informal jobs accounted for 83.4
productivity of economic inputs, which is known per cent of total employment. The tilting of the
to translate to improved growth and reduced labour market towards informal employment
poverty outcomes. If economic growth is to reflects the inability of the formal sector to
lead to poverty reduction, it should facilitate adequately generate jobs for the increasing
the participation of many of its beneficiaries in labour force. Most of the informal economy
economic activity and shared prosperity. Given jobs are characterized by higher ratios of
that the BETA aims at targeting participation casualization, are more precarious, and exhibit
in economic activity by the population at the lower productivity and wages.

Figure 2.5: Shares of Kenya’s total employment (%) (1990-2023)

100 3.0
90
Share of t ot al employment (%)

2.5
2.4
2.0 39.1

80
41.4
2.0 44.9
1.9 48.9
1.7 53.4
1.6 58.1

70
61.1
63.6
66.0

2.0
68.1
70.2
72.6
74.2
76.1
77.1
77.9
78.6
79.1
79.8
80.2
80.6

81.6
82.2

81.9

60
82.5
82.5

82.2
82.7

82.6
83.0

83.3
83.4
83.3

83.4

50 1.5
1.5
1.4
1.3

40
1.2
1.1
1.0

1.0
1.0
58.8

30
56.2

0.9
0.9
0.9
0.9

0.9
23.0 0.9

0.9
53.1

0.9
0.8
0.8
22.1 0.8
49.2

21.3 0.8
20.7 0.7
44.9

16.6 0.7
20.1 0.7
19.5 0.7
40.4

19.1 0.6
18.8 0.6

16.9 0.6
37.4

17.2 0.6
16.9 0.6

20
35.1
32.8
30.7

0.5
28.7
26.3
24.8

17.6
17.2
17.0
16.5

10
16.1

15.9
15.8

15.7
15.7

- -
1990
1991
1992
1993
1994

2008
2009
2010
2011
1995
1996
1997
1998
1999
2000

2012
2013
2014
2015
2016
2017
2001
2002
2003
2004
2005
2006

2018
2019
2020
2021
2022
2023
2007

Wage Employees Informal Sector Own-account workers

Data Source: KNBS (Various), Economic Surveys

19
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

In 2023, an estimated 3.14 million persons 1992, the private sector accounted for 49.7 per
were engaged in wage employment. This cent of total wage employment. This increased
compares to 1.5 million, 1.7 million, and 2.1 steadily to 61.2 per cent in 2002, 69.5 per cent
million persons engaged in wage employment in 2012 and slightly declining to 68.9 per cent in
in 1992, 2002 and 2022, respectively. Rapid 2022. The progressive dominance of the private
growth in wage employment has mainly been sector in wage employment demonstrates the
driven by growth in private sector employment, need to create an enabling environment for the
which expanded more than the public sector. In private sector to create more jobs.

Table 2.3: Estimated sectoral real average wage earnings per employee, 2013 and 2022

2013 2023 Divergence from

public wages (%)
Private Public Private Public 2013 2023
Agriculture, forestry, and fishing 156.63 249.22 405.48 512.01 -37.15 -20.81
Mining and quarrying 213.34 232.03 746.14 544.20 -8.06 37.11
Manufacturing 229.38 539.07 664.12 1055.65 -57.45 -37.09
Electricity, gas, steam, and air conditioning 806.41 882.38 2326.01 1501.47 -8.61 54.91
supply
Construction 339.39 413.42 833.28 872.65 -17.91 -4.51
Wholesale and retail trade 352.04 652.16 1007.56 1146.03 -46.02 -12.08
Transportation and storage 694.54 929.87 1691.92 2432.15 -25.31 -30.44
Information and communication 521.15 462.19 1289.89 925.29 12.76 39.40
Financial and insurance activities 1047.22 1111.88 2281.80 2115.29 -5.82 7.87
Education 585.87 340.50 1069.45 734.11 72.06 45.68
Human health and social work activities 442.42 655.51 1217.63 1845.10 -32.51 -34.01
Arts, entertainment, and recreation 368.12 476.63 866.33 921.00 -22.77 -5.94

Source: Author’s computation based on data from KNBS (Various), Economic Survey
Note: The negative sign indicates that the private sector wage is lower than the public sector wage

Wage earnings vary across sectors. Higher the electricity, gas, steam, and air conditioning
earnings are observed in financial and supply, average wages in the private sector
insurance activities while agriculture, forestry, are over 54 per cent higher than those of their
and fishing activities attract the lowest earnings counterparts in the public sector. Likewise, in the
despite the sector contributing the highest to education sector, the private sector employees’
GDP and employment in 2023. Earnings in the real average earnings are nearly a third more
public sector are relatively higher than in the than that of public sector employees. The wage
private sector for most of the selected sectors, disparity in favour of the public sector could be
even though in the last 10 years the gap has the result of different allowances that public
narrowed across most sectors as indicated in sector workers receive above their basic pay.2
Table 2.3. Public workers in the health sector
and the manufacturing sector receive higher
wages than their private sector counterparts. In 2
See KIPPRA Policy Paper No. 5 2013, https://repository.kippra.or.ke/bitstream/
handle/123456789/2915/policy%20paper%2005.pdf?sequence=1&isAllowed=y

20
 MACROECONOMIC PERFORMANCE

2.4.2 Employment and inclusive growth It rose from 6.9 in 2001 to 12.6 in 2002 before
stagnating at an average of 1.3 between 2003
Productive employment is one of the and 2022, excluding 2020 when the COVID-19
instruments for sustainable and inclusive pandemic impacts resulted in shrinkage of
growth.3 Employment elasticity of growth was both growth and employment. In 2o23, the
estimated to establish whether economic growth employment elasticity was at 0.8, implying that
has been effective in creating employment and a one percentage increase in the country’s GDP
reducing poverty. In the 1990s, employment would trigger a 0.8 percentage point increase in
elasticity was erratic but stabilized in the 2000s. employment in the economy.
3
See Arezki et al. (2012), Chapter 8 on What is Inclusive Growth by Elena Ianchovichina.

Figure 2.6: Growth-employment elasticity (1992-2023)

20 40
GDP and employment growth (%)

30
15

Employment elasticity
20
10
10
5 0
-10
0
-20
-5
-30
-10 -40
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total Employment Growth Real GDP Growth Employment Elasticity

Source: Author’s computation based on data from KNBS (Various), Economic Survey

2.5 Consumer and Producer Price rainfall received during the period and easing of
Inflation global edible oil prices and the general decline
in international commodity and oil prices. Food
Inflation rates moderated in 2023 but with inflation fell from 15.5 per cent in September
underlying pressures. Headline inflation rate 2022 to 7.9 per cent in January 2024, with an
fell to 6.9 per cent in July 2023 after drifting increased supply of food products following
above the government target band for about adequate moisture during the planting season
13 months since May 2022 (Figure 2.7). The leading to a drop in prices of most food products
relaxed inflation pressures were aided by the such as potatoes, tomatoes, cowpeas, and
improved supply of food crops due to ample cabbages.

21
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.7: Trends in consumer and producer price inflation (2018-2024)

18
16
14
12
10
8
6
4
2
-
-2

Sep-21
Sep-19
Sep-18

Sep-23
Sep-22
Jan-19

Jan-21

Nov-21
Sep-20
Nov-19
May-19

May-21
Nov-18
May-18

Jul-21
Jul-19
Mar-19

Mar-21

Jan-23
Jan-22
Jul-18

Jan-24
Nov-23
Nov-22

May-23
May-22

May-24
Jan-20

Nov-20
May-20

Jul-23
Jul-22

Mar-23
Mar-22

Mar-24
Jul-20
Mar-20

CPI Inflation PPI Inflation

Data source: KNBS (Various), Monthly Consumer Price Reports and Quarterly Producer Price
Reports

The declining food inflation moderated inflation Despite these developments, inflation concerns
pressures emanating from fuel inflation, which linger on the back of voluntary oil production
increased to 14.5 per cent in January 2024 cuts by the OPEC+ oil producers, which are
from 12.9 per cent in June 2022, reflecting the likely to push prices upwards in the near term.
removal of most subsidies on fuel products, the Further, the ongoing geopolitical conflicts in the
8.0 percentage point increase in fuel VAT, and Middle East and Eastern Europe that continue
the impact of exchange rate depreciation. Core to disrupt supply channels could potentially be
inflation remained low and stable, reflecting transmitted to local prices.
muted demand pressures in the economy.

22
 MACROECONOMIC PERFORMANCE

Figure 2.8: Inflation Trends (2018-2024)

Domestic inflation components Global commodity prices

35 16 170.00
Food, fuel and core inflat ion (%)

30 14 345 160.00

Commodity price index

Headline inflation (%)
25 12 295 150.00

245 140.00
20 10
130.00
15 8 195
120.00
10 6 145
110.00
5 4 95 100.00
- 2 45 90.00

Sep-21
Sep-19
Sep-18

Sep-23
Sep-22
Jan-21
Jan-19

Sep-20
Jan-18

May-19

May-21
May-18

Jan-23
Jan-22

Jan-24
May-23
May-22
Jan-20
May-20
-5 -
Dec-18

Dec-19

Dec-20

Dec-21

Dec-22

Dec-23
Aug-18

Aug-19

Aug-20

Aug-21

Aug-22

Aug-23
Apr-18

Apr-19

Apr-20

Apr-21

Apr-22

Apr-23

Apr-24
Food and Beverage Price Index, 2016=100

All Commodity Price Index, 2016 = 100

Food Inflation Fuel Inflation Fuel (Energy) Index, 2016 = 100

Data Source: Central Bank of Kenya, Data Source: IMF Commodities Prices
Monthly Economic Indicators database

Figure 2.8 shows that consumer price inflation and producer price inflation tend to move together.
Normally, a causality that runs from the producer price index (PPI) to the consumer price index
(CPI) exemplifies the cost-push nature of inflation while the opposite indicates the presence
of demand-pull inflation. The analysis in Box 2.1 reveals that producer price inflation causes
consumer price inflation, meaning that a rise in producer prices through the cost of inputs causes
a rise in consumer inflation, ascertaining the trends shown in Figure 2.8. This implies that when
the supply-side factors are addressed through enhanced productivity, this would result in lower
inflation pressures.

Box 2.1: Granger causality for producer price and consumer price inflation

Analysis of the causality between CPI and PPI for Kenya for the period January 2012–December 2023
using quarterly data was conducted. The results shown in the table below reveal the presence of supply-
induced inflation, which causes consumer price inflation. It implies that measures aimed at lowering the cost
of living should address supply-side factors that influence producer costs. Importantly for Kenya, where
food occupies the largest share of consumer prices, enhancing agricultural productivity is paramount for
reducing producer price inflation, which in turn results in lower consumer prices in the economy.

Equation Chi2 Df Prob > Chi2

Consumer price 3.03 3.00 0.39
Producer price inflation 9.79 3.00 0.02
H0: Prob>0.05 no causality. Note: *Causality Granger’s sense statistically significant

23
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Monetary Policy and Financial Sector per cent in February 2024. The impact of the
Development swift tightening of the monetary policy stance is
observable in two aspects. First, the headline
2.6.1 Monetary policy stance and interest inflation returned and remained within the
rates developments target range (Figure 2.9). Second, core inflation
declined from a high of 4.5 per cent in February
The Central Bank of Kenya (CBK) tightened the 2023 to 3.6 per cent in January 2024, reflecting
monetary policy stance since 2022, increasing the muted demand pressures in the economy
the benchmark rate by cumulative 600 basis consistent with the stance of monetary policy.
points from 7.0 per cent in April 2022 to 13.0

Figure 2.9: Policy stance, interest rates, and core inflation (2018-2024)

18
CBR and lending rate (%)

16
14
12
10
8
6
4
2
0
Jan-18

Jan-19

Jan-20

Jan-21

Jan-22

Jan-23

Jan-24
Jul-18

Jul-19

Jul-20

Jul-21

Jul-22

Jul-23
Oct-18

Oct-19

Oct-20

Oct-21

Oct-22

Oct-23
Apr-18

Apr-19

Apr-20

Apr-21

Apr-22

Apr-23
Core Inflation Interbank CBR Lending

Data Source: Central Bank of Kenya (Various), Monthly Economic Indicators

In August 2023, the CBK introduced a new tight liquidity conditions among banks in 2023.
interest rate corridor around the policy rate to Similarly, lending rates increased in 2023,
guide the overnight interbank rate. The corridor averaging 13.6 per cent compared to 12.3 per
was set at CBR ± 2.5 per cent. Consequently, cent in 2022, indicating an increased cost of
the monetary policy operations are aimed at credit in 2023.
ensuring that the interbank rate, as an operating
target, closely tracks the CBR. The Kenya shilling weakened against the US
dollar at a faster pace in 2023. By the end of
The movement in interbank rate shows a December 2023, the shilling had depreciated
significant increase from a low of 2.1 per cent by about 25.3 per cent against the US dollar
in July 2020 to a high of 12.5 per cent in August from its level in December 2022. This compares
2023 and 13.7 per cent in January 2024. to 8.9 per cent depreciation recorded between
However, with the introduction of the interest December 2021 and December 2022 (Figure
rate corridor, it is evident that interbank rates 2.10). The weakening of the shilling for most of
have moderated and are tracking the CBR. In 2023 was due to the continued strengthening of
2023, the interbank rate averaged 9.8 per cent the dollar in global markets due to the tightening
compared to 4.9 per cent in 2022, consistent of monetary stance by the USA, the increased
with monetary policy tightening and reflecting demand for dollars domestically against the

24
 MACROECONOMIC PERFORMANCE

backdrop of low exports, and increased jitters after the part buyback of the Eurobond by the
by investors over Kenya’s ability to repay government amounting to US dollar 1.5 billion.
the Eurobond that was due in June 2024. This eased fears among investors, attracting
However, in mid-February 2024, the shilling inflows of the dollar from global lenders and
gained significantly against the dollar from investors. Additionally, the IMF Board approved
Ksh 160.8 per US dollar on 25th January 2024 the disbursement of US dollar 684.7 million to
to Ksh 144.1 per US dollar on 23rd February Kenya under the EFF/ECF arrangements.
2024. The strengthening of the shilling came

Figure 2.10: Exchange rate movements (2018-2024)

170 115

160
110
150
105
Ksh per USD

USD Index
140

130 100

120
95
110
90
100

90 85
Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-23
Feb-18

Feb-19

Feb-20

Feb-21

Feb-22

Feb-23

Feb-24
Oct-18

Oct-19

Oct-20

Oct-21

Oct-22

Oct-23
Ksh/USD USD Index

Source: CBK and https://www.investing.com/currencies/us-dollar-index-historical-data

2.6.2 Domestic credit developments Consistent with the rebound in economic

growth in 2023 and improved consumer
Domestic credit in the past six years has sentiments on economic prospects, domestic
exhibited an episode of subdued credit and credit grew by 15.0 per cent in 2023 compared
a period of increased credit growth. Over the to 11.4 per cent in 2022. These developments
period 2016-2019 and with interest capping, happened on the backdrop of rising interest
domestic credit growth averaged 6.8 per cent rates characterized by a high inflation rate
compared to an average of 14.4 per cent and an upward adjustment to the benchmark
realized in the period after the interest rate lending rate by the CBK. Growth in the private
capping was repealed (2020-2022). In addition sector credit from the banking system remained
is the accommodative monetary policy stance resilient, partly reflecting improved business
that prevailed during the 2020-2021 period, conditions and demand for working capital.
which was aimed at supporting growth during Growth in the private sector credit is expected
the pandemic period and support post-COVID to remain relatively stable, supported by, among
recovery. other factors, resilient economic activity, and
the implementation of the Credit Guarantee
Scheme for the vulnerable MSMEs.

25
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.11: Contribution to annual growth in domestic credit (%) (2016-2023)

18 17.0

16 14.9 15.0

14 6.0
11.4
12 5.7
10 8.8
7.6 7.3
8 6.4 7.8
5.7
1.8
6 11.1
1.9 5.1
2.9 9.0
4
5.5 5.9
2 3.2 4.0
2.5 2.5
-
-2.0
2016 2017 2018 2019 2020 2021 2022 2023

Credit to Government Credit to other public sector

Credit to private sector Domestic Credit Growth

Data Source: Central Bank of Kenya (Various), Monthly Economic Indicators

Credit extended to the private sector grew to cope with the turbulent business environment
by 13.9 per cent in 2023 compared to 12.5 in 2022 and 2023. Further, credit expansion to
per cent in 2022, amidst the harsh economic the private sector was broad-based, across all
environment posed by the convergence of both sectors. Specifically, credit to agriculture grew
domestic and external shocks. Private sector by 23.4 per cent, manufacturing 20.9 per cent,
credit growth contributed 8.8 percentage points trade sector 13.1 per cent, and real estate 7.1
to domestic credit growth in 2023, compared per cent (Figure 2.12). Credit to transport and
to a contribution of 7.8 percentage points in communication grew by 20.8 per cent while
2022 (Figure 2.11). The increase in credit to the credit to consumer durables grew by 9.9 per
private sector reflects increased credit uptake by cent.
private entities either for business expansion or

Figure 2.12: Sectoral credit growth (%) (2015-2023)

40
35
30
25
20
Per cent

15
10
5
-
-5
-10
-15
2015 2016 2017 2018 2019 2020 2021 2022 2023

Credit to private sector Agriculture Manufacturing

Trade Transport & communications Real estate
Consumer durables

Data source: Central Bank of Kenya (Various), Monthly Economic Indicators

26
 MACROECONOMIC PERFORMANCE

Following Guerra (2017), Andersson et al. by the government to enhance access to credit
(2016), and Chisasa and Makinda (2015), the link and financial inclusion are likely to pay off in
between private sector credit and productivity terms of productivity enhancement. The BETA
was explored. Granger causality test was and MTP IV have provided various measures
employed to establish if private sector credit to support financial inclusion, including the
is a useful indicator of changes in productivity Hustler Fund, credit guarantee schemes, green
in subsequent periods (Box 2.2). Given the financing, the Uwezo Fund, Women Enterprise
empirical findings that private sector credit Development Fund, and Youth Enterprise
Granger-caused productivity, the interventions Development Fund programmes.

Box 2.2. Granger causality and correlation analysis for private sector credit and productivity

The evaluation of the causality between the private sector credit and productivity was established through the estima-
tion of a Vector Autoregressive (VAR) model. The main results indicate that from 1992 to 2022, private sector credit
growth has Granger-caused productivity; however, there is no evidence of causality of productivity on private sector
credit.

Dependent variable: productivity Dependent variable: Private sector credit

Causal variable Chi-sq df Prob. Causal variable Chi-sq df Prob.
Private sector credit 13.2 6 0.04* Productivity 4.9 6 0.56

H0: Prob>0.05 no causality. Note: *Causality Granger’s sense statistically significant

These results are relevant and could be explained by various factors. For instance, the private sector may demand
credit for the enhancement of its labour productivity in both existing and new firms. This is because lower labour pro-
ductivity negatively affects the value of a firm’s assets. Increased credit supply may affect labour productivity through
investment in human capital, investment in research and development for technological advancement, and invest-
ment in physical capital to improve the capital-labour ratio. Investments in human capital enhance labour productivity
through education and training and enable labour to work and acquire skills and competencies on the job experience.

Analysis of the correlation between private sector credit and productivity revealed a moderate positive correlation
between domestic credit growth and productivity, indicating that increasing domestic credit has a positive effect on
productivity growth.

Source: Author’s calculations

27
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

2.6.3 Financial and banking sector cent to Ksh 5,812.1 billion in December 2023
performance from Ksh 4,655.5 billion in December 2022.

The banking sector remained robust as banks Despite the banking sector being robust, there
remained highly profitable and well-capitalized. are concerns about the asset quality. Asset
However, banks face elevated levels of non- quality measured by the ratio of non-performing
performing loans. The aggregate balance sheet loans (NPLs) and gross loans deteriorated to
of the banking sector increased by 11.7 per cent 14.8 per cent in December 2023 from 13.9 in
to Ksh 7,724.9 billion in December 2023 from Ksh December 2022. The deteriorating asset quality
6,596.9 billion in December 2022. Gross loans reflects the tight macroeconomic environment
increased by 27.4 per cent during the period, following the tightening of monetary policy that
reflecting improved loans granted to individual began in May 2022. High levels of NPLs may
borrowers largely in agriculture, manufacturing, constrain future credit advances to the private
transport and communication, real estate, and sector, particularly micro, small, and medium
consumer durables. Meanwhile, total deposits enterprises as banks perceive them as risky,
in the banking sector increased by 22.9 per eventually limiting economic productivity.

Figure 2.13: Movements in banking sector asset quality (%) (2016-2023)

15 14.6
13.9 13.9
14
13.2
13 12.6
Asset quality (%)

12.1
12

11
10.1
10

9 8.4

8
2016 2017 2018 2019 2020 2021 2022 2023

Asset Quality 7-year average

Data Source: Central Bank of Kenya (Various), Monthly Economic Indicators

Amid the tight macroeconomic environment, the measured as the ratio of liquid assets to short-
banking sector exhibited resilience, as reflected term liabilities was 51.0 per cent in December
in capital adequacy and liquidity ratios, which 2023 compared to 50.8 per cent in December
remained within the statutory limits. The capital 2022, staying above the minimum statutory
adequacy ratio, measured by the ratio of total ratio of 20.0 per cent. Despite the marginal
banking sector capital to total risk-weighted decline in capital adequacy and marginal
assets, was 18.3 per cent in December 2023 increase in liquidity ratio, the banking sector
compared to 19.0 per cent in December 2022, remained robust, with the ability to provide the
remaining above the minimum statutory limit necessary liquidity to the private sector and
of 14.5 per cent. Equally, the liquidity ratio, boost economic productivity.

28
 MACROECONOMIC PERFORMANCE

2.7 Fiscal Trends and Debt primary expenditures during the year, which
Developments more than compensated for the increase in
capital expenditure and interest payments.
2.7.1 Fiscal trends
Total revenue as a share of GDP declined in
The fiscal policy stance of the national 2022/23 due to the harsh business environment
government is to sustain the fiscal following a confluence of economic shocks that
consolidation path. This will slow down public affected output and business activity in 2022.
debt accumulation, which has been a concern. Total revenue declined from 17.3 per cent of
In 2022/23, fiscal consolidation continued, GDP in 2021/22 to 16.5 per cent of GDP in
supported by slightly lower public spending 2022/23 on the backdrop of economic slowdown
despite a decline in revenue. The overall fiscal (Figure 2.15). The key drivers of revenue were
deficit was 5.6 per cent at the end of 2022/23 income and consumption-based taxation. The
and is expected to narrow to 4.9 per cent of expected improvement in revenue collection
GDP at the end of 2023/24 (Figure 2.14). was driven by ongoing policy measures to
Similarly, the primary balance had a deficit of boost collections of domestic taxes, rebound
0.8 per cent of GDP in 2022/23, compared with in economic growth following improvements
an expected surplus of 0.6 per cent of GDP in rainfall in 2023, and renewed business
in 2023/24 (Figure 2.14). This fiscal outcome optimism in the economy.
is supported by the slightly lower recurrent

Figure 2.14: Fiscal trends (2016/17-2023/24)

10.0
8.6
8.0 8.2
7.3 7.5
7.1
6.0 5.3 6.2
5.6
% of GDP

3.8 4.9
3.4 3.4 3.4
4.0
1.6
2.0 0.8

- -0.6

-2.0
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24*
Overall Fiscal Deficit Primary Fiscal Deficit

Data source: National Treasury and Economic Planning (Various), Quarterly Economic and
Budgetary Review (QEBR) and Budget Policy Statement (BPS)

Note: Figures are actuals unless specified as provisional (*)

29
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.15: Trends in domestic revenues (2016/17-2023/24)

25

18.6 19.0
20 17.1 17.5 16.9 17.3
15.7 16.5
1.1 1.2
% of GDP

15 1.2 1.0 1.2

4.4 1.8 1.2 1.1
4.0 4.2 4.4
3.6 4.1 3.9
10 2.2 3.6
1.9 2.0 2.0 2.2
1.8 1.9 1.9
5
8.2 7.2 7.0 6.7 6.9 6.6 7.4
6.1
-
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24*

Income Tax Import duty (net) Excise duty

Value Added Tax Other tax revenue Non-tax revenue
Total Revenue

Data source: National Treasury and Economic Planning (Various), Quarterly Economic and
Budgetary Review (QEBR) and Budget Policy Statement (BPS)

Note: Figures are actuals unless specified as provisional (*)

Meanwhile, total expenditure declined from 23.9 and development spending declined. The trend
per cent of GDP in 2021/22 to 22.6 per cent of is expected to reverse as revenue mobilization
GDP in 2022/23. A similar trend was observed efforts grow to finance key development
in major expenditure categories as recurrent projects in the BETA and MTP IV.

Figure 2.16: Trends in recurrent expenditure (%) (2016/17-2023/24)

18
16
14 4.5 5.5
3.6 3.9 4.1 4.4 4.8
3.4
Per cent of GDP

12
10
8
6 11.1 11.5 11.9 11.4 11.6 12.2 11.4 11.6
4
2
-
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24*

Recurrent primary expenditure Interest payments

Data source: National Treasury and Economic Planning (Various), Quarterly Economic and
Budgetary Review (QEBR) and Budget Policy Statement (BPS)

Note: Figures are actuals unless specified as provisional (*) or budget estimates (BE)

30
 MACROECONOMIC PERFORMANCE

Recurrent expenditure accounted for the largest recurrent. Development spending declined to
share of government spending at 15.9 per cent 3.4 per cent of GDP in 2022/23 from about 7.8
of GDP while development spending was about per cent in 2016/17 (Figure 2.17), as a result
3.4 per cent in 2022/23. The large recurrent of the pausing or cancellation of several public
spending implies that limited resources are investment projects due to limited revenue.
available for investment in capital programmes With the ongoing initiatives under BETA,
that are key to improving productivity. Spending development expenditure in 2023/24 is targeted
priorities have shifted from development to more at 4.3 per cent of GDP.

Figure 2.17: Trends in development expenditure (%) (2016/17-2023/24)

9
8
7
3.0
Per cent of GDP

6
5
1.9
2.3 2.3 1.5
4
1.3 1.6
3 1.0
4.8
2 3.7
3.0 3.2 3.4 3.0
2.4 2.7
1
-
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24*

Domestically financed Foreign financed Development Spending

Data source: National Treasury and Economic Planning (Various), Quarterly Economic and
Budgetary Review (QEBR) and Budget Policy Statement (BPS)

Note: Figures are actuals unless specified as provisional (*) or budget estimates (BE)

2.7.2 Pending bills executive, with over 60 per cent in respect of

development spending. The pending bills limit
Government pending bills remained high. At the execution of budgets, thereby affecting
the end of December 2023, the total national service delivery. Since most pending bills are
government pending bills amounted to Ksh owed to suppliers and contractors who provide
539.9 billion or 3.3 per cent of GDP. This services to the government, accruing high levels
comprised Ksh 448.4 billion and 91.5 billion of pending bills reduces the flow of cash to the
owed by State corporations, ministries/state private sector, leaving a lot of firms without the
departments, and other government agencies. cash to meet their financial obligations, and
A large portion of the State corporations’ leading to increased non-performing loans
pending bills are in respect of payments to (NPLs).
projects/contractors and suppliers.
Rising and persistent pending bills are a
At the county level, total pending bills amounted threat to the survival of the private sector,
to Ksh 156.3 billion or an estimated 1.0 per particularly primary firms that trade with
cent of GDP. For counties, about 98.8 per cent both levels of government. These firms are
of pending bills were accrued by the county critical for employment creation and driving

31
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

economic productivity. The pending bills have increased to 70.8 per cent of GDP in 2022/23
not only affected their profitability and overall from 57.4 per cent of GDP in 2016/17. Over the
performance but have also become a threat to same period, domestic debt increased to 33.3
the private sector in general and the families per cent from 27.5 per cent. The increase was
that depend on these firms. Pending bills also reflected in the increased uptake of long-term
have a bearing on NPLs since service providers government Treasury bonds over the period,
are not able to effectively service their loan in line with the medium-term debt strategy of
repayments on time. If not well monitored, increasing the share of longer maturing debts.
these could have significant implications on
the productivity of the firms and the economy External debt stock as a percentage of GDP
at large. increased from 29.9 per cent in 2016/17 to
38.2 per cent in 2022/23 and is expected to
2.7.3 Public debt marginally decline to 35.5 per cent in 2023/24.
The expected decline in public debt in 2023/24 is
To spur economic growth and productivity, the consistent with the ongoing fiscal consolidation
government has relied heavily on both domestic efforts but is elevated due to the exchange rate
and external debt to finance mega infrastructure risks. Table 2.4 presents the analysis of the
and critical national development programmes. effects of the Kenya shilling depreciation on
Subsequently, public debt stock has trended public debt, considering inflows and outflows.
upwards along with its risks. Gross public debt Between 2021/22 and 2022/23, the shilling
grew from Ksh 4,406.9 billion in 2016/17 to depreciated by 18.1 per cent against the United
Ksh 10.278 billion in 2022/23 and is expected States dollar, with external debt increasing
to amount to Ksh 10,975.0 billion at the end of during the period by Ksh 883.6 billion due to
2023/24. As a percentage of GDP, public debt the depreciation effect.

Table 2.4: Exchange rate effect on external debt stock (Ksh billion)

External stock Disbursements Repayments Change in stock due to Ksh depreciation

2021/22 4,305.8
2022/23 5,446.6 505.3 248.1 883.6

Source: Calculation based on data from Annual Public Debt Report

Both external and domestic debt have potential economy through exchange rate volatilities,
ramifications to the economy if they rise beyond and for a relatively small open economy such
sustainable levels. That is, rising domestic as Kenya, which is largely import-dependent,
debt may crowd out private sector borrowing exchange rate volatilities may further generate
and therefore investment through high interest inflationary pressures with repercussions on
rates, which affects the economy negatively. output and productivity.
Further, rising external debt may impact the

32
 MACROECONOMIC PERFORMANCE

Figure 2.18: Public debt (Ksh billion), (2016/16-2022/23)

45 80
70.8
68.1 67.7 68.0
Dom est i c an d ext er n al debt % of

40 65.8 70

Total Public Debt % of GDP

62.0
57.4 59.4
35 38.2
34.4 35.4 35.5 60
30 33.7
32.3 50
29.9 30.2
25
GDP

40
20
32.7 33.9 33.3 32.6 30
15 29.2 29.7 31.2
27.5
10 20

5 10

- -
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24*

External Domestic Total Public Debt

Data source: National Treasury and Economic Planning (Various), Annual Public Debt Report,
Quarterly Economic and Budgetary Review (QEBR) and Budget Policy Statement (BPS)

Commercial banks are the largest holders of of domestic debt held by the Central Bank of
domestic debt at an average of 49.7 per cent Kenya. Multilateral debt dominates external
over the 2016/17 to 2022/23 period. Non-bank debt, accounting for about half of external debt.
financial institutions come second at 46.4 per Both commercial and bilateral components
cent. There has been minimal borrowing from have been on a decline, indicating government
the Central Bank of Kenya, and the trend alignment to the medium-term borrowing
has been declining with about 2.2 per cent strategy of acquiring more concessional debt.

33
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.19: External and domestic debt structure (2016/17-2022/23)

(a) External debt (b) Domestic debt

100 56 5

Commercisl banks and non-banks

90 54 5
31.7 36.1 36.8 31.9 30.0 28.0 26.4

Central Bank % share

80
%Share in total external debt

52 4
70 50
60 4
48
50 36.7 31.9 30.2 37.6 41.5 44.7 49.0 3
46

% share
40 3
44
30
42 2
20
31.6 32.1 32.9 30.6 28.5 27.3 24.6 40 2
10
-

Commercial Banks Non-banks

Bilateral Multilateral Commercial Central Bank (RHS)

Data source: National Treasury and Economic Planning (Various), Annual Debt Management
Report

Debt servicing costs consume a significant domestic debt due to the high domestic interest
amount of government revenue. Higher debt rate environment. Additionally, external debt
servicing implies reduced resources available service as a proportion of exports rose from 36.5
for expenditures that could increase productivity per cent in 2021/22 to 39.2 per cent in 2022/23,
in the economy, such as in education and reflecting the growing interest payments from
health. Total debt service (TDS) as a share external debt that emanated from increased
of revenue decreased from 50.0 per cent in uptake of commercial loans, weakening of the
2020/21 to 47.9 per cent in 2021/2022 due to Kenya shilling, and overall increasing interest
improved revenue collection after the removal rates in the international financial markets. The
of COVID-19-related fiscal measures. Public persistent increases in debt service to revenue
debt service cost in 2022/23 was 58.8 per cent ratio above the recommended threshold is a
of the revenue, up from 47.9 per cent in 2021/22 worrying sign, and points to elevating public
(Figure 2.20). The increase in the share of debt costs. The increasing debt-to-revenue
debt service to revenue was characterized by ratio indicates that generated revenues are
increased external debt repayment that resulted increasingly being used to repay public debt at
from the depreciation of the shilling against the the expense of productive expenditure needs.
dominant foreign currencies within the external Importantly, domestic debt accounts for the
debt portfolio, and high interest payments on largest share of TDS at about 66.7 per cent.

34
 MACROECONOMIC PERFORMANCE

Figure 2.20: Debt service (2016/17-2022/23)

70
60.1 58.8
Debt service % of revenue and

60
56.7 50.0 47.9
50 43.7 41.4
35.5
exports

40 40.2 39.2
37.4 36.5
34.5
30

20
16.1
10

-
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

TDS as a % of Revenue External Debt Service % of Exports

Data source: National Treasury and Economic Planning (Various), Annual Debt Management
Report

2.7.4 Debt sustainability

At the end of 2023, the present value of total public debt as a share of GDP was estimated at 68.2
per cent. Given the ‘medium’ debt carrying capacity by the IMF in 2024, these figures breach the
debt sustainability requirement threshold of 55 per cent under the Debt Sustainability Framework
(DSF) by the IMF and the World Bank (Table 2.5). On the positive side, the present value of
external debt as a share of GDP was 31.7 per cent, which falls below the 40 per cent threshold for
‘medium’ debt carrying capacity for low-income countries.

Table 2.5: Debt sustainability indicators (%)

Indicators Threshold 2022 2023 2024* 2025* 2026* 2027* 2028 2033
PV of PPG external 40 29.0 31.7 35.8 33.8 31.8 29.9 28.3 23.3
debt to GDP ratio
PV of PPG external 180 228.2 256.9 240.3 224.0 209.9 194.3 182.1 137.9
debt to export ratio
PPG debt service to 15 21.5 24.9 36.0 25.2 24.9 21.1 23.3 15.5
export ratio
PPG debt service to 18 15.3 17.3 28.5 19.8 19.6 16.9 18.8 13.6
revenue ratio
PV of debt–to-GDP 55 63.9 68.2 67.2 64.0 61.4 59.1.9 56.9 48.1
ratio

Data source: National Treasury and Economic Planning (2024), Medium-Term Debt Management
Strategy; and IMF (2024), IMF Country Report No. 24/13

35
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1.7.5 Public spending and productivity information and communication, fuel, and
energy and fuel influence productivity growth
It is widely recognized that public expenditure significantly and positively. Moreover, the
on certain aspects of the economy such as corresponding coefficients of spending on
infrastructure (for example, roads, ports, or education and health are significant at a
communication systems), public research 1.0 per cent significance level. Government
spending, and the provision of basic education expenditures on public order and safety
and medical services raises the economic influence productivity growth positively
potential of a country. By arranging public because they reinforce legal rights, reduce
expenditure using the Classification of the crime (including economic crimes), and reduce
Functions of Government (COFOG)4, the effects the size of the underground economy. The
of public expenditures on productivity growth results are, however, not statistically significant.
were analyzed with the aid of KNBS data for It is important to note that larger expenditures
the period 1980-2022, Table 2.6 presents the on public order may also indicate problems
results. with crime, corruption, or a large underground
economy. Similar results are observed for
Expenditures on economic activities, which social protection and housing and community
include spending on transport infrastructure, amenities, which positively drive productivity
growth.
4
See appendix section for further details on COFOG Classification.

Table 2.6: Effect of public spending on productivity

Variable Coefficient
Dependent variable: productivity
Public order and safety 0.827
Education 0.775***
Economic affairs 1.403***
General public services 0.279
Health 1.626***
Housing and community amenities 0.584
Social protection 0.043
∆Capital 0.201***
∆Labour -0.058***

Source: Authors calculations based on KNBS data

Note: *** represents a significance level of 1.0 per cent.

36
 MACROECONOMIC PERFORMANCE

A strong correlation between targeted sharp drops in net exports. This implies that
government spending and productivity growth the persistence of the current account deficit,
is revealed by the analysis presented in Table especially for Kenya where the trade balance
2.6. Notably, health expenditure demonstrated has continuously dragged the current account
the most significant impact, with a 1.0 per balance, could be explained by shocks in
cent increase leading to a 1.6 per cent rise in productivity, especially weather-related shocks
productivity. This aligns with the MTP focus that affect local production of key export
on investing in human capital, as a healthy products such as tea, coffee, and horticulture,
workforce fosters economic dynamism. among other products.
Furthermore, the analysis suggests positive
spillover effects from increased spending on The current account deficit narrowed to 4.0 per
economic affairs (1.4% productivity increase cent of GDP in 2023 from 5.1 per cent of GDP
per 1% spending increase). This category, as in 2022. This was mainly driven by a recovery
defined by COFOG, encompasses several in the tourism sector to pre-COVID-19 levels,
key areas aligned with the government’s resilience in remittances, reductions in imports,
BETA priorities: agriculture, MSMEs, digital and a real exchange rate depreciation. The
infrastructure, and the creative economy. These current account balance was supported by an
sectors are crucial for fostering a diversified improvement in the net merchandise account,
and innovative economy. Additionally, the the net secondary income balance, and net
results highlight the importance of other receipts on the services account despite a
strategic spending areas within BETA, such deterioration in the net primary income balance.
as health (already mentioned) and housing
and settlements. Investments in these areas The merchandise trade balance recorded
can create a virtuous cycle, with improved strong improvement due to the expansion in
health leading to higher productivity and better global demand and the high market value of
housing fostering a more stable and productive exports in the international market. The trade
workforce. balance narrowed from a deficit of 10.3 per
cent of GDP in 2022 to a deficit of 9.3 per cent
2.8 External Sector Developments of GDP in 2023. Secondary income, which
had a positive contribution to current account
2.8.1 Current account narrowing accounted for 6.5 per cent of GDP in
2023 compared to 5.8 per cent in 2022. There
Various studies have identified productivity was a strong growth in diaspora remittance
shocks as the key driving force behind current inflows at 3.9 per cent of GDP in 2023, reaching
account movements. It is widely established Ksh 591.2 billion, compared to Ksh 478.5 billion
that a country’s productivity shocks negatively in 2022. The narrowing current account deficit
affect the current account balance, while global and prospects for enhanced market confidence
productivity shocks do not have any significant with the government commitment to settle
effect. Productivity shocks are the main source the maturing Eurobond in June 2024 will help
of fluctuations in net exports, contributing to improve the external outlook.

37
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Figure 2.21: Current account performance (2016-2023)

10.0

5.0 5.4 5.4 5.3

4.3 5.6 5.8 6.5
4.9
1.9 1.9 1.7 1.7 0.8 1.0 0.6
- 0.3
-10.3 -12.4 -11.1 -10.6 -8.3 -10.4 -10.3 -9.3
% of GDP

-4.0
-5.0 -5.4 -5.4 -5.2 -4.8 -5.5 -5.1
-7.0
-1.7
-10.0 -1.7
-1.4 -1.6 -1.5 -1.5
-1.5
-1.9
-15.0

-20.0
2016 2017 2018 2019 2020 2021 2022 2023

Trade balance Services Primary Income Secondary Income Current Account Deficit

Data source: KNBS (Various), Quarterly Balance of Payment and International Trade Reports

Foreign exchange reserves remained at the until December 2023 when reserves amounted
margins of the statutory requirement of at to US$ 7,341 million (3.9 months of import
least four months of import cover and on a cover), raising concerns about the adequacy of
declining trend. At the beginning of 2023, the reserves to cushion the economy against
reserves amounted to US$ 7,495 million (4.2 any short-term shocks in the foreign exchange
months of import cover). This trend continued market.

Figure 2.22: Trends in official reserves holdings (2017-2023)

11,000 6.4 6.4 7

6.1
Official reserves (million USD)

10,000 4.8
4.5 6
3.9

Imports cover (months)

9,000
5
8,000
4
7,000
3
6,000

5,000 2

4,000 1
Sep-21
Sep-19
Dec-17

Sep-18

Dec-21
Dec-19
Dec-18

Sep-23
Sep-22
Sep-20

Dec-23
Dec-22
Jun-21
Jun-19

Dec-20
Jun-18

Mar-21
Mar-19
Mar-18

Jun-23
Jun-22

Mar-23
Mar-22
Jun-20
Mar-20

Official Reserves Months of Import Cover

Data source: Central Bank of Kenya (Various), Monthly Economic Indicators

38
 MACROECONOMIC PERFORMANCE

2.9 Key Messages and loans as suppliers get constrained to service

Recommendations their loan repayments in good time.

2.9.1 Key messages 5. Fiscal consolidation continued in 2022/23

and 2023/24, supported by rationalized
1. Improvements in productivity growth spending through improved public
are vital for sustained economic growth investment management, reallocating
and accelerated reduction of poverty. resources to BETA priority areas, and
Widespread sectoral productivity growth removal of unsustainable consumption
results in increased output, thereby reducing subsidies. Recent gains in revenue that
the cost of food and consumable products halted in 2022/23 are expected to pick up in
to poor consumers. It also increases labour 2023/24 due to the ongoing implementation
efficiency, leading to higher labour incomes, of revenue enhancement measures.
which in turn supports meeting basic needs.
6. The government strategy to tap into
2. Growth momentum picked up in 2023 due concessional borrowing has prudently
to robust agriculture performance with reduced the accumulation of expensive
improved rainfall. For the first time since debt. However, high exposure to currency
December 2021, the agriculture sector depreciation, export and interest rate
expanded, growing at 7.0 per cent in the shocks, global capital market volatility, and
first nine months of 2023 compared to a rollover risks could put at risk public debt
contraction of 1.1 per cent and 1.9 per sustainability in the near to medium term.
cent in the same period in 2021 and 2022,
respectively. Overall, the economy grew by 7. Current account position improved in
5.6 per cent in the first nine months of 2023 2023 owing to improved net merchandise
compared to a growth rate of 5.2 per cent in trade, secondary incomes, and services
the same period in 2022. account. Importantly, over the years, the
poor performance of the merchandise trade
3. Food inflation eased in 2023 because of balance has put pressure on the current
ample rainfall received in the first half of account balance.
the year. Timely monetary policy tightening
supported the softening of non-food, 2.9.2 Recommendations
non-fuel inflation. However, fuel inflation
trended upwards in 2023 due to global oil 1. To buffer the economy against future
prices, exchange rate depreciation, and effects of climate change, the government
the implementation of the 16 per cent could strengthen agricultural resilience
VAT on fuel. As a result, overall inflation by investing in irrigation infrastructure,
averaged 7.7 per cent in 2023, crossing the drought-resistant crops, fast-maturing
government target band. crop varieties, and adopting climate-
smart agricultural practices. Further, the
4. The banking sector was resilient, with country could revitalize economic growth
most indicators remaining consistent with by enhancing sectoral productivity through
the statutory thresholds. Nonetheless, sector-specific interventions such as
concerns remain on banking sector asset technological advancements, improved
quality as the ratio of non-performing loans management practices, or better worker
to gross loans increased to 14.6 at the end training. Other interventions include a
of December 2023 from 13.9 in December change in sector product mix to value-
2o22. Accumulation of pending bills also added goods or services and a reduction
has a bearing on increasing non-performing in costs of raw materials or other inputs.
Resilience building measures, therefore,

39
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

could target programmes and projects that enhance the clearance of pending bills, for
help to mitigate and adapt to the effects of example, by ring-fencing funds to pay off
climate change and invest in disaster risk outstanding bills that it owes to suppliers.
preparedness measures. Encouraging banks to restructure loans,
especially for small and medium-sized
2. To ensure that the country does not incur enterprises, and offering concessionary
losses related to post-harvest losses, it loans to sectors such as agriculture,
becomes critical to invest in infrastructure is a priority. Further, maintaining a
that supports proper harvest management sustainable fiscal position and scaling
by expanding the existing infrastructure up the implementation of public financial
through the National Produce and Cereals management regulations and the Public
Board warehouses and enhancing the Finance Management - PFM Act of 2012
market uptake of agricultural produce. (including in debt and cash management)
Given that there is surplus production in could prevent the occurrence of government
periods following rainfall, there is a need to arrears to individuals, suppliers, and banks.
put in place incentive measures for farmers
so that they are encouraged to sell their 5. Sustaining the ongoing fiscal consolidation
surplus to the government or encourage interventions is crucial by prioritizing
them to set up homestead granaries for efficient spending and broadening the tax
harvested cereals. base. Revenue enhancement will require
prudent management of tax expenditures,
3. Effectively managing overall price escalating initiatives that promote growth
developments through timely and adequate to boost taxable income, and ensuring that
monetary policy stance to rein in non- every economic agent pays their share of
food, and non-fuel inflation while investing taxes. Expenditure management will require
in initiatives that enhance agricultural encouraging ministries, departments,
productivity to enhance food production agencies, and counties to enhance budget
and in turn ease food inflation. Other absorption while limiting fiscal slippages.
initiatives include scaling small-scale
irrigation and lowering input prices through 6. With increased risks of debt distress, it
initiatives such as the ongoing fertilizer is imperative that the debt management
and seed subsidy programmes. Since strategy emphasizes diversifying debt
micro-irrigation schemes along riverbanks sources by prioritizing the acquisition of
have yielded positive outcomes, installing concessional loans, scaling up the uptake
water harvesting infrastructure such as of grants, and exploring debt restructuring
constructing water pans and reservoirs, options promptly before the maturity of
especially in arid and semi-arid lands huge debts. Further, exploring the issuance
(ASALs) could support agricultural of use-of-proceeds (U0P) bonds and
production and promote food and nutrition sustainability-linked bonds (SLBs) could be
security. instrumental in driving key BETA priorities
on health and housing.
4. To address the growing non-performing
loans ratio, there is a need to boost the 7. Address weak merchandise trade balance
growth of private sector activities by through diversification of exports by
enhancing the ease of doing business, focusing on high technology sectors such
reducing bureaucratic hurdles, and creating as manufacturing to drive value added
a favourable regulatory environment that exports. Further, addressing supply-side
can encourage banks and other lending bottlenecks such as standardization,
institutions to extend credit to the private market information and cost of production
sector. This calls for the government to will bolter export volumes.

40
 CHAPTER

3
MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

MEDIUM-TERM
MACROECONOMIC
PROSPECTS FOR KENYA

Kenya’s economy grew at 5.6 per cent in 2023, supported by favourable

weather conditions and the government fertilizer subsidy, which enhanced
agricultural sector production. At the baseline, growth is projected at 6.2 per
cent in 2024, and 6.7 per cent in the medium-term, with inflation remaining
within the government policy target range of 5 ±2.5 per cent. Growth is likely
to accelerate to 6.1 per cent in 2024, and 6.6 per cent in the medium-term
due to opportunities such as favourable weather and growing economic
partnerships, such as the concluded 28th Conference of Parties where Kenya
acquired US$ 4.4 billion to support green manufacturing. Should downside
risks materialize, which include poor rainfall patterns and heightened debt
vulnerabilities, growth could be depressed to 5.3 per cent in 2024, and 5.6
per cent in the medium-term. Individual factor and total factor productivity
have direct and indirect effects on value-added through forward and
backward sectoral linkages. Furthermore, total factor productivity influences
government revenues and aggregate demand. To foster productivity across
sectors, innovations in areas such as precision agriculture, use of high-
yielding seeds, investment in infrastructure for irrigated agriculture, continued
government fertilizer support, and automation of manufacturing processes
both at the national and county levels could support sustainable development.
Incentives to access raw materials, machinery, and equipment could reduce
production costs and enhance productive efficiency. The development of
industry clusters could support forward and backward sectoral linkages
for a vibrant industry. There is also a need for prudent monetary and fiscal
policies to support aggregate demand, especially investment, consumption,
and exports. County governments can achieve a projected 5.9 per cent GCP
growth in 2024 by leveraging on various government initiatives, such as
participating in value chains, enhancing agro-processing, and accelerating
technological progress.

3.1 Introduction in 2022 from 4.8 per cent in 2021. In Kenya,

E
a GDP growth of 5.6 per cent was attained in
conomic activities globally witnessed a 2023 compared to 4.9 per cent in 2022. This
rocky recovery in 2023 from a slowdown is signalling continued economic recovery
of 3.5 per cent in 2022 (IMF, 2023). The supported by improvements in the agricultural
slowdown was mainly due to adverse and services sectors following improved rainfall,
shocks, which included uncertainty in global and the seed and fertilizer subsidy programme
financial conditions, tightening of monetary undertaken by the government. The growth was
policy in advanced economies, and the growth also supported by improved service delivery at
slowdown in Russia and China. In Sub-Saharan the national and county levels. Table 3.1 shows
Africa (SSA), growth declined to 4.0 per cent projected growth rates from various sources.

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Table 3.1: Selected GDP growth rates (2022-2025)

IMF World Bank AfDB BPS

Kenya
2022 4.8 4.8 4.8 4.8
2023f 5.1 5.0 5.4 5.5
2024f 5.3 5.2 5.4 5.9
2025f 5.3 5.3 5.5 6.1
Sub-Saharan Africa
2022 4.0 3.7 3.7 n.a.
2023f 3.3 2.9 3.6 n.a.
2024f 3.8 3.8 4.2 n.a.
2025f 4.1 4.1 n.a. n.a.

Data source: IMF (2024) World Economic Outlook January 2024; World Bank (2024) Global
Economic Prospects January 2024; AfDB (2024) Africa’s Macroeconomic Performance and
Outlook January 2024; Government of Kenya (2024) Budget Policy Statement 2024 (n.a. means
not available; f is forecast)

Globally, growth is projected at 3.1 per cent in 3.2 Medium-Term Prospects (Baseline
2024 and 3.2 per cent in 2025 (IMF, 2024). For Scenario)
Kenya, growth is projected at 5.1 per cent for
2023 and 5.3 per cent for 2024 and 2025. The Medium-term prospects are informed by the
growth projections by Medium-Term Plan IV government development agenda, reflected
for 2023 to 2025 are, however, 6.1, 6.3, and by the Bottom-Up Economic Transformation
6.5 per cent, respectively, while projections by Agenda (BETA) in the Medium-Term Plan IV
Budget Policy Statement 2024 are 5.5, 5.9, and for 2023-2027. The baseline scenario assumes
6.1 per cent, respectively. normal conditions to face the economy or
business-as-usual scenario, as the government
This chapter provides economic forecasts continues implementing its programmes. Table
for the medium-term (2023-2026) based on 3.2 presents the medium-term outlook for
the KIPPRA-Treasury Macroeconomic Model growth and aggregate demand components that
(KTMM), which is an aggregate demand- contribute to GDP, based on the KTMM Model.
side model of the economy. We also provide The contributions of private consumption, gross
simulations from the CGE framework and fixed capital formation (GFCF), exports, and
projections for county GCPs. imports to GDP were 76.2, 17.2, 11.7, and 20.4
per cent in 2023, respectively (KNBS, 2024).

42
 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

Table 3.2: Medium-term economic outlook (baseline scenario)

2021 2022 2023 2024f 2025f 2026f 2027f

Rates (%)
GDP growth 7.6 4.9 5.6 6.2 6.6 6.8 7.2
Inflation 6.1 7.7 7.6 8.0 7.3 6.0 6.5
Interest rate 7.0 8.2 12.2 12.0 11.6 10.9 10.8
Volume growth
Private consumption 9.1 5.6 7.7 7.6 7.4 7.3 7.6
Government consumption 6.0 7.4 3.5 3.8 4.4 4.9 5.4
Private investments 15.4 -2.4 -7.9 2.2 4.8 4.9 5.6
Government investments -19.2 -15.5 81.9 48.1 38.8 27.0 26.1
Export goods and services 15.3 10.7 -4.5 -1.4 1.8 2.9 3.7
Import goods and services 22.2 4.6 -3.1 4.8 6.5 5.9 7.0
% of GDP
Current account balance -5.3 -5.1 -4.0 -3.7 -4.8 -6.3 -7.3
Index
Ksh per Dollar 109.6 117.8 139.9 143.3 143.4 143.2 143.0

Data source: KIPPRA-Treasury Macroeconomic Model, 2024; where f is forecast

Under the baseline scenario, the economy and other structural bottlenecks such as
is expected to grow at 6.2 per cent in 2024 when markets are not efficient. These led to
and maintain a steady growth path to 7.2 the tightening of monetary policy since 2022
per cent by 2027. The robust growth is and, therefore, a rising trend in interest rates
attributed to expansion in private and public (Government of Kenya, 2024).
investments, improved weather conditions that
boost agricultural activities, a growth-friendly Private consumption supports aggregate
policy environment, and enhanced revenue demand and is expected to average 7.4 per
mobilization. Through the Medium-Term cent in the medium-term (2024-2027). This will
Revenue Strategy (MTRS), the government is be supported by improved consumer incomes
implementing reform measures to strengthen arising from job creation opportunities from the
tax revenue mobilization to over 20 per cent of implementation of various government projects
GDP in the medium-term. If the country is to such as affordable housing, and community
attain the growth target of 10 per cent by 2030, health volunteers. Government consumption is
it would need to have accelerated growth as key in boosting economic activities and private
2030 nears. sector participation. Government consumption
is expected to decline in 2023-2024 as the
Inflation is envisaged to remain within the government pursues fiscal consolidation and
government band range of 5 ±2.5 per cent in rise thereafter to an average of 7.3 per cent in
the medium-term. In 2023, the inflation rate the medium-term with increasing demand for
averaged 7.6 per. It is expected to increase public services as the BETA implementation
slightly to 8.0 per cent in 2024, and average at continues.
7.3 per cent in 2025. The inflationary pressure
in the last two years has largely emanated Private investment, being a driver of aggregate
from the depreciation of the local currency, demand, enhances productivity through capital
rising international fuel prices, weather shocks, accumulation that is invested to expand

43
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

production capacity and enable access to high- on government efforts to improve the foreign
level technologies that enhance productivity. exchange balance. If external shocks persist,
There was a decline in investment volume in such as further monetary policy tightening in
2022, which was due to uncertainties arising the US, then the recovery of the local currency
from the general elections. At the baseline, against the US dollar may take longer than
private investment is expected to average expected.
4.4 per cent in the medium-term, which will
require creating an enabling environment with Export volumes as a per cent of GDP increased
infrastructural development, macroeconomic from 9.6 per cent in 2020 to an estimated
stability, improved investor confidence, 12.2 per cent by 2022 (KNBS, 2023). The
essential services such as water and power, government is keen on increasing exports,
and supported by Public-Private Partnerships especially focusing on nine value chains
(PPP). By helping to build productivity in the which include tea, dairy, leather and leather
private sector, private investment becomes products, rice, edible oils, textile and apparel,
crucial for overall economic growth and job and construction materials. Export growth
creation. is projected at -1.4 per cent in 2024 from an
estimated -4.5 per cent for 2023. The growth
Government investment is key in supporting in exports is premised on enhancing market
inclusive economic growth, job creation, and access and facilitating export diversification
sustainable development. This explains why through continued implementation of the Single
the government has been investing heavily in Customs Territory, and the African Continental
infrastructure and energy development. Public Free Trade Area (AfCFTA).
investment raises the marginal productivity of
private capital. From the baseline, government Import volumes have been on an upward trend
investment is expected to continue, and an since 2020, getting back to pre-pandemic
average of 35.0 per cent in the medium-term due levels, rising from 17.6 per cent of GDP in 2020
to the implementation of various development to 21.5 per cent in 2022 (KNBS, 2023). In terms
projects that are part of the BETA Plan. The of percentage growth in volume, however,
MTP IV aims to increase the investment-to- imports and exports have shown much volatility
GDP ratio from 19.3 per cent in 2022/23 to between 2018 and 2022. From the baseline
26.7 per cent in 2027/28. This will be achieved projections, imports are projected to grow
through investments in the affordable housing in volume at 4.8 per cent in 2024 and further
programme, community health, investment to 6.5 per cent in 2025. This will be driven
in key value chains, public infrastructure partly by the implementation of government
investments, and social protection. programmes under MTP IV for those that are
not locally available.
A stable domestic currency is vital for
macroeconomic stability and growth. In 2023, The current account balance is expected to
the US dollar appreciated against other improve in the medium-term, attributed to
international currencies, partly due to the government efforts to explore new commodity
monetary policy stance in the US, and terms of markets and strategic partnerships for trade
trade shocks. Consequently, the local currency that would boost exports and therefore improve
depreciated against the dollar to an average the trade account. The trade balance for Kenya
of Ksh 139.9 per dollar in 2023. As a measure is the key contributor to the current account
to address the volatility of the local currency, deficit, followed by net primary income balance,
the government established a government-to- and net services account. The current account
government (G2G) procurement plan for oil balance is supported by an improvement in the
products. A projected gradual easing of the net receipts on the services account and the
exchange rate in the medium-term is premised net secondary income balance. The secondary

44
 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

income balance measures the net income that achievement of the economic prospects. The
residents earn from the rest of the world and optimistic and depressed forecast scenarios
current transfers. are thus informed by the potential risks and
opportunities, discussed in section 3.3.1.
3.3 Medium-Term Risks, Opportunities,
and Outlook 3.3.1 Risk factors

Medium-term prospects at the baseline may, Table 3.3 presents the various downside and
however, be affected by upside risks that upside risk factors, and this is followed by a
the country could leverage to boost growth discussion on their potential impacts and their
and downside risks that could curtail the likely implications on productivity.

Table 3.3: Summary of downside and upside risks

Downside risks Upside risks

(i) Global geo-political tensions and uncertain (i) Macroeconomic stability
economic outlook
(ii) Weather-related risks (more frequent droughts and (ii) Improved weather conditions, rainfall that boosts
uncertain rainfall patterns) agriculture (and tree planting initiatives going on)
(iii) Debt refinancing risks and accumulation of pending (iii) Established economic partnerships that promote
bills by national and county governments growth in investment and establish export markets
(iv) Rising international fuel prices that raise the cost of (iv) Stable global commodity prices, especially for
living agricultural commodities and metals and fuel
(v) Regional conflicts or unrest and their likely spillover (v) Faster than expected normalization in global
effects (Sudan, Somalia) financing conditions

Source: Author illustration based on recent developments globally, regionally, and nationally

The main downside risks for Kenya are (cumulative 21 years) of widespread drought,
uncertain global economic outlook coupled with occurrences in 1975, 1977, 1980,
with dynamic geopolitical tensions; climate 1983/84, 1991/92, 1995/96, 1999/2000,
and weather-related uncertainties that drive 2004, 2008-2011, 2016/17, and 2022/23.5
up food inflation; global world oil prices, which Consequently, growth was below 4.5 per cent
drive up fuel inflation; and debt refinancing in the years 1996-2005, 2011, 2016, and 2019-
risks. Furthermore, the country is vulnerable 2020, which largely coincided with drought
to external factors such as tightening financial or flooding periods. Droughts and floods are
conditions in more advanced economies, and usually accompanied by declines in GDP
the strengthening of the US dollar against many growth and agricultural sector performance
currencies. In addition, there is a spillover risk (UNEP, 2006; Omondi, 2019; and Blanc and
effect from regional conflicts and instability. Noy, 2023). They also lead to other negative
If these risks materialize, they could result in effects such as loss of lives and destruction of
a depressed scenario presented later in the property. For example, the 2008-2011 drought
chapter. caused widespread losses and damage and
slowed real GDP growth by an average of
(a) Weather-related risks 2.8 percent a year.6 The 2022/23 drought led
to crop failure and the death of animals, thus
Kenya is susceptible to climate risks and other leading to negative growth for the agriculture
natural disasters. Between 1975 and 2023, sector. The widespread drought in 2022 led
the country witnessed about 11 incidences 5
Kenya Natural Disaster Profile, UNDP Kenya Country Office.
6
Kenya: Post-Disaster Needs Assessment 2008-11 Drought Report (2012).

45
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

to dipped growth at 4.8 per cent, coupled population to maintain their current lifestyle due
with other shocks such as the Russia-Ukraine to increases in the cost of essential goods that
War. However, between November 2023 are not matched with a rise in real household
and February 2024, the country experienced income. High international fuel prices translate
good rainfall, and this led to improved farming into high costs of production for manufacturing
activities in some parts, given that agricultural firms and high operating costs for enterprises,
production in Kenya is rain-fed. Due to climate with the result being lower production and
change, drought cycles have become shorter, excess idle capacity, which translates into
which means that the frequency and intensity lower productivity, with a negative effect on
of droughts have increased from every five (5) growth (Trang, Tho, and Hong, 2017). Oil prices
years to two to three (2-3) years, and currently declined in 2023, but are expected to increase
to one to two (1-2) years.7 in 2024 and beyond, based on Fitch Ratings
which increased the 2024 oil price assumptions,
(b) Debt refinancing and accumulation of reflecting OPEC’s continuing tight control
pending bills’ risk over supply. Furthermore, decisions of large
economies that are non-OPEC members, such
The public debt level in Kenya has been as the US and UK, are likely to affect oil prices
sustainable. Debt stimulates long-run moving into the medium-term. Additionally,
economic growth (Kiriga, Chemnyongoi and brent crude oil spot prices are projected to
Wachira, 2020; Sagire and Muriu, 2021), and increase from US$ 82 per barrel in 2023 to
can also enhance a country’s productivity level US$ 87 in 2024 and decline marginally to US$
since it makes possible investments in capital 85 per barrel in 2025 (US Energy Information
accumulation and critical infrastructure that Administration Outlook, 2024).
contributes to future growth (Keynes, 1936).
The risk is the refinancing of debt, given the (d) Global geo-political tensions and
shortening grace periods for external debt, shipping disruptions in the Red Sea
which leads to bunching of repayments, and
the rising interest rates on commercial loans Geo-political tensions and confrontations are
(Government of Kenya, 2024). Domestic a dynamic downside risk. Tensions between
revenue is significantly impacted by debt Russia and Ukraine continue to disrupt value
servicing charges. A high accumulation of chains for essential commodities. More
pending bills represents an additional downside recently, tensions between Israel and Hamas
risk since they lead to a charge on national continue to escalate, further deepening
revenues. The government is, however, keen geopolitical fragmentation. Such tensions lead
to lower the country’s debt burden by reducing to the destruction of both physical and human
the fiscal deficit and ensuring pending bills are capital in affected countries, which leads to a
cleared. decline in productivity levels. There were also
the shipping disruptions occasioned by the
(c) High international fuel prices Houthi rebel groups at the Red Sea, which
disrupted supply chain movement for essential
Rising international fuel prices have in recent commodities. The decline in production and
years become a significant risk for sustainable disrupted supply chains create a transmission
economic growth since they result in an effect to other countries through lower imports
elevated cost of living for many small open of essential supplies or factor inputs and lower
economies. This risk is likely to dominate export volumes, especially for tea, coffee, cut
global risks through 2025 (McLennan, 2023). flowers, and tropical fruits.8 Disrupted value
The cost of living pressure refers to the chains could also drive up inflation in affected
significant inability among broad sections of the countries.
7
https://issafrica.org/iss-today/the-cycle-of-drought-in-kenya-a-looming-humanitari- 8
https://issafrica.org/iss-today/the-cycle-of-drought-in-kenya-a-looming-humanitari-
an-crisis an-crisis

46
 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

(e) Regional conflicts and instability of Kenya, 2024). All these are critical given that
macroeconomic stability is among the enablers
Sub-Saharan Africa is experiencing regional for the Kenya Vision 2030.
tensions, especially in South Sudan and the
Democratic Republic of Congo (DRC). There (b) Strategic economic partnerships
have also been attacks by militants in Somalia.
Conflicts and instability in neighbouring nations Strategic economic partnerships that Kenya
affect trade performance, disrupt supply has developed bilaterally and multilaterally
chains for essential commodities, increase represent an added opportunity for the
the number of refugees or displaced persons, country’s progress through enhanced export
decrease remittance flows and investment, markets and investment opportunities, given
and have negative welfare effects, especially that such partnerships are crafted for mutual
for closely interconnected economies, among benefit. Recent economic partnerships include
other negative externalities. The overall impact those with the USA, United Kingdom, European
of regional wars or instability is a decline in Union, India, Indonesia, Iran, Czech Republic,
productivity and economic growth for affected Japan, France, and various African countries.
countries (Sesay, 2004; Newiak et al., undated). The productivity of the country can also be
enhanced by expanding trade and investment,
3.3.2 Opportunities access to productive capital, potential for
technology transfer, and cooperation in key
There are also some upside opportunities areas such as energy, health, and security.
that the country could leverage to boost
productivity and sustain economic recovery. Examples of recent economic development
The key opportunities include macroeconomic partnerships include the concluded 28th
stability, normal rainfall that favours agricultural Conference of Parties (COP 28) investment
production, strategic economic partnerships, support of about US$ 4.4 billion for green
stable global commodity prices, and faster manufacturing in Kenya, Ksh 350 billion
than expected normalization in global financial from Japan to finance key economic sectors,
conditions. China’s support for Kenya’s landmark projects
under the Belt and Road Cooperation such
(a) Macroeconomic stability as the Mombasa-Nairobi Railway, and others
including support for students abroad, the US
Macroeconomic stability is critical for sustained support of Ksh 154 million in humanitarian
economic growth. Macroeconomic stability assistance to support flood response, among
implies that inflation remains within the other cooperations for development.
government target band of 5 ±2.5 per cent, that
interest rates optimize to levels favourable for (c) Green transition initiatives for
investment (estimated at 8%), and exchange addressing climate change
rates stabilize to pre-COVID-19 levels. The
overall fiscal deficit is also projected to reduce The government has been at the forefront in
from 6.0 per cent of GDP in 2022/2023 to 3.2 instituting various green transition initiatives
per cent in 2027/2028. On the external account, aimed at addressing the effects of climate
the current account deficit improved from 5.1 change. Some of these initiatives include the
per cent of GDP in 2022 to 4.0 per cent in 2023, approval of the National Green Fiscal Incentives
and is projected to remain at 4.0 per cent of Policy Framework (2022), the Sovereign Green
GDP in 2024, driven by improved imports amid Bond Framework (2021), and the planting and
lower oil prices, strong remittance inflows, and growing of 15 billion trees by 2032. Kenya
rationalization of capital spending (Government also plans to adopt innovative, clean, and

47
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sustainable energy technologies. The country through which a normalization in global

benefitted from US$ 4.4 billion to support green conditions could lead to an easing of domestic
development projects at the conclusion of COP inflationary pressures is when there is lower
28 in 2023. Green transition initiatives promote international fuel and food prices.
productivity through improvement in agricultural
output, enhancing labour productivity, and 3.3.3 Medium-term outlook
establishment of green jobs (OECD and ILO,
2022). Furthermore, green public investment Considering the risks and opportunities
increases the productivity of the green sector discussed, this section presents the optimistic
through the expansion of output and reduction and pessimistic economic scenarios for the
of green energy prices (Airaudo, Pappa, and medium-term based on the aggregate demand
Seoane, 2022). KTMM.

(d) Stable global commodity prices (a) Optimistic scenario

Global commodity prices are expected to be The optimistic scenario considers that various
stable for most of 2024 (World Bank, 2023). factors will work in favour of economic growth
Stable global commodity prices are crucial and that the opportunities available to the
since they help moderate country inflation economy will materialize. The key assumptions
rates. Whereas oil prices are projected to include stable macroeconomic conditions,
increase in 2024, other commodity prices implying that inflation will ease to the policy
including food, cereals and other agricultural position of 5.0 per cent, and the exchange rate
commodities, and metals are expected to will stabilize to pre-COVID-19 levels and favour
stabilize to pre-pandemic levels. Studies have the current account and external debt servicing,
shown that high inflation has a negative effect premised on a well-functioning forex market,
on productivity (Sbordone and Kuttner, 1994). favourable external conditions to support the
A 1.0 per cent increase in inflation reduces country’s external account, and favourable
agricultural productivity in Kenya by 0.02 per rainfall pattern to support agricultural activities.
cent (Muraya, 2017). In sum, stable commodity The optimistic outlook is premised on a stable
prices translate to stable inflation and better political environment, improvement in global
productivity prospects. commodity prices to boost exports, pro-growth
fiscal consolidation programme, enhanced
(e) Faster than expected normalization domestic resource mobilization, improved
in global financial conditions capital expenditures (fast-tracking projects that
boost development expenditures by about 10
If global financial conditions normalize faster per cent over the medium term), and external
than expected, this will be an opportunity for borrowing directed towards investment. These
the country to leverage on in terms of access assumptions anchor the optimistic outlook in
to international finance at affordable rates, Table 3.4.
thus boosting external balances. The channel

48
 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

Table 3.4: Medium-term economic outlook (optimistic scenario)

2021 2022 2023 2024f 2025f 2026f

Rates (%)
GDP growth 7.6 4.9 5.6 6.1 6.7 7.0
Inflation 6.1 7.7 7.6 6.8 6.1 4.8
Interest rate 7.0 8.2 10.8 10.4 9.7 8.2
Volume growth
Private consumption 9.1 5.6 3.9 4.5 4.8 5.1
Government consumption 6.0 7.4 6.9 7.5 8.9 10.2
Private investments 15.4 -2.4 5.5 6.2 7.1 7.5
Government investments -19.2 -15.5 1.4 13.9 13.7 11.4
Export goods and services 15.3 10.7 10.2 11.0 11.1 12.2
Import goods and services 22.2 4.5 3.0 4.2 4.9 4.9
% of GDP
Current account balance -5.3 -5.1 -3.7 -3.5 -4.5 -5.2
Index
Ksh per Dollar 109.6 117.8 139.8 139.3 135.8 133.6

Data source: KTMM (2024) Projections

Under the optimistic scenario, economic growth 2022). Thus, the optimistic growth projection
is projected at 6.1 per cent in 2024 and 6.6 per will be achieved with the implementation of
cent in the medium-term. The growth target of 7.0 the BETA, supported by the private sector
per cent by 2026 aligns well with an economy- and county governments. The economy-wide
wide model results study, which showed that results by Breisinger et al. (2022) provided
total annual GDP growth is estimated to rise scenarios for other macroeconomic variables
from the base-run scenario of 4.8 per cent to under the BETA in addition to GDP projections.
7.2 per cent at market prices in 2023-2027 if Table 3.5 presents the scenario analysis for the
the BETA is implemented (Breisinger et al., aggregate demand components for 2023-2027.

Table 3.5: Annual average growth under baseline and accelerated growth scenarios under
BETA

Indicator Base run (%) - 2022 Accelerated growth–2023-2027

Total GDP (market prices) 4.8 7.2
Consumption 4.8 5.9
Government 4.5 6.0
Investment 3.9 8.1
Exports 5.6 11.3
Imports 4.0 5.5
CPI changes -0.8 -1.2

Source: IFPRI, CGIAR, and KIPPRA (2023) Project Note.9

9
IFPRI is the International Food Policy Research Institute, CGIAR is the Consultative Group on International Agricultural Research, and KIPPRA is the Kenya Institute for Public
Policy Research and Analysis.

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Table 3.5 further shows that investments and Exports are projected to rise from 10.2 per cent
exports grow faster than GDP, with the annual in 2023 to 11.0 per cent in 2024 and 11.4 per
growth rate of investments more than doubling cent in the medium term under the optimistic
from 3.9 per cent to 8.1 per cent. In addition, scenario. The growth in exports is premised
the trade position improves substantially, driven on various economic partnership agreements
by stronger growth in exports than in imports that Kenya enters, such as the Economic
(11.3% versus 5.5% per year). The findings Partnership Agreement (EPA) trade deal
imply that there is a re-orientation to investment signed with the European Union, and another
and exports in the economy. The growth in trade deal signed with Indonesia. Imports are
private and public consumption demand is projected to grow at a slower pace compared
slower than GDP growth, which then leads to to exports and to average 4.2 per cent in 2024
falling consumer prices, declining from 0.8 per and 4.9 per cent in 2025 and 2026 following
cent to 1.2 per cent. government intentions to reduce the import
bill on certain imported food commodities.
Inflation is envisaged to remain within the Consequently, the current account balance is
government inflation band of 7.5 per cent envisaged to improve to 3.7 per cent of GDP in
in 2024, under the optimistic scenario, and 2023 and further to 3.5 per cent in 2024 from
gradually ease towards the government target 5.1 per cent in 2022.
of 5.0 per cent in the medium-term. This decline
in inflation is largely attributed to improved (b) Depressed scenario
weather conditions that will boost agricultural
production, monetary policy tightening, and The depressed scenario capturing a worst-
prospects for stable international commodity case scenario considers that various factors will
prices except for oil, which would mean less work against improved economic performance
expensive imports for Kenya. The IMF (2023) and that the downside risks will actualize. The
projects declining inflation rates from 6.6 per underpinning assumptions include unstable
cent in 2024, to 5.4 per cent in 2025 and 2026. macroeconomic conditions, implying that
inflation persists in the economy occasioned
Private consumption is a key driver for growth, by escalating fuel prices, interest rates
accounting for about 75 per cent of nominal rising due to further tightening of monetary
GDP. When there is an expansionary fiscal policy, thus affecting investments, exchange
policy through increased government spending, rate depreciation continues, thus adversely
it tends to crowd in private consumption, while affecting the current account and external debt
contractionary fiscal policy through higher servicing, worsening geopolitical tensions,
taxation tends to crowd out private consumption. regional conflicts and instability in neighbouring
Changes in fiscal policy have been shown to countries, adverse weather conditions, and
influence private consumption, especially in the increasing uncertainty in the global economic
long-run (Muindi and Mukorera, 2022). Private outlook. Table 3.6 presents the depressed
consumption optimistic projections show a outlook.
growth of 4.5 per cent in 2024, with a rising
trend to 5.1 per cent by 2026.

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 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

Table 3.6: Medium-term economic outlook (depressed scenario)

2021 2022 2023 2024f 2025 2026f

Rates (%)
GDP growth 7.6 4.8 5.5 5.3 5.6 6.0
Inflation 6.1 7.7 7.6 7.3 6.2 6.7
Interest rate 7.0 8.2 10.8 10.5 10.0 9.5
Volume growth
Private consumption 9.1 5.4 3.9 4.2 4.7 5.6
Government consumption 6.0 7.4 6.9 6.4 7.0 7.2
Private investments 15.4 -2.4 5.5 5.5 6.2 5.6
Government investments -19.2 -15.5 1.4 9.0 7.0 8.0
Export goods and services 15.3 10.7 10.2 10.4 10.4 10.5
Import goods and services 22.2 4.5 3.0 5.4 6.5 7.7
% of GDP
Current account balance -5.3 -5.1 -3.7 -3.1 -3.5 -4.3
Index
Ksh per Dollar 109.6 117.8 139.8 143.6 142.0 141.8

Data source: KTMM (2024) Projections

Under the depressed scenario, the economy is addition for exports. Imports are projected to
expected to grow at 5.3 per cent in 2024, and 5.6 grow at 5.4 per cent in 2024 and 6.5 per cent
per cent in the medium-term. The anticipated in the medium-term. Consequently, the current
growth is attributed to the actualization of risk account balance is envisaged to deteriorate in
factors, such as further depreciation of the the medium-term to an average deficit of 3.6
local currency, debt refinancing needs, and a per cent of GDP. The IMF (2023) projected a
slowdown in global economic growth. The IMF current account deficit to GDP of 5.0 per cent
(2023) showed growth projections of 5.3, 5.3, for 2024.
and 5.4 per cent, respectively, for the period
2024-2026, while NCBA (2024) projected 4.9 3.4 Simulation for sectoral productivity
per cent for 2024. in economic sectors on key
macroeconomic indicators
Inflation is envisaged to remain within the upper
government inflation band of 7.5 per cent in Productivity growth is essential for sustainable
2024 and remain constant even in the medium- and inclusive growth for developing and
term. This high inflation would largely be emerging market economies (IMF, 2023). Like
attributed to unfavourable weather conditions, other developing and emerging economies,
deteriorating global economic conditions, and Kenya has room to increase its productivity for
a rise in energy prices that would push up fuel enhanced growth, especially in key economic
inflation. sectors. Productive capacity reflects the
maximum possible output that a country can
Exports are projected to grow marginally from produce using all factor inputs efficiently.
10.2 per cent expected in 2023 to 10.4 per cent Inadequate productive capacity limits
in 2024-2025 and to 10.5 per cent by 2026. economic output. By maximizing productive
This will be supported by expanding export capacity, the production possibility frontier
markets for key exports and through value (PPF) shifts outwards, and therefore more
output is produced, which promotes economic

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 KENYA ECONOMIC REPORT 2024
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growth (Gnangnon, 2021). For example, to production linkages that together determine a
enhance productive capacities, countries need country’s ability to produce goods and services,
to transition from traditional agriculture to and therefore grow (UNCTAD, 2023). The score
agro-processing, as this will encourage more focuses on eight (8) key categories, which
production by reducing post-harvest losses and include human capital, natural capital, energy,
innovative farming solutions, which then shifts ICT, structural change, transport, institutions,
the production possibility frontier outwards. and the private sector. There is a very high
correlation between productivity score and
The United Nations Conference on Trade GDP per capita for a country. For example,
and Development (UNCTAD) developed a developed economies such as Denmark,
productivity performance score for all countries Australia, and the US have high productivity
in 2023, which presents an alternative measure scores of over 70 per cent. Figure 3.1 shows
of economic progress beyond the GDP. The recent productivity performance for the world
productivity score measures the productive and some selected countries.
resources, entrepreneurial capabilities, and

Figure 3.1: Productivity scores for world and selected countries, 2018-2022

60 50
World , 47.26
East Africa , 31.56 45
50 Rwanda , 35.14
Percentage for bar graphs

Africa , 31.48 SSA, 31.06 40

Kenya , 37.36

Percentage, average
40 35
Uganda , 23.14 Tanzania , 31.52 30
30 25
20
20 15
10 10
5
0 0
World Africa SSA East Africa Kenya Uganda Tanzania Rwanda

2018 2019 2020 2021 2022 Average

Data source: UNCTAD (2024)

Kenya’s productivity for the period 2018- citizen’s well-being (Easterly and Levine, 2001;
2022 averaged 37.4 per cent which, although Garzarelli and Limam, 2019). Furthermore,
higher than the African average (31.5%), lies there is room for further growth in productivity in
below the world average (47.3%). Improving Kenya and SSA (Garzarelli and Limam, 2019)
productive capacity is crucial for supporting and that total factor productivity (TFP) growth
higher economic growth. The country is is the most important source for accelerating
making efforts to upscale its productivity growth, contributing to two-thirds of additional
performance further through the Kenya Vision growth in 2023-27 (Breisinger et al., 2022).
2030 Delivery Secretariat in collaboration with
UNCTAD through the productivity improvement To better understand the impact of productivity
programme initiated in 2023. improvement in the three key sectors of the
economy, that is agrifood, manufacturing, and
Productivity is a crucial determinant of a country’s services, simulations were carried out using the
growth rate, international competitiveness, and Demetra-CGE policy analysis model. The model

52
 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

was developed by KIPPRA in collaboration with production function, with the specification for
the Joint Research Centre (JRC).10 The total constant returns to scale and an assumption
factor productivity simulations were based on that productive factors are fully employed,
the CES (Constant Elasticity of Substitution) except labour, which had an unemployment
10
JRC – Seville is the Joint Research Centre of the European Commission.
rate of 6.0 per cent.

Table 3.7: Direct and indirect impacts of TFP on sectoral value-added

Increase TFP increase in the TFP increase in the agri-food TFP increase in the services
in TFP manufacturing sector sector sector
(%) Manu- Agrifood Services Manu- Agrifood Services Manu- Agrifood Services
facturing facturing facturing
1% 2.08 0.56 0.35 0.21 2.16 0.43 1.79 2.20 1.96
2% 4.24 1.13 0.71 0.41 4.36 0.87 3.62 4.48 3.99
3% 6.50 1.73 1.08 0.62 6.58 1.32 4.60 5.62 5.17
4% 8.85 2.34 1.48 0.84 8.84 1.78 5.33 6.42 6.12
5% 11.32 2.98 1.89 1.05 11.13 2.24 6.05 7.23 7.09
6% 13.90 3.65 2.32 1.27 13.45 2.71 6.76 8.04 8.08
7% 16.61 4.34 2.77 1.49 15.81 3.19 7.47 8.86 9.09
8% 19.40 4.97 3.18 1.59 18.01 3.55 8.17 9.68 10.13
9% 21.95 5.22 3.30 1.49 19.91 3.70 8.86 10.51 11.19
10% 24.63 5.47 3.42 1.38 21.82 3.85 9.54 11.35 12.28

Source: Simulations from the DEMETRA-CGE Model for Kenyai (https://datam.jrc.ec.europa.eu/

datam/model/DEMETRA/index.html)

Table 3.7 shows a simulation analysis for the translate to inter-sectoral gains in value added,
impact of an increase in TFP in each of the given the inter-sectoral linkages. For instance,
sectors on the value added across all the improvements in total factor productivity in
sectors. Thus, the simulation increased TFP the manufacturing sector have a direct impact
by 1.0 per cent for the manufacturing sector on the manufacturing sector and an indirect
only and observed the impacts on the value impact on agrifood and services. Overall, the
added for the manufacturing, agrifood, and results demonstrate that sectoral value-added
services sectors. The same simulation was increases with improvements in total factor
then repeated by shocking agrifood and later productivity, with direct sectoral impacts being
services sectors. Consequently, the increase in larger than indirect impacts. The next section
TFP was done gradually from 1.0 per cent to 10 assesses the impact of an increase in total
per cent. Therefore, the table presents the direct factor productivity (TFP) in the three sectors
and indirect impacts of total factor productivity on key selected macroeconomic aggregates,
improvements in sectors on the sectoral value visibly GDP at value added, government
added. Improvements in TFP in the sectors income, and value of domestic demand.

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Table 3.8: Sectoral total factor productivity improvements on selected macroeconomic

indicators

Increase GDP at value added (%) Government income (%) Value of domestic demand (%)
in TFP
Manu- Agrifood Services Manu- Agrifood Services Manu- Agrifood Services
(%)
facturing facturing facturing
1% 0.31 0.31 1.04 0.70 0.54 1.80 0.49 0.43 1.73
2% 0.63 0.63 2.12 1.44 1.10 3.66 1.00 0.87 3.51
3% 0.96 0.96 2.44 2.21 1.66 4.99 1.53 1.31 4.62
4% 1.31 1.30 2.54 3.02 2.24 6.17 2.08 1.77 5.54
5% 1.68 1.64 2.64 3.86 2.83 7.37 2.65 2.23 6.48
6% 2.06 1.99 2.74 4.76 3.44 8.62 3.25 2.71 7.43
7% 2.46 2.34 2.85 5.70 4.06 9.89 3.88 3.19 8.40
8% 2.83 2.59 2.96 6.65 4.60 11.21 4.49 3.58 9.38
9% 2.94 2.65 3.08 7.43 5.01 12.56 4.87 3.80 10.39
10% 3.05 2.70 3.20 8.27 5.43 13.96 5.28 4.02 11.42

Source: Simulations from the DEMETRA-CGE Model for Kenya

Table 3.8 shows a simulation analysis for the the wider economy. Additionally, a 1.0 per cent
impact of an increase in sectoral productivity increase in TFP for agrifood leads to a gain in
for manufacturing, agrifood, and services on government income and domestic demand by
the percentage growth on value added GDP, 0.54 per cent and 0.43 per cent, respectively.
government income, and on final demand. These gains increase for every gradual
The simulation increased productivity in the improvement in TFP towards 10 per cent.
manufacturing sector by only 1.0 per cent,
observed the impacts on value added GDP, Overall, the results show that gross value
government income, and final demand; and added (GVA), government income, and
gradually increased the productivity to 10 per domestic demand increase with improvements
cent. The same simulation was then repeated in total factor productivity across the sectors.
by shocking productivity improvement in the Further, the simulations reveal that the impacts
agrifood and services sectors and tracked of productivity improvements have the largest
the impacts on the same macroeconomic impacts in the services sector followed by
indicators. manufacturing and agrifood, and this may be
attributable to a changing economic structure
The agrifood sub-sector is vital for enhanced towards a services-based economy (servitude
output, food security, and boosting household growing in the economy) and the differences in
incomes. Table 3.8 shows the impact of the sector’s forward and backward linkages. The
productivity gain to each of the sectors (agrifood, simulations assume a CES production function
manufacturing, and services), applied to each with full employment of capital and intermediate
sector at a time, on overall gross value added inputs and a labour unemployment rate of 6.0
(GVA), which constitutes GDP at value added, per cent. The agriculture sector is, however,
government income, and domestic demand, a priority sector, being labour-intensive, and
using a plausible range of productivity gains would therefore require targeted interventions
ranging from 1.0 to 10 per cent. For example, a to make it more productive.
1.0 per cent increase in TFP for agrifood alone
translates to an overall GVA gain of 0.31 per Kenya, therefore, can reap the benefits
cent, and this is because agrifood is a part of discussed by putting in place measures

54
 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

towards enhancing productivity in the agrifood, interventions for raising productivity across
manufacturing, and services sectors. There is a these three core sectors. Having discussed
need for productivity improvement across all the TFP, the next analysis dwells on individual
sectors given that they are all complementary. factor productivities.
The concluding section explores possible

Table 3.9: Individual factor productivity and sectoral linkages on value-added

In- Labor factor productivity Capital factor productivity Intermediate-input productivity
crease Manu- Agri- Ser- home-pro- Man- Agri- Ser- home-pro- Man- Agri- Ser- home-pro-
in indi- factur- food vices duction ufac- food vices duction ufac- food vices duction
vidual ing and con- turing and con- turing and con-
factor sumption sumption sumption
pro-
ductivi-
ty (%)
1% 1.19 1.63 1.22 0.70 0.98 0.86 0.71 0.38 2.02 1.78 0.94 1.02
2% 2.42 3.29 2.47 1.42 1.95 1.72 1.41 0.75 4.14 3.64 1.93 2.09
3% 3.55 4.84 3.62 2.08 2.93 2.58 2.12 1.12 6.38 5.61 2.99 3.21
4% 3.94 5.37 4.02 2.30 3.91 3.44 2.82 1.49 8.46 7.29 3.82 4.21
5% 4.33 5.90 4.41 2.53 4.89 4.30 3.52 1.86 10.19 8.39 4.21 4.98
6% 4.72 6.43 4.81 2.75 5.87 5.17 4.22 2.23 12.00 9.54 4.62 5.79
7% 5.11 6.96 5.20 2.98 6.85 6.03 4.93 2.60 13.92 10.73 5.05 6.63
8% 5.50 7.49 5.59 3.20 7.83 6.89 5.63 2.97 15.95 11.96 5.50 7.50
9% 5.89 8.02 5.98 3.42 8.82 7.75 6.33 3.33 18.10 13.24 5.97 8.41
10% 6.27 8.55 6.37 3.64 9.60 8.35 6.83 3.58 20.38 14.58 6.48 9.36

Source: Simulations from the DEMETRA-CGE Model for Kenya.

Note: VA is the value added

Gradual improvements in the individual (or delve deeper into interventions for improving
partial) factor productivities for labour, capital, productivity across the sectors analyzed.
and intermediate inputs translate into higher
gains in value added for manufacturing, 3.5 County GCP and medium-term
agrifood, services, and home production and prospects
consumption activities. Home production and
consumption refers to output from households The Gross County Product (GCP) is a measure
that is used for subsistence consumption. of the economic size of counties, akin to the GDP
From the simulation analysis, productivity obtained at the national level, and is prepared
improvement in intermediate input yields by the Kenya National Bureau of Statistics.
the highest value added gains in each of the To date, three GCP estimates for counties for
sectors compared to labour and capital input 2019, 2021, and 2023, spanning the period
productivities. The simulation analysis further 2013/14 to 2021/22 have been done. GCP is
reveals that the change across the sectors is a key variable that helps county governments
non-linear, generally with larger impacts for assess their economic progress over time and
productivities between 3-4 per cent and 8-10 areas of intervention required to grow their local
per cent. The assumption of full employment economies. Other than GCP, counties can also
for capital and intermediate inputs and an focus on productivity improvement for their key
unemployment rate for the labour of 6.0 per economic sectors.
cent still holds. The subsequent chapters

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Projections for County GCP are informed need to manage, which include the effects of
by various assumptions, which include: the climate change, accumulation of pending bills,
establishment of County Aggregation and insecurity issues, and other global economic
Industrial Parks (CAIPs), which are expected to shocks.
boost economic activities and industrial potential
in counties; efforts by county governments to Counties play a key role in service delivery and
enhance their source revenue for economic promotion of economic activities. By taking
growth and service delivery; implementation measures that can boost productivity in their
of third generation CIDPs; efforts to ease the sectors of comparative advantage, county
cost of doing business; and an end-to-end governments can be critical agents for driving
e-Government procurement system to both the economic growth at county and national levels.
national and county governments. CAIPs are a The optimistic projections for County GCP
national-level undertaking with the support of measured in constant prices are based on the
the county governments and are in line with the 2023 estimates and are shown in Table 3.10.
BETA. The passing of various legislation that The projections are based on the exponential
supports the functioning of county governments smoothing technique, which is a univariate
is also essential, which includes the County forecasting method that assigns exponentially
Allocation Revenue Bill, 2023, the Equalization decreasing weights for past observations. The
Fund Appropriation Bill, 2023, and the County projections were, however, calibrated to ensure
Governments Additional Allocations Bill, 2023. no negative growth projections.
Counties are also vulnerable to risks that they

Table 3.10: County GCP growth rate for the medium-term (optimistic outlook)

Counties 2019 2020 2021 2022 2023* 2024f 2025f 2026f

Mombasa 4.5 -3.1 8.8 6.2 7.8 8.1 8.5 8.8
Kwale 1.7 2.6 7.9 5.0 6.7 7.0 7.3 7.6
Kilifi 5.7 -2.2 8.5 4.4 6.7 7.0 7.3 7.6
Tana River 11.2 4.2 15.8 -9.1 5.8 6.2 6.5 6.9
Lamu 6.6 -2.1 3.1 4.4 4.6 4.7 4.8 5.0
Taita Taveta 5.0 -0.4 10.2 2.8 4.6 4.8 5.0 5.2
Garissa 2.0 4.2 6.7 -1.0 3.1 3.1 3.2 3.3
Wajir 6.5 0.6 13.9 -1.7 5.1 5.3 5.6 5.8
Mandera 8.7 9.9 5.5 -4.0 5.3 5.6 5.8 6.1
Marsabit 28.2 2.4 9.0 1.4 4.7 5.2 5.7 6.3
Isiolo 7.6 2.0 6.9 1.1 4.6 4.8 5.0 5.2
Meru 6.0 0.0 7.2 -0.4 4.4 4.6 4.7 4.8
Tharaka 1.1 4.3 8.2 3.5 4.5 4.7 4.9 5.1
Nithi
Embu -3.3 3.7 6.0 3.4 4.8 4.9 5.1 5.2
Kitui 20.5 2.4 -11.3 4.7 4.9 5.1 5.3 5.5
Machakos 1.1 0.3 10.3 2.4 3.6 3.8 3.9 4.0
Makueni 7.0 -3.9 6.9 0.5 3.8 3.9 4.0 4.1
Nyandarua 8.5 -2.3 2.3 8.0 8.4 8.7 9.1 9.4
Nyeri 7.1 2.0 3.6 1.9 3.8 3.9 4.1 4.2

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 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

Kirinyaga 5.2 1.2 6.0 5.5 6.0 6.3 6.6 6.9

Murang’a 2.0 4.3 7.6 2.2 4.2 4.4 4.5 4.7
Kiambu 5.3 -0.6 7.3 6.1 6.4 6.7 7.0 7.3
Turkana 8.0 1.3 -2.0 7.5 3.8 4.0 4.1 4.3
West Pokot 8.5 6.2 5.0 -6.0 5.1 5.3 5.5 5.7
Samburu 12.5 -0.6 2.3 4.1 3.4 3.5 3.7 3.8
Trans Nzoia 0.6 3.1 2.9 -1.8 3.0 3.0 3.0 3.1
Uasin Gishu 5.5 -1.9 11.3 2.5 4.5 4.7 5.0 5.2
Elgeyo 7.5 1.8 4.4 -14.5 4.8 5.0 5.2 5.4
Marakwet
Nandi -2.5 3.3 5.4 5.4 5.6 5.7 5.9 6.1
Baringo 9.0 0.0 8.0 2.1 5.0 5.2 5.5 5.8
Laikipia 3.8 0.6 0.8 9.8 9.9 10.0 10.1 10.2
Nakuru 7.0 0.0 11.0 -0.4 4.6 4.8 5.0 5.2
Narok 3.4 -0.1 8.1 5.5 5.7 6.0 6.2 6.5
Kajiado 7.2 1.6 0.0 11.4 11.5 11.5 11.6 11.7
Kericho 2.2 4.0 7.1 0.7 4.0 4.2 4.3 4.5
Bomet -0.8 5.4 5.4 4.0 4.8 5.0 5.2 5.4
Kakamega 4.5 -0.9 10.1 5.2 5.4 5.7 5.9 6.2
Vihiga 4.7 1.0 3.7 5.2 5.4 5.6 5.8 6.1
Bungoma 2.3 0.4 4.8 5.6 5.7 5.9 6.1 6.3
Busia 9.8 1.8 5.0 6.9 7.3 7.7 8.2 8.7
Siaya 5.1 -0.4 7.8 5.3 5.5 5.8 6.0 6.3
Kisumu 5.0 2.2 4.8 5.8 6.1 6.4 6.6 6.9
Homa Bay 1.1 -0.6 13.3 3.5 4.5 4.7 4.9 5.1
Migori 4.3 -0.4 11.7 3.5 5.0 5.3 5.5 5.8
Kisii 0.8 0.6 5.4 9.0 7.5 7.8 8.1 8.4
Nyamira 0.3 2.9 3.1 3.0 3.1 3.2 3.3 3.4
Nairobi City 6.5 0.1 8.4 7.6 8.5 9.0 9.5 10.0
Total 5.2 0.5 7.2 4.6 5.9 6.2 6.5 6.8

Data source: Authors computations using KNBS (2023), Gross County Product Report 2023

Achieving the optimistic projections shown in and disaster mitigation measures. On average,
Table 3.10 requires that county governments counties are expected to grow at 5.9 per cent
put more effort into achieving the medium- of their GCP and maintain 6.5 per cent GCP
term outlook. This includes leveraging on growth in the medium-term. Counties have
their unique strengths, capitalizing on support different comparative advantages based on
from the national government such as the their uniqueness and conditions, such as ASAL
development of value chains and promoting and non-ASAL, including crop and livestock
digitization of the economy, leveraging on agriculture, manufacturing and industry,
technology for development, attracting urbanization, and service-oriented activities.
investment to boost productivity for their key The outlook assumes favourable weather
sectors, and putting in place risk preparedness conditions to spur agricultural activities.

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More specifically, counties from the high and 6.7 per cent in the medium-term, while
medium potential areas such as Meru, Nakuru, inflation remains within the policy target
Nyandarua, Murang’a, Kiambu, Bungoma, Kisii, range. Growth is likely to accelerate to 6.1
Nandi, Kakamega, Narok, and Bomet have an per cent in 2024, and 6.6 per cent in the
advantage in agriculture, by focusing on agro- medium-term with the opportunities coming
processing and agri-business. Counties of to fruition, while depressed to 5.3 per cent
Nairobi City, Mombasa, Kiambu, Machakos, in 2024, and 5.6 per cent in the medium-
Kilifi, Nakuru, Kisumu, Meru, Kakamega, and term should the downside risks materialize,
Kericho are the top 10 counties that contribute including poor weather prospects and debt
to manufacturing activities (KNBS, 2023), while vulnerabilities. The robust growth will be
service activities are prevalent in Nairobi City, supported by prospects for good weather,
Mombasa, Kiambu, Nakuru, Kisumu, Uasin growing partnerships, and ongoing
Gishu, Machakos, Kilifi and Kakamega counties. initiatives to implement the BETA and MTP
On urbanization, data shows that counties with IV programmes.
large commercial centres, such as Nairobi
City, Mombasa, Kiambu, Nakuru, Machakos, 3. Counties are critical in supporting
and Kisumu also have a significant share of accelerated growth. However, some
contribution to other industrial activities. For the counties have experienced negative growth
ASAL counties, investing in livestock production in their gross county products for the past
and leveraging on programmes such as the years since their establishment. Counties
livestock off-take programme during natural have different areas of comparative
disasters, creative economy, and wholesale advantages depending on whether they are
and retail, and transport and storage services, in arid, semi-arid, or non-arid areas.
could be areas to focus on.
4. Labour productivity has the largest
3.6 Key messages and Policy contribution to value added in the agrifood
Recommendations sector while capital and intermediate input
productivity has the largest contribution to
3.6.1 Key messages value added in the manufacturing sector.
This shows that the agrifood sector is highly
1. Globally, growth is projected to average 3.1 labour-intensive, while the manufacturing
per cent in 2024 and 3.2 per cent in 2025, sector has a higher intensity in capital and
while for Sub-Saharan Africa, it is projected intermediate inputs.
to grow at 3.8 per cent and 4.1 per cent,
respectively, in 2024 and 2025. Estimates 5. Improvements in total factor productivity
by the IMF project Kenya’s growth at 5.0 in one sector have direct effects on that
per cent in 2024 and 5.3 per cent in 2025, sector and indirect effects on other sectors,
while the Budget Policy Statement 2024 which demonstrates forward and backward
projects 5.9 per cent. Growth in the first sectoral linkages. From the simulations, the
three quarters of 2023 averaged 5.6 per services sector has revealed the largest
cent, supported by strong growth in the indirect linkages with the agrifood and
agriculture sector, premised on favourable manufacturing sectors. The agri-food sector
weather conditions and the government manifests the largest direct effects for total
fertilizer subsidy to farmers. factor productivities between 1.0 per cent to
3.0 per cent while the manufacturing sector
2. At baseline, the economy is projected to manifests the largest direct effects for total
grow at 6.2 per cent in 2024, and average factor productivities of 4.0 per cent and
above.

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 MEDIUM-TERM MACROECONOMIC PROSPECTS FOR KENYA

3.6.2 Policy recommendations 4. Prudent monetary and fiscal policy

interventions are critical to support
1. National and county governments could aggregate demand, especially investment,
implement programmes and initiatives that consumption, and net exports. This means
raise productivity across their economic leveraging on upside risks such as good
sectors. Growing productivity in labour weather and strategic partnerships, while
through skills development, capital mitigating potential risks such as poor
productivity by augmenting with technology, rainfall patterns and debt vulnerabilities.
and enhancing total factor productivity will Policy makers need to be more vigilant of
be key for placing the country on a higher the likely risks and mitigate them.
growth path.
5. County governments have the potential
2. The agriculture sector is core for food to strengthen growth rates by leveraging
security, employment creation, and on various government initiatives, such
contribution to economic growth. There as involvement in value chains and
is a need to invest in infrastructure to accelerating technological progress,
support irrigated agriculture, so that the promoting agro-processing, and investing
country is not overly dependent on rain-fed in productive resources in their areas of
agriculture, coupled with continued support comparative advantage.
through inputs such as fertilizer, early
maturing seeds, and extension services 6. Implement strategies to enhance
for farmers. Furthermore, efforts towards productivity and innovation within the
developing value chains in agriculture services sector through investment in
and supporting agro-processing and agri- technology, skills development, and digital
business could help improve agricultural infrastructure development to facilitate
activities. The need to mitigate and adapt collaboration, and access to information.
to climate change at both the national and Given the higher productivity impacts
county governments is essential. arising from the services sector, there is
a need for efforts towards fostering more
3. The manufacturing sector has higher synergies and interdependence between
intensity compared to other sectors the services sector and other sectors,
in capital and intermediate inputs. It mainly the manufacturing sector, through
is important, therefore, to encourage the development of industry clusters and
innovation in manufacturing processes knowledge sharing. The services sector
and technologies to improve efficiency could provide support services such as
and productivity through tax incentives, logistics, marketing, and research for
grants, and public-private partnerships development to manufacturing firms for
for research institutions and companies. enhanced productivity and competitiveness.
Initiatives towards technology transfer and On its part, the manufacturing sector could
adoption for the manufacturing sector could be offered incentives to outsource services
be pivotal for the sector. There is also a such as logistics, design, and marketing
need for trade policies favourable to the from local service providers, thus supporting
manufacturing sector, including reducing backward linkages.
tariffs on imports of machinery, equipment,
and raw materials to lower production costs
and improve productivity.

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60
 CHAPTER

4
LABOUR PRODUCTIVITY IN MANUFACTURING

LABOUR PRODUCTIVITY
IN MANUFACTURING

The low productivity of manufacturing is attributable to labour-intensive

technology, especially among the MSMEs, which constrains efforts to
increase the share of manufacturing to gross domestic product. At the firm
level, labour productivity is lower in micro enterprises and firms operating in
the informal sector. Productivity is curtailed by a high presence of 1st and 2nd
skill levels despite the demand for skilled labour. This is further exacerbated
by low investment in research for development and innovation and low
financial investment. The high cost of electricity and low access in micro
firms reduces labour productivity. To increase the sector’s productivity, it is
important to upgrade and equip existing constituency industrial development
centres to promote an innovation culture among MSMEs. Moreover, there
is a need to provide fiscal incentives to firms that participate in the Kenya
Industrial Research and Development Institute (KIRDI) Industrial Innovation
Programme aimed at commercializing viable innovations. These fiscal
incentives can be complemented by increased government expenditure on
research for development and innovation to the recommended 2 per cent of
GDP. To develop and enhance skills, the provision of incentives to students
enrolling in Science, Technology, Engineering, and Math (STEM) through
scholarships and bursaries is critical. It is also imperative to promote the
use of off-grid productive use of energy by providing tax incentives to firms
investing in energy-efficient technologies. Enhancing access to financial
capital for startups is also important in enhancing labour productivity.

4.1 Introduction increase consumer spending and stimulate

T
economic activity. The sector also drives
he manufacturing sector is a key driver technological innovation, which is critical
of structural change due to its critical for long-term economic development. New
role in the growth of economies, technologies and processes improve efficiency,
particularly those with low income reduce costs, and increase competitiveness,
per capita (Weiss et al., 2016). Expansion of leading to sustained economic growth.
the manufacturing sector can foster growth,
promote the adoption of innovative technologies, This chapter analyzes the productivity of
expand, and diversify the economy’s product the manufacturing sector and reviews the
space, and build resilience to shocks. In performance of the sector at the global,
addition, higher wages paid in manufacturing regional, and national levels. It further illustrates
jobs and formal employment opportunities the contribution of the workforce towards
support the improvement of living standards. manufacturing value added by assessing value
Manufacturing is essential for economic labour productivity. The subsequent sections
growth due to its impact on productivity and highlight labour productivity in micro, small,
job creation. As the sector grows, it creates and medium enterprises (MSMEs) using the
new employment opportunities, which in turn MSMEs Survey of 2016. The chapter concludes

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by analyzing the factors that influence labour Singapore, China, and Germany (Figure 4.1).
productivity in manufacturing and provides In Sub-Saharan Africa, the manufacturing
policy recommendations for enhancing labour sector’s share of GDP has been declining, but
productivity in the sector. there are variations between countries. For
example, in Nigeria, and Namibia, the share
4.1.1 Overview of global trends in of manufacturing to GDP was 15 per cent and
manufacturing 11 per cent, respectively, in 2021 with labour
productivity of US$ 216 and US$ 449 whereas
High labour productivity in manufacturing is in Botswana and Kenya, the share of GDP was
associated with a high share of manufacturing below 10 per cent at 5.0 per cent and 7.6 per
in GDP in Ireland, Switzerland, Korea, cent, respectively, during the same period.

Figure 4.1: The relationship between labour productivity in manufacturing and share of
manufacturing in GDP, globally, 2021

40000
35000 Ireland
manufacturing (US$)

30000 Kenya
Productivity in

25000
20000
Switzerland
15000 Singapore
10000 Germany Korea, Rep
5000
China
0
0 10 20 30 40
Share of manufacturing in GDP (%)

Data source: World Bank (2022), World Development Indicators

The share of manufacturing in GDP varies across compared to manufacturing in high-income

income levels. For high-income countries, countries indicates a transition towards a more
the transformation process is characterized service-oriented economy. For Kenya, where
by a declining share of manufacturing as the the manufacturing sector aims for a 15 per cent
services sector expands. For example, in high- contribution to GDP, it is important to enhance
income countries, the share of services in GDP productivity and efficiency within the sector
increased from 67.9 per cent in 2005 to 7.4 to meet this target. As the country aspires to
per cent in 2021, while that of manufacturing transition to an upper middle-income economy,
has decreased from 14.6 per cent to 13.3 per investing in technology, skills development,
cent during the same period (Figure 4.2). The innovation, and infrastructure will be important
shift towards a higher share of services in GDP in supporting and accelerating sector growth.

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 LABOUR PRODUCTIVITY IN MANUFACTURING

Figure 4.2: Share of manufacturing and services in GDP by income level and productivity
levels (%), 2005-2022

80
70
60
50
% of GDP

40
30
20
10
0
Services Manu(% of Services Manu(% of Services Manu(% of Services Manu(% of
(% of GDP) (% of GDP) (% of GDP) (% of GDP)
GDP) GDP) GDP) GDP)
Upper middle income Lower middle income Low income High income

2005-2009 2010-2014 2015-2019 2020-2022

Data source: World Bank (2022), World Development Indicators

High-income countries had the highest labour manufacturing in GDP is higher at 23.0 per cent,
productivity in manufacturing in 2021, despite and this is because these countries prioritize
their share of manufacturing in GDP being industrialization as a key driver of economic
lower than that of upper-middle income and growth, leading to a higher concentration of
lower-middle-income countries, whose labour manufacturing activities. Lower-middle-income
productivity is significantly lower. The transition countries exhibit lower labour productivity at
to medium-high and high-technology activities US$ 363, with a share of manufacturing GDP
allowed high-income countries to focus on at 15.6 per cent whereas low-income countries
higher value-added production and innovation, have the lowest labour productivity at US$ 146,
thus maintaining higher labour productivity. with a share of manufacturing in GDP at 10.8
In upper-middle-income countries with lower per cent (Figure 4.3).
labour productivity of US$ 2,416, the share of

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Figure 4.3: Share of manufacturing in GDP and productivity by income level (%), 2021

7,000 6,613 23.0 25.0

6,000
20.0
5,000 15.6
13.3 15.0
4,000
10.8
3,000 2,416 10.0
2,000
5.0
1,000 363 146
- 0.0
High income Upper middle Lower middle Low income
income income

Labour productivity Share of manufacturing in GDP (%)

Data source: World Bank (2022), World Development Indicators; UNIDO, 2022

Globally, medium and high-technology (MHT) backward linkages and employment creation.
firms such as the manufacture of computers, The government has set targets aimed at
electronics and optical products, electrical improving the performance of the sector. In
equipment, and pharmaceuticals have the the first medium-term plan (2008-2012), the
highest contribution to manufacturing sector government aimed to increase the contribution
performance. Between 2000 and 2009, the of manufacturing to GDP by at least 10 per cent
share of manufacturing value added (MVA) per annum. The ‘Big Four Agenda’ aimed at
from medium-high and high technology sub- increasing the share of manufacturing to GDP
sectors was 21.7 per cent, increasing to 23.4 to 15 per cent and agro-processing to at least
per cent between 2010 and 2021. In Africa, 50 per cent of total agricultural output between
technology use in manufacturing has led to 2018 and 2022. The current development
an increase in the share of MVA in medium- agenda (Bottom-up Economic Transformation
high and high technology from 12.3 per cent to Agenda) highlights the potential of various
12.7 per cent during the same period. Kenya’s manufacturing sub-sectors, such as the leather
share of MHT in manufacturing increased from sub-sector, to create employment both in the
9.9 per cent in 2000 to 15.1 per cent in 2021 formal and informal sectors and the capacity
and is higher than Africa’s average share. This of Kenya to manufacture pharmaceutical
indicates an expansion in technology use in the products.
sector. Moreover, current government initiatives
on pharmaceutical manufacturing and the The contribution of manufacturing to GDP has
establishment of electronic manufacturing fluctuated over the years due to the high cost
industries such as phones will also support the of production, competition from counterfeit
expansion of MHT activities in the sector. goods, low technology adoption, and recurring
droughts. At independence, the sector
4.1.2 Overview of manufacturing in Kenya contribution averaged 10 per cent between 1964
and 1973 (KAM).11 The creation of an enabling
The manufacturing sector plays a significant environment for foreign investment, incentives,
role in its contribution to GDP, spurring the 11
https://kam.co.ke/kam/wp-content/uploads/2018/10/KAM-Manufacturing- Deep-Dive
growth of other sectors through its forward and -Report-2018.pdf

64
 LABOUR PRODUCTIVITY IN MANUFACTURING

and protective measures from the government in the value of garments and textile exports
led to the expansion of the manufacturing to US$ 347.8 million from US$ 109.4 million
sector in the 1960s and the 1970s. At the onset between 2000 and 2005. The implementation
of the millennium, the sector contribution was of the Economic Recovery Strategy for Wealth
at 13.1 per cent (Figure 4.4), which is partly and Employment Creation (ERSWEC) led to an
attributed to the signing of the African Growth increase in sector contribution to GDP from 9.7
and Opportunities Act (AGOA) that allowed per cent in 2003 to 10.4 in 2007 (Figure 4.4).
duty-free export of garments and textiles to the
US.12 During this period, there was an increase
https://agoa.info/about-agoa.html#:~:text=The%20African%20Growth%20and%20
12

Opportunity,was%20extended%20to%20September%202025.

Figure 4.4: Performance of Kenya’s manufacturing sector (%), 2000-2022

70.0 66.5 63.6 59.2 14.0

50.7
60.0 44.3 12.0
50.0 13.1 10.0
Share (%)

40.0 10.4 11.0 8.0

30.0 8.7 6.0
7.8
20.0 4.0
10.0 2.0
19.4 19.3 17.4 18.7 18.5
0.0 0.0
2011

2017
2015
2013
2012

2021
2014

2016

2019
2018
2001

2010
2007

2022
2005
2003
2002

2004

2020
2006

2009
2008
2000

Share of manufacturing in industry (%)

Share of employment in manufacturing to total employment (%)
Share of manufacturing in GDP (%)

Data Sources: KNBS (Various), Statistical Abstracts and Economic Surveys

In the implementation of the Kenya Vision Vision 2030 sector plans. In the early years of
2030, there was an average growth of 10.9 per independence, the import substitution phase
cent and 9.4 per cent in the first medium-term led to high industrial growth rates, which
plan (2008-2012) and second medium-term benefited the sector. During the ERS period, the
plan (2013-2017), respectively. This declined investment code was developed, through the
to 7.6 per cent in the third medium-term plan Investment Promotion Act of 2004, to improve
(2018-2022). The sector plays a significant role the investment environment. At the same
in its contribution to industry, contributing 66.5 time, the Kenya Investment Authority Act was
per cent to industry value-added in 2000, which enacted in 2006 to provide a one-stop-shop
later declined to 44.3 per cent in 2022. This is for licensing and registration of businesses.
partly due to the expansion in other sectors Further, the National Exports Strategy (NES)
such as construction, whose contribution to was formulated to improve the competitiveness
industry increased from 18.2 per cent to 40.4 of the sector. Through the NES, the Kenya
per cent during the same period. Integrated Programme was implemented,
whose objective was to improve the productivity
The government has made several efforts of select value chains such as Leather,
aimed at creating an enabling environment for Apiculture, and Fish processing for the export
sector growth including the implementation of market. Similarly, a National Industrial Policy

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 KENYA ECONOMIC REPORT 2024
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was prepared in line with the Kenya Vision 2030 the contribution of food manufacturing at 7.1
to guide the development of the manufacturing per cent but declined to 3.4 per cent during
sector. Other initiatives include the Master Plan the same period. The non-food manufacturing
for Kenya’s Industrial Development (MAPSKID) sector comprised textile industries such as
of 2008, which identified priority sectors such Kisumu Cotton Millers whose collapse was due
as agro-processing; agro-machinery; electrical, to the liberalization of the cotton industry that
and electronics/ICT to drive sector growth. made it difficult for the sub-sector to compete
against imports and second-hand clothing.
Prioritization of various agricultural value chains Furthermore, the presence of substandard
such as fish processing, value addition in food and counterfeit products with lower prices has
and beverages sub-sectors, and livestock negatively affected the market share of locally
products led to an increased contribution of manufactured goods, reducing the ability of
food manufacturing to GDP from 3.0 per cent firms to invest in innovation. Moreover, the exit
between 2002 and 2007 to 4.5 per cent in the of manufacturing firms from Kenya due to an
third medium-term plan (2018-2022) (Figure inadequate conducive environment has led to a
4.5). At the same time, the contribution of non- decline in the share of non-food manufacturing
food manufacturing was more than double in GDP.

Figure 4.5: Contribution to GDP by type of manufacturing (%) (2002-2022)

8.0
7.1
7.0 6.5
Contribution to GDP %

6.0 5.2
4.8 4.6
5.0 4.5
4.0 3.4
3.0
3.0
2.0
1.0
0.0
2002-2007 2008-2012 2013-2017 2018-2022

Food manufacturing Non-food manufacturing

Data source: KNBS (Various), Statistical Abstracts

At a firm level, micro and small enterprises in terms of productivity, efficiency, access to
form the largest proportion (97 per cent) of resources, and competitiveness compared
firms operating in the sector. Despite this, to their larger counterparts. Addressing these
medium and large industries that constitute disparities through targeted support, such as
less than 5.0 per cent of the total number of access to finance, technology upgrades, skills
enterprises contribute over 60 per cent to the development, and infrastructure upgrading, is
manufacturing sector GDP, whereas micro and crucial for enhancing the contribution of micro
small firms contribute to an estimated 20 per and small enterprises to the manufacturing
cent to the sector GDP (Government of Kenya, sector GDP and fostering overall economic
2012). These differences point to the significant growth.
challenge faced by micro and small enterprises

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 LABOUR PRODUCTIVITY IN MANUFACTURING

4.1.3 Global share of manufacturing value growth. In contrast to Asia and Oceania, other
added regions experienced a gradual decline in their
contribution towards global MVA. For example,
The manufacturing activity varies significantly Europe’s share in world MVA declined from
across regions. The African region has a limited 21.87 per cent in 2017 to 20.82 per cent
presence in the manufacturing sector on a global in 2022. The loss of global market shares,
scale with a decline from 2.06 per cent in 2017 to particularly to countries such as China, has
1.96 per cent in 2022. Asia and Oceania had the led to a decline in Europe’s competitiveness
highest share increasing from 52.43 per cent to in manufacturing. This decline is in industries
55.37 per cent during the same period (Figure such as textiles, electronics, and electrical
4.6). Asia’s dominance in global manufacturing equipment (Marschinski and Turegano, 2019).
is driven by countries such as China and India, A similar decline was observed in Latin America
which have contributed significantly to this where the share of MVA decreased to 4.80 per
upward trajectory. The regional ability to adapt cent in 2022 from 5.67 per cent in 2017. There
to changing market demands, investment was a slight increase in Northern America from
in advanced technologies, and a developed 17.97 per cent in 2017 to 18.01 per cent in 2018,
strong industrial base plays a vital role in this but this declined to 17.05 per cent in 2022.

Figure 4.6: Trends in share of manufacturing value added, 2017-2022 (constant 2015, US$)

120.00
100.00
17.97 18.01 17.99 17.51 17.37 17.05
80.00 5.67 5.43 5.25 4.99 4.82 4.80
21.87 21.60 21.44 20.71 20.78 20.82
60.00
%

40.00
52.43 52.91 53.28 54.76 55.07 55.37
20.00
2.06 2.05 2.05 2.03 1.96 1.96
0.00
2017 2018 2019 2020 2021 2022

Africa Asia and Oceania

Europe Latin America and the Caribbean
Northern America

Data source: UNIDO (2022) Statistics

In terms of share of manufacturing in industry, manufacturing in industry has remained above

the share of Africa’s manufacturing in total 70 per cent during the period despite year-
industry is the lowest, and it declined from on-year fluctuations. In Latin America and the
48.4 per cent in 2017 to 45.7 per cent in 2018. Caribbean, the share declined from 70.1 per
This later increased to 54.3 per cent in 2020 cent in 2017 to 66.2 per cent in 2018, which
followed by subsequent decreases in 2021 later increased to 68.6 per cent in 2020. Further
and 2022 to 52.0 per cent and 50.5 per cent, decline occurred to 66.7 per cent in 2021 and a
respectively (Table 4.1). In Asia and Oceania, slight recovery to 67.5 per cent in 2022.
Europe, and Northern America, the share of

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Table 4.1: World share of manufacturing in industry, 2017-2022

Country 2017 2018 2019 2020 2021 2022

Africa 48.4 45.7 48.4 54.3 52.0 50.5
Asia and Oceania 77.3 76.3 76.6 78.9 77.7 74.9
Europe 78.4 77.7 77.7 78.5 76.6 73.1
Latin America and the Caribbean 70.1 66.2 67.1 68.6 66.7 67.5
Northern America 75.2 75.2 75.4 76.3 73.7 72.1

Data source: UNIDO (2022) Statistics

4.1.4 Manufacturing value added in Kenya (2013-2017). Further decline occurred in the
third medium-term plan (2018-2022) where the
Manufacturing value added exhibited a sector grew at 7.3 per cent compared to 9.6 per
consistent upward trend, where it increased from cent in the second medium-term plan (2013-
Ksh 140 billion between 2002 and 2007 to Ksh 2018) (Figure 4.7). While some sub-sectors
866 billion in the third medium-term plan (2018- faced disruptions due to changing consumer
2022). Despite this increase, the growth rates preferences, environmental concerns, and
in MVA exhibit a varied pattern over the years. global events such as the COVID-19 pandemic,
Implementation of the Economic Recovery others thrived due to innovation, adaptability,
Strategy for Wealth and Employment Creation and increased demand. Sector growth was
led to an average growth rate of 15.1 per cent. attributed to growth in the manufacture of
Despite disruptions from the post-election pharmaceuticals, chemicals and chemical
crisis in 2007/08, the drought in 2011, and the products, food products and beverages, and
global financial crisis (GFC), the manufacturing textile and wearing apparel while periods of low
sector grew at a rate of 16.0 per cent during the growth rates were due to low performance in
implementation of the first medium-term plan the manufacture of wood and products of wood,
(2008-2012). In the subsequent period, the wearing apparel, and non-metallic mineral
sector growth rate declined from 16.0 per cent products.
to 9.6 per cent in the second medium-term plan

Figure 4.7: Trends and growth rates in MVA, 2002-2022, Kenya

900.0 16.0 17.0

15.1
15.0
700.0
13.0
Ksh Billion

500.0 9.6 11.0

%

7.3 9.0
300.0
7.0
100.0 5.0
2002-2007 2008-2012 2013-2017 2018-2022

MVA Growth rate (%)

Data source: KNBS (Various), Statistical Abstracts and Economic Surveys

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 LABOUR PRODUCTIVITY IN MANUFACTURING

(a) Food manufacturing strategy for wealth and employment creation

and the earlier years of implementation of the
The share of food manufacturing in total MVA Kenya Vision 2030. The implementation of the
increased from 15.0 per cent in 2002-2007 to AGOA contributed to the growth and expansion
28.4 per cent in 2008-2022 (Table 4.2). This was of these sub-sectors during the review period.
supported by expansion in the manufacture of In the subsequent period of Vision 2030, the
food, whose contribution to MVA increased from share of the sub-sectors overall MVA declined
21.6 per cent to 44.7 per cent during the same partly due to increased competition, cheap
period. This performance was supported by an imports, and supply chain disruptions during
increase in value added through the processing the COVID-19 pandemic.
and preservation of meat and fish, and the
processing of dairy products and beverages. (c) Non-food manufacturing – non-agro-
processing
(b) Non-food manufacturing – agro-
processing Manufacture of non-agricultural products
experienced a decline in its share of MVA from
Agro-processing of non-food products 3.3 per cent between 2002 and 2007 to 2.2
experienced a decline in its share to MVA per cent during the implementation of the third
from 3.2 to 2.1 per cent between 2002 and medium-term plan (2018-2022). A significant
2022. This was because of a drastic decline in decline was observed in the manufacture of
the manufacture of tobacco products and the non-metallic mineral products, whose value
manufacture of wood and products of wood added fell from 3.2 per cent to 1.1 per cent during
from 1.1 per cent during the ERSWEC period the review period. Furthermore, fluctuations
to 0.7 per cent in the first medium-term plan in the value added from the manufacture of
(2008-2012). This later increased to 1.2 per fabricated metals, furniture, and basic metals
cent in the second medium-term plan (2013- led to a dismal performance. Notwithstanding,
2017) and later decreased to 0.8 per cent the manufacture of pharmaceuticals and
between 2018 and 2022. The fluctuation in chemicals and chemical products demonstrated
this sub-sector is because of environmental remarkable growth. The pharmaceutical sector
concerns and a shift towards sustainable experienced robust growth, increasing from 0.1
alternatives in construction and furniture per cent between 2008 and 2012 to 3.0 per cent
manufacturing. Moreover, the fluctuation in the implementation of the third medium-term plan
manufacture of leather and leather products (2018-2022), whereas the chemical sub-sector
and wearing apparel contributed to this decline. increased from 1.5 per cent to 1.9 per cent
Despite the overall decline in agro-processing (Table 4.2). The resilience of these sectors also
of non-food products, the manufacture of highlights the potential for continued growth
textiles experienced a gradual increase during in the manufacturing industry as it adapts to
the implementation of the economic recovery evolving market dynamics.

Table 4.2: Share of type of processing value added in MVA (%), 2002-2022

Sub-sector 2002-2007 2008-2012 2013-2017 2018-2022

Food manufacturing 15.0 14.9 21.0 28.4
Non-food manufacturing – Agro-processing 3.2 2.8 2.9 2.1
Non-food manufacturing - Non agro-processing 3.3 3.2 2.9 2.2

Data source: KNBS (Various), Statistical Abstracts

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4.2 Employment Trends in Manufacturing chains, and reduced consumer demand

affecting production.
The manufacturing sector is a source of
employment, absorbing on average 18.8 per The share of wage employment in the sector
cent of the workforce (both formal and informal) declined from 19.0 per cent to 10.0 per cent
between 2000 and 2022. At the beginning of while employment in the informal sector
the Millennium, the sector was employing 19.4 increased from 81.0 per cent to 90.0 per cent
per cent of the workforce, but this decreased during the same period. The consistent informal
to 18.5 per cent in 2022 (Figure 4.8). Low manufacturing sector growth indicates the
employment was observed between 2012 and importance of micro and small-scale industries
2014 when the sector absorbed 17.2 per cent in absorbing labour. These enterprises often
of the labour force. This was because of the provide opportunities in areas where formal
aftermath effects of the global financial crisis, employment is limited. While MSMEs absorb
which led to a decline in industrial activities, and the largest labour force in manufacturing, they
the aftermath of the prolonged drought, which provide low quality employment characterized
affected the agriculture sector and consequently by low wages and poor working conditions,
agro-processing. Moreover, the COVID-19 which hinder the attainment of high levels of
pandemic in 2020 had a significant impact on labour productivity. Moreover, limited access
manufacturing employment worldwide. The to technology, low skill levels, and limited
share of employment in manufacturing dropped investment in research for development and
to 18.3 per cent as lockdowns disrupted supply innovation hinder their ability to adopt efficient
production techniques.

Figure 4.8: Share employed in manufacturing (2000-2022)

25.0 95.0
20.0 90.0
15.0 85.0
10.0 80.0
5.0 75.0
2011

2017
2015
2013
2012

2014

2021
2016

2019
2018
2001

2010
2007

2022
2005
2003
2002

2004

2006

2009

2020
2008
2000

Manu employment to total emp (%)

Wage employment in total manu emp (%)
Non-wage employment in total manu emp

Data source: KNBS (Various), Economic Surveys

In terms of type of processing, food processing agro-processing declined from 6.1 per cent
absorbs the largest share of employment, to 5.3 per cent between 2002 and 2022. This
averaging 17.4 per cent during the review was because of the decline in employment in
period. The sector experienced a decline in the textile sub-sector, whereas non-agricultural
employment from 18.6 per cent in 2002-2007 to processing increased from 1.8 per cent to 2.3
16.0 per cent in the second medium-term plan per cent in the first medium-term plan (2008-
(2012-2017) (Table 4.3). This later increased 2012), which later decreased to 2.1 per cent in
to 18.5 per cent in the third medium-term plan the third medium term plan (2018-2022).
(2018-2022). Employment shares in non-food

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 LABOUR PRODUCTIVITY IN MANUFACTURING

Table 4.3: Employment by type of processing, 2002-2022

Sub-sector 2002/07 2008/12 2013/17 2018/22 Growth rate (2002-2022)

Food manufacturing 18.6 16.6 16.0 18.5 1.1
Non-food manufacturing - 6.1 5.4 5.8 5.3 0.2
agro-processing
Non-food manufacturing - 1.8 2.3 2.2 2.1 32.6
non agro-processing

Data source: KNBS (Various), Statistical Abstracts

Employment in the manufacturing sub-sectors raw materials, and subsidized credit. KIE’s
has fluctuated over the years. Manufacture initiatives, including the Nyayo Jua Kali, sheds
of food, textiles, wearing apparel, and rubber programme, aimed to provide workspaces and
and plastic products sub-sectors absorb support for MSEs, contributing to the expansion
the largest proportion at 31. 7 per cent, 16.8 of the sub-sector. Furthermore, the launch
per cent, 7.5 per cent, and 4.5 per cent, of the Jua Kali Sector Strategic Plan (2022-
respectively, between 2002 and 2022. Low 2027) is aimed at improving the productivity
shares of employment are in the manufacture of the sector and consequently employment
of computers and electronics, and coke opportunities.
and refined petroleum products. In terms of
growth, the manufacture of tobacco products 4.3 Labour Productivity in Manufacturing
experienced the largest reduction in the share
of employees followed by the manufacture of Labour productivity is a key factor in the
coke and refined petroleum products, and the manufacturing sector, given that a significant
manufacturing of computers and electronics. proportion of manufacturing relies on labour-
Despite being the second largest employer, intensive technology. Labour productivity
textile manufacturing experienced declining is measured as the total volume of output
growth rates at 26.5 per cent during the review (Manufacturing Value Added) produced per unit
period, indicating challenges faced by this of labour (number of employed persons) during
sub-sector due to competition from affordable a given period.
mitumba clothes, high cost of production, and
low demand for cotton, which led to collapse of 4.3.1 Global trends in labour productivity
textile industries.
Labour productivity in manufacturing varies
The sub-sectors with positive employment significantly across different regions. Globally,
growth include the manufacture of fabricated labour productivity increased from US$ 1,149
metals, chemicals, and chemical products, (constant 2015 prices) in 2000 to US$ 1,874 in
food, wearing apparel, and leather and 2022 (Figure 4.9). In Asia and Oceania, labour
leather-related products at 495.5 per cent, productivity more than tripled from US$ 589 in
167.9 per cent, 95.3 per cent, and 87.0 per 2000 to US$ 1,735 in 2022 while for the African
cent, respectively. The high growth rates in region, labour productivity improved from US$
the manufacture of fabricated metals are 177 to US$ 206 during the same period. For
due to the expansion of the jua kali industry Sub-Saharan Africa, productivity increased
through various policy initiatives such as the from US$ 146 to US$ 162 while for the Eastern
implementation of the Kenya Industrial Estates, Africa region, it increased to US$ 80 in 2022
which supports the jua kali sector by providing from US$ 54 in 2000. High labour productivity
preconstructed industrial sheds, extension in Asia and Oceania was because of an
services, management and technical training, emphasis on technology and innovation, with

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a focus on the manufacture of semiconductors rates averaging 5.1 per cent, which increased
and electronics, whereas Africa’s focus on the share of manufacturing in GDP from 19.4
infrastructure-led growth has not translated per cent to 24.2 per cent between 2000 and
into a manufacturing-led take-off, emphasizing 2022. For the African region, growth in labour
the critical role of technology in driving the productivity averaged 0.7 per cent, with the
manufacturing sector expansion. share of manufacturing in GDP decreasing
from 12.7 per cent to 10.9 per cent. For the
In terms of labour productivity growth rates, the Eastern Africa region, productivity grew at a
world’s labour productivity grew at an average faster rate, averaging 1.9 per cent during the
rate of 2.30 per cent in the review period. Asia review period compared to SSA at 0.7 during
and Oceania experienced the highest growth the same period.

Figure 4.9: Labour productivity in manufacturing (constant 2015 US$), 2000-2022

2000 15.0 300 5.0

1500 10.0 200 0.0
1000 5.0
500 0.0 100 -5.0
0 -5.0 0 -10.0
2012
2014
2016

2012
2014
2016
2018

2018
2010

2010
2022

2022
2002

2020
2004
2006

2002

2020
2004
2006
2008

2008
2000

2000

Asia and Oceania Growth(%) Africa Growth(%)

100 20.0 180 5.0

80 15.0 170
60 10.0 160 0.0
40 5.0 150 -5.0
20 0.0 140
0 -5.0 130 -10.0
2012
2014
2016
2018
2010
2012
2014
2016
2018
2010

2022
2002

2020
2004
2006
2022

2008
2000
2002

2020
2004
2006
2008
2000

Eastern Africa Growth(%) Sub-Sahara Africa Growth(%)

Data source: UNIDO (2023)

On average, Kenya had higher productivity Kenya’s productivity has implications for its
at US$ 144 compared to Ethiopia at US$ 22, competitiveness in the region and its ability
Uganda at US$ 112, and Tanzania at US$ 64. to create jobs, increase exports, and drive
Although labour productivity in Kenya increased innovation and technological advancement.
from US$ 139 in 2000 to US$ 156 in 2022, it
was five (5) times lower than in South Africa. When compared to Singapore, Kenya’s labour
Productivity growth for Kenya was dismal at productivity is 68 times lower than Singapore’s.
o.6 per cent compared to other countries in the Productivity in Singapore increased from
region. Ethiopia, for example, had the highest US$ 7,381 to US$ 13,986 between 2000 and
growth rate at 7.5 per cent while Uganda and 2022 while Kenya’s increased from US$ 139
Tanzania grew at 3.7 per cent and 4.3 per to US$ 156 during the same period (Figure
cent, respectively. This low growth rate in 4.10). A similar trend was observed in Malaysia

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 LABOUR PRODUCTIVITY IN MANUFACTURING

and South Korea whose labour productivity Growth in the Asian economies was driven by
increased from US$ 1,622 and US$ 3,920 to a focus on innovation, technology adoption,
US$ 2,699 and US$ 9,058, respectively. In and high value industries. As an example,
these countries, growth in labour productivity industrial expansion in Singapore was driven
averaged 2.4 per cent, 3.3 per cent, and 3.9 per by manufacturing electronics, chemicals, and
cent in Malaysia, Singapore, and South Korea, pharmaceutical products.
respectively, compared to Kenya at 0.6 per cent.

Figure 4.10: Labour productivity in selected countries, 2000-2022

3,000 20.0 16,000 40.0

10.0

Growth(%)

Growth(%)
2,500 20.0
Labour productivity

Labour productivity
0.0 11,000
2,000 -10.0 0.0
1,500 -20.0 6,000 -20.0
2015
2012

2021
2018

2015
2012

2021
2003
2006
2009

2018
2000

2003
2006
2009
2000
Malaysia (LP) Growth (%) Singapore (LP) Growth (%)

10,000 15.0 160 10.0

8,000 10.0 5.0
Growth(%)

Growth(%)
150
Labour productivity

Labour productivity

6,000
5.0 0.0
4,000 140
2,000 - -5.0
- (5.0) 130 -10.0

2015
2015

2012
2012

2021
2021

2018
2018
2003

2003
2006

2006
2009
2009
2000

2000

Republic of Korea (LP) Growth (%) Kenya (LP) Growth (%)

Data source: UNIDO (2023)

4.3.2 Labour productivity in Kenya further declined to 4.7 per cent in the second
medium-term plan (2013-2017) and later
Labour productivity in formal manufacturing increased to 6.7 per cent in the third medium-
increased from Ksh 0.7 million between 2002 term plan (2018-2022) (Figure 4.11). This
and 2007 to Ksh 1.3 million in the first medium- decline was because of the poor performance
term plan (2008-2012). A further improvement of medium-high and high technology sub-
was observed in the second medium-term sectors such as assembling of motor vehicles;
plan (2013-2017) and third medium-term plan medium technology sub-sectors such as the
(2018-2022) to Ksh 1.9 million and 2.5 million, manufacture of rubber products; and select
respectively. Notwithstanding, the growth rates low technology sub-sectors such as tobacco
in labour productivity varied during the period products; fish processing and fabricated metals
under review. As an example, between 2002- whose value added dropped due to high costs
2007, labour productivity was low, averaging of doing business, and stiff competition from
10.4 per cent, but this increased to 12.8 per cent imports.
in the first medium-term plan (2008-2012). This

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Figure 4.11: Labour productivity and growth rate in labour productivity (%) 2002-2022

3 14.0
12.8 2.5
2.5 12.0
10.4 1.9 10.0
Labour productivity

Growth rate(%)
8.0
(Million)

1.5 1.3
6.7
6.0
1 0.7 4.7
4.0
0.5 2.0
0 0.0
2002-2007 2008-2012 2013-2017 2018-2022

Labour productivity LP growth rate(%)

Data source: KNBS (Various), Statistical Abstracts and Economic Surveys

Food processing had the highest labour leather-related products, paper, and products
productivity, which increased from Ksh 1.0 of paper while periods of decline were due
million to Ksh 6.3 million between 2002 and to fluctuations in the manufacture of wood
2022 (Table 4.4). This was supported by and products of wood and cork except for
high productivity levels in the manufacture of furniture, textile, and wearing apparel. The poor
beverages, which increased from Ksh 1.5 million performance of these sectors was because
to Ksh 9.0 million during the same period. In of competition from cheap imports, which
non-food agro-processing, labour productivity lower productivity because domestic firms are
increased from Ksh 0.7 million between 2002 unable to compete effectively, resulting in lower
and 2007 to Ksh 3.0 million in the first medium- investment in technology and innovation, lower
term plan (2008-2012) and later declined to 2.1 wages, and employment. For instance, there
per cent and 2.0 per cent in the second medium was a decline in apparel manufacturing during
term (2013-2017) and third medium-term plan the review period, while between 2020 and
(2018-2022), respectively. The increase to 3.0 2021, there was a 20 per cent increase in the
per cent was occasioned by increased labour importation of second-hand clothes (KIPPRA,
productivity in the manufacture of leather and 2023).

Table 4.4: Labour productivity in manufacturing sub-sectors, 2002-2022

Sub-sector 2002-2007 2008-2012 2013-2017 2018-2022

Food manufacturing 1.0 2.4 5.8 6.3
Non-food manufacturing – Agro-processing 0.7 3.0 2.1 2.0
Non-food manufacturing - Non agro-processing 1.3 1.8 3.5 2.5

Data source: KNBS (Various), Economic Surveys

Non-agro processing exhibits high labour 2017. This later declined to Ksh 2.5 million in
productivity, which increased from Ksh 1.3 the third medium-term plan (2018-2022) due
million between 2002 and 2007 to Ksh 3.5 to a decline in value added by MHT and the
million in the second medium-term plan (2013- effects of the COVID-19 pandemic. At a sub-

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 LABOUR PRODUCTIVITY IN MANUFACTURING

sector level, some sub-sectors such as the whose labour productivity is Ksh 30,144. A
manufacture of transport equipment, coke, disaggregation by type of processing shows
refined petroleum, chemicals and chemical that formal firms in food processing had the
products, and pharmaceutical products have highest labour productivity at Ksh 49,128
high labour productivity due to their capital- whereas non-food agro-processing had the
intensive and specialized nature. In contrast, lowest productivity at Ksh 20,122 (Table 4.5).
others such as the manufacture of fabricated Similarly, in the informal sector, non-food
metals and rubber and plastic products have agro-processing had the lowest productivity
lower labour productivity. and an indication of overall low productivity
in sub-sectors in these areas. Informal firms
4.4 Factors Influencing Labour undertaking non-agricultural processing have
Productivity in MSMEs the highest labour productivity at Ksh 9,000
whereas those operating in the informal sector
Productivity in informal firms is significantly produce Ksh 21,921 per worker.
lower at Ksh 7,244 compared to formal firms

Table 4.5: Labour productivity by firm size and type of processing in MSMEs (‘000)

Labour productivity Labour productivity Overall labour productivity in

(Formal) (Informal) MSMEs
Firm size
Micro 11.2 7.1 7.6
Small 48.1 8.6 32.1
Medium 158.4 19.7 133.8
Sub-sectors
Food manufacturing 49.1 7.4 28.3
Non-food – agro-processing 20.1 5.8 13.0
Non-food - non-agro-processing 21.9 9.0 15.5

Data source: KNBS (2016), MSME Survey 2016

Micro and small enterprises had lower benefit from the intensive use of information and
productivity at Ksh 7,639 and Ksh 32,134, communication technologies (ICT), digital tools,
respectively, compared to the medium-sized and innovations, and investment in research
firms at Ksh 133,790. Despite this, MSMEs for development and training (OECD, 2021).
dominate the informal sector and play a significant Labour productivity is influenced by several
role in the socio-economic development of the factors, including expenditure on research for
country. Higher labour productivity in medium development, type of skills available in the
firms is because of their higher expenditures labour market, availability of on-job training,
on research for development and innovation, technology use, access to electricity, and capital
where they spend 2.1 per cent of their total investment. The relevance of these drivers
firm’s expenditure on R4D (Box 4.1), which has evolved, with investment in research for
allows the firms to engage in efficient production development driving innovation and technology
processes, resulting in high labour productivity. use, investment in human capital through on-
Despite higher labour productivity in medium the-job training, and skills development gaining
manufacturing firms, micro, and smaller firms momentum (World Bank, 2021).

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Box 4.1: Factors influencing labour productivity at the firm level Source: Author’s analysis based
on the KNBS (2016), MSME Survey.

A regression analysis was conducted to assess the factors that influence labour productivity at
the firm level. These factors include firms’ level of initial financial capital investment (logged),
access to electricity, expenditure on process and product innovation (logged), which is used as a
measure of investment in research for development, and technology intensity of the firms, which
is a categorical variable. The regressions also looked at the various skill levels present in the
firm with a focus on first and second skill levels and the existence of on-the-job training. The de-
pendent variable in all the regressions is firm-level labour productivity measured by (log of) total
sales of the firm in a typical month during the last fiscal year divided by the number of workers
at the firm. A detailed discussion of the factors that influence labour productivity is provided in
the subsequent section.

Variable All manufacturing Micro firms Small firms

firms
Initial financial capital investment (log) 0.1064 (0.0242) *** 0.0910 (0.0247)*** 0.1586 (0.0747)*

Access to electricity (1=Yes) 0.5358 (0.0926)*** 0.5547 (0.0918)*** -1.0599 (0.7359)

Expenditure on research for 0.0000 (0.0000) 0.0001 (0000)*** 0.0000 (0.0000)**

development (log)
Medium technology (categorical) 0.2962 (0.2728) 0.4733 (0.3147) -0.4088 (0.2862)

Medium-high and high technology 2.5727 (0.5205)*** 2.6651 (1.0020)** 2.3597 (0.4633)***
(categorical)
1st level (1=Yes) -0.3339 (0.1122)** -0.3439(0.1176)** -0.0693 (0.4021)

2nd level (1=Yes) -0.3716 (0.1135)** 0.3335 (0.1183)** -0.5699 (0.5218)

On-the-job training (1=Yes) 0.0252 (0.1590) 0.0956 (1545) -0.2624 (0.5305)

Note: Standard errors are in brackets

Source: Author’s analysis based on the KNBS (2016), MSME Survey

4.4.1 Startup financial investment productivity of manufacturing firms. At the firm

level, medium-sized firms had higher capital
Startup financial investments are necessary investment per worker compared to small and
for growth and economic development. micro-sized firms at Ksh 295,879, Ksh 169,563,
At the firm level, financial investments are and Ksh 56,756, respectively (Figure 4.12). This
critical in bringing innovative technology, suggests that micro firms operate with lower
encouraging new knowledge, and enhancing capital resources per employee compared to
skills development, thus increasing the labour their larger counterparts.

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Figure 4.12: Financial capital investment per worker by firm size, 2016

350,000
295,878
300,000
250,000
200,000 169,563
150,000
100,000 56,756
50,000
-
Micro Small Medium

Data source: Construction based on KNBS (2016), MSMEs Survey

Financial investment in small-sized firms in research for development, training, and

enhances labour productivity by 15.8 per organizational capital, essential for enhancing
cent, thus these firms experience higher labour productivity and competitiveness.
improvements in labour productivity when there
is an increase in capital per worker. Small firms 4.4.2 Access to electricity
are more labour-intensive compared to micro
firms, thus more startup capital investment per The level and intensity of the use of electricity
worker is critical in enhancing labour productivity. in a country is one of the enablers of economic
In micro firms, an increase in financial capital growth, competitiveness, and investment
investment increases product by 9.1 per cent activities. About 90.0 per cent of small and
in micro enterprises as shown in Box 4.1. In medium-sized firms had electricity connections
micro-sized firms, increased capital per worker compared to micro firms at 70.6 per cent
has gains on labour productivity, but to a lesser (Figure 4.13). Access to electricity increases
extent than in small-sized firms. This is because labour productivity by 53.5 per cent units in
micro-enterprises have inadequate intangible MSMEs, although micro enterprises have
capital investments, which include investments higher productivity at 55.4 per cent (Box 14.1).

Figure 4.13: Electricity connection in MSMEs, 2016

Medium 89.7
10.3

Small 91.6
8.4

Micro 70.6
29.3

0.0 20.0 40.0 60.0 80.0 100.0

Yes No

Data source: KNBS (2016), MSME Survey

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MSMEs face various challenges in access to There was a wide array of energy generation
electricity in terms of the procedures undertaken comprised of geothermal (43.6%), hydro
to access electricity within a worksite, the official (24.0%), and wind (16.9%) in 2022. Total
cost of connecting electricity to the worksite, the electricity supply increased from 11,051.7 GWh
time taken to be connected, average electricity in 2018 to 12,669.4 GWh in 2022, whereas
bill amounts payable monthly, and number total domestic demand increased from 8,702.3
of power outages experienced in a month. A GWh to 10,008.4 GWh during the same period
county business environment for MSMEs report (Figure 4.14). Electricity demand for domestic
by KIPPRA shows deterioration in electricity use increased from 3,665.9 GWh in 2018
connection with a decline in scores from 37.8 to 4,291.5 GWh in 2022. The demand for
in 2019 to 32.5 in 2022 (KIPPRA, 2022). Some electricity in commercial and industrial use also
of the challenges cited in access to electricity increased from 4,336.5 GWh to 4,958.2 GWh
connection include the high cost of installation during the review period. Despite increased
and lengthy processes and procedures involved electricity supply, the energy sector is affected
when seeking electricity connection. by frequent power outages, which affect the
quality of power and the high cost of electricity.
Figure 4.14: Electricity demand and supply, 2018-2022

14,000
12,985
13,000 12,415

12,000 11,621 11,604

11,182
11,000
10,008
10,000 9,565

8,702 8,854 8,796

9,000

8,000
2018 2019 2020 2021 2022

Total demand Total supply

Data source: KNBS (Various), Economic Surveys

The high cost of electricity and utilities has found that increased electricity costs forced
implications on firm level competitiveness and manufacturing firms to engage in less electricity-
the level of investment in the country. Electricity intensive production processes, and therefore
cost in the country is one of the highest, with discouraged the adoption of higher technology.
firms paying on average US$ 0.2 per kilowatt In assessing the effect of electricity shortage
of electricity compared to firms in South Africa on firm productivity in Pakistan, Grainger and
that pay US$ 0.1 per kilowatt-hour (World Bank, Zhang (2017) found a decrease in firm revenue
2019b; African Development Bank, 2018). The and value added products by 0.1 per cent and
high electricity cost is associated with increased 0.4 per cent, respectively.
production costs. In India, Abeberese (2017)

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 LABOUR PRODUCTIVITY IN MANUFACTURING

4.4.3 Research for development and product innovation than firms with little to no
innovation investment.

Investment in research for development plays At the firm level, investment in research for
a vital role in increasing the productivity of development drives labour productivity through
firms by encouraging product and process various pathways (Figure 4.15). First, product
innovation (Fiorentino et al., 2021). Research innovation creates new demand and higher
for development encourages knowledge value for consumers, leading to increased sales
generation through the discovery of new and, consequently, higher labour productivity
scientific principles, the invention of novel (Woltjer et al., 2021). Similarly, technical
products, and the development of advanced innovations and organizational changes
technologies. This expands a firm’s knowledge optimize production processes, automate
base, which provides a foundation for future tasks, and improve efficiency. As innovation
innovation and productivity. Empirical evidence improves processes and creates innovative
shows that firms that invest in research for technologies, labour productivity rises due
development are more likely to engage in to enhanced efficiency, reduced costs, and
increased output.
Figure 4.15: The relationship between investment in research for development and labour
productivity

Investment in research and development

Knowledge

Innovation:
Invention IP rights: patents,
product, p rocess,
copyrights, trademarks
organizational

Labour productivity

Source: Adopted from Zhang and Mohnen (2022)

There was low innovation and patenting among copyright protection. There is also an over-
MSMEs in Kenya. An assessment of the county reliance on internal sources for financing and
business environment for MSMEs found that executing knowledge capital investments and
innovation and patenting scored lowly at 1.6 introducing innovations. This may indicate
and 0.5 in 2022 (KIPPRA, 2022). Although an a deficit in the research, knowledge, and
improvement from 2019, this is an indication information infrastructure, and an absence
that MSMEs operating in the manufacturing of cooperation with other firms and research
sub-sectors have low innovation capability. institutions. Finally, low levels of skilled labour
This is attributed to low expenditures in force hamper the capacity of firms to transform
research for development and poor protection knowledge capital into innovation outcomes.
of innovation stages such as patenting and

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Figure 4.16: Granted patents, industrial designs, utility models, and trademarks (2000-
2022)

200 4,300
3,900
3,500
150
3,100

Trademarks (Number)
2,700
Number

100 2,300
1,900
1,500
50
1,100
700
- 300

2011

2017
2015
2013
2012

2014

2021
2016

2019
2018
2001

2010
2007

2022
2005
2003
2002

2020
2004

2006

2009
2008
2000

Patents Industrial designs Utility models Trademarks

Data source: KIPI (Various), Annual reports

Results from the analysis show a positive to maintain a competitive advantage because
correlation between research for development of the development of new products, services,
investment proxied by expenditure on product and technologies. Across all firms, spending
and process innovation (Figure 4.17). Medium- on research for development activities is lower
sized manufacturing firms, on average, allocate than 2.0 per cent of total firm expenditures. In
a significantly higher amount towards research terms of type of manufacturing, firms in food
for development and innovation, with an average manufacturing spend significantly higher at 8.2
spending of 2.1 per cent of total firm expenditure per cent of total firm expenditure on research
compared to small and micro enterprises for development and innovation. Firms in both
whose expenditure is o.8 per cent and 0.2 per non-food agro-processing and non-food non
cent, respectively. Medium firm’s research for agro-processing spend relatively low at 0.6 per
development spending signifies their efforts cent of their total expenditure on research for
towards investment in technological innovation development and innovation.

Figure 4.17: Correlation between investment in research for development and labour
productivity
20
15
InAmount_RnDExp
10
5
0

10 15 20
InRevenues_per_worker

Data source: Construction based on KNBS (2016), MSMEs Survey

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Low technology sub-sectors are 11.5 per cent advanced technological products, while
less likely to invest in research for development. medium-high-technology manufacturing
As a result, it raises concerns for Kenya, where includes activities that are less advanced but
most of the industrial sector is made up of still require a significant level of technological
low technology sub-sectors (UNIDO, 2019). input. The Fourth Industrial Revolution
Medium-high and high technology firms have (Industry 4.0) is disrupting how production
the highest average expenditure on research and business processes are organized, and
for development, approximated at 2.8 per cent manufacturing is one of the industries that
of total revenue while low technology firms have benefit the most from the adoption of Industry
the lowest average expenditures at 0.6 per cent. 4.0 technologies in terms of productivity and
The higher research for development spending global competitiveness. For example, Graetz
in the medium-high and high technology sectors and Michaels (2018) indicate that the use of
suggest a greater emphasis on innovation and robotics increases annual labour productivity in
advanced research for development efforts manufacturing. Moreover, Deloitte reports that
among firms operating in these sub-sectors. manufacturers embracing smart technologies
As an example, pharmaceutical manufacturing experienced an annual labour productivity
firms spend a substantial amount on research growth of over 3.0 per cent between 2015 and
for development compared to textiles and 2018.
garments, food and beverages, and other
manufacturing. The pharmaceutical industry Low technology firms had the lowest labour
is highly research-intensive and relies on productivity while medium technology and
innovation for the development of new drugs medium-high and high technology firms had
and treatments. the highest labour productivity at Ksh 10,400,
Ksh 16,000, and Ksh 59,100, respectively
4.4.4 Technology intensity (Table 4.6). Firms equipped with advanced
technologies are in a better position to optimize
The manufacturing industry encompasses production processes, reduce waste, and
a wide spectrum of technological intensity, enhance overall operational efficiency. Medium-
ranging from low-technology to high-technology high and high technology firms are often hubs
production processes. High-technology of innovation and knowledge generation.
manufacturing involves the production of

Table 4.6: Labour productivity by technology intensity, 2016 (‘000)

Level of technology intensity Labour productivity

Medium-high and high technology 59.1
Medium technology 16.3
Manufacture of food products 10.4

Data source: Construction based on KNBS (2016), MSMEs Survey

4.4.5 Skills development advantage of technology and are more

productive. From the analysis in Box 4.1, 1st
Human capital development is central to labour and 2nd skills levels reduce labour productivity
productivity, and subsequent competitiveness in manufacturing firms by 33.3 per cent and
of the manufacturing sector. Human capital 37.2 per cent, respectively.
development is premised on the assumption
that training and education increase labour Significant differences in skills distribution by
productivity. Educated personnel take better type of processing are shown in Figure 4.18. As

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an example, in 2021, the manufacture of non- levels were also high in this sector at 45.5 per
agricultural products had the highest level of 4th cent. Agro-processing of non-food products
skills level at 9.4 per cent. This is because of high such as the manufacture of textiles, wearing
demand for skilled labour in the manufacture of apparel, and wood and products of wood had
pharmaceutical products (27.2%), manufacture the lowest levels of 4th skills levels at 2.2 per
of motor vehicles (30.7%), manufacture of cent, whereas food processing was at 8.1 per
computers and electronics (38.4%), and cent. Food manufacturing also had the largest
the manufacture of chemicals and chemical distribution of 1st and 2nd level skills at 43.9 and
products (15.7%). Notwithstanding, first skill 31. 6 per cent, respectively.

Figure 4.18: Skill distribution by type of processing (%), 2021

50.0 43.9 45.5

40.0 33.2 31.6

27.7
Per cent

30.0
20.0 15.9 16.6 15.4 17.4
8.1 9.4
10.0 2.2
0.0
1st skill level 2nd skill level 3rd skill level 4th skill level

Food manufacturing
Non food manufacturing - Agro processing
Non food manufacturing - Non agro processing

Data source: KNBS (Various), Household Surveys

The distribution of the labour force in the various 4th (3.2%) skill levels, indicating that micro
manufacturing firms based on skill levels is firms rely on foundational and intermediate
varied. In micro firms, the largest proportion skill sets. In small and medium-sized firms, a
of the labour force had the 1st and 2nd levels large proportion of the labour force had the 4th
of skills at 44.1 per cent and 39.9 per cent, level skills at 42.4 per cent and 64.0 per cent,
respectively (Table 4.7). A smaller proportion respectively, an indication of the presence of
was distributed across the 3rd (12.8%) and skilled workers.

Table 4.7: Skill distribution by firm size and technology intensity (%), 2016

Category 1st Skill Level 2nd Skill Level 3rd Skill Level 4th Skill Level
Firm size (%)
Micro 44.1 39.9 12.8 3.2
Small 18.5 28.1 11.0 42.4
Medium 15.5 18.3 2.1 64.0
Technology Intensity (%)
Low technology 43.3 39.3 12.2 5.3
Medium technology 17.8 32.6 22.9 26.7
Medium high and high technology 9.4 20.3 25.1 45.2

Data source: Construction based on KNBS (2016), MSMEs Survey

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4.4.6 On-the-job training enhancing productivity and competitiveness.

Other factors include reliance on outdated
Although insignificant in the regression machinery and processes, low access to
analysis, on-the-job training plays a key role financial services, which hinder investment
in driving labour productivity in manufacturing in innovative technologies, low skill levels,
firms. On-the-job training enhances labour and high cost of electricity that discourages
productivity through various pathways. First, the use of new machinery.
implementing robust training programmes
within manufacturing facilities directly impacts 2. Manufacturing firms rely mostly on
productivity levels by equipping workers with employees with 1st and 2nd level skills, which
essential technical skills, resulting in increased limits their ability to perform basic operation
output and operational efficiency within of machinery. As a result, the concentration
manufacturing plants. As workers become more on lower skill levels directly constrains labour
skilled and proficient in their roles, they can productivity in the sector. In the medium-
complete tasks more quickly and accurately, high and high technology sub-sectors, over
leading to increased productivity. Secondly, 70 per cent of the workforce engaged has
employee training programmes inculcate and 3rd and 4th skill levels and this contributes
enhance a culture of innovation and knowledge to them dominating their contribution to
dissemination within manufacturing processes. manufacturing output. For the MSMEs
As workers undergo training and gain expertise, with low levels of 1st and 2nd manufacturing
they become conduits for sharing best skills, the absorption of technologies that
practices and new methodologies, enhancing enhance labour productivity enhancement
the adaptability and resilience of manufacturing becomes a challenge. The sector needs to
sectors. Finally, on-the-job training programmes invest in the development of 3rd and 4th skills
often include instruction on the use of new in preparing for 4th industrial growth.
technologies and processes introduced in the
manufacturing industry. Workers who receive 3. Investment in research for development
training on the latest equipment and techniques and innovation tends to be low among
are better equipped to adapt to changes in low technology sub-sectors, especially the
the workplace and take advantage of new MSMEs. This low investment in research
opportunities for efficiency and productivity for development and innovation is also
gains. By ensuring that workers are up to catalyzed by inadequate innovation culture
date with the latest advancements in their among MSMEs, inadequate financial
field, training initiatives enable manufacturing resources, and low concentration of 3rd and
companies to stay competitive and drive 4th level skills, which are a prerequisite for
productivity improvements. R4D and innovation commercialization.
Investing in research for development
4.5 Key Messages and Policy has productivity gains by enabling micro
Recommendations and small-sized enterprises to innovate
and cater to unique customer needs, thus
4.5.1 Key messages allowing product differentiation.

1. Manufacturing is concentrated in low 4. Financial capital investment is low among

technology, labour-intensive industries, micro and small firms, and this constrains
including agro-processing and fabricated labour productivity compared to medium
metals. Labour productivity is, however, firms. This limits the ability of micro and
low because of insufficient investment in small manufacturers to upgrade technology
research for development that restricts infrastructure and hire skilled workers,
the ability of manufacturing industries resulting in low labour productivity. However,
to innovate, develop new products, and small-sized firms benefit more from
improve processes that are essential for higher financial capital investment where

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productivity increases by over 15.8 per cent (iv) Strengthen the linkages between
compared to 9.0 per cent in micro firms. academia, research institutions,
This is because small firms, being slightly and industry to foster innovation,
larger than micro firms, have a larger scale and entrepreneurship, through
economy of scale, which enables them collaborative research and
to benefit more from increased financial technology transfer.
capital.
2. The government needs to support the
5. Electricity access is limited among the development of the 3rd and 4th skill levels
micro firms despite its ability to increase demanded for advanced technology in
productivity. Moreover, high electricity manufacturing. This can be achieved
cost increases the cost of production and through incentives to students to enroll
discourages the use of modern technology. in Science, Technology, Engineering,
Both accessibility and affordability of and Math (STEM) and the provision of
electricity boost productivity by enabling scholarships and bursaries. Promote the
firms to adapt their production processes, linkages between technical training and
leading to increased efficiency and output. manufacturing to tailor-made training
materials that address the skills gap in
4.5.2 Policy recommendations the sector. Furthermore, existing 1st and
2nd level skills can be enhanced through
1. There is a need to foster research for upskilling of employees from firms that
development to drive innovation and growth contribute to the Industrial Training Levy
through the following: Fund through the National Industrial
Training Institute (NITA). Moreover, there is
(i) Enhance the implementation of the a need to create awareness among MSMEs
Kenya Innovation Policy Framework on the benefits of the fund in upskilling of
whose recommendations include their workforce.
fiscal policies that provide incentives
for research for development and 3. Enhance access to startup capital to micro
innovation commercialization; and small firms through the establishment
of an Industrial Development Fund (IDF) as
(ii) Speed up the implementation of the envisioned in the Industrialization Policy.
Konza City Technopolis to facilitate Specifically, the policy recommends an IDF
the establishment and growth of with a minimum of Ksh 10 billion for long
medium-high and high technology term financing of manufacturing enterprises,
innovation. Upgrade and equip including MSMEs. There is also a need to
existing Constituency Industrial create awareness of the existing funding
Development Centres (CIDC) to mechanism for MSMEs.
spur innovation in MSMEs;
4. The government needs to promote the
(iii) Increase expenditure towards use of off-grid productive use of energy by
research for development and providing tax incentives to firms investing
innovation to the recommended in energy-efficient technology in the
2.0 per cent of GDP, which can production process as spelt out in the Draft
be used to incentivize firms’ Green Fiscal Incentives Policy Framework.
participation in KIRDI’s industrial Additionally, awareness creation can be
Innovation Programme, aimed at done to MSMEs through the Micro and
the commercialization of viable Small Enterprises Authority (MSEA) on the
innovations; and benefits of off-grid productive use of energy.

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5
ENHANCING PRODUCTIVITY THROUGH TRADE

ENHANCING PRODUCTIVITY
THROUGH TRADE

The trade sector is critical in driving the overall productivity of the country
to boost economic growth and development. However, the contribution of
domestic trade to overall productivity is constrained by the growing informal
trade sector; an unconducive business environment that has led to the
closure of several supermarkets and branches in the country; and gaps in
market infrastructure. On the international front, trade facilitation measures
such as the Single Customs Territory (SCT) have played a significant role
in reducing import and export costs and time. Trade agreements such as
the African Continental Free Trade Area (AfCFTA) and the African Growth
and Opportunity Act (AGOA) have played a crucial role in enhancing growth
in exports, with even greater benefits realized when tariffs and Non-Tariff
Measures (NTMs) are eliminated and harmonized. To boost domestic trade
and enhance overall productivity growth, key actions include advancing
market infrastructure development by prioritizing the completion of tier
one markets by allocating and mobilizing adequate funding, establishing
warehouses and cold storage facilities, and enhancing rural road transport for
improved market access for small farmers and traders. There is also a need
to empower MSMEs to expand into export trade by facilitating certification,
Industrial Property Rights (IPRs), providing entrepreneurship training,
and promoting value addition. Internationally, there is a need to focus on
enhancing trade facilitation by streamlining documentation requirements
and expediting cargo release times. Moreover, there is a need to strengthen
the implementation of AfCFTA and AGOA, diversify exports into high-tech
sectors, identify growth potential in emerging markets such as the AfCFTA,
and establish trade relationships through negotiations to broaden market
access.

5.1 Introduction Over the past decade, global trade has

T
been a significant driver of economic
rade plays a crucial role in development, lifting millions out of poverty and
sustaining economic growth and contributing to the economic transformations
enhancing productivity globally by of many countries. The liberalization of trade
promoting specialization, attracting policies, advancements in transportation
foreign investment, fostering technological and communication technologies, and the
advancements, and expanding market access establishment of international trade agreements
for domestic producers. Trade acts as a catalyst have facilitated a more interconnected and
for productivity growth by fostering competition, interdependent global economy with the total
enabling technology transfer, expanding market value of global trade reaching US$22.6 trillion
access, and facilitating resource allocation. in 2021.

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The global trade landscape, however, has domestic economy, engaging about 80 per cent
faced disruptions and shifts in recent years. of the working population.
The effects of the 2008-09 global financial crisis
led to a prolonged period of suppressed trade Micro, small, and medium enterprises (MSMEs)
growth. More recently, trade tensions between form a vibrant sector of the economy, with many
major economies, such as the United States engaging in trade activities primarily within their
and China, have introduced uncertainties and localities and across counties. They contributed
disruptions in global supply chains. Additionally, to about 33.8 per cent to economic output in
the COVID-19 pandemic negatively impacted 2015 (KNBS, 2016 MSME Survey Report).
international trade flows, causing significant About 14 per cent of the MSMEs conduct their
contractions in global trade volumes due to trade activities among themselves, with 99 per
lockdowns, supply chain disruptions, and cent of the sales conducted at the domestic
reduced demand. Despite these challenges, level. Conversely, a relatively low percentage
the global trade environment remains dynamic, (0.16%) participates in global trade, whereas
with emerging trends such as the rise of 87 per cent sell their goods and services to
digital trade, regional trade agreements, and individual consumers. Limited access to export
a shift towards sustainable and inclusive trade markets, regulatory barriers, and capacity
practices. constraints restrict the international trading
activities of MSMEs.
At the domestic level, the wholesale and retail
trade sectors play a pivotal role, in facilitating The Country relies extensively on the agriculture
the distribution and exchange of goods and and services sectors, where productivity is
services among businesses and consumers. low compared with the industry sector. The
Domestic trade is organized through various low productivity in agriculture is associated
channels and market structures. Traditional with over-reliance on rain-fed agriculture, low
markets, such as open-air markets and mechanization, and technological adoption,
roadside stalls, are prevalent in both urban while that in the services is majorly because of
and rural areas, serving as hubs for local trade a large informal economy and skills mismatch.
activities. In addition, formal retail outlets, For example, in 2021, the exports of services,
including supermarkets, convenience stores, agriculture, and industry were 40.87 per
and shopping malls cater to a growing consumer cent, 35.83 per cent, and 25.32 per cent,
base in urban centres. The wholesale sector respectively (Atlas of Economic Complexity,
plays a crucial intermediary role, sourcing 2023). The respective contributions of the
products from manufacturers or importers services, agriculture, and industry to the GDP
and distributing them to retailers or directly to in the same year was 55.41 per cent, 22.43
consumers. per cent, and 16.99 per cent (Statista, 2023),
respectively. The top three products in services
Moreover, technological advancements were ICT, transport, and travel and tourism,
and digital platforms have transformed the while in agriculture, tea, cut flowers, and coffee
landscape of domestic trade in the country. were prominent. For industry, refined petroleum
The emergence of e-commerce platforms and oils, titanium ore, and gold were notable
mobile payment systems has revolutionized contributors.
consumer purchasing behaviour, thus enabling
businesses to reach a wider audience and Imports play a crucial role in providing inputs
conduct transactions efficiently. Despite these that may not be readily available in the domestic
modernization interventions, informal trade market. For instance, the proportionate share
remains a significant component of Kenya’s of intermediate goods in imports is substantial

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(33.3%), including inputs for both manufacturing The government aims to enhance productivity
and agriculture. Notably, changes in the pattern and stimulate growth in the domestic trade
of imported commodities such as fertilizers have sector by prioritizing measures such as reducing
negative effects on productivity in the domestic costs and time in import and export processes.
market. International trade facilitates access to
markets and technology transfer, enabling firms Despite the above policy initiatives to boost
to enhance production processes and improve trade to enhance productivity and hence
overall productivity. economic growth and development, the
sector still faces challenges that hinder its
Counterfeits and illicit trade are a concern for growth. These include low diversification, low
local enterprises, posing substantial threats to competitiveness, limited negotiation capacity,
their competitiveness and overall productivity. limited access to finance, inadequate market
The National Baseline Survey on Counterfeit information, high tariffs, increased use of non-
and Other Forms of Illicit Trade in Kenya report tariff barriers, and outdated trade facilities,
released by the Anti-Counterfeit Authority in among others (Ministry of ICT, Innovation and
2019 showed that the value of illicit trade in Youth Affairs, 2021). Addressing these gaps
2017 was Ksh 726 billion. In 2018, this figure and implementing measures to improve access
increased to Ksh 826 billion, a 14 per cent rise. to finance, enhancing market information
Consequently, the government lost tax revenue systems, and modernizing trade infrastructure
of Ksh 129.72 billion and Ksh 153.1 billion in the would help unlock the sector’s full potential and
two years. The detrimental impact of illicit trade further contribute to economic development.
on domestic production is especially affecting
the growth of some sectors. The sectors This chapter examines the recent trade
affected by this illicit activity include building, developments in the country with a view to
mining, and construction (23%), energy, identify the recent trends and constraints and
electrical, and electronics (15%), textiles and suggest ways of improving trade to enhance
apparel (14%), plastics and rubber, and metal productivity in the country.
and allied sectors (9.0% each). Together, these
five sectors accounted for a significant 70 per 5.2 Government Policies to Enhance the
cent share of illicit trade out of 16 sectors in Productivity of Domestic and
2018. Notably, a substantial portion (51.72%) International Trade
of illicit trade stems from imports, underscoring
the international scope of the issue. 5.2.1 Policies and initiatives to enhance
domestic market
Moreover, the government’s efforts to promote
growth in domestic trade and thus boost Since independence, Kenya has implemented
productivity extend beyond addressing illicit various policies to enhance the growth of
trade to broader initiatives aimed at enhancing domestic trade to boost productivity growth.
the competitiveness of domestic businesses. The trade policy objectives have evolved,
The development of the National Trade Policy embracing a more open trade regime, to
in 2017 shows the government’s commitment promote domestic production and reduce
to creating an enabling environment for trade imports. Notably, the National Trade Policy
and investment. This policy framework seeks 2017 seeks to boost domestic and international
to increase competitiveness, promote export trade. Some of its objectives are to grow and
diversification, develop trade infrastructure, and enhance productivity, develop infrastructure,
strengthen integration into global value chains. and improve the quality and competitiveness

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of products. The policy emphasizes local that safeguards the rights and interests of
production, expansion in regional markets, consumers, with the State Department for
and identification of the country’s niche in Trade playing a vital role through the Kenya
global markets. In addition, the government Consumer Protection Advisory Committee
has pursued trade liberalization, to integrate (KECOPAC). Additionally, consumer protection
the country into the world economy and attract agencies such as the Competition Authority
foreign investment. of Kenya ensure that businesses adhere
to fair trade practices and provide accurate
The government has also invested in information to consumers.
infrastructure, increased domestic energy
production, and addressed other bottlenecks Annex Table 5.1 categorizes the various legal
that affect the cost of doing business in the frameworks put in place by the government to
country. Some of the infrastructure projects protect consumers in various sectors. These
that have been started to facilitate trade include frameworks are grouped into three main
the establishment of the Lamu Port-South categories based on the implementing agency
Sudan-Ethiopia-Transport (LAPSSET) Corridor and purpose: health and safety, which focuses
Project, Isiolo-Mandera Regional Road, the on ensuring the safety and quality of goods and
expansion of the Jomo Kenyatta Airport and services, particularly in the healthcare sector;
the Standard Gauge Railway. Consequently, regulatory agencies, implemented by bodies
Kenya’s Africa Infrastructure Development such as the Competition Authority of Kenya to
Index (AIDI) score increased from 8.53 to 27.52 ensure fair trade practices and competition in
between 2005 and 2022 (Africa Infrastructure the market; and standards and communication,
Knowledge Programme, 2023). which set standards for goods and services
and ensure that consumers receive accurate
Over the years, the government has instituted information and are protected from misleading
several policy interventions towards increasing representations.
access to broad skills beyond formal education,
creating linkages between formal and informal The Consumer Protection Act of 2012 aims
firms, and helping small-scale firms enter the local to safeguard the rights and interests of
and global value chains to improve productivity. consumers, ensuring they receive fair treatment
The government’s efforts to enhance the and protection from unfair trade practices.
productivity of domestic trade have been aimed The Kenya Consumer Protection Advisory
at improving economic stability, predictability, Committee (KECOPAC), established under
and security, and creating growth and jobs for the Act, advises the government on consumer
the benefit of all Kenyans. Some of the key protection issues and ensures that consumer
government interventions include curbing illicit interests are represented. The Competition
and counterfeit trade in Kenya, addressing the Authority of Kenya enforces fair trade practices
cess fees charged across counties, enhancing and competition in the market, while standards
the growth of the wholesale and retail sector, and communication frameworks set standards
expansion of the market infrastructure, and for goods and services and protect consumers
facilitating the growth of E-commerce. from misleading representations. These
policies and initiatives are crucial for enhancing
a) Consumer protection domestic market efficiency and ensuring fair
trade practices. By protecting consumers,
Consumer protection policies are crucial for these measures promote a healthy and
enhancing domestic market efficiency and competitive market environment that benefits
ensuring fair trade practices. The Consumer both consumers and businesses.
Protection Act of 2012 is a key legislation

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b) Curbing illicit and counterfeit trade in are tasked with strengthening interventions,
Kenya facilitating the rapid exchange of information
between agencies, and enhancing the speed of
The impact of illicit trade on domestic production enforcement.
is particularly alarming, as it leads to low demand
for local products while leading to stagnating c) Addressing the cess fees charged
sectoral growth. The worst-hit sectors include across counties
building, mining, and construction (23%),
energy, electrical, and electronics (15%), Cess fees represent indirect taxes imposed on
textiles and apparel (14%), plastics and rubber, agricultural products, at both the point of origin
and metal and allied sectors (9% each) (Anti- and destination within county boundaries. The
Counterfeit Authority, 2019). These five sectors primary aim of cess is to generate revenue
accounted for a significant 70 per cent of illicit for county governments and to maintain
trade out of 16 sectors in 2018. Data shows that infrastructure related to the production and
51.72 per cent of illicit trade comes from imports, distribution of these crops. However, concerns
thus emphasizing the international dimension have emerged regarding the consistency and
of the issue. Addressing illicit trade requires not fairness of cess rates across counties, along
only domestic efforts but also effective control with the potential for double taxation when cess
and regulation of imports to prevent the inflow is applied multiple times during transit.
of illicit goods into the country.
The current state of cess fees indicates
The government has initiated several varying rates and practices across counties,
interventions and regulatory measures to combat which impacts agricultural trade. Cess fees
illicit trade. For example, the Anti-Counterfeit are applied at both the source county and
Act No. 13 of 2008 aims to combat trade in destination markets, with rates differing among
counterfeit goods and to enlighten and inform different counties. For instance, traders in
the public on matters relating to counterfeiting. Nairobi face a charge of Ksh 71 per bag of
It was amended in 2016 to strengthen the maize, while in Mombasa, the fee is Ksh 64 per
seizure and detention procedures. The Act also bag. For Irish potatoes, a 70 kg bag incurs an
expands the definition of counterfeiting, provides average cess fee of Ksh 37 in Mombasa and
provisions for trademarks, tightens inspections, Ksh 48 in Nairobi.
provides indemnity, and includes provisions
for compounding offenses (Anti-Counterfeit Cess fees are primarily regulated at the
Authority, 2024). Further, the Anti-Counterfeit county level, with each county having its own
Regulations, 2010 were amended with the Anti- regulations and fee structures for different
Counterfeit (Amendment) Regulations, 2019, agricultural products. These regulations define
demonstrating a commitment to creating a the terms of rates, and collection procedures
legal framework that imposes strict measures for cess fees within the county boundaries. The
to combat counterfeit and illicit trade. variations call for a need for cess restructuring
and harmonization across the counties, which
In addition, the Inter-Agency Anti-Illicit Trade is yet to be implemented by the national
Executive Forum and Technical Working Group government.
was established on 10th July 2018 through
Gazette Notice No. 7270 to coordinate efforts Article 209(5) of the Kenya Constitution
among different government agencies. By ensures that while counties have the authority
creating a multi-agency team for combating to impose taxes and generate revenue, they
illicit trade, the government recognizes the must do so in a manner consistent with broader
importance of collaboration in addressing this economic policies and activities that span
complex issue. This forum and working group county boundaries. The objective is to maintain

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a cohesive economic environment within the In addition, the Ministry of Trade adopted a
country, preventing any adverse effects on the prompt payment policy to ensure that suppliers
national economy due to localized taxation or are paid within a stipulated time. This policy aims
revenue-raising measures. to address issues related to delayed payments
that suppliers may face and promote financial
The current disparities in cess fees and the stability for businesses in the supply chain.
practice of double taxation underscore the need The stipulated time for payments would be in
for harmonized taxation policies to ensure they accordance with the policy, and adherence to
do not prejudice national economic activities. this timeline is expected from retailers. Failure
Such harmonization is crucial to prevent to comply could result in cash flow challenges,
adverse impacts on the mobility of goods, delayed investments, increased borrowing
services, capital, or labour across counties, costs, job losses, loan defaults, financial
thereby supporting a more integrated and setbacks, supply chain interruptions, hindrance
efficient national economy. to new business formation, and erosion of trust
and relationships.
d) Wholesale and retail sector
e) Market infrastructure
The supermarkets in the country form a
significant component of the wholesale and The retail sector is expected to play a crucial
retail sub-sector. The closure of branches role in promoting the country’s competitiveness
among several supermarkets led to a significant by linking the producers to the consumers.
decrease in the total number of branches across The government seeks to modernize the retail
major supermarkets from 257 in 2018 to 171 in and wholesale markets, invest in cold chain
2022. This had significant implications for the infrastructure, and improve access to rural
productivity of the suppliers. Nevertheless, the roads. The specific policy frameworks instituted
total number of branches rebounded in 2023 to achieve Kenya’s Vision 2030 through
to 227. This rebound suggests that while some market infrastructural development include the
supermarkets faced challenges leading to following: County Allocation of Revenue Act
branch closures, there were also instances of (CARA), which devolves a substantial amount
expansion or stability among other supermarket to the counties to enable them to develop local
chains. county infrastructure; Warehouse Receipting
System Act (WRSA), which enables farmers
In 2021, the government through the Ministry of to get loans by using their stored agricultural
Trade, and the Competition Authority of Kenya products as collateral; National Trade Policy
set a regulation on the Retail Trade Code of (NTP), which aims at promoting a competitive
Practice (RTCP). The RTCP is designed to and efficient domestic and international
regulate relationships between retailers and market environment, with development and
suppliers in the Kenyan market. Its primary maintenance of modern market infrastructure
goal is to prevent the abuse of buyer power across the country being a major goal; and the
by retailers; ensure fair and transparent trade Public-Private Partnership (PPP) Framework,
practices; promote fair and ethical dealing which seeks to attract private sector investment
in supply agreements; dispute resolution in in various infrastructure development, including
payment practices; and supplier protection retail and wholesale markets.
and create an overall level playing field for
both retailers and suppliers through promoting Some of the progress achieved includes the
a predictable and transparent business following: construction of modern markets,
environment. for example in Nyeri, Embu, Nairobi, Kisumu,
Nyandarua, and Kiambu; and construction

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of cold chain infrastructure through initiatives respectively), a young tech-savvy population

such as the Horticulture Value Chain Project, (29% of the population aged 18-34, and 75%
for example the Ol Kalau cold storage built at a below 34 as per the 2019 census), and the
cost of Ksh 100 million. Notable progress in the government’s efforts to create an enabling
PPPs includes the Galana Kulalu Food Park in e-commerce environment. The expansion of
Isiolo County; and the ongoing modernization e-commerce has enabled firms to achieve
and upgrading of eight open-air markets increased efficiency and cost savings, higher
in Nairobi, including the Muthurwa Market sales volumes, broader market reach, improved
and City Market. These infrastructures are customer service and engagement, enhanced
expected to boost the productivity of the retail data-driven decision-making processes, and
and wholesale sector to a large extent. more effective inventory management. These
advancements have collectively had a positive
The Kenya National Multi Commodities impact on the productivity of these firms,
Exchange (Komex) is currently in the leading to improved overall performance and
implementation phase. It provides a platform competitiveness in the digital marketplace.
for trading diverse commodities, including
staple crops, cash crops, metals, mining Some of the policies that have been set up
products, and energy-related commodities, to facilitate the growth of e-commerce in the
offering market information, access to domestic country include the following: National ICT
and international markets, trade finance, and Policy (2014), which seeks to invest heavily in
support services for various stakeholders along broadband infrastructure, boost e-government
the value chain. Komex will play a crucial role in initiatives, and provide a consumer protection
enhancing market efficiency, transparency, and framework; e-commerce Bill (2013), which aims
productivity within the agricultural sector and to create a legal framework for e-commerce
the broader economy by facilitating structured activities in the country, although the bill is
trading and providing a marketplace where yet to be enacted into law; and the launch
buyers and sellers can engage in trade with of the National Electronic Single Window
quality assurance, timely delivery, and secure System in May 2014, which sought to boost the
payment. country’s trade efficiency and competitiveness
by facilitating online clearance, and thus
Despite these efforts, the sector still faces reduce the time and cost of doing business. In
various challenges, including large informal addition, the National Payments Policy of 2015
sector dominance, limited cold chain sought to boost digital payment development;
infrastructure, inadequate warehousing and the Postal Corporation Act (2019) fostered
distribution facilities, inadequate market access modernization of the postal service; and the
in rural areas, inconsistent implementation of African Continental Free Trade Area (AfCFTA)
the County Allocation of Revenue Act (CARA), Agreement (2018) sought to create a single
and the need to integrate the informal sector African market and promote international
into the formal economy, among other issues. E-commerce. Most recently, the launch of
the National E-Commerce Strategy on 13th
f) E-commerce December (2023), which aims to harness the
full potential of the country’s digital commerce
The Kenya Vision 2030 has identified ICT in 2023 (CIOAFRICA, 2023). The Strategy
as a big driver of the country’s economic was founded on four pillars: data protection
growth and development towards a highly standards, restructuring legal and regulatory
‘knowledge-based economy’. The country’s frameworks, optimizing the accessibility of
e-commerce has substantially grown in the last payments, and enabling seamless e-commerce
decade (2010-2020), aided by huge Internet by refining trade logistics.
and smartphone penetration (33% and 60%,

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As a result of the above measures, there has others; the rise of e-commerce transactions
been a surge in mobile phone subscriptions and the growth of cross border E-commerce.
(from 23.5 million to 60 million between 2010 This has consequently led to a rise in the
and 2020), growth of e-commerce platforms productivity of firms as the distribution of their
such as Kilimall, Jumia, and Copia, among products is eased.

5.2.3 Policy and legislative frameworks to enhance international trade

The government has put in place policy and legislative frameworks to support international trade.
These capture various aspects, including market access; diversification and risk management;
technology transfer and learning; foreign investment, and competitiveness as presented in Table
5.2.

Table 5.2: Policy and legislative framework for external trade

General policy focus Specific policy focus Specific initiatives, policies, and goals

1. Access to regional and Regional and The country has implemented several policies to increase
international markets international trade trade, both with its neighbours and at the international
agreements with level to simplify trade procedures, increase its efficiency,
neighbouring countries and thus increase trade. These include:
• Joining the WTO in 1995;
• Joining the East African Community (EAC) in
2000;
• Engagements with the Common Market for
Eastern and Southern Africa (COMESA);
• The signing of the African Growth and Opportunity
Act (AGOA) in 2000;
• Formation of the Kenya Trade Network Agency
(KenTrade) in 2011 to promote cross border trade;
• Signing of the African Continental Free Trade Area
(AfCFTA) in 2018; and
• Ratification of the Economic Partnership
Agreements with the EU in 2013, and the signing
of the Kenya-UK-EPA in 2020 among others.

Trade facilitation Streamlining of domestic and international trade

measures facilitation policies through reducing tariff and non-tariff
barriers
Digitalization/automation of customs processes
Implementation of the Single Customs Territory (SCT) in
2013 among the Northern Corridor states
Implementation of one-stop border posts and border
management systems in 2015

Infrastructure Development of the Standard Gauge Railway from

investments Mombasa, Nairobi, and Suswa. Upgrading of several air,
rail, and seaports (for example expansion of the Jomo
Kenyatta Airport, expansion of the Kenya Ports Authority
and LAPSSET)

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General policy focus Specific policy focus Specific initiatives, policies, and goals

2. Diversification and risk Export development and Kenya’s National Industrial Transformation Strategy
mitigation industrial transformation 2050, which is founded on Vision 2030, seeks to focus
on specific sectors such as agro-processing, mining,
construction, and oil and gas, among others, to build on
its comparative and competitive advantage in becoming a
high-income manufacturing country
Development of Kenya’s National Export Development
and Promotion Strategy (NEDPS) 2018 aims to diversify
Kenya’s exports and exports market

Negotiations and signing The country has signed new bilateral and regional
of trade agreements agreements, MoUs, and JTCs to expand her markets
to the USA, European Union, Africa, and Asia. These
include the Economic Partnership Agreement with
the European Union (EU); the African Growth and
Opportunity Act (AGOA); the US-Kenya Trade and
Investment Framework Agreement (TIFA); the African
Continental Free Trade Area (AfCFTA); and bilateral
trade agreements with other countries such as Russia,
India, and China

Development of special The Special Economic Zones Authority (SEZA) is

economic zones established and governed by the Special Economic
Zones Act No. 16 of 2015, which provides the essential
legal framework for the functioning of Special Economic
Zones (SEZs). The establishment of several SEZs,
for example, Dongo Kundu Special Economic Zone;
Naivasha Special Economic Zone; Tatu City Special
Economic Zone; Eldoret Special Economic Zone; and
Kisumu Special Economic Zone. These have been
geared towards diversifying Kenyan’s economy by
encouraging agro-processing and manufacturing

Risk insurance schemes These include the Kenya National Export Credit
Insurance Scheme (NECIS) of 2016, which aims to
protect exporters against trade losses and give them
financial security

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General policy focus Specific policy focus Specific initiatives, policies, and goals

3. Technology transfer Development of Establishment of industrial parks and centres, for

and learning industrial parks example, the Jomo Kenyatta University of Agriculture and
Technology (JKUAT) Industrial Park (2008); University
of Nairobi Science and Technology Park (UNST Park)
(2015); Konza Technopolis (2013); and the Dongo Kundu
Special Economic Zone (SEZ) (2018)

Enhancing research for Support for research and development to encourage

development technological investments and innovations. These
include collaborations with learning institutions through
incubation centres in several universities. The Kenya
Industrial Property Institute (KIPI) was formed in 1990
to encourage innovation and thus promote technology
transfer and learning

Expansion of Technical The National Policy on Education of 2006 outlines the

and Vocational government’s efforts to promote TVET as a major driver
Education and Training of skills and technological development
(TVET)
The TVET Act (2013) provides a legal framework for
regulating and upholding quality standards
The National Industrial Training Authority (NITA) Act
(1964) coordinates and regulates industrial training
programmes in the country
The Kenya Youth Employment and Opportunities Project
(KYEOP) (2016) promotes the growth of TVET in the
country and provides skills, training and employment
opportunities for the youth
National Skills Development Policy (2012) geared
towards enhancing the quality of TVETs, closing skills
gaps and fostering lifelong learning

Investment in National ICT Policy (2006) aims to promote

Information and entrepreneurship, improve access to ICT infrastructure
Communication and foster innovation
Technology (ICT)
Ajira Digital Talent Programme (2013) by the Ministry
of ICT, Innovation and Entrepreneurship is aimed at
equipping youths’ employability in the ICT sector
E-Government Policy (2006) is aimed at promoting
the use of ICT in government operations. The aim is to
increase the government’s efficiency and transparency,
through platforms such as E-citizen, which was launched
in 2007
The Broadband Strategy (2013) is aimed at ensuring the
affordability of high speed and affordable Internet across
the country

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General policy focus Specific policy focus Specific initiatives, policies, and goals

4. Foreign Investment Incentivising expansion Corporate Tax Holidays (2016) was established to attract
of Special Economic business within the SEZs. It provides them with an
Zones (SEZs) exemption from corporate income tax for up to ten years.
This was expected to lower their operational costs and
raise their profitability

The Single Business Permit Portal (2018) allows the

streaming of the business registration process in SEZs,
and thus reduces bureaucratic procedures

The Reduced Duty on Raw Materials and Equipment

(2016) focused on boosting industrial growth by
eliminating taxes from essential manufacturing raw
materials needed in the SEZs

Work Permits for Skilled Expatriates were introduced in

2015 to ensure that SEZ firms enjoy concessions on work
permits for the skilled labour force

Public-Private The Public-Private Partnerships (PPP) Act (2021) is

Partnerships (PPPs) aimed at attracting investments and stimulating economic
development. It lays a strong foundation for PPPs

Public-Private Partnerships Act (2013) superseded

the 2009 PPP policy. It made a more comprehensive
legal framework for PPPs in Kenya. It enhanced the
transparency and accountability of PPP funds

Public-Private Partnerships (PPP) Bill 2021 is aimed at

improving the efficiency of the PPPs. It strengthened the
Privately Initiated Investment Proposals (PIIPs), enlarged
procurement options, and stipulated clear timelines for
the project processes

Establishment of Kenya Investment Authority (KenInvest) was established

investment promotion in 2004 and tasked with marketing the country to foreign
agencies investors
The country has introduced different investment
incentives to attract foreign investors, increase capital
flows, and promote economic growth and development.
These include:
(i) Tax holidays;
(ii) Investment allowances; and
(iii) Duty exemptions.

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General policy focus Specific policy focus Specific initiatives, policies, and goals

5. Boosting Supporting innovation The Kenya Vision 2030 (2008) underscores the role of
competitiveness and Research and STI as a critical driver of a knowledge-based, globally
Development (R&D) competitive, and innovative economy by boosting
productivity across all sectors

The National Science, Technology, and Innovation (STI)

Policy (2012) aims at promoting science, technology, and
innovation (STI) in Kenya by encouraging R&D, building
human capital, and boosting innovation

The Science, Technology, and Innovation Act (2013)

established key bodies responsible for managing
and promoting STI activities in the country. These
included the National Research Fund (NRF), the Kenya
National Innovation Agency (KeNIA), and the National
Commission for Science, Technology and Innovation
(NACOSTI)

Reduction of the cost of doing business meant to

promote domestic trade has also led to the expansion of
international markets. Increasing access to finance for
MSMEs

Quality standards and The country has established certification institutions such
certification as the Kenya Bureau of Standards (KEBS), which seeks
to maintain quality standards. This increases consumer
confidence and facilitates access to export markets.

Export promotion The enactment of the Kenya Export Promotion and

programmes Branding Agency Act No. 19 of 2019 signifies a strategic
move to enhance export promotion and branding
initiatives. The primary objective of this legislation is to
facilitate the implementation of export promotion and
nation branding initiatives and policies aimed at boosting
the export of goods and services from Kenya.
The Export Market Access (EMA) programme, which
assists in accessing global markets and thus promoting
the competitiveness of Kenyan goods

Competition regulation These include the Competition Authority of Kenya

(CAK), which prevents anti-competitive practices such
as price fixing and monopolies, which can lead to market
inefficiencies if uncontrolled

Industrialization The Kenya Vision 2030 aims to make the country a

promotion prosperous and globally competitive country with high
standards of living by transforming the economy from a
supply-constrained domestic market to wider integration
in the global markets

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5.2.4 Impact of government’s initiatives to implementation to US$ 25,873 billion in 2014

enhance international trade after the implementation of SCT. This led
to an increase in imports from US$ 25,382
This section discusses the implications of the billion to US$ 42,270 billion in 2010 and 2014,
implementation of Single Customs Territory respectively. At the same time, the transit time
(SCT) and regional and international trade between Mombasa and Busia decreased from
agreements. an average of 315 hours to 312 hours, and from
Mombasa to Malaba from 280 hours to 158
a) Implications of implementation of hours. Additionally, the cargo dwell time and
Single Customs Territory (SCT) marine time at the Port of Mombasa decreased
from 116 hours to 92.62 hours between the
The Northern Corridor has achieved great periods of 2010-2013 and 2014-2020, as
progress since the SCT was implemented in illustrated in Figure 5.1. These advancements
2014 with the Northern Corridor members’ reflect the benefits and enhanced trade
merchandise exports and imports steadily facilitation brought about by the implementation
rising. The value of exports increased from of the SCT, fostering increased efficiency and
US$ 16,251 billion in 2010, before the growth in regional trade activities.

Figure 5.1: Average transit and cargo dwell time at the Port of Mombasa 2010-13, and 2014-
20

350.000 315.225 312.303

300.000 280.527

250.000

200.000
158.316
Hours

150.000 116.325
92.618
100.000

50.000

0.000
Dwell time and Marine average Transit Time MSA to BUS Transit Time MSA to MLB
Transit route

2010-13 2014-20

Data source: Northern Corridor, 2022

In the Democratic Republic of Congo, an requirements, while complying with all

exporter spends an average of 414 hours document requirements takes 19 hours at a
and incurs a cost of US$ 2,222.7 to fulfill all cost of US$ 190.5.
border requirements. Additionally, the process
of obtaining, preparing, and submitting export The duration required for document compliance
documentation takes approximately 273.3 varies among the Northern Corridor member
hours, costing around US$ 500. In contrast, States, with the Democratic Republic of
in Kenya, exporters spend an average of Congo (DRC) having the longest time at 273
21.5 hours and US$ 142.5 to meet border hours and Kenya the shortest at 19 hours. In

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comparison, Rwanda, Uganda, Burundi, and document compliance at around US$ 190
South Sudan recorded times of 38 hours, 48 (Figure 5.2). These disparities in both time
hours, 120 hours, and 192 hours, respectively. and costs highlight the importance of efficient
The associated costs for document compliance regulatory frameworks and streamlined
also exhibit disparities, with the DRC incurring processes to enhance business operations and
the highest cost at approximately US$ 500, promote economic growth across the Northern
followed by South Sudan at US$ 193. Kenya Corridor region.
ranks third, with a relatively high cost of

Figure 5.2: Trends in border and document compliance time and costs (2014-2020) among
Northern Corridor member States

Exports Document Compliance Exports Border Compliance

Time Time
300 273.3
500 414
250 192 450
200
Hours

300

Hours
150 120
200 146
100 38 48.4 92.63 70.35
50 19 100 58.7
21.5
0 0
ep

ep
an
da
i

da

a
nd

an
.R

da
i

da

a
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em
ru

ud
an

an

em
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ru
hS
Rw

Ke
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Rw
D

Ug
Bu

D
ut

o,

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So

ng

So

ng
Co

Co
Exports Document Compliance Exports Border Compliance
Costs Costs
600 500 2222.7
2500
500 2000
400 1500
USD
USD

300 150 190.5 193.8 762.5

200 110 101.9 1000
500 108.9 142.5 183.3 209.4
100
0 0
an

da
da
ep

a
da
da

an
a

i
ep
i

nd

ny
nd

ny

ud

an
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.R
an
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ru
Ke
ru

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Rw

hS
em

Ug
Rw

hS

Bu
Bu

oD

ut
oD

ut

So
So

ng
ng

Co
Co

Source: Authors’ calculations based on World Bank Data Doing Business database

Comparing the periods before and after decreasing from 26 days to an average of
the implementation of the SCT, there has 1.6 days. However, countries such as the
been a significant reduction in the average Democratic Republic of Congo (DRC) and South
time required for both border and document Sudan still experience longer export durations
clearance for importers and exporters. Table post-SCT implementation, with approximately
5.3 illustrates that the time for export clearance 28 days and 15 days, respectively. Uganda and
has decreased to an average of 10 days, a Rwanda have also witnessed improvements,
substantial improvement from the previous with exporters now requiring about five (5) days
37 days pre-implementation. Notably, Kenya for export procedures, down from the previous
has made progress in export clearance time, 30 days before SCT implementation.

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 ENHANCING PRODUCTIVITY THROUGH TRADE

On the import side, the import time has reduced a significant reduction from 63 days and 130
to about 10 days from 25 days. Rwanda recorded days, respectively. These improvements reflect
the shortest import time at approximately 6.4 the positive impact of the SCT on streamlining
days, down from 31 days. However, import trade processes and enhancing efficiency
times remain relatively high for DRC and South within the region.
Sudan at around 28 days and 22 days, showing

Table 5.3: Time to export and import before and after implementation of SCT

Time in days before SCT Time in days after SCT

(2010-2013) (2014-2021)
Exporting Importing Exporting Importing
Burundi 35.50 51.50 7.45 13.93
Rwanda 30.50 31.33 5.44 6.40
Uganda 31.67 31.67 5.95 11.48
Kenya 26.17 25.17 1.69 10.60
South Sudan 55.00 130.00 15.08 22.46
DRC 45.00 63.00 28.64 28.25
Average 37.14 55.44 10.37 15.52

Source: Authors’ calculations based on World Bank Data, Doing Business database

The costs of documentation and border US$ 295 for documentation compliance
compliance have also been reduced in for import clearance, US$ 209 for border
comparison to the aggregated amounts before compliance, and US$ 101 for document
the implementation of SCT. Uganda’s costs compliance for export clearance as shown in
decreased to US$ 446 for border compliance, Table (5.4).

Table 5.4: Cost to export and import before and after the implementation of SCT

Cost before SCT13 Costs after SCT

(US$) (US$)
(2010-2013) (2014-2020)
Border compliance Document compliance
Exports Imports Exports Imports Exports Imports
Burundi 4,170.40 6,676.23 108.90 443.60 150.00 1025.00
DRC 4,286.08 5,178.70 2,222.70 3039.00 500.00 765.00
Kenya 2,751.00 2,916.28 142.50 832.50 190.50 115.00
Rwanda 2,650.18 4,046.45 183.30 325.03 110.00 121.10
South Sudan 5,633.40 9,805.30 762.50 781.30 193.80 350.00
Uganda 4,378.85 4,625.00 209.40 446.70 101.90 295.60
Average 3,978.32 5,540.99 605.88 977.86 207.70 445.28

Source: Authors’ calculations based on World Bank Data, Doing Business database
13
The SCT covers both the border compliance and document compliance.

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b) International trade agreements and represented between 37-45 per cent of the total
market access exports, with most of the export trade happening
within the COMESA and EAC region between
Since independence, Kenya has entered the period 2010 and 2020 (KNBS, 2021). The
into several trade agreements to enhance intra-African imports accounted for between
the country’s market access across the 9.0 per cent and 11 per cent of the total imports,
globe. The agreements take several forms, making Kenya a net exporter within the African
including bilateral, regional, and multilateral continent. The composition of Kenya’s exports
trade agreements and other trade-related includes tea, iron and steel products, paper,
arrangements. and oils while the major imports are maize,
paper products, sugar, and vegetables. With the
Role of AfCFTA framework in boosting entry of AfCFTA, it is anticipated that Kenya will
Kenya’s trade experience increased intra-trade that will boost
productivity in the sectors with a comparative
In March 2018, Kenya became a signatory advantage in supplying the exports. The key
to the agreement establishing the African takeaways from Box 5.1 indicate a significant
Continental Free Trade Area (AfCFTA), marking increase in cash crop exports by 19-21 per cent,
considerable progress towards achieving while there has been a decrease in exports of
continental integration. With a coverage of 54 livestock, meat, fish, and food crops by 5-6 per
countries and a population of about 1.3 billion cent. Exports of manufactured products have
people, the agreement offers room for the shown substantial growth of 39-40 per cent,
largest global trade liberalization in both goods and extractive industry exports have increased
and services (World Bank, 2020). Central to by 23-24 per cent. Processed food exports
this, the AfCFTA is expected to enhance market have increased by 20-40 per cent, with services
access, increase productivity, enhance social exports also experiencing an increase of 13
and economic development, and boost intra- per cent. Importantly, there has been a notable
African trade. larger growth in imports of food crops by 57-
62 per cent and processed food by 50-116 per
AfCFTA offers a great opportunity to boost cent, accompanied by cost reductions in non-
Kenya’s export trade. Before the coming tariff measures (NTMs). Box 5.1 demonstrates
into force of the agreement, Kenya’s trade an empirical analysis of the implications of
was mostly extra-African both in imports and AfCFTA on Kenya’s trade within the continent
exports. Kenyan exports to African countries using the CGE framework.

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Box 5.1: Impact of AfCFTA on Kenya’s trade

Empirical evidence using a CGE framework provides insightful support of the impact of AfCFTA implementation on
the Kenyan economy. The findings suggest that tariff-only liberalization leads to mixed results on exports across the
main product groups (Figure a). By 2035, it determines a strong expansion of cash crops exports (19-21%), a mild
growth for manufacturing, processed food, and extractive industry products, while livestock, meat, and fish together
with food crops reduce by5-6 per cent. On the imports side (Figure b), there is a net increase in volumes across all
product groups, notably, that of agrifood products. Imports of food crops expand by 18-21 per cent and processed
food by 9-36 per cent (AGR leading to the highest expansion).

The NTMs liberalization determines a significant growth of exports from non-agrifood sector. Exports of cash crops
expand by 4-7 per cent relative to the baseline, far less than in the tariff-only liberalization variant, while a reduction
in exports of cash crops reaches 20 per cent. At the same time, exports of manufactured products grew by 39-40 per
cent (more in the INT liberalization schedule), the extractive industry by 23-24 per cent, processed food by 20-40 per
cent (the highest variation across liberalization schedules), and services by 13 per cent. For imports, the reduction
in NTMs costs determines an even larger import growth of food crops (57-62%) and processed food (50-116%) with
the AGR schedule leading to the highest volumes. The other sectors’ exports also expand, except for the extractive
industry and services, the latter effectively having a contraction from baseline levels.

The addition of sales tax in both liberalization schedules has a visible effect only on the exports of manufacturing,
and extractive industry products. The higher sales tax leads to an increase in production costs for more complex
sectors requiring many intermediate products as inputs.

Source: Nechifor et al. (2022)

tar tar+NTMs
Deviation from baseline(%)

40 Schedule
1 REV
2 AGR
20
3 INT
4 RCA
0
Tax added
-20 SALES TAX
Livestock, meat and fish

Livestock, meat and fish

Processed food

Eetractive industry

Processed food

Eetractive industry
Manufacturing

Manufacturing
Cash crops

Services

Food crops

Cash crops

Services

Food crops

tar tar+NTMs
Deviation from baseline(%)

120 Schedule
1 REV
90 2 AGR
3 INT
60
4 RCA

30
Tax added
0 SALES TAX
Livestock, meat and fish

Livestock, meat and fish

Processed food

Extractive Industry

Processed food

Extractive Industry
Manufacturing

Manufacturing
Cash crops

Cash crops
Food crops

Services

Food crops

Services

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Role of AGOA framework in boosting number of employees in the EPZs increased by

Kenya’s trade 20 per cent from 0.05 million in 2015 after the
extension of AGOA to 0.06 million in 2019, while
The African Growth and Opportunity Act (AGOA) labour productivity averaged Ksh 1.27 million
has played a pivotal role in boosting exports over the same period. Investments increased
from Sub-Saharan African (SSA) countries to from Ksh 47 billion in 2015 to about 107 billion
the USA, including Kenya. With AGOA, duty- in 2019, while exports increased from Ksh 60
free exports to the USA have increased from billion to Ksh 68 billion over the review period,
43 per cent in 2001 to 69 per cent by 2022. showing the significance of AGOA in increasing
This growth has led to increased investments investments, job creation, and export earnings
in technology, machinery, and labour to meet (EPZA, 2021).
the demands of the US market, resulting in
job creation, higher efficiency, and enhanced As AGOA approaches its end in 2025, there is
competitiveness. Sectors such as textiles, a risk of declining competitiveness, production,
apparel, and light industries, which heavily investment, and employment for firms
rely on AGOA, accounted for 68 per cent of dependent on AGOA benefits and not included
all AGOA exports in 2022, driving productivity in the other preferential trade schemes such as
gains in these sectors. the GSP. To mitigate these risks, Kenya must
secure a more enhanced trade framework like
The duty-free access to the US market AGOA with the US if there will be no extension
under AGOA has incentivized productivity to ensure continued market access after 2025.
improvements in sectors such as textiles and By exploring new export opportunities, Kenya
apparel. The country’s textile and garment sector can sustain and enhance its trade performance
has experienced growth in capital investment, and productivity among participating firms
employment, and exports. For example, the total beyond the current AGOA framework.

Figure 5.5: US imports of goods from Kenya, by programme, 2000-2022

900 9
800 8

GSP utilization rate

700
Value million $

7
600
500 6
400 5
300
4
200
100 3
0 2

Years

Total exports Kenya to USA Share utilizing AGOA (excludign GSP)

No program claimed Share utilizing GSP

Data source: AGOA.Info, (2024)

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5.3 Role of Domestic Trade in Boosting inventory management, neglect of e-commerce

Productivity and weak supply chain management.

In Kenya, the wholesale and retail trade sector This has had far-reaching implications for the
contributed about 7.0 per cent of GDP in 2023. retail market, the real estate sector, and the
This dynamic sector includes diverse entities, economy. First, the closures have resulted
ranging from large corporations to Micro, Small, in the loss of jobs for a significant number
and Medium Enterprises (MSMEs). MSMEs of employees, contributing to an already
account for over 80 per cent of employment growing pool of unemployed individuals. This
generated (238,500 people). Additionally, it has a serious ripple effect on the incomes
contributes a huge share of GDP (7.4% in of individuals, and consequently consumer
2022). The following section provides insights spending and overall economic growth and
into the structure of domestic trade. productivity.

5.3.1 Wholesale and retail trade sector Second, the reduction in retail outlets has
impacted the real estate retail market, with a
The supermarkets in the country form a decrease in the demand for retail space and
significant component of the wholesale and storage facilities. This could lead to a decline
retail sub-sector. The closure of branches in real estate investment returns in addition to
among several supermarkets in Kenya led to a fall in rental incomes, and reduced demand
a significant decrease in the total number of for both the commercial services and property
branches across major supermarkets from values.
2018 to 2023, with significant implications for
the distribution of goods and services in the Third, the closures have affected the
retail market sector. In 2018, the total number competitive landscape of the retail market, with
of branches was 257, but by 2023, the closures, the exit of major players creating opportunities
particularly by Tuskys, Uchumi, Game Stores, for other retailers to fill the gap. For instance,
Nakumatt, Choppies, and Shoprite, resulted local retailers such as Khetias and Naivas have
in a substantial reduction. Specifically, Tuskys expanded their market share, while international
closed 59 branches, Uchumi closed 35, Game retailers such as Carrefour and Shoprite have
Stores closed three (3), Nakumatt closed 65, made strategic moves to capitalize on the
Choppies closed 15, and Shoprite closed four changing market dynamics.
(4). As a result, the overall number of branches
decreased to 189 in 2022 and further to 171 Although the closures of popular players create
by December 2022. However, the number uncertainty for consumers, the entry and
increased to 227 after the expansion of expansion of local and international brands
branches of Naivas, Quickmat, and Carrefour. create a potential for increased competition and
boost of local businesses. The closures have
The above decline is due to the financial also disrupted the accessibility of essential
turmoil and economic challenges (recurrent goods and services for consumers, which has
losses), weak management, changing implications for productivity in other sectors
consumer behaviour towards online platforms of the economy, such as agriculture and
(E-commerce), intense domestic and manufacturing. Finally, the decline in the number
international competition, macroeconomic of branches has negatively impacted the supply
pressures (for example high rates of interest, chains, highlighting the interconnectedness of
large operational costs, slow growth of incomes the retail sector with other industries and the
and currency depreciation) and strategic broader economy (for example agriculture,
missteps such as over expansion, weak manufacturing, transport and logistics, and real

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estate), all of which have negative effects on demand for their goods and services, and thus
productivity. The ripple effects of the disruption low revenues and reduced production.
of manufacturers and suppliers lead to reduced

Table 5.5: Number of retail market branches of Kenya’s supermarkets, 2018-2023

Retailer Ownership 2018 2019 2020 2021 2022 2023

Naivas Hybrid 46 61 69 79 91 100
Quickmart Hybrid 10 29 37 48 15 59
Chandarana Local 14 19 20 23 26 26
Carrefour International 6 7 9 16 19 22
Cleanshelf Local 9 10 11 12 12 13
Tuskys Local 53 64 64 6 6 5
Uchumi Local 37 37 37 2 2 2
Game Stores International 2 2 3 3 0 0
Choppies International 13 15 15 0 0 0
Shoprite International 2 4 4 0 0 0
Nakumatt Local 65 65 65 0 0 0
Total 257 313 334 189 171 227

Source: Cyton Market Outlook, 2024

5.3.2 Involvement of MSMEs in trade accounting for 95.49 per cent of the distribution.
Small firms constitute 3.94 per cent, while
Micro, Small, and Medium-sized Enterprises medium firms make up 0.57 per cent of the
(MSMEs) play a crucial role in trade activities total. These statistics highlight the significant
within Kenya’s economy, contributing presence of micro firms in the wholesale and
significantly to domestic and international retail trade sector, underscoring their substantial
trade. Their involvement spans various sectors role in the country’s economic landscape.
and channels, reflecting their adaptability and
resilience in navigating trade dynamics. At MSMEs channels for sales distribution
the domestic level, MSMEs are integral to the
wholesale and retail trade sector, facilitating the MSMEs sell their products across various
distribution and exchange of goods within local channels, each contributing differently to their
communities and across regions. They serve as overall sales distribution. Individual consumers
key drivers of economic activity, leveraging their emerge as the primary market for MSMEs
proximity to consumers to meet diverse market across all firm-size categories. Specifically,
demands. MSMEs largely engage in trade with micro-enterprises make the highest percentage
each other, with 13 per cent trading with each of sales to individual consumers, accounting for
other and fostering a network of intra-MSME 88.29 per cent, followed by small enterprises at
transactions that support local economies and 76.92 per cent, and medium-sized enterprises
promote entrepreneurship. at 66.67 per cent. Direct exports are negligible
for medium-sized enterprises, while micro and
The distribution of firms within the wholesale small enterprises show some engagement in
and retail trade sector presents a nuanced this channel, accounting for 0.12 per cent and
landscape, with distinct proportions across 1.21 per cent of sales, respectively.
different size categories, with micro firms

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Small enterprises play a role in supplying non- is a significant market for MSMEs, with a small
MSMEs, with 2.02 per cent of small enterprises proportion of 0.26 per cent of micro-enterprises,
selling their products to larger businesses. 1.82 per cent of small enterprises, and 2.78
Sales to non-MSMEs, which likely include larger per cent of medium enterprises selling their
corporations or entities outside the MSME products to the government, indicating a low
category, vary across firm size categories. uptake of Access to Government Procurement
Micro-enterprises make 2.46 per cent of their Opportunities (AGPO). This low uptake
sales to non-MSMEs while medium-sized suggests that there is a significant opportunity
enterprises make 11.11 per cent. This indicates for MSMEs to increase their sales by engaging
that MSMEs are an essential source of supply more with the government procurement
for larger businesses in Kenya. The government process, which offers a ready market.

Figure 5.4: Access to markets by MSEs, 2016

90
80
70
Percentage

60
50
40
30
20
10
0
Other MSMEs Non-MSMEs Direct Individual Government
exports consumers
Micro 0.4 8.48 2.46 0.12 88.29 0.26
Small 2.43 15.59 2.02 1.21 76.92 1.82
Medium 4.17 15.28 11.11 0 66.67 2.78

Data source: KNBS (2016), MSME Survey

A further analysis was conducted to examine exporting firms allocate significantly more to
the differences in the productivity of the firms research and development, with an expenditure
that export against those that do not. Exporting of Ksh 2,340 compared to Ksh 112 for non-
firms demonstrate high productivity with an exporting firms. Exporting firms, however, have
average of 303,536.70 compared to 23,399.25 slightly lower capital intensity per worker at
for non-exporting firms (World Bank Enterprise 117,190 versus 126,932 for non-exporting firms.
Survey, 2018). In terms of worker composition, These findings highlight the positive impact of
exporting firms have a more balanced mix of export activities on firm productivity, workforce
skilled and unskilled workers, with 47 per cent composition, and investment strategies,
skilled and 53 per cent non-skilled, while non- emphasizing the benefits of international trade
exporting firms have 9.0 per cent skilled and for enhancing efficiency and competitiveness
91 per cent non-skilled workers. Additionally, within businesses.

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Contracting arrangements for MSMEs predictability, optimization of the supply chain,

inputs resource allocation for other business activities,
and enhancement of quality and consistency.
MSMEs participate in the contracting These benefits collectively contribute to
arrangements for inputs or orders received, improved productivity within the firm.
highlighting the channels through which
enterprises procure goods or secure orders. Non-MSMEs, including larger businesses, are
Figure 5.5 shows that a significant proportion also involved in contractual arrangements with
of MSMEs, particularly small enterprises, rely MSMEs. About 3.6 per cent of micro-enterprises,
on non-contractual arrangements for inputs 11.9 per cent of small enterprises, and 12.5
or orders. Specifically, 79.9 per cent of micro- per cent of medium enterprises receive inputs
enterprises, 59.3 per cent of small enterprises, or orders through formal contracts with non-
and 58.3 per cent of medium-sized enterprises MSMEs. Middlemen play a role in facilitating
operate under non-contracting arrangements, contractual arrangements for MSMEs. About
suggesting a prevalent reliance on informal or 4.3 per cent of micro-enterprises, 5.9 per cent
non-structured arrangements. of small enterprises, and 12.5 per cent of
medium enterprises receive inputs or orders
In addition, a notable percentage of MSMEs, through formal contracts with middlemen. The
particularly micro and small enterprises, government is also involved in contractual
engage in contractual arrangements for their arrangements with MSMEs, albeit to a smaller
inputs or orders among themselves. About 11.8 extent with about 0.2 per cent of micro-
per cent of micro enterprises, 19.2 per cent of enterprises, 1.6 per cent of small enterprises,
small enterprises, and 6.9 per cent of medium and 2.8 per cent of medium enterprises receiving
enterprises operate under formal contracts. inputs or orders through formal contracts with
Engaging in input contracts offers several the government showing limited engagement
advantages, including cost management and between government and MSMEs.

Figure 5.5: MSMEs contracting arrangements for inputs, 2016

90.0
79.9
80.0
70.0
59.3 58.3
60.0
50.0
40.0
30.0
19.2
20.0
11.8 11.9 12.5 12.5
6.9 6.9
10.0 3.6 4.3 5.9 2.8
0.2 2.0 0.2 1.6
0.0
Other None MSMEs Non-MSMEs Middlemen Government

Micro Small Medium

Data source: KNBS (2016), MSME Survey

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 ENHANCING PRODUCTIVITY THROUGH TRADE

The presence of input contracts has a significant A notable percentage of MSMEs, particularly
impact on productivity levels. Firms with input micro and small enterprises, engage in
contracts have higher productivity, averaging contractual arrangements for their products
30,765.24 compared to 19,603.94 for firms or services among themselves. About 7.6 per
without input contracts. This suggests that the cent of micro-enterprises, 18.2 per cent of
use of input contracts plays a crucial role in small enterprises, and 13.9 per cent of medium
enhancing productivity within firms. Structured enterprises operate under formal contracts,
agreements are important in enhancing indicating a relatively higher prevalence of
operational efficiency and output levels within structured agreements within themselves.
businesses. Non-MSMEs, including larger businesses,
are also involved in contractual arrangements
Contractual arrangements for MSMEs with MSMEs. The data shows that 2.7 per
products and services cent of micro-enterprises, 7.1 per cent of
small enterprises, and 9.7 per cent of medium
MSMEs engage in different contracting enterprises produce products or services
arrangements for the products or services they through formal contracts with non-MSMEs.
produce, showcasing the various channels
through which these enterprises engage in Additionally, middlemen play a role in facilitating
formal agreements for their output. Figure 5.6 contractual arrangements for MSMEs. About
reveals that a significant proportion of MSMEs, 3.0 per cent of micro enterprises, 7.1 per cent of
particularly small enterprises, rely on non- small enterprises, and 8.3 per cent of medium
contractual arrangements for their products or enterprises produce products or services
services. Specifically, 86.0 per cent of micro- through formal contracts with middlemen. The
enterprises, 64.4 per cent of small enterprises, government is also involved in contractual
and 58.3 per cent of medium-sized enterprises arrangements with MSMEs, albeit to a small
indicate that they do not operate under any extent. About 0.4 per cent of micro-enterprises,
formal contracts for their products or services. 2.6 per cent of small enterprises, and 4.2 per
This suggests a prevalent reliance on informal cent of medium enterprises produce products
or non-structured arrangements within this or services through formal contracts with the
segment of the market. government.

Figure 5.6: MSMEs contractual arrangements for goods and services, 2016

86.0
90.0
80.0
64.4
70.0 58.3
60.0
50.0
40.0
30.0 18.2
13.9
20.0 5.6 7.6 7.1 9.7 7.1 8.3 4.2
0.3 0.6 2.7 3.0 0.4 2.6
10.0
0.0
Other None MSMEs Non-MSMEs Middlemen Government

Micro Small Medium

Data source: KNBS (2016), MSME Survey

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Firms that use contractual arrangements for their of firms that export. The dataset contained
final goods and services have higher productivity firms in the manufacturing and retail services.
levels, with those employing product contracts After data cleaning and preparation, a sample
averaging 38,756.88 compared to 19,083.84 for of 178 firms was retained. Among these, 101
firms without such arrangements (Figure 5.6). sold locally while the rest (77) had some export
This is consistent with the previous findings market link (either direct or indirect). The factors
on firms that use contractual arrangements that affect trade participation are firm size,
for their inputs. Further, the analysis reveals research for development expenditure, capital
varying levels across different entities when intensity, business age, education, training, and
examining productivity based on contractual share of highly skilled workers. Annes Table 5.2
arrangements. Firms with contractual in the annex shows the summary statistics of
arrangements with government entities have these variables, while Box 5.2 presents the
the highest productivity at 74,732.34 while regression estimates. The Table shows that
firms with no contractual arrangements have firms whose main market is exports tend to
lower productivity levels of 19,083.84. These have a higher number of workers, higher sales,
findings highlight the importance of contractual higher capital (both volume and intensity),
arrangements in enhancing productivity across spend more on research and development, and
different types of entities, emphasizing the role have a higher number of skilled workers (41 vs
of structured agreements in driving efficiency 10 for local market-oriented ones) and older
and output levels within various sectors. (34 compared to 19).

5.3.3 Determining the factors that affect

trade participation

The World Bank 2018 Kenya Enterprise Survey

dataset was used to examine the characteristics

Box 5.2: Drivers of trade participation by firms

A regression analysis was conducted to assess the drivers of trade participation by firms in the wholesale and retail
trade. The dependent variable is a dummy variable equal to one (1) when it is an exporting firm and zero (0) when
it is a non-exporting firm. The independent variables included the age of the business, business category, capital in-
tensity, access to loans, and access to training. The drivers identified to influence trade participation include the age
of the business, access to training, and business category. On the age of the business, an increase in the age of the
business by one year increases the probability of a business exporting by 0.01, ceteris paribus. Medium and large
businesses have a probability of 0.34 and 0.45 higher of exporting, compared to micro-businesses, respectively. On
access to training, businesses that train their employees have a probability of 0.17 higher of exporting, compared to
those that do not train them.

Marginal effects Std. Err. Z P>z [95% Conf. Interval]

Age of the business 0.01 0 5.72 0 0 0.01
Business category14
1-Small 0.16 0.18 0.92 0.36 -0.18 0.51
2-Medium 0.34 0.18 1.86 0.06 -0.02 0.7
3-Large 0.45 0.18 2.49 0.01 0.1 0.8
Capital intensity 0 0 1.29 0.2 0 0
Access to training 0.17 0.07 2.5 0.01 0.04 0.3
Access to loans 0.19 0.12 1.55 0.12 -0.05 0.43

Data source: Author’s analysis based on the World Bank (2018) Survey

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 ENHANCING PRODUCTIVITY THROUGH TRADE

A further analysis was conducted to investigate in sourcing raw materials, components, and
the characteristics and determinants of services more efficiently, ultimately leading
productivity among firms engaged in exporting. to higher productivity by reducing production
Box 5.2 illustrates that firms focusing on export delays and costs. Through Global Value Chain
markets have a larger workforce, higher sales (GVC) participation, countries can access
figures, increased capital investment (both in foreign technology, expertise, and investment,
volume and intensity), greater expenditure on which can drive innovation and technological
research and development, a higher proportion advancement. As countries specialize in
of skilled workers (41 compared to 10 in local areas where they excel, they are motivated
market-oriented firms), and an older average to adopt more efficient production methods
age (34 compared to 19). Exporting firms and technologies, leading to enhanced overall
were found to have higher average values, labour productivity by enabling workers to
indicating greater efficiency, while local firms produce more with the same or fewer resources.
displayed a negative Total Factor Productivity
(TFP), suggesting lower efficiency in resource Table 5.6 provides a computation of the
utilization compared to the average firm. Global Value Chain (GVC) participation index
for various sub-sectors in Kenya, based on
Regression analysis was then performed a survey conducted by the World Economic
on TFP15 using the identified independent Forum in 2018. The overall mean GVC16
variables, with the results presented in Annex participation index for all sub-sectors is 18.68,
Table A5.2. The table reveals that only the with a standard deviation of 21.92, reflecting the
coefficient of the age of the business is both variability in GVC participation across different
positive and statistically significant. This finding industries. Specific sectors stand out with
suggests that as the age of the business notably high mean GVC participation indices,
increases, there is a notable positive impact on suggesting active involvement in international
total factor productivity. Older businesses tend trade through GVCs. These sectors include
to be more efficient in combining resources paper (36.90), electronics, plastics and rubber
to generate output. However, coefficients (33.11), recycling (32.50), transport machines
related to business categories, the proportion (29.28), and chemicals (28.44).
of individuals with high school education and
above, research and development expenditure, Sectors with lower mean GVC participation
and access to loans have the expected indices, including construction, hotel and
positive signs but lack statistical significance. restaurants, leather, wholesale, and furniture
The coefficient for training, although correctly indicate a relatively lower degree of integration
signed, is statistically insignificant, suggesting into global value chains. This suggests a more
that exporting firms without training programmes localized or domestic focus for these industries,
experience lower TFP levels. with limited exposure to international markets
and fewer connections with global production
5.3.4 Global value chains participation networks. While these sectors may still contribute
significantly to the domestic economy, their
Trade encourages the development of robust lower GVC participation underscores potential
local supply chains. Businesses involved in challenges in accessing global opportunities
trade often work closely with local suppliers and leveraging external resources for growth
and distributors, stimulating economic activity and innovation.17 The industry sector had the
within the country. These supply chains help highest GVC participation scores (mean =
14
Note: Business category = 0 if micro (0-9 employees), 1 if small (10 to 49 16
The GVC participation index measures the extent to which a sector is integrated
employees), if medium (50-99), and 3 if large (over 100). Loan = 1 if no loan was
into global trade through both forward and backward linkages in the value chain.
accessed, 2 if a loan was accessed. 17
Wanjala, K. and Abdulahi O. (2022), Firm level analysis of global value chain partic-
15
TFP is a residual computed from the total sales, capital, and labour using the
ipation in Kenya. KIPPRA
MSME Survey, 2016
Discussion Paper No. 285. https://repository.kippra.or.ke/bitstream/han-
dle/123456789/4319/DP285.pdf?sequence=1&isAllowed=y

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26.22) while services had the lowest (13). The variety of inputs and technologies. However,
mean GVC in the agriculture sector was 22.81. the low GVC scores in the services sector
The higher GVC in the industry sector indicates indicate that the country’s service sector is less
higher knowledge transfer and innovation, integrated into global production networks.
higher export opportunities, and access to a

Table 5.6: GVC participation index by sub-sector

Sector Subsector Mean Standard deviation (SD)

Agriculture Food 27.3 22.91
Wood 18.33 18.87
Average 22.81 20.89
Industry Paper 36.9 23.03
Electronics (31-32) 33.11 31.44
Plastics and rubber 32.61 22.49
Recycling 32.5 28.39
Transport machines (34-35) 29.28 21.1
Chemicals 28.44 22.86
Machinery and equipment (29-30) 26.66 26.2
Fabricated metal products 26.33 25.8
Information Technology 26.32 27.41
Basic metals 23.75 22.87
Textiles 23.55 21.46
Garments 19.85 27.96
Non-metallic minerals 17.27 20.99
Leather 10.31 22.22
Average 26.21 24.59
Services Retail 17.78 19.71
Publishing, printing, and recorded media 17.5 29.03
Services of motor vehicles 16.09 19.46
Transport section I: (60-64) 13.55 22.76
Furniture 13.42 18.08
Wholesale 13.28 20.6
Construction section 6.85 12.62
Hotel and restaurants 6.28 12.57
All sector Average 13.09 19.35

Wanjala and Abdullahi (2022) explored the backward linkage channel (indicating a higher
determinants of Global Value Chain (GVC) dependence on foreign inputs), and the forward
participation in Kenya using a Tobit model linkage (highlighting the reliance on local firms’
(Annex Table 5.5). The findings show that products as inputs). The results suggest a
firm productivity significantly influences strong correlation between firm productivity
the engagement of firms in GVCs. This and GVC participation, indicating that higher
impact is particularly evident across various GVC participation leads to increased firm
models, including the overall GVC index, the productivity. To enhance GVC participation in

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 ENHANCING PRODUCTIVITY THROUGH TRADE

the local economy, it is essential to focus on (Figure 5.7). The decline in the shares of the
improving overall productivity, fostering strong two series is in sync with the global decline in
backward linkages through supplier network trade since 2010, mainly because of the global
development and trade facilitation measures, financial crisis of 2008-09, structural changes
and promoting forward linkages through where many economies have become more
standards, certifications, and export promotion service-oriented, global demographic changes,
initiatives. rise in protectionist trade policies especially
between China and the USA, and commodity
5.4 Role of International Trade in price fluctuations. However, the trade balance
Boosting Productivity has been improving since 2011, which suggests
a faster decline in imports compared to exports.
5.4.1 Trends in Kenya exports and imports This suggests that despite their decline, exports
are becoming more productive and competitive.
Kenya exports and imports as a share of GDP
have been on a general decline over the years

Figure 5.7: Share of exports and imports to GDP, 2000-2022

40 0
35 -2
30 -4
-6
25
-8
20
-10
15
-12
10 -14
5 -16
0 -18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Exports Imports Trade Balance

Data source: ITC trade map, 2023

The East African Community (EAC) still share, followed by the EU at about 20.4 per
controls the largest share of the country’s total cent, representing an increase of 45 per cent
exports, followed by the European Union (Table and 16 per cent, respectively. On average,
5.7). The EAC Common Market Protocol has Africa contributed to about 45 per cent of the
been instrumental in this progress, fostering a market share, showing the importance of the
more integrated regional market through the market with the AfCFTA coming into play. Asia
harmonization of laws, reduction of non-tariff is also an important market for Kenyan exports,
barriers (NTBs), and facilitation of the free with export share to Asia increasing from 20 per
movement of labour and capital. In 2022, EAC cent to 25 per cent between 2010 and 2022,
controlled over 28 per cent of the export market representing a growth of 4.29 per cent.

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Table 5.7: Average growth rate and percentage share of Kenya exports, 2010-2022

Percentage share of Kenya exports Average growth

Market 2010 2014 2018 2022 2010-2014 2014-2018 2018-2022
EAC 27.87 31.02 23.52 28.00 31.56 -24.93 45.46
COMESA 16.59 6.19 6.80 6.64 - 55.89 8.79 19.17
RoA 17.90 23.60 14.62 19.21 55.80 -38.67 60.56
EU 23.92 22.35 21.44 20.46 10.45 -5.02 16.57
US 5.51 7.13 7.72 9.19 52.80 7.32 45.39
Asia 20.85 19.50 30.45 25.99 10.51 54.68 4.29

Source: Author’s calculations using ITC Trade map data, 2023

Kenya exports by stages of production Export of intermediate goods such as metal
revealed distinct trends across various product products, machinery, chemicals and plastics,
groups. The export of capital goods displayed textiles and yarns, and food and beverage
fluctuations over the years, starting at US$ ingredients exhibited some variability, starting
0.218 billion (9.68% of the total) in 2013 and at US$ 0.95 billion in 2013 to a low of US$ 0.59
peaking at US$ 0.30 billion (4.58% of the total) in billion in 2017 and to a high of US$ 0.81 billion
2022. Further, consumer goods demonstrated in 2022. Raw materials such as agricultural
a consistent upward trajectory, increasing from products (tea leaves, coffee beans, and
US$ 0.35 billion (15.72% of the total) in 2013 to horticultural products) and minerals (titanium
US$ 0.39 billion (61.17% of the total) in 2022. ores and fluorspar soda ash), in contrast, had
a generally increasing trend, with exports rising
from US$ 0.74 billion in 2013 to US$ 1.39 billion
in 2022.

Figure 5.8: Kenya exports by stages of production, 2013-2022

1.6 4.20

1.4 4.10
4.00

Consumer goods in $ Millions

1.2
3.90
1 3.80
$ Millions

0.8 3.70

0.6 3.60
3.50
0.4
3.40
0.2 3.30
0 3.20
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Capital goods Intermediate goods Raw materials Consumer goods

Data source: WITS (2023)

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 ENHANCING PRODUCTIVITY THROUGH TRADE

The rise in exports across all sectors implies since 2014 reflects deeper integration into
rising overall productivity in the country. The global value chains, showing productivity
increasing export trends of raw materials and improvements. The rising efficiency and
consumer goods signify a rise in productivity quality improvements within the GVC imply a
and improved product quality in the primary rise in overall productivity in the country. The
and manufacturing sectors. However, the stagnation in exports of capital goods indicates
heavy reliance on exports of consumer goods limited export competitiveness and productivity
compared to capital goods suggests lower growth in the manufacturing sector. It is,
technological advancements in the country’s therefore, necessary to enhance technology
manufacturing goods sector. This is because and productivity in the manufacturing of capital
these goods involve simpler production goods to enhance export performance and
processes compared to capital goods. The competitiveness.
uptick in the export of intermediate goods

Figure 5.9: Kenya imports by stages of production, 2013-2022

9
8
7
6
5
$ Millions

4
3
2
1
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Capital goods Consumer goods Intermediate goods Raw materials

Data source: WITS (2023)

The import trends by stages of production production capabilities and a greater integration
exhibit a similar trajectory to that of exports, in the GVCs. This indicates a rising of the
except for raw material imports being the manufacturing sectors and the overall country’s
lowest, averaging about US$ 1.0 million from productivity. The increase in imports of capital
2013 to 2022. The low importation of raw and intermediate goods in the review period
materials suggests that the country has ample presents promising implications for enhancing
supply of these resources, and therefore higher overall productivity and fostering economic
productivity in the primary sector. However, growth through improved technological inputs
it also suggests low diversification and slow and production capabilities. The increasing
productivity growth in the manufacturing sector. trend in imports of consumer goods over the
From 2017 to 2019, import patterns remained review period suggests a growing domestic
relatively stable, showing minimal fluctuations. demand, potentially indicating a shift towards
However, a notable increase in the imports reliance on imported goods and a decline in
of capital, consumer, and intermediate goods domestic production capacity. This shift could
from 2020 shows growing technological and have adverse effects on the country’s trade

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balance and domestic productivity, as a higher progress in accessing foreign markets with its
dependency on imported consumer goods may exports. This enhanced market penetration
lead to reduced local manufacturing activity could have a positive impact on productivity
and competitiveness. The high importation by stimulating economic activity, fostering
of consumer goods is in line with their high innovation, and generating employment
exportation, again indicating low productivity in opportunities. However, w hen compared to
the manufacturing sector. South Africa and Morocco, which have higher
export market penetration indices of 18.99
Therefore, while increase in imports of capital and 6.98, respectively, Kenya’s average of
and intermediate goods signify opportunities for 3.4 indicates room for further growth in export
overall productivity growth, careful monitoring competitiveness. This analysis highlights both
and strategic planning are essential to mitigate the progress Kenya has made and areas
any negative impacts on the productivity of the where further strategic measures could be
manufacturing sector stemming from the rising implemented to enhance its global export
importation of consumer goods. presence in the ever-evolving international
trade landscape. Except for Morocco and South
5.4.2 Export competitiveness Africa, other countries such as Kenya, Nigeria,
and Tanzania exhibit stagnating growth in the
Kenya export market penetration trends index, signalling a slower pace of productivity
growth. To elevate productivity levels and
The country’s export market penetration 18 bolster export competitiveness, these nations
has improved over the years, although it still need to enhance their productive capacities as
lags some other African count ries. The index a priority, through investments in infrastructure,
increased by 52 per cent from 2.6 in 2000 to technology, skills development, and trade
around 5.46 in 2022, reflecting the country’s facilitation.
18
The Index of Export Market Penetration is a measure of the extent to which a coun-
try’s exports penetrate foreign markets. It is calculated by dividing a country’s share
of world exports by its share of world GDP. A higher index indicates that a country’s
exports are more successful in penetrating foreign markets.

Figure 5.10: Index of export market penetration index for Kenyan exports, 2000-2021

20
18
Export market penetration index

16
14
12
10
8
6
4
2
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Years

Kenya Morocco Nigeria South Africa Tanzania

Data source: WITS (2023)

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 ENHANCING PRODUCTIVITY THROUGH TRADE

The low export diversification index indicates In terms of the ranking of market diversification of
that the country has limited access to foreign various export commodities in 2022, the spread
markets compared to countries such as index20 for markets was used to assess the
Morocco and South Africa. While the high distribution of Kenyan exports among partner
importation of capital and intermediate goods States. Figure 5.11b illustrates the market
is anticipated to stimulate the manufacturing diversification rank for various commodities out
sector by fostering the development of GVCs, of 180 countries. Fresh food, leather products,
enhancing diversification, improving product information technology, and consumer
quality, and ultimately increasing foreign market electronics were the highest performing
penetration, over-reliance on importing and sectors in market diversification, ranking 28,
exporting consumer goods can have adverse 30, and 34, respectively. Conversely, clothing,
effects on the country’s export base in terms and basic manufactures ranked the lowest
of diversification and competitiveness. This in market diversification ranks. Furthermore,
reliance is likely to constrain the country’s ability products under the Bottom-up Economics
to expand into foreign markets effectively. Transformation Agenda (BETA) have a low
diversification index, as illustrated in Figure
Market concentration trends 5.11b. The data indicates that diversification is
more robust in the primary sector (agriculture)
The export market structure exhibits a high and the services sector (ICT) compared to the
level of diversification, as illustrated in Figure manufacturing sector, except for consumer
5.11(a and b). HH19 indices for both export and electronics manufacturing. This observation
import market concentration, scoring close to serves as additional evidence of a productivity
zero (0), indicate a diversified trade scenario. gap within the manufacturing sector,
The export market concentration index for highlighting areas for potential improvement
Kenya has undergone a notable transformation, and development.
decreasing from 0.08 in 2000 to 0.045 in 2023,
representing a 43 per cent reduction in the HH Diversification in the export market is crucial for
index. This trend reflects Kenya’s successful economic growth and global competitiveness. It
efforts in diversifying its export market over the reflects the country’s ability to expand its export
years. This improvement is in line with the rising base and reduce reliance on a limited range
importation of capital and intermediate goods, of products and markets. The reduction in the
which has enabled the country to raise its export market concentration index indicates
export diversity and increase penetration in the a positive shift towards a more diversified
export markets. Therefore, Kenya’s importation and competitive export landscape, which
of capital and intermediate goods has had is essential for sustained economic growth
a positive impact on both the productivity of and resilience in the face of global market
the manufacturing sector, and of the entire dynamics. The declining market concentration
economy. The government’s implementation of index for exports, coupled with diversification
various initiatives, such as bilateral and regional across a wide range of products and increased
trade agreements, has been instrumental in market penetration, implies an improvement
driving this positive transformation. in productivity as the country leverages its
strengths in various sectors to drive efficiency,
innovation, and overall economic performance.

19
HH indices of export and import market concentration scores close to zero indicate 20
The spread index for markets compares for each country, the share of its exports
that trade is diversified, that is, equally distributed, across markets and scores close directed to different partner countries with the average export value.
concentration on a few markets.

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Figure 5.11a : Market concentration index for Kenyan exports, 2000-2023

0.09
Herfindahl-Hirschman Index score

0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0

Years

Data source: Author’s calculations using ITC Trade map data 2023

Figure 5.11b: Market diversification for Kenyan exports in 2022 (No. of equivalent markets),
2023

Fresh food
Leather products
IT & Consumer electronics
Miscellaneous manufacturing
Processed food
Minerals
Electronic components
Transport equipment
Textiles
Chemicals
Wood products
Non-electronic machinery
Basic manufactures
Clothing

0 20 40 60 80 100 120 140

Data source: Author’s calculations using ITC Trade map data 2023

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 ENHANCING PRODUCTIVITY THROUGH TRADE

Product diversification trends average, but it is improving at a faster rate than

the region’s average, especially after 2017,
Overall, Kenya’s diversification index has when the index was better than the region’s.
improved over time. Between 2000 and 2009, This indicates higher rates of productivity and
the diversification index improved from 0.75 to competitiveness growth compared to the bloc.
0.66. The index then worsened to 0.67 in 2010 Figure 5.12 shows the trends in diversification
but improved to 0.63 by 2014. Notably, the index index in Kenya and Sub-Saharan Africa (SSA).
is higher (worse) than the Sub-Saharan Africa

Figure 5.12: Kenya’s export diversification index (EDI), 2000-2022

0.8
0.75
Export Diversification Index

0.7
0.65
0.6
0.55
0.5
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Year

Kenya EDI SSA EDI

Data source: UNCTAD (2023)

The main factors that contributed to the country’s diversification efforts. The same is
improvement of the index in the 2000s are reflected in the SSA average index, which also
government initiatives to promote economic worsened in this period. Other factors that
diversification, for example, by encouraging facilitated the improvement in this period were
the production and export of processed foods, the strengthening of the trading partnerships by
textiles, and horticulture and increased access the government (for example, COMESA and
to regional and international markets due to EAC).
increased globalization – for example, after the
ratification of the AGOA – (Kiriti-Nganga, 2020). Finally, the higher ranking of Kenya’s EDI
The worsening of the index between 2008 and compared to the SSA average indicates that
2011 (specifically in 2010) is because of the the country still needs to do more to increase
global financial crisis, which negatively affected diversification. Overall, improved diversification
global demand for products due to depressed indices indicate higher productivity, which is
investments, adverse weather conditions, essential for long-term economic growth and
and price fluctuations (especially oil). As the development. The improvement of the index
global demand recovered, so did the index. from 0.75 to 0.65 between 2000 and 2022
The unfavourable global market dynamics indicates higher efficiency (better technology
during the period 2014 to 2017 (for example, and skills), risk diversification, and rising
fluctuations in commodity prices) affected the specialization opportunities.

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5.5 Key Messages and Policy This issue is escalated by the slow pace
Recommendations in the construction of tier one (1) markets
as envisioned in the Kenya Vision 2030,
5.5.1 Key messages which are essential for efficient market
operations and trade facilitation. Addressing
1. The wholesale and retail trade sector these infrastructure challenges is vital to
is dominated by MSMEs, most of them enhancing market accessibility, reducing
operating informally. This tends to limit post-harvest losses, and supporting the
their access to government support and overall development of rural economies.
procurement services such as AGPO, which
provides a ready market. Only 0.34 per 4. Supermarkets play a crucial role in the
cent sell their products to the government, wholesale and retail sector, but recent
while a significant 87 per cent sell directly closures of supermarkets and branches
to individual consumers. MSMEs engaging among major chains have impacted
with government procurement demonstrate the sector’s contribution to productivity.
higher productivity levels than those selling Government reforms, including the
to individual consumers. This reflects the introduction of the Retail Trade Code of
requirements they need to fulfill in making Practice (RTCP) and a prompt government
delivery under AGPO. However, challenges procurements payment policy, aim to
such as pending bills, bureaucratic regulate the relationships between retailers
processes, and limited access to financing and suppliers, prevent buyer power abuse,
still limit these engagements. and promote fair trade practices. These
reforms have been key in addressing
2. The contracting arrangements of MSMEs emerging issues such as delayed payments
for procuring goods or securing orders and financial stability, contributing to a more
vary significantly, with a notable reliance on transparent and sustainable retail market
informal or non-structured arrangements, environment. In addition, controlling rising
particularly among small enterprises. While counterfeit goods that pose a challenge to
a substantial percentage of MSMEs engage the productivity growth of the MSMEs calls
in non-contractual agreements for inputs for the enforcement of regulatory measures
or orders, there is a significant presence both at national and county levels.
of formal contractual arrangements within
the MSME sector, especially among micro 5. Implementation of trade facilitation
and small enterprises. Firms with contract measures such as the Single Customs
arrangements for both inputs and final goods Territory (SCT) leads to a significant
and services have higher labour productivity reduction in the time and cost involved
compared to firms with no formal contracts. in import and export processes. This
This is because such arrangements lead to reduction directly correlates with increased
better cost management and predictability, trade activities, as streamlined customs
optimization of the supply chain, freeing up procedures and efficient logistics enable
resources to focus on other firm’s activities, businesses to conduct transactions more
and enhancing quality and consistency. swiftly and cost-effectively. Reduced transit
times translate to quicker delivery of goods,
3. Kenya’s market infrastructure is weak. improved supply chain management,
Warehousing and cold storage facilities lower transportation costs, and ultimately,
are limited, and transport infrastructure increased productivity for businesses.
is poor, particularly in rural areas that This efficiency allows companies to
heavily depend on agricultural activities. operate more smoothly, meet customer

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demands promptly, reduce inventory enhancing market information systems,

holding costs, and potentially explore new promoting e-commerce and digital trade,
market opportunities due to enhanced and improving market access.
trade facilitation. Moreover, ongoing trade
agreements such as AGOA and the AfCFTA 2. Encourage MSMEs to formalize their
have enhanced Kenya’s export trade, contracting arrangements for procuring
offering avenues for economic growth goods or securing orders by providing
through increased exports and imports with capacity building, legal assistance,
the potential benefits of driving trade when standardized contract templates, and
both tariff and NTMs are eliminated, rather fostering industry collaboration. The shift
than focusing solely on tariff liberalization. towards structured contracts establishes
expectations and leads to smoother
6. The export structure is characterized transactions, ultimately boosting labour
by a positive trend in export market productivity and operational efficiency
diversification and market penetration, within the MSME sector. Furthermore, it is
with significant reductions in the export essential to devise strategies to promote
market concentration index over the years. the formalization of MSEs by streamlining
This indicates the country’s successful the registration process, conducting
efforts in expanding its export base and awareness campaigns on the significance
reducing reliance on a limited range of of formalization, and offering incentives to
products and markets. Despite challenges encourage formalization.
such as global economic downturns and
fluctuations in commodity prices, the 3. Empower MSMEs in the wholesale and
country has made strides in diversifying retail trade to expand into export trade to
its export markets through government boost their productivity. To enhance the
initiatives and strengthened trading quality, sustainability, and competitiveness
partnerships. However, there is still room of MSME products, it is essential to provide
for improvement, as evidenced by the training in entrepreneurship culture and
country’s lower diversification compared to value addition, support the certification
some other African nations. of MSME products, assist in registering
Industrial Property Rights (IPRs) for
5.5.2 Policy recommendations MSMEs, and facilitate their access to local,
regional, and international markets through
1. Enhance and modernize market market development initiatives such as
infrastructure to foster a dynamic and funding their participation in regional and
supportive business environment. This continental trade fares. Furthermore, it is
includes addressing market issues, crucial to foster technological adoption
prioritizing the completion of tier one (1) among MSMEs by providing support for
markets through sufficient budgetary the development of e-commerce platforms,
allocation, establishing adequate digital payment systems, and other
warehouses for aggregation and storage, technological solutions.
constructing sufficient cold storage
facilities, and addressing the logistical 4. Fast-track the implementation of Kenya’s
constraints by improving rural roads National AfCFTA Implementation Strategy
transport infrastructure to enhance market (2022-2027) to boost intra-continental
accessibility for small farmers. In addition, it trade and leverage on targeted product and
is essential to strengthen market linkages for service exports through the AfCFTA Guided
MSMEs by addressing regulatory barriers, Trade Initiative (GTI). The government

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could allocate sufficient resources towards of authorized operator schemes to promote

implementing the strategy through the smoother trade transactions within the
National Implementation Committee region.
(AfCFTA-NIC) and raise awareness within
the business community about the potential 6. Diversify the exports and markets by
benefits of the AfCFTA. shifting towards high technology sectors
to mitigate the risks associated with global
5. Enhance the ongoing trade facilitation price shocks, particularly in low value-
measures, such as the implementation added agricultural commodities. This can be
of the Single Customs Territory to further achieved by identifying emerging markets
reduce the cost of doing trade in the with growth potential and establishing
region. To enhance current trade facilitation trade relationships through negotiation to
measures, the Northern Corridor States enhance market access. The challenges
could streamline customs procedures for that hinder diversification could be identified
imports, exports, and transit of goods. and addressed, such as infrastructure
This involves reducing documentation limitations and regulatory barriers, to create
requirements, expediting cargo release a conducive environment for diversifying
times, and implementing mutual recognition exports.

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 CHAPTER

6
ENHANCING AGRICULTURE SECTOR PRODUCTIVITY THROUGH A TRANSFORMATIVE AGENDA

ENHANCING AGRICULTURE
SECTOR PRODUCTIVITY THROUGH
A TRANSFORMATIVE AGENDA

In the last two decades, the agriculture sector growth and its contribution to
GDP averaged 2.3 per cent and 22.4 per cent, respectively. The production
of food and cash crops and their yields have declined due to low investment
and the growing effects of climate change. Labour productivity, crop yields,
and efficiency of input use have been declining over time. Furthermore,
government spending on agriculture has been below the Malabo commitment
of 10 per cent. To transform the agriculture sector and ensure increased
productivity, timely procurement and distribution of seeds and fertilizer and
monitoring access and use by farmers is key. Furthermore, allocating adequate
spending on agriculture from the national budget and encouraging counties
to allocate resources for the sector will be key in ensuring the achievement
of the Malabo commitment for the agriculture sector. Implementation of agro-
processing and value chain projects envisioned in MTP IV, such as storage
and cooling plants, will be crucial in providing the required infrastructure to
reduce wastage and increase productivity. Enhanced uptake of livestock
and crop insurance schemes are key in protecting farmers from the vagaries
of weather. Further, investment in human capital by ensuring Agriculture
subject is compulsory in secondary schools will be key in ensuring skills
development from an early age. Moreover, there is a need to facilitate training
and monitor the supply of various professionals in the agriculture sector,
such as extension officers, plant and crop breeders, and other scientists to
ensure adequate well-trained labour for the sector. This will ensure farmers
access extension services and adopt modern technology and innovations to
increase productivity.

6.1 Introduction sector drives the manufacturing industry, with

T
approximately 40 per cent of the manufacturing
he agriculture sector plays a very crucial coming from agro-processing activities that
role in the Kenyan economy. The sector are linked to agriculture. The productivity of
provides employment to over 40 per the sector is, therefore, crucial in ensuring job
cent of the total population and more creation and food security.
than 70 per cent of the rural population (Central
Bank of Kenya - CBK, 2023). In the last two However, the share of the sector to GDP has
decades, the sector growth and its contribution been declining over time from 26.6 per cent in
to GDP averaged 2.3 per cent and 22.4 per 2000 to 17.0 per cent in 2022 (Figure 6.1). The
cent, respectively. The sector is not only a key GDP growth rate tends to follow the agriculture
driver of the economy, but also serves as a sector growth with periods of high GDP growth
means of livelihood for millions of Kenyans by accompanied by high sector growth except for
providing income to more than 80 per cent of the the period 2002, 2008/09, 2016/17, 2020, and
population. Beyond its direct contribution, the 2021/22. The period 2003 to 2007 coincided

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with the implementation of the Economic sector has undergone several key reforms
Recovery Strategy for Wealth and Employment aimed at improving efficiency and productivity.
Creation when GDP growth improved from The reforms include a review of legal frameworks
0.6 per cent in 2002 to 7.0 per cent in 2007. to better regulate agricultural practices, ensure
However, the agricultural sector growth did not food safety, promote sustainable use of
follow the same trajectory due to the drought resources, and policy shift from policies that
conditions in 2003/2004 and 2007/2008. incentivize overproduction towards those that
encourage sustainable and environmentally
Furthermore, the Kenya Vision 2030 identifies friendly farming practices, such as integration
agriculture as one of the key sectors to drive the of technology in agriculture, including precision
economy to the projected 10 per cent annual farming, climate-smart agriculture, and
economic growth and the key driver towards the biotechnology, all geared towards increasing
country’s attainment of 100 per cent food and productivity in the sector. There has also been
nutrition security for the population. However, a focus on reforming agricultural research and
the review of the sector performance shows extension services, such as the development of
that the sector growth dipped in the 2013/14, the Kenya Agricultural Sector Extension Policy
2017/18, and 2021/22 periods when the country (KASEP) to provide farmers with the latest
experienced episodes of severe droughts. knowledge, techniques, and other agronomic
information.
Since the enactment of the Constitution in 2010
and the onset of devolution, the agriculture

Figure 6.1: Agricultural growth, contribution to GDP, and GDP growth (2000-2023)

12.0 30.0

10.0
25.0
8.0

6.0 20.0

4.0
15.0
2.0

- 10.0

(2.0)
5.0
(4.0)

(6.0) -

GDP Growth (%) Agriculture Sector Growth (%) Contribution to GDP (%)

Data source: KNBS (Various), Economic Survey

Since the year 2000, the government, through the past 20 years has been below potential,
successive policies and strategies, has focused characterized by declining yields for major crops;
on transforming and modernizing the agriculture limited access to inputs; limited market access
sector. However, the sector’s performance in and low value addition for most agricultural

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exports. These together with inadequate rural on the agriculture sector is crucial in ensuring
infrastructure, climate change effects, and with increased allocation of funding to the sector to
limited adaptation and mitigation measures implement various programmes and projects
have affected the productivity of the sector. aimed at increasing productivity. This section
Nevertheless, the measures outlined in the examines the drivers of agricultural productivity
MTP IV, capturing the aspiration of the BETA within the Kenyan context and evaluates policy
plan for the agriculture sector, should be able currently supporting each of the drivers, and
to deal with the challenges that have persisted the gaps that exist.
over the years, if fully implemented.
a) Policy, legal, and institutional
The government, through the implementation frameworks
of the MTP IV, aims to transform the agriculture
sector by increasing productivity and developing Agricultural productivity is significantly
key value chains that have high returns. These impacted by support mechanisms and
value chains, which are key elements of the government policies. The agriculture sector’s
BETA plan, include livestock (leather and leather productivity and growth in Kenya has been
products), dairy, tea, rice, edible oils, and textile driven by successive government policies.
and apparel. Important to note is that all earlier The Economic Recovery Strategy (ERS) for
strategies had focused on addressing similar Wealth and Employment Creation (2003-
challenges facing the agricultural sector, such 2007) targeted to revive the agriculture sector
as conflicting legal, legislative, and institutional and increase productivity in terms of export
frameworks; limited access to farm inputs and earnings, employment creation, food security,
financial services; inadequate research and and household farm incomes. The Strategy for
extension; and limited access to markets for the Revitalization of Agriculture (2004-2009)
agricultural produce. was prepared to implement issues identified
by ERS in the sector. Subsequently, more
6.2 Drivers of Agricultural Productivity detailed strategies and plans were developed
to address challenges in the sector, including
Agricultural productivity is dependent on various the five-year Medium Term Plan (MTP) of Vision
factors that include supportive mechanisms 2030 and the Agricultural Sector Development
and government policy. It also depends on Strategy (2010 to 2020). The most recent
access to market opportunities and extension policy framework is the Agriculture Sector
services and access to intermediate inputs. In Transformation and Growth Strategy (2019-
addition, logistics and infrastructure support, 2029), which aims to implement the measures
such as storage facilities and road networks outlined for the agriculture sector in the Kenya
that support market access and reduce Vision 2030. Table 6.1 presents an analysis of
wastage, and human capital development such the key national and sector policies focused
as education of farmers, which is essential to on agriculture, identifying areas that link each
equip farmers with the knowledge and skills of the drivers to productivity and any existing
required to adopt modern technologies and gaps.
agricultural practices. Government spending

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Table 6.1: National and sectoral policies linked to agricultural productivity

Areas of focus Issues addressed by policy framework Gaps in the policy framework and means of
linked to addressing them
productivity
Inputs supply i. Strategy for the Revitalization of • Inadequate awareness of the existence of
(fertilizer, Agriculture (SRA) and Agricultural the plan by industry players and the farmers
seeds and Sector Development Strategy (ASDS) – about the existence of government support
pesticides) 2010 to 2020 mechanisms to access inputs is one of the
impediments to implementing the SRA and
Price and market liberalization for inputs
ASDS
to improve access to quality inputs and
financial services • Farmer sensitization and sharing of
information ensures farmers are aware of the
plan and can access government support as
and when required
ii. Medium-Term Plan (MTP I, II and III) • Proper interpretation and conversion of stated
objectives in the policy into actions is crucial for
Provision of fertilizer subsidies and input
the success of policy and plan implementation
supply to farmers
• Implementation of policy objectives through
well prepared plans will ensure the translation
of objectives to results by working with farmers
in the implementation
iii. Agriculture Sector Transformation and • The criteria for identification of needy farming
Growth Strategy 2019-2029 households are not clear and need to be
specified to ensure those in need are selected
• Provision of subsidies to 1.4 million high-
need farming households (e-voucher) • Access should be linked to the knowledge on
the use of inputs such as fertilizer application
• Provide farmers with better access to
to enable farmers to get better returns
affordable inputs such as fertilizer
• Timely procurement of the seeds and fertilizer
and monitoring their distribution and access
by the farmers has been an issue. This needs
to be addressed to ensure farmers get timely
access and use the fertilizers and other inputs
to assure them of high yields
iv. Medium-Term Plan IV/Bottom-Up • While the plan focuses on the establishment of
Economic Transformation Agenda plan feed production zones and water management,
areas focused for implementation of these
• Establishment of feedlots and feed
initiatives are the ASALs, which traditionally
production zones
are water-stressed. This may impede the
• Provision of subsidies and farm input to success of the initiatives.
farmers
• Provision of water, not necessarily, rainwater
such as the use of water harvesting
technologies will ensure water availability for
growing animal feeds in the water-stressed
areas.
• High cost of farm inputs has in the past
hindered farmers in achieving their production
targets since subsidized fertilizer from the
government is rationed to a specific amount
per farmer

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 ENHANCING AGRICULTURE SECTOR PRODUCTIVITY THROUGH A TRANSFORMATIVE AGENDA

Areas of focus Issues addressed by policy framework Gaps in the policy framework and means of
linked to addressing them
productivity
Human capital i. Medium-Term Plan (MTP I, II and III) • Review of MTP II and III shows that achieved
development labour productivity for the country and the
(skills • Enhanced labour productivity through
sector is below the targeted. Weak linkage
development, access to information and training
between industry and training institutions
link between leads to a skills mismatch in the labour market.
• Increased employability of the youths
training and
industry This needs to be addressed
requirements) • The government changed the curriculum in
early 2000 for the agricultural course to be
an elective subject in secondary school. This
shift has impacted the number of students
taking agriculture as a course in secondary
school. Lack of skills specifically related to
various aspects of agriculture is one of the
impediments to youth engagement in the
agriculture sector.
• Revert to have agriculture as a compulsory
subject will ensure early career interaction
with agriculture and increase the number of
trainees taking agricultural courses thereby
increasing the professionals in various
courses that support agriculture.
ii. Agriculture Sector Transformation and • The challenge lies in attracting the youth
Growth Strategy in agriculture being the majority without
employment
• Knowledge and skills building programmes
focused on technical and management • Training alone is not enough; reforming
skills farmer associations is necessary to
reduce operational costs and ensure the
• Support SMEs and farmer associations
sustainability of the training programmes after
with business expansion, management
the government exits
training
iii. Medium Term Plan IV/Bottom-Up • In the past, there has been a presidential digital
Economic Transformation Agenda plan programme, which has transformed those who
have gone through the programme. However,
• Automation skills development (digital
equity in access to these opportunities has
labs)
been an issue, especially for those in rural
• Strengthening linkage between industry areas
and training institutions
• The mechanisms for linkages and the
• Internship and industrial attachment sustainability of the engagement ensure
opportunities to acclimatize the trainees to avoid stop-and-go initiatives that have
on the skills required for the industry occurred in the past due to funding
• While internship and industrial attachments
are crucial in practical skills development,
the available institutions to provide these
opportunities are limited, since there is an
element of cost, especially for internship.
Providing incentives for institutions offering
internships and attachments in terms of tax
relief will encourage them to increase the
opportunities, especially for new labour

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Areas of focus Issues addressed by policy framework Gaps in the policy framework and means of
linked to addressing them
productivity
Extension i. Strategy for the Revitalization of • Access to extension services by farmers
services Agriculture (SRA) and Agricultural hindered the achievement of the initiative
Sector Development Strategy (ASDS) stated in SRA and ASDS strategies due
to inadequate professionals to provide the
Promote access to extension services,
services. To date, and with the decline in
inputs, and agricultural credit
funding for the sector and reducing extension
service professionals, the challenge persists
for meaningful extension services to reach the
farmer. This gap needs to be filled to ensure
farmers access quality extension services
ii. Agriculture Sector Transformation and • Extension services are like public goods that
Growth Strategy are provided by the government. Affordability
is an issue when the services are provided by
Integrate mandatory extension services by
the private sector.
involving the private sector in the provision
of the services • Government lead provision of extension
services will ensure farmers receive support
in growing their crops and increase the level of
agronomical knowledge for farmers.
iii. Medium-Term Plan IV/Bottom-Up • Attracting youth to engage in providing
Economic Transformation Agenda plan extension services digitally may be challenging
unless the venture is made attractive to give
Train 3,000 extension agents, mainly the
better returns for the youth and ensure the
youth to offer digital extension services
youth pick it as an entrepreneurial venture.
Post-harvest i. Agriculture Sector Transformation and • Increased cost of inputs such as herbicides,
loss and Growth Strategy pesticides, and storage facilities has been
wastage a major impediment to productivity and
management Development of processing and post-
management of post-harvest losses
harvest aggregation centres
ii. Medium-Term Plan IV/Bottom-Up • The success of reducing post-harvest losses
Economic Transformation Agenda plan as envisaged in MTP IV will depend on the
actualization of the post-harvest storage
• Reduce post-harvest losses experienced facilities
by smallholder farmers from the current
30 per cent to 10 per cent by refurbishing
and modernizing six (6) warehouses
• Reduce fish post-harvest losses

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 ENHANCING AGRICULTURE SECTOR PRODUCTIVITY THROUGH A TRANSFORMATIVE AGENDA

Areas of focus Issues addressed by policy framework Gaps in the policy framework and means of
linked to addressing them
productivity
Transport i. Strategy for the Revitalization of • Inadequate rural roads due to limited funding
and logistics Agriculture (SRA) and Agricultural for rural infrastructure reduce market access
infrastructure Sector Development Strategy (ASDS) and increase post-harvest losses, especially
for perishable produce such as horticulture.
• Provision of rural roads to facilitate
Adequate allocation of funding to the
movement of agricultural produce to the
agriculture sector equivalent to 10 per cent
market
of government total expenditure will work to
• Reduce dependence on rain-fed transform the agriculture sector to achieve
agriculture objectives
ii. Agriculture Sector Transformation and • This will help the country to invest in irrigation
Growth Strategy to increase productivity amidst the increasing
• Development infrastructure (dams) impacts of climate change

• Government to provide power and road

infrastructure.
iii. Medium-Term Plan IV/Bottom-Up
Economic Transformation Agenda plan
Mobilizing transport service providers into
cooperatives
Access to i. Agriculture Sector Transformation and • Despite proposals to create mechanisms to
markets Growth Strategy help farmers access markets, these have
remained a mirage since implementation is
Provide access to markets for livestock
yet to be actualized. Where initiatives have
and crops
been initiated, sustainability has become a
ii. Medium-Term Plan 4/Bottom-Up matter of concern. Farmers are left to struggle
Economic Transformation Agenda plan with issues of brokers and middlemen to
• Enhance market access through the access markets, albeit at a huge cost and
establishment of aggregation centres poor returns for their produce
and incubation centres for specialty teas
diversification
• Linking farmers with producers through
contract farming
• Completion and accreditation of national
dairy laboratory
Disaster risk i. Agriculture Sector Transformation and • Climate change has been a factor in reducing
management Growth Strategy productivity. Yet in the developed world,
crop and livestock insurance is crucial in
Establish a coordination mechanism to
cushioning the farmers due to the impacts of
prepare for all disasters
climate change
ii. Medium-Term Plan IV/Bottom-Up
Economic Transformation Agenda plan • Crop and livestock insurance has been
implemented in the past but has not been
• Establish the national disaster authority successful due to the risk involved in designing
and centres of excellence for DRM and the policies. Since it is offered by the private
DRM funds sector, if they find it unprofitable, they may not
• Mainstream DRM in all sectors to reduce engage in it
the effects of hazards early warning
systems

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Areas of focus Issues addressed by policy framework Gaps in the policy framework and means of
linked to addressing them
productivity
Research and i. Agriculture Sector Transformation and • Investment in agricultural research has been
innovation Growth Strategy low to enable the development of drought,
pest, and disease resistance technologies
• Strength research and innovation and
and seeds
launch priority digital and data use cases
to drive better decision • Scaling up funding will help the sector meet
the needs of the growing population in terms
• Create an enabling environment for
of food security
research and innovation
ii. Medium Term Plan IV/Bottom-Up
Economic Transformation Agenda
• Crop research facilities improved
• Livestock research facilities improved
• Construction of tea research and
development factory
Agriculture i. Medium-Term Plan (MTP I, II and III) • Increase in invasive species in arable land
financing and the effects of prolonged drought hinder
Additional land brought under irrigation
the achievement of expanding the area under
ii. Agriculture Sector Transformation and agriculture. Innovative ways to tap into water
Growth Strategy harvesting by building dams will be crucial to
• PPP financing infrastructure such as increasing the water available for irrigation.
roads • Besides, the introduction of technologies to
iii. Medium Term Plan IV/Bottom-Up limit the expansion of invasive species will
enable the usage of arable land.
Economic Transformation Agenda plan
• Financing by the private sector is based on
• Development of national agriculture the returns they obtain for the money invested
financing policy in projects. Since roads are public goods,
• Reduce dependence on imports which the farmers will not be willing to pay for,
the development could be taken in the form
• Farmers organized and linked to financial of loans by the government to support the
institutions farmers.
iv. Sessional Paper No. 10 of 2012 on
Kenya Vision 2030
• The NFSP programme faces challenges
• The policy guides the implementation of related to distribution delays, regional
the National Fertilizer Subsidy Programme disparities, and accountability concerns as
• The programme aims to make fertilizer well as quality issues.
more accessible and affordable by • Farmers complain about long distances to
addressing supply chain challenges collection points as well as long queues.
• This is done by reducing the cost of • Regional disparity also affects the
fertilizer, enhancing the timely distribution effectiveness of the programme in meeting
of fertilizers through the National Cereals the diverse needs of farmers across various
and Produce Board (NCPB) and farmer parts of the country due to different planting
cooperatives, providing farmers with and harvesting times.
knowledge and guidance on the effective
use of fertilizers, and encouraging the • Despite improvements in the registration and
adoption of improved inputs and practices distribution process, there are concerns about
to move away from traditional methods corruption and lack of accountability.
that limit productivity • Ensuring transparency and accountability
in the distribution of subsidized fertilizers is
crucial to prevent leakages and ensure that
the intended beneficiaries receive support

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Areas of focus Issues addressed by policy framework Gaps in the policy framework and means of
linked to addressing them
productivity
Agro- i. Strategy for the Revitalization of • A good plan and leadership to implement the
processing Agriculture (SRA) and Agricultural plan is important. The Economic Recovery
and value Sector Development Strategy (ASDS) Strategy for Wealth and Employment Creation
addition was implemented to the letter and the country
• Set up six (6) agro-processing hubs
achieved a growth rate of 7.0 per cent in 2007
across Kenya for local and export markets
from negative growth in 2002
• Increase the contribution of agro-
• The implementation of the value chain and
processing to GDP by Ksh 130 billion over
all the projects will require strong leadership
the period 2019 to 2024
besides the huge financial commitment
ii. Medium Term Plan IV/Bottom-Up
Economic Transformation Agenda plan
Development of national agriculture
financing policy

b) Land use planning and irrigation The Kenya Vision 2030 outlines a
comprehensive plan to support both land use
Land use planning is a critical component and irrigation in the country. This includes
of sustainable agriculture. It involves the developing a national land use master plan,
strategic allocation of land for various uses, which includes the development of national,
balancing economic, social, and environmental regional, and local area land use plans through
considerations. In agriculture, land use an integrated and participatory process to
planning ensures responsible use of natural streamline land use. The proposed master plan
resources, particularly soil and water, which is expected to support the efficient utilization
are essential for crop production. Sustainable of all forms of land and the establishment
land use aims to maintain or enhance soil of economic zones in the Northern region,
fertility and quality, ensuring long-term viability according to their potential. The plan also
and productivity. There are several challenges includes planning for irrigation and drainage
to land use that impact its sustainability and infrastructure, with programmes that aim to put
productivity including land degradation. The under irrigation 404,800 hectares. The National
increasing population pressure exacerbates Spatial Plan 2015 to 2045 was developed
the demand for land, leading to intensified use in 2016 and includes elements of land use
and sometimes unsustainable practices. In planning for all purposes.
addition, poverty plays a key role, limiting the
ability to implement and maintain sustainable The government is also reviewing Sessional
land management practices. Furthermore, Paper No. 3 of 2009 on National Land Policy
climate change poses a significant threat, to align it with the Constitution and other
altering weather patterns and exacerbating provisions of the new dispensation in the BETA.
land degradation. These challenges are This is because the policy has not achieved its
further compounded by institutional and legal objectives due to bottlenecks arising from the
hurdles, such as fragmented legal frameworks, overlapping of roles between the Ministry of
ignorance, and the potential for abuse and Lands, and the National Land Commission and
misuse of land rights. Addressing these issues the role of county government on land matters
to achieve productivity requires a multifaceted that was omitted in the policy. The BETA is
approach that includes policy reform, education, designed to address land use and irrigation
and the promotion of sustainable practices. challenges through strategies to improve

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land use. It focuses on bringing on board an digitally through the provincial administration
additional 170,000 acres under irrigation (Assistant Chief’s offices countrywide). For
annually, to increase land under food crops farmers to access the fertilizer, they use the
and horticultural production thereby increasing short code message *707# through their phones
agricultural output. That said, the area under to know the number of bags of fertilizer they
production is much lower than the 170,000 are entitled to. However, farmers are not able to
acres of additional areas targeted by MTP IV access the desired amount and the types they
and the BETA. Furthermore, an increase in desire for their farming. There is also limited
land under irrigation will increase land under knowledge on fertilizer application by farmers,
production and productivity. which affects the output and productivity if not
properly applied.
c) Intermediate inputs use, access, and
costs The use of intermediate inputs, among
other factors, is directly linked to increased
Intermediate inputs are the resources used in productivity. For example, the higher the input
the production process that are not primary use such as fertilizer the higher the increase in
factors of production. These include fertilizers, productivity, but the relationship is not always
pesticides, seeds, and other agrochemicals. linear or positive, as it depends on various
The use of these inputs plays a crucial role in factors, such as the type of fertilizer, quantity
improving agricultural productivity. However, and quality, timing, and the combination of inputs
the use of fertilizers is often constrained by high used. The biophysical and socio-economic
fertilizer prices and limited access to fertilizer, conditions of the farming system also play a
especially government subsidized fertilizer for role. Thus, training farmers is crucial to ensure
smallholder farmers. While the government proper use of fertilizer and create awareness
has provided fertilizer subsidies since 2000, of the soil type of their farms and whether the
the intensification of subsidized fertilizer supply fertilizer they receive is suited for planting.
by the government increased in 2022 when the
government introduced the National Fertilizer Figure 6.2 presents the value of intermediate
Subsidy Programme (NFSP), which was inputs used from 2000 to 2022. The value
rolled out in 2022, after a prolonged drought. of imported fertilizer has increased over the
This initiative was aimed at expanding food years, with a decline in the years the country
production to mitigate soaring food prices. experienced drought, such as in 2014/15,
2018, and 2021/2022. The increase in output
The programme offered subsidized fertilizer at of maize, the main crop where fertilizer is used,
half the price of commercial fertilizer to farmers. has been fluctuating over time. The value of
About 3.5 million of 50 kg bags of subsidized other inputs used, such as seeds, agricultural
fertilizer were distributed in 41 out of the chemicals, fuel, and power also increased,
47 counties from the inception of the NFSP which may be an indication of mechanization in
up to July 2023. To access the government the agriculture sector.
subsidized fertilizers, farmers must register

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Figure 6.2: Intermediate input used from 2000 to 2022 (Ksh million)

100,000.00

80,000.00

60,000.00
Million Ksh

40,000.00

20,000.00

Fertilizer(million ksh) Other Agricultural chemicals (Million Ksh)

Livestock Drugs &Medicine (Million Ksh) Fuel&Power (Million Ksh)
Bags (Million Ksh) Manufactured feeds (Million Ksh)

Source: KNBS (Various), Economic Survey

Overall, there is increased use of intermediate d) Human capital development in

inputs as reflected by the value of various agriculture
inputs. Despite this, Kenya has not experienced
significant increases in the production of major Human capital development is a critical
crops such as maize. The government focus element of the agriculture sector in Kenya.
through MTP IV is to provide subsidized inputs It involves investing in skills and knowledge
such as seedlings, fertilizer, and agrochemicals for smallholder farmers, which can lead to
across the prioritized value chains to one million increased knowledge in the use of inputs and
farmers to gradually realize food security and adoption of technology, thereby increasing
commercialize production. Furthermore, the productivity, income, and overall economic
ASTGS aims to provide affordable inputs and growth. Farmers often lack access to timely and
equipment including for irrigation, processing, accurate market information, which can hinder
and post-harvest aggregation to one (1) million their ability to make informed decisions about
farmers, pastoralists, and fisherfolk, and what to grow and when to sell. Investments in
shifting nationwide subsidies focus to register developing the human capital of smallholder
1.4 million high-needs farming households to producers would empower them with various
empower them to access a range of inputs from useful skills to enable them to expand their
multiple providers through e-vouchers. Both farming, and therefore output and incomes.
the ASTGS and the BETA plan are aligned to The BETA outlines initiatives to support human
address the issues arising from intermediate capital development in the agricultural sector
input access. through capacity building on various aspects,

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such as in leather designing, finishing and drawn from those who have completed primary
fashion of leather, dairy farming, and climate- and secondary education. The majority of those
smart agriculture. who have attained primary education as their
highest level of education reside in rural areas.
A pool of trained professionals is very crucial This category of people is crucial in supplying
to ensure they are adequately prepared labour for the agriculture sector, although most
to perform their tasks efficiently. Table 6.2 of them migrate to urban centres in search of
presents the agricultural professionals and the job opportunities. Figure 6.3 presents levels of
tasks performed. The majority of labour in the education reached per region from the 2019
agriculture sector based on the task performed is population and housing census.

Table 6.2: Agricultural professionals and tasks performed

Agricultural professionals Tasks performed

Farmworkers and labourers Manual tasks related to crop cultivation, planting, harvesting, and
maintenance
Agricultural equipment operators Operate machinery such as tractors, combines, and irrigation systems
Animal breeders Improving livestock genetics
Livestock workers Care for animals on farms, including feeding, milking, and managing herds
Graders and sorters Assess the quality of agricultural products, and classify fruits, vegetables,
and other produce based on size, colour, and defects
Agricultural inspectors Ensure compliance with regulations related to food safety, quality, and
environmental standards
Supervisors and managers Oversee farm operations, workers, and production processes;
manage resources, plan schedules, and make strategic decisions
Hired farm managers Handle day-to-day operations, including budgeting, staffing, and crop
management
Agricultural scientists and Conduct research to improve crop yields, soil health, and pest management;
researchers develop new technologies and sustainable practices
Agribusiness professionals Marketing, sales, and distribution of agricultural products
manage supply chains, logistics, and market access

Source: Authors’ Compilation

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Figure 6.3: Highest level of education reached by region, 2010

Adult Education

University

Middle Level/Technical and Vocational Training

(TVET)

Secondary

Primary

Pre-Primary

- 4,000,000.00 8,000,000.00 12,000,000.00 16,000,000.00

Urban Rural

Data Source: KNBS (2019), Housing and Population Census

Youthful labour in agriculture is vital for two their potential to contribute to economic growth
reasons; first, young workers bring energy, and the overall resilience of food systems.
innovation, and a fresh perspective to the Evidence shows that the participation of the
agriculture sector, which is essential for youth in agriculture has been declining over
driving progress and adapting to changing time. Figure 6.4 presents the trends in youth
market demands. They are more likely to labour employment since 1990. Youth labour in
adopt new technologies and sustainable agriculture as a per cent of total youth declined
farming practices, which can lead to increased from 58.88 per cent in 1990 to 28.47 per cent
productivity. Second, engaging young people in 2020, a more than 50 per cent decrease.
in agriculture can help address the global The same is true for the youth labour force in
challenges of unemployment and food agriculture as a percentage of the total youth
insecurity. Thus, by providing opportunities for labour force.
the youth in agriculture, a country can harness

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Figure 6.4: Youth labour in agriculture (1990-2020)

70.00 0.70

58.88

60.72
60.00 0.60

46.44

41.82

39.36
39.03
50.00 0.50

36.80

35.64

32.80
31.98

28.47
40.00 0.40

30.00 0.30

20.00 0.20

10.00 0.10

- -
1990 1995 2000 2005 2010 2015 2016 2017 2018 2019 2020

Youth Labor Force in Agriculture as (%) of Total Youth Population

Youth Labor Force in Agriculture as (%) of Total Youth labour Force

Data Source: KNBS (2020), ILOSTAT (2020), Kenya Labour Force Participation Report, 2018

Furthermore, the total labour employment as level, representing 77.29 per cent of the total
a percentage of the national employment, has workforce. This underscores the prevalence of
been falling over time from about 46 per cent in individuals with primary education qualifications
2000 to 33 per cent in 2021. The decline in labour engaged in field and horticultural work. The
employment in the sector could be attributed to poultry, dairy, and livestock producers sub-
the decline in agricultural contribution to GDP, group come second at 76.16 per cent at the
declining sector growth as well as labour shift 1st skill level and 11.73 per cent at the 2nd skill
to other sectors of the economy such as the level. The crop and animal producers sub-group
service sector. scores third with 72.39 per cent of the workforce
operating with 1st skill level, emphasizing the
The development of relevant and quality skills need for basic agricultural knowledge.
is globally acknowledged as fundamental for
enhanced economic growth and productivity The Agriculturalists sub-group has a distinct
(ILO and OECD 2018; ILO 2008). Quality skill distribution, with 61.33 per cent of
skills, especially in agriculture, are necessary professionals at the 4th skill level, reflecting
for enhancing labour productivity. This means the demand for high-level expertise in certain
that skills development must focus on the agricultural professions due to the advanced
adequacy, relevance, quality, and adaptability nature of their roles. Agriculturalists and related
of the workforce. Figure 6.5 presents the results professionals conduct research and improve
for skills requirements in the agriculture sector. or develop concepts, theories, and operational
The majority of the workforce within the field methods; apply scientific knowledge relating to
crop, vegetable, and horticultural farm workers crop husbandry.
sub-group are operating with the 1st skill

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Figure 6.5: Skills level for the agriculture sector, 2021

90.00

77.29

76.16

72.39
80.00

61.33
70.00

60.00

50.00

40.00

19.91
30.00
17.60

15.24

11.68
11.73
20.00

9.40
8.32
6.26

5.97

2.04
10.00

1.49
1.09
-
First level Second level Third level Fourth level

Field Crop Vegetable Poultry Dairy & Livestock Crop & Animal Production Agriculturalists

Data Source: Construction from Kenya Continuous Household Survey data, 2021

e) Market access and facilities produce and product standards, value-

addition of agricultural produce, marketing
Market access, which includes access to quality channels, transport infrastructure and logistics,
inputs, information on farming practices, and agricultural market intelligence, technology and
the market for agricultural produce is one of the innovation, marketing capacity, and access to
major issues for farmers in Kenya. Agricultural domestic and export markets.
marketing is identified as a key priority area for
the successful modernization of the agriculture The MTP IV captures the areas of market access
sector (ASTGS, 2019). Furthermore, access support for farmers as identified in the BETA
to markets has been highlighted as one of plan. The support includes infrastructure for
the main obstacles limiting the productivity of crops and livestock such as the modernization
the agricultural industry as efficient markets of milk, meat, and honey processing plants,
promote faster distribution of food from areas the establishment of food processing hubs to
with excess supply to areas with a deficit. increase value addition, and the development of
a digital superhighway to leverage technology
The Kenya Agricultural Marketing Strategy for access to agronomic and market information
(AMS) 2023-2032 highlights leveraging for agricultural produce. Even though market
on digital technologies to enhance market access is a significant challenge for many
access for small-scale farmers. It outlines a smallholder farmers, the right mix of policy
comprehensive approach to integrating mobile support as proposed by the government and
applications, precision farming technologies, investment and innovation can create more
and e-commerce platforms into the agricultural inclusive and profitable agricultural markets
landscape. The key areas related to market for the farmers in Kenya. This is necessary to
access to agricultural produce and products in create impetus for implementing policies aimed
Kenya include market infrastructure, agricultural at supporting market access for the farmers.

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f) Infrastructure – Rural roads and produce ensures losses and wastage are
processing and storage facilities minimized. Inadequate storage facilities and
poor infrastructure have been identified as the
Infrastructures such as storage facilities and major sources of food loss and wastage for small-
rural roads play a very crucial role in fostering scale farmers. Furthermore, the development
agricultural productivity. Roads enhance of road infrastructures, especially in rural
accessibility to agricultural areas, connecting areas remains a challenge. For example, the
farmers to markets, input suppliers, and total additional length of the roads constructed
processing facilities. It also fosters supply between 2020 and 2022 per county for the high
chain efficiency by enabling timely delivery of agricultural potential counties is presented in
agricultural inputs (such as seeds, fertilizers, Table 6.3. Meru, Nandi, Murang’a, and Laikipia
and machinery) to farms. The existence of counties did not report any additional roads in
storage and cooling facilities for horticultural 2021.
Table 6.3: Length of roads constructed (2020-2022)

County 2020 2021 2022

Total Length at Additional (KM) Additional (KM) Additional (KM)
start (KM)
Meru 349.50 286.20 66.90
Tharaka Nithi 110.70 42.80 61.00 9.10
Embu 121.20 88.80 0.10 31.50
Nyandarua 95.00 33.90 71.70 95.50
Nyeri 513.20 412.40 274.90 359.60
Kirinyaga 267.70 161.30 198.10 79.10
Murang’a 362.80 229.60 142.90
Nandi 137.20 93.40
Laikipia 197.40 156.10 68.60
Kericho 179.20 132.20 112.00 0.40
Kakamega 188.60 128.70 31.40 93.50
Kisii 138.00 80.60 197.40 92.40

Data Source: KNBS (2023), Economic Survey

Under the BETA plan, the government proposes g) Value chain development and value
to support infrastructure development through addition
various initiatives such as the completion of all
roads under construction and the construction of The value chain and value addition in agriculture
an additional 6,000 km as well as upgrading and are pivotal for enhancing the efficiency and
maintaining rural access roads. Furthermore, effectiveness of food production systems.
the government proposes to establish storage By integrating activities from production to
facilities and aggregation centres by organizing consumption, the agricultural value chain
farmers into cooperatives. These initiatives are ensures that each step adds value to the
likely to increase access to market and storage product, thereby increasing its market worth and
facilities, hence reducing losses and wastage consumer appeal. Value addition particularly
thereby increasing productivity. plays a crucial role in reducing post harvest

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losses and creating jobs along the chain. It implementation of these projects, agricultural
also allows for product differentiation, which value chain development in Kenya faces
can lead to increased revenues for farmers several challenges that need to be overcome to
and a more robust agricultural economy. The ensure the success of the proposed initiatives.
government has initiated several projects aimed These include low agricultural productivity; high
at increasing value addition for the farmers. The transaction costs; poor storage facilities; weak
National Agricultural Value Chain Development market linkages and innovation gaps. The
Project (NAVCDP), which is funded by the implementation of the proposed initiatives on
World Bank aims to increase value addition value addition in the BETA plan will undoubtedly
for 500,000 small-scale farmers through value help ameliorate the challenges of low-value
chains in various priority programmes. These addition experienced by farmers.
include dairy, poultry, fruits (banana, mango,
and avocado), vegetables (tomato and potato), The BETA plan has prioritized commodities
coffee, cotton, cashew nut, apiculture, and focusing on three strategic areas; increasing
pyrethrum. production of commodities to alleviate food
security; export promotion through value addition
NAVCDP builds on the foundation of other to increase export earnings and stabilize prices
projects such as the Kenya Agricultural Value and import substitutions by promoting local
Chain Enterprises (KAVES), a SIDA funded production of imported commodities to reduce
project that was implemented in 23 arid and import bills (Table 6.4).
semi-arid counties in 2013-2018. Despite the

Table 6.4: BETA priority commodities

BETA strategic focus BETA priority commodities

Food security Maize, Irish potato, pulses, banana, beef, fish, dairy, indigenous poultry, sweet potato,
mutton, chevon and pork
Export promotion Tea, coffee, vegetables (garden peas, African bird eye chillies), fruits (avocado, mango,
passion fruit, pineapple), nuts (macadamia, cashew nuts, coconut), pyrethrum, bixa, and
miraa
Import substitution Sorghum, wheat, sugarcane, rice, cotton, oilseeds (canola, soybean, sunflower, sesame,
groundnut/ peanut) and honey

Source: Author compilation from MTP IV

6.3 Agriculture Productivity agricultural productivity in relationship to labour,

intermediate input use, land under cultivation
The concept of productivity growth is closely (crop yields), and government spending in the
linked to technical progress. One of the major agriculture sector.
sources of growth for aggregate output and
agricultural output is productivity growth (Solow, a) Agriculture labour productivity
1957). Hayami and Ruttan (1985) indicate
that the agricultural output can grow through Agricultural labour productivity is critical
an increase in the use of resources of land, for Kenya’s economy, given the sector’s
labour, capital, and intermediate inputs and/ contribution to GDP and support to other
or as a result of advances in the technology sectors of the economy. Focusing on increasing
of production through which greater output is the efficiency and output of agricultural labour
achieved by a constant or declining resource is a key strategy for sustainable development
base. This section presents an analysis of and prosperity. MTP IV aims to improve labour

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efficiency and productivity by establishing increase of about 34 per cent. The increase
a productivity and competitiveness award in output per work in the sector could be
programme and increasing the employability of attributed to the quality of labour attracted
the youth. in the sector. Due to the unemployment rate,
even graduates are willing to accept low-
Figure 6.6 presents agriculture sector paying jobs in agriculture, to earn an income.
productivity per work from 2002 to 2022. The That said, the sector has also been undergoing
output per work increased from Ksh 8,374.57 mechanization, and as output increases then
in 2002 to Ksh 11,218.77 in 2022, which is an output per work increases.

Figure 6.6: Output per work in the agriculture sector, 2002-2022

11,218.77
10,135.69

10,501.95

10,836.55

10,665.65

11,049.33
9,961.23
9,865.58
9,696.42
9,531.60
9,480.64
9,362.85
9,199.14
9,096.45
AGRICULTURE SECTOR OUTPUT

8,820.39
8,810.35

8,804.77
8,573.29
8,396.60
8,374.57

8,297.38
PER WORKER

Data Source: KNBS (Various), Economic Survey

While productivity per worker has been 2010 to 37.26 per cent in 2020 (Figure 6.7). The
increasing, the labour income share of reason could be due to declining employment
agriculture as a percentage of GDP has been in the sector.
declining from an average of 45.44 per cent in

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Figure 6.7: Agriculture labour income share (% of GDP), 2010 to 2020

45.44
50

43.28
43.24
43.09

42.93

41.11

38.72
45

38.51

38.24

37.71
Agriculture labour income share

37.26
40
35
(% of GDP)

30
25
20
15
10
5
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Data Source: KNBS (Various) Economic Survey

b) Agricultural productivity by land use by the efforts to enhance the productivity and
(crop yields) profitability of key cereal commodities such
as maize, sorghum, and millet. Moreover, the
This section looks at agricultural productivity expansion of cereal production and yield is
based on crop yields, which is calculated as vital for addressing food security, especially
a ratio of total production in tonnes divided by considering the region’s low yield growth
the area under production in Ha. Two broad rate and high number of food-insecure
categories of crops are examined: food crops persons (Nyiawung et al., 2020). Increasing
and industrial (cash) crops. The food crops cereal yields and production is essential for
include cereals, legumes, and tubers. The cash achieving national food security and supporting
crops include coffee, tea, sisal, and pyrethrum. smallholder income generation as outlined in
Horticulture is evaluated as a cash crop since MTP IV.
the production is mainly grown for export.
Figure 6.8a presents the trends in changes in
(i) Food crops production production and area under cereals production
from 2017 to 2021. The area under cereals
Cereals production and yields production (maize, wheat, barley, rice, sorghum,
and millet) has not substantially increased in
Cereal production plays a crucial role in the the last five years. For example, the area under
agricultural sector, significantly contributing maize production in 2017 was 2.092 million
to food security, economic development, Ha as compared to 2.169 million Ha in 2021,
and employment. It is a primary source of an increase of an average of about 25 Ha of
sustenance and income for many Kenyan land per year. The area under wheat production
farmers, with the food crops sub-sector declined from 146,804 Ha in 2017 to 134,070
accounting for approximately 33 per cent of Ha in 2021. The trend is the same for other
the total agricultural GDP (AFA, 2022). The cereals during the period.
importance of cereals in Kenya is underscored

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That said, the production of maize decreased per cent, 53 per cent, and 62 per cent from
from 3.565 million MT in 2017 to 3.314 million 2017 to 2021, respectively (Figure 6.8b). This
MT in 2021, a decrease of about 250,343 MT. is despite Vision 2030 and the ASTGS strategy
This led to a decrease in the maize yield from emphasizing the need to increase the area
1.70 MT/Ha in 2017 to 1.53MT/Ha in 2021. under irrigation by 150,000 acres to increase
There was also a decrease in yield for rice, output.
barley, sorghum, and millet at 13 per cent, 21

Figure 6.8a: Area under production and output levels for cereals (2017-2021)

Area (Ha) Production (MT)

2,500,000.00 4,500,000.00
4,000,000.00
2,000,000.00 3,500,000.00
3,000,000.00
1,500,000.00
2,500,000.00
2,000,000.00
1,000,000.00
1,500,000.00
500,000.00 1,000,000.00
500,000.00
- -

2017 2018 2019 2020 2021 2017 2018 2019 2020 2021

Data Source: AFA (2022) Yearbook

Figure 6.8b: Cereals yield (MT/Ha) for 2017-2021

Yield (MT/Ha)
4.60

5.00
4.43

4.38
4.25

4.50
3.98

4.00
3.43
3.33

3.16
3.08

3.50
3.06

2.93
2.60

3.00
2.49

2.49
2.30

2.50
1.83
1.80
1.75
1.70

2.00
1.53

1.44

1.32
1.31

1.50
0.95
0.90

0.72
0.70

0.67

0.67

1.00
0.50

0.50

-
Maize Wheat Barley Rice Sorghum Millet

2017 2018 2019 2020 2021

Data Source: AFA (2022), Yearbook

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Legumes production and yields A review of the output, the area under
production, as well as the yields for legumes
Legumes play a crucial role in ensuring both from 2017 to 2021, are presented in figure
food security and nutrition. Beans, lentils, 6.9a. The area under production for all legumes
chickpeas, and peas are rich in protein, fibre, has not substantially changed. The area under
vitamins, and minerals and provide essential beans production, for example, decreased
nutrients necessary for human health. Their from 1.181 million Ha in 2017 to 1.172 million
unique ability to fix nitrogen into the soil Ha in 2021 with production decreasing from
through a symbiotic relationship enriches the 778,336 MT in 2017 to 670,735 MT in 2021,
soil, benefiting other crops in rotation and a decrease of about 13.8 percent. The yield
thereby contributing to sustainable agriculture for beans also decreased from 0.66 MT/Ha
by reducing the need for synthetic fertilizers. in 2017 to o.49 MT/Ha in 2021, while for the
Their deep root systems improve soil structure, green grams increased from 0.49 MT/Ha in
prevent erosion, and enhance soil health. They 2017 to 0.51 MT/Ha in 2021. Only the yields
are a staple in many traditional diets in Kenya, for cowpeas and pigeon peas increased over
providing a reliable source of nutrition. As the period (Figure 6.9b); this could be attributed
climate change impacts agriculture, legumes to farmers’ response to climate change and the
offer resilience for many smallholder farmers. national and county government ‘campaign’ for
The BETA plan has prioritized legumes such the farmers to plant the ‘orphaned crops’ such
as beans, cowpeas, and green grams as one as cowpeas and pigeon peas that are early
of the commodities targeted for value addition maturing and drought resistant. This is despite
through agro-processing and to support food the area under production of these crops
security. remaining almost the same during the period.

Figure 6.9a: Area under production and output levels for legumes (2017-2021)

Area (Ha) Production (MT)

1,400,000.00 1,000,000.00
1,200,000.00 800,000.00
1,000,000.00
600,000.00
800,000.00
400,000.00
600,000.00
400,000.00 200,000.00
200,000.00 -
- 2017 2018 2019 2020 2021
2017 2018 2019 2020 2021
Beans Cow Peas
Beans Cow Peas Green Grams Pigeon Peas Green Grams Pigeon Peas

Data source: AFA (2022), Yearbook

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Figure 6.9b: Legumes yield (MT/Ha) for 2017-2021

1.20

1.10

1.06
0.93
0.92
1.00

0.82
0.79
0.77

0.74
0.70

0.69

0.67
0.67
0.66

0.80

0.63

0.61
0.58

0.57
0.57

0.51
0.49

0.60

0.40

0.20

-
2017 2018 2019 2020 2021

Beans Cow Peas Green Grams Pigeon Peas

Data Source: AFA (2022), Yearbook

Tuber production and yields A review of the tuber crop production area
and yields from 2017 to 2022 is presented in
Tuber crops, such as potatoes, are of immense Figures 6.10a and 6.10b. Despite the effort
importance to the agriculture sector and by the government to promote production of
economy. They are the second most important tubers, the area under cultivation declined. For
food crop after maize, cultivated primarily by example, the area under production of sweet
smallholder farmers. Tuber production not only potatoes declined from 70,812 Ha in 2017
contributes significantly to food security but also to 53,043 Ha in 2022. However, production
generates employment for millions of people increased from 667,274 MT to 674,348 MT.
along the value chain. Despite challenges The production of Irish potatoes for the period
such as soil fertility loss and inadequate increased from 1.49 million MT in 2017 to
certified seeds, strategic interventions by 2.11 million MT in 2022, an increase of about
the government on tuber aims to revitalize 42 per cent. There was a gradual decline of
the sector, highlighting the role tubers play in yields for sweet potatoes and cassava over
ensuring sustainable livelihoods and economic the period with the yield for Irish potatoes
development. The focus on improving tuber showing a gradual increase from 7.6 MT/Ha
productivity is crucial as it has the potential to in 2017 to 9.8 MT/Ha in 2022. The increase in
close the yield gap, enhance income for farmers, the yield of Irish potatoes could be attributed
and support Kenya’s goal of achieving food to the implementation of the National Root and
self-sufficiency. Furthermore, the government Tuber Crops Development Strategy, which
through MTP IV – which implements the BETA lapsed in 2022 but focused on the promotion of
plan – has identified tubers (sweet potatoes and indigenous tubers such as cassava and sweet
Irish potatoes) as priority commodities for value potatoes. The productivity seems to be driven
addition through agro-processing to increase by the acreage used for the production of
productivity. cassava and Irish potatoes. It is also possible

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that climate change and lack of rain could the country experienced severe drought that
reduce the productivity of tubers production, for affected agricultural production.
example, in the case of 2017 and 2021, when

Figure 6.10a: Tuber’s production, and area under cultivation (2017-2021)

250,000.00
Production (MT)
200,000.00 2,500,000.00

2,000,000.00
150,000.00
70,821.00
68,432.00

64,301.00

61,754.00
61,583.00

61,201.00
59,630.00
57,535.00

54,007.00

53,043.00
1,500,000.00
100,000.00
1,000,000.00
50,000.00
500,000.00

- -
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021

Sweet Potatoe Cassava Irish Potatoe Sweet Potatoe Cassava Irish Potatoe

Data Source: AFA (2022) Yearbook

Figure 6.10b: Tuber crop yield (MT/Ha) for 2017-2021

18.00
16.90
15.40

14.50
14.10

16.00
13.50

12.70

12.70

14.00 11.60
11.50

10.50

12.00
9.80
9.40

9.30
8.60

10.00
7.60

8.00

6.00

4.00

2.00

-
2017 2018 2019 2020 2021

Sweet Potatoe Cassava Irish Potatoe

Data Source: AFA (2022) Yearbook

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Horticultural crops Act (Act No. 16 of 2013) and the sub-sector

includes fruit crops, vegetable crops, and
Horticulture is the country’s third largest foreign ornamental plants. A review of the horticultural
exchange earner. It is a significant contributor production shows that the production of various
to the GDP and a vital source of employment, crops has fluctuated over time with the value
providing jobs to around 350,000 people of horticulture exports decreasing from Ksh
directly and supporting the livelihoods of over 157.7 billion in 2021 to Ksh 146.1 billion in 2022
six million individuals (FPEK, 2020). Moreover, (KNBS, 2023). The decline can be attributed to
horticulture is essential for the food security the challenges facing the sector, for example,
and nutritional needs of Kenya’s growing unpredictable weather conditions, high costs
population, while also contributing to small- of farm inputs, use of obsolete technology,
farm development and the green growth of the and stringent international standards. The
economy. The sector’s importance is further production and yield of the main horticultural
highlighted by its potential to adopt low-carbon, crops such as fruits and exotic vegetables had
resource-efficient practices, which can mitigate a gradual increase between 2018 to 2021,
the effects of short-lived climate pollutants on while that of aromatics, African leafy vegetables
agricultural productivity and the environment fluctuated over the same period (Figures 6.11a
(Muthama, N., 2021). and 6.11b). Furthermore, the yields of all the
fruits and vegetables show a gradual increase
Horticultural production is anchored under for the period.
the AFA Act (Act No. 13 of 2013) and Crops

Figure 6.11a: Horticultural production and yields (2017-2021)

5,000,000.00
4,500,000.00
4,000,000.00
3,500,000.00
3,000,000.00
2,500,000.00
2,000,000.00
1,500,000.00
1,000,000.00
500,000.00
-
Fruits Exotic Aromatics African Leafy Asian
Vegetables Vegetables Vegetables

2018 2019 2020 2021

Data source: AFA (2022) Yearbook

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Figure 6.11b: Horticultural area under production (2017-2021)

Yield (MT/Ha) of horticulture

21.65
20.39
25.00

19.86

19.79
19.62
18.93
18.65

18.41
18.15
16.33

16.31

16.06
15.87
20.00

14.54

14.51
14.28

13.34
10.41
15.00

9.68
8.82
10.00

6.18
5.50

5.34
3.78
5.00

-
Fruits Exotic Aromatics African Leafy Asian Total
Vegetables Vegetables Vegetables

2018 2019 2020 2021

Data Source: AFA (2022) Yearbook

While the productivity of horticultural produce many oil seeds such as sunflower, simsim,
was below the target in MTP III, in MTP IV, soya beans, rapeseed, coconut, castor, and
horticultural production has been prioritized groundnuts can be grown and processed
for development focusing on increasing the locally. In 2023/2024, the government, through
productivity of commodities such as vegetables the State Department for Crop Development,
(garden peas, African bird eye chillies) and planned to support farmers planting edible oil
fruits (avocado, mangoes, passion fruit, crops in the coastal regions of Mombasa, Tana
and pineapple) as a measure to promote River, Kilifi, Kwale, and Taita Taveta counties.
export earnings. The focus is to increase This will be implemented by allocation of
production and value addition by increasing Ksh 134 million under the national edible oil
land under irrigated crops and providing crops promotion project; Ksh 62 million under
markets for horticultural and fruit produce. To the coconut industry revitalization project;
reduce wastage and loss, the plan entails the and Ksh 592 million under the food security
construction of fruit and vegetable processing and crop diversification project by providing
plants and the establishment of collection canola, sunflower, soya, and coconut seeds;
centres to facilitate the processing, cooling, and providing loans to farmers in the targeted
and storage of potatoes, tomatoes, fruits, and region. This initiative aims to increase the area
vegetables. under the production of nuts and oil crops, and
thereby increase production.
Nuts and oil crops
Figures 6.12a, 6.12b, and 6.12c present the
The nuts and oil crop sub-sector is important as trends in the acreage, production, and yields
a source of processed edible oil, animal feed, for the oil and nuts crops for the period 2017 to
and industrial oil. Kenya imports 95 per cent 2022. The area under production of macadamia
of its total edible oil requirements (AFA, 2022). and cashew nuts remained the same over the
This is attributed to low production despite period (2017-2022) while that under peanut,
the country’s immense potential. That said, sesame, and coconut declined (Figure 6.12a).

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Furthermore, the production (Figure 6.12b) of all the oil crops targeted for value addition,
the oil and the nuts crop mirrors the area under coconut yield was the highest followed by
cultivation, which is also true for the yield of all macadamia (Figure 6.14c). This is despite
the nuts and oil crops. The implication of this the area under macadamia production being
is that the yield for these crops is driven by the smaller, meaning that yields per Ha of land were
expansion of the area under the production of high compared with other oil and nuts crops.
nuts and oil crops. It is worth noting that among

Figure 6.12a: Nuts and oil crops area under cultivation (2017-2021)

Area (Ha) under nuts and oil crops

100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
-
Macadamia Nuts Cashew Nuts Peanut Sesame Coconut

2017 2018 2019 2020 2021

Data Source: AFA (2022) Yearbook

Figure 6.12b: Nuts and oil crops production (2017-2021)

120,000.00

100,000.00

80,000.00

60,000.00

40,000.00

20,000.00

-
Macadamia Nuts Cashew Nuts Peanut Sesame Coconut

2017 2018 2019 2020 2021

Data Source: AFA (2022), Yearbook

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Figure 6.12c: Nuts and oil crops yields (2017-2021)

Yield (MT/Ha) of nuts and oil crops

7.00

6.00

5.00

4.00

3.00

2.00

1.00

-
Macadamia Nuts Cashew Nuts Peanut Sesame Coconut

2017 2018 2019 2020 2021

Data Source: AFA (2022), Yearbook

(ii) Cash crops production crops also enhance food security by providing
a reliable income stream, which can be used
Coffee, tea, cotton, sisal and sugarcane to purchase food and invest in agricultural
production improvements. In Kenya, cash crops such as
tea and coffee not only support the livelihoods
Cash crop production serves as a significant of many smallholder farmers but also help in
source of income for farmers and contributes saving foreign exchange expenditures through
to the country’s GDP. The most important cash import substitution. This section examines the
crop in Kenya is tea, which is a major export area under production, output, and yields for
and a key contributor to economic growth. Cash coffee, tea, cotton, sisal, and sugarcane.

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Figure 6.13a: Coffee, tea, cotton, sisal, and sugarcane area under production (Ha), 2017-
2021

300,000.00

250,000.00

119,700.00
119,600.00
115,700.00
114,700.00

108,200.00
200,000.00

250,800.00
243,500.00
243,300.00

242,500.00
236,400.00

236,400.00
150,000.00

223,000.00
40,696.00

40,696.00

40,701.00

39,624.00
202,400.00

200,500.00
197,400.00
24,000.00
20,717.00

18,000.00
13,617.00

10,640.00
100,000.00

9,837.00
50,000.00

-
2017 2018 2019 2020 2021

Coffee (Ha) Tea (Ha) Cotton (Ha) Sisal (Ha) Sugarcane (Ha)

Data Source: AFA (2022) Yearbook

In 2022-2023, coffee worth US$127.8 million as the production of coffee increased from
was sold through the Nairobi Coffee Exchange 41,400 tonnes in 2017 to 51,900 tonnes in
(KNBS, 2023). However, despite the importance 2021 (Figure 6.13b), a more than 10 per cent
of coffee’s contribution to GDP, production has increase despite the area under production
been declining since 2000. Recent reforms declining from 114,700 Ha in 2017 to 108,200
undertaken in the sector seem to bear fruits Ha in 2021 (Figure 6.13a).

Figure 6.13b: Coffee, cotton and sisal production (MT), 2017-2021

60,000.00

50,000.00
32,208.93
30,525.37
26,640.20

40,000.00
24,249.20
22,549.22

51,900.00

30,000.00
45,000.00
11,850.00
41,400.00

36,900.00

34,500.00

20,000.00
5,321.00

3,390.00
3,015.00

1,300.00

10,000.00

-
2017 2018 2019 2020 2021

Coffee (MT) Sisal (MT) Cotton (MT)

Data Source: AFA (2022) Yearbook

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Tea is among the leading foreign exchange metric tonnes in 2017 to 533,000 metric tonnes
earners for the country, contributing about 23 in 2022 (Figure 6.13c). The growth could be
per cent of total foreign exchange earnings attributed to the good climate conditions for tea
and 2.0 per cent of the agricultural GDP. growing, ongoing investments in tea production
Annually, the country produces over 450,000 infrastructure, improved agricultural practices,
metric tonnes of tea, which earns the country increased global demand for premium tea, and
over Ksh 120 billion in export earnings, and efficient marketing strategies. The measures
Ksh 22.0 billion on local sales (KNBS, 2022). and initiatives outlined in MPT IV focused on
Tea production has been increasing since tea value addition will boost the sector and
2017 with production increasing from 493,000 increase productivity.

Figure 6.13c: Tea and sugarcane production (MT), 2017-2021

560,000.00 10,000,000.00

535,000.00
537,800.00
493,000.00

540,000.00 9,000,000.00
8,000,000.00
469,500.00
520,000.00
458,800.00

7,000,000.00
500,000.00 6,000,000.00
480,000.00 5,000,000.00
460,000.00 4,000,000.00
3,000,000.00
440,000.00
2,000,000.00
420,000.00 1,000,000.00
400,000.00 -
2017 2018 2019 2020 2021

Tea (MT) Sugarcane (MT)

Data source: KNBS (Various), Economic Survey

The yield for the cash crops is presented in bags in 2017. The yields for tea fluctuated from
Figure 6.13d. The yield, per Ha of coffee and 2.03 MT/Ha in 2017 to 2.13 MT/Ha in 2021. The
cotton, shows a steady decline while the yield yield for sugarcane shows a steady increase
for sisal shows an upward trend. This can be over the period, moving from 26 MT/Ha in 2017
explained by the adoption and use of eco- to 35.91 MT/Ha in 2021.
friendly bags since the ban on the use of plastic

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Figure 6.13d: Coffee, tea, cotton, sisal, and sugarcane yield (MT/Ha), 2017-2021

2.50 40.00

35.91
34.90
35.00

33.97
2.00

2.21
30.00

2.13
2.03

1.99
1.94
26.00
25.00

23.33
1.50
20.00
0.94

0.81
0.75
1.00 15.00

0.65
0.60
0.57

0.48
0.39
0.39
0.36

10.00

0.34
0.31

0.29
0.50

0.17

0.12
5.00

- -
2017 2018 2019 2020 2021

Coffee (MT/Ha) Tea (MT/Ha) Cotton (MT/Ha)

Sisal (MT/Ha) Sugarcane (MT/Ha)`

Data Source: AFA (2022), Yearbook

(c) Government spending in agriculture and to ensure efficiency and effectiveness in its
use. As presented in Figure 6.14, Kenya is far
Kenya is a signatory to the Malabo Declaration from meeting the Malabo obligation. It was only
on accelerated agricultural growth and in 2011 that the country allocated about 5.0 per
transformation. The Malabo Declaration cent of the national budget to the agriculture
obligates African countries to enhance sector. Since then, the allocation has been on
investment finance, both public and private, to a decline with the allocation at 2.4 per cent in
the agriculture sector by allocating at least 10 2022.
per cent of public expenditure to agriculture,

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Figure 6.14: Agriculture expenditure share of total government expenditure, 2001-2022

5.09
4.99
4.82
AGRI CU L TU RE SH ARE OF TOTAL

4.58
GOVERN M EN T EX PEN DI TU RE

4.22

3.92
3.91
3.87

3.59
3.42

3.26
3.18
2.79

2.70

2.40
2.21
1.85
1.84
1.77
1.75

1.70
(%)

1.54
YEAR

Data source: FAOSTAT

Since agriculture is a devolved function, county as-usual’ benchmark against which alternative
governments have a role to play in allocating development scenarios are evaluated. The
adequate resources to the agriculture sector baseline is intended to depict the most plausible
while taking measures to climate-proof the development trajectory of the economy under
sector. The government, through the BETA the existing set of policies and the assumption
plan, is focusing on a value chain approach for that growth and socioeconomic trends will
the sectors with crops and commodities with a continue along their historical paths. The
high impact on the economy. This initiative is baseline was calibrated to the GDP forecasts
likely to increase spending going to the sector generated by KIPPRA KTMM projections. The
at the national level and in the counties. This model was calibrated to track the same level of
will be important in ensuring sufficient resource growth for the period 2022-2027. The business-
allocation to meet regional obligations. as-usual scenario assumes a constant sectoral
share throughout the simulation period.
6.4 Simulations of policies using CGE
The objective of the simulation exercise is to
The analysis of the impact of the implementation assess the impact of an increase in sectoral
of the programmes outlined in the BETA plan and specific commodity growths given the
for the agricultural sector shows that the implementation of BETA growth assumptions
government can achieve more in terms of on agriculture. Upon evaluating the BETA
economic growth and agricultural productivity. plan initiatives, and sectoral growth from 2010
To do this evaluation, the IFPRI RIAPA to 2019, detailed sectoral and commodity
model was used. The model used the 2021 average growth assumptions were calculated
Kenya Social Accounting Matrix for Kenya and plugged into the model for impact results
in construction. Two scenarios were defined against the baseline scenario results. The key
namely, the baseline (Business-as-usual- BAU) priority sub-sectors highlighted in the BETA
scenario and the accelerated growth scenario. plan include maize; dairy; cattle; tea value
In defining the BAU scenarios, the baseline addition; expanding and revamping export
scenario was created to serve as the ‘business- cash crops such as coffee, cashew nuts,

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avocado, macadamia nuts, and pyrethrum; and for various commodities for 2021 were used
revamping of leather, cotton, pharmaceutical, to calculate how much the implementation of
and textile and clothing industries. the BETA initiatives will increase production as
opposed to the BAU growth. Table 6.5 presents
6.4.1 Crops sub-sector the results of the impact of implementing
BETA initiatives for the crops sub-sector.
Figure 6.15 presents the simulation results Implementation of the initiatives will increase
for the period 2022 to 2027 for all the crops production for various crops by between 0.8
evaluated. The higher growth acceleration for per cent for groundnuts and 6.7 per cent per
rice, maize, cut flowers, tea, coffee, vegetables, year for cut flowers.
nuts, and cotton is consistent with the intentions
of the government to increase food production The production of rice, nuts, cotton, tea, and
and improve Kenya’s foreign exchange balance. coffee, which are the main priority value chain
The production of rice has better prospects if crops will be accelerated by 5.4 per cent, 2.9 per
the BETA plan is implemented fully. Rice, being cent, 2.0 per cent, 2.2 per cent, and 2.3 per cent
one of the priority crops under the BETA plan, respectively per year above the BAU growth
can be increased by 6.0 per cent per year if the rates. This underscores the need to ensure the
initiatives are implemented fully and assuming proposed initiatives are fully implemented to
no exogenous factors affect the sector. enable growth of the sector as anticipated by
the BETA plan.
To translate this growth expansion into impacts
on output and productivity, the production levels

Figure 6.15: Average annual growth rates for crops sub-sector under BAU and accelerated
growth scenarios, 2023-2027

Cutflower (MT) 3.00 9.70

Coffee (MT) 3.50 5.80
Tea (MT) 4.10 6.30
Sugar - Cane delivered (MT) 0.90 2.60
Cotton (MT) 0.80 2.80
Bananas (MT) 0.90 2.60
Nuts (MT) 0.80 3.70
Fruits (MT) 0.90 3.20
Vegetables (MT) 4.70 6.40
Irish Potato (MT) 3.20 4.50
Cassava (MT) 2.30 3.20
Ground Nuts (MT) 2.603.40
Pulses (MT) 4.40 7.70
Rice (MT) 3.90 9.30
Maize (MT) 3.80 5.70
- 2.00 4.00 6.00 8.00 10.00 12.00

BETA Accelerated Growth BAU Growth

Source: Authors Compilation, From RIAPA Model

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Table 6.5: Implication of implementing the BETA programmes on crops

Commodity Total Business as BETA Accelerated Percentage

production usual (BAU) accelerated production change/year
(MT) –2021 growth/year growth/year (MT)/year
Maize (MT) 3,314,430.00 3,440,378.34 3,503,352.51 62,974.17 1.90
Rice (MT) 186,000.00 193,254.00 203,298.00 10,044.00 5.40
Pulses (MT) 1,162,859.00 1,214,024.80 1,252,399.14 38,374.35 3.30
Ground nuts (MT) 12,897.00 13,232.32 13,335.50 103.18 0.80
Cassava (MT) 711,890.00 728,263.47 734,670.48 6,407.01 0.90
Irish potato (MT) 2,197,824.00 2,268,154.37 2,296,726.08 28,571.71 1.30
Vegetables (MT)** 78,100.00 81,770.70 83,098.40 1,327.70 1.70
Fruits (MT)** 117,300.00 118,355.70 121,053.60 2,697.90 2.30
Nuts (MT) 127,380.00 128,399.04 132,093.06 3,694.02 2.90
Bananas (MT) 1,984,279.00 2,002,137.51 2,035,870.25 33,732.74 1.70
Cotton (MT) 1,300.00 1,310.40 1,336.40 26.00 2.00
Sugarcane - (MT) 7,800,000.00 7,870,200.00 8,002,800.00 132,600.00 1.70
Tea (MT) 537,800.00 559,849.80 571,681.40 11,831.60 2.20
Coffee (MT) 34,512.00 35,719.92 36,513.70 793.78 2.30
Cut flower (MT)** 210,100.00 216,403.00 230,479.70 14,076.70 6.70

**Exported

Source: AFA and KNBS (2021), Calculation from RIAPA outputs

6.4.2 Livestock sub-sectors for sustainable development and investment

in the livestock sub-sector to bolster Kenya’s
The livestock sub-sector in Kenya is a economic growth and resilience.
cornerstone of the country’s economy and food
security. It supports the livelihoods of millions of Figure 6.16 presents the simulation results for
Kenyans especially in ASAL areas, contributing the livestock sub-sector. The average annual
approximately 12 per cent to the GDP and 42 growth for the livestock sub-sector under the
per cent to the agriculture sector. Moreover, it BETA plan will grow by more than 2.7 per cent
plays a crucial role in climate change adaptation than under the business-as-usual scenario.
and mitigation, with a focus on climate-smart The implementation of the BETA plan is
agriculture to enhance productivity while expected to result in an acceleration of livestock
reducing greenhouse gas emissions (ILRI, growth to 7.1 per cent per year as compared
2021). The sector not only provides essential to an average annual growth of 4.4 percent
nutrition through dairy, beef, and small ruminant without the government’s plan. Higher growth
products but also earns significant foreign acceleration is shown in sub-sectors such as
exchange through exports. This multifaceted poultry (9.1% versus 6.6%), milk (6.8% versus
importance of the sector underscores the need 4.0%), and cattle (7.4% versus 4.4%).

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Figure 6.16: Average annual growth for livestock sub-sector (2023-2027)

Base-run Accelerated growth

4.4%
Total livestock 7.1%

4.4%
Cattle 7.4%

4.0%
Milk 6.8%

6.6%
Poultry 9.1%

3.6%
Eggs 5.5%

3.6%
Small ruminants 5.8%

3.3%
Fish 5.2%

Source: Authors compilation, from RIAPA Model

Furthermore, to evaluate the impact of under livestock are fully implemented. For
accelerated growth under BETA, production example, the country can increase milk
values for 2020 for various livestock production by 113,347 million litres per year by
commodities were used to calculate how much implementing the BETA plan activities focusing
the sector will contribute to the economy (Table on milk production, more than 2.8 per cent
6.6). Poultry, cattle, and milk production can above the BAU scenario.
greatly be improved if the BETA plan initiatives

Table 6.6: Implication of implementing the BETA programmes on livestock and livestock
products

Commodity Production Business as BETA Accelerated Percentage

(QTY) - 2020 usual (BAU) accelerated production (MT)/ change
growth/year growth/year year
Milk (M Lt) 4,048,116.59 4,210,041.25 4,323,388.52 113,347.26 2.80
Eggs (M Tray) 296,652.24 307,331.72 312,968.11 5,636.39 1.90
Poultry (No.) 57,161,777.35 60,934,454.65 62,363,499.08 1,429,044.43 2.50
Leather (No.) 9,661.55 10,308.87 10,743.64 434.77 4.50
Cattle (No.) 21,653,595.41 22,606,353.61 23,255,961.47 649,607.86 3.00
Fish (MT) 163,600.00 168,998.80 172,107.20 3,108.40 1.90

Source: AFA and KNBS, calculation from RIAPA outputs

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Similarly, the production of eggs, poultry cattle, agricultural products, farmers can extend
and fish could be increased by 1.9, 2.5, 3.0, the shelf life of their produce, access new
and 1.9 per cent per year, respectively, under markets, and improve product quality. This shift
the BETA plan. For instance, the proposal to from selling raw commodities to value-added
establish feedlots and feed production zones, products can lead to increased profitability,
and livestock disease management and sustainability, and resilience against market
insurance under the BETA plan can be a game fluctuations. Moreover, value addition aligns
changer in transforming the sub-sector for with the government’s BETA plan to expand
productivity. food production and create jobs, especially for
the youth through agro-processing.
6.4.3 Value addition (food processing and
other manufacturing) Figure 6.17 presents simulation results for the
targeted products for processing. Total food
Value addition in agriculture is critical for processing average annual growth per year
Kenya’s economy, as it transforms raw for the period 2023-2027 is expected to be
agricultural products into higher-value goods, 7.3 per cent under the BETA plan compared
thereby increasing farmers’ income and to 5.0 per cent under the business-as-usual
creating job opportunities. Value addition can scenario. Coffee processing, wheat milling,
help reduce postharvest losses, which are meat and meat products, sugar refining, and
estimated to be between 20-50 per cent (FAO, tea processing demonstrate higher growth
2021). By processing, packaging, or enhancing acceleration under the BETA plan.

Figure 6.17: Average annual growth for food processing (2023-2027)

Base-run Accelerated growth

Total food processing 5.0%

7.3%

Meat 5.0%
6.7%

Wheat milling 2.6%

2.9%

Sugar refinery 1.0%

2.9%

Coffee processing 7.3%

12.7%

Tea processing 5.2%

8.8%

Beverages 5.2%
6.2%

Source: Authors compilation from RIAPA Model

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Table 6.7: Implication of implementing the BETA programmes on food processing

Commodity Production (MT) Business as BETA Accelerated Percentage

- 2021 usual (BAU) accelerated production change
growth/year growth/year (MT)/year
Meat (MT) 559,727.00 587,713.35 597,228.71 9,515.36 1.70
Tea processing 537,800.00 565,765.60 585,126.40 19,360.80 3.60
Coffee processing 34,500.00 37,018.50 38,881.50 1,863.00 5.40
Wheat milling 1,440,000.00 1,477,440.00 1,481,760.00 4,320.00 0.30
Sugar refining 7,100,000.00 7,171,000.00 7,305,900.00 134,900.00 1.90

Source: AFA and KNBS, calculation from RIAPA outputs

The impacts of the accelerated growth rates due to reliance on rain-fed agriculture,
for food processing for various commodities overlaps in the implementation of policies,
are presented in Table 6.7. The BETA initiative and institutional overlap hindering the
such as the establishment of processing hubs achievement of desired results.
and blending and branding of tea is likely to
increase production by 3.6 per cent per year. 3. Spending on agriculture as a percentage
Similarly, coffee and sugarcane productivity will of total government spending has
grow by 5.4 per cent and 1.9 per cent per year been below the 10 per cent proposed
respectively. by the Malabo Declaration. Allocation
of adequate funding to the agriculture
6.5 Key Messages and sector is key in enabling investment in
Recommendations the supportive rural infrastructure such as
storage facilities to reduce post harvest
6.5.1 Key messages losses and wastage, timely input supply
and distribution, and development of
1. Successive governments have markets and value addition to increase
implemented various policies and outputs and productivity. The National
strategies to transform the agriculture Agricultural Value Chain Development
sector and increase productivity. The (NAVCD) Project being undertaken
issues straining the sector and preventing and the initiatives in MTP IV, if fully
the achievement of agricultural productivity implemented, will be able to transform the
growth have always been the same, as sector to increase productivity and ensure
outlined in various policy documents. its full contribution to the economy.
These issues are limited access to inputs,
challenges of infrastructure and market 4. Labour productivity, the share of labour
access, agro-processing and value income, and the share of youth labour
addition, and uncoordinated institutional engaged in agriculture has been
and policy reforms. While there has been declining. This is majorly driven by slow
substantial achievement in some of these sector growth, the shift of labour to other
issues, no single policy document has sectors of the economy, and disinterest
been able to eliminate these bottlenecks. by the youth to engage in agriculture.
The transformation of agriculture is key to
2. The agriculture sector’s contribution to increasing productivity.
GDP has been declining over time, driven
majorly by the effects of climate change 5. The area under production for most food
and cash crops has been declining,

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driven by the economic transformation of A deliberate action by the counties to

agricultural land for infrastructure, slow allocate resources for the sector will
expansion of areas under irrigation, and be key in ensuring the achievement of
abandonment of production of some the Malabo commitment for agriculture
crops such as oil crops, cotton, among sector funding and ensuring agricultural
others. transformation.

6. Analysis of the implementation of various 3. Reduce post harvest loss and wastage:
measures spelt out in the BETA, such as Implement various agro-processing and
the provision of fertilizer, and investment value chain projects in MTP IV such as
in crop and livestock value chain shows storage and cooling plants will be crucial
that implementation of the measures in providing the required infrastructure
will raise agricultural output and yields for storage to increase outputs, reduce
for various targeted crops. Furthermore, wastage, and increase productivity.
focus on value chain development will
help increase value addition and output 4. Uptake of livestock and crop insurance:
for the targeted crops such as oil crops, Develop and implement crop and
coffee, and tea. livestock insurance schemes to protect
farmers from the vagaries of weather and
6.5.2 Policy recommendations ensure they can recover from failed rains.

To enhance agriculture productivity, the 5. Invest in human capital development:

government needs to focus on the key drivers Revision of the curriculum to ensure
outlined below. Agriculture is made a compulsory subject
in secondary schools. Furthermore,
1. Timely and accessible intermediate there is a need to facilitate training and
inputs: Ensure timely procurement monitor the supply and the requirement
of seeds and fertilizer, monitor the of various professionals in the agriculture
distribution and access by farmers, and sector, such as extension officers, plant
ensure the use and application by the and crop breeders, and other scientists
farmers as per the requirements. There to ensure adequate well-trained labour
is a need to sensitize farmers on various for the sector. This will help serve the
elements of fertilizer use, such as the farmers by facilitating farmer access
time of application, application rates, to extension services and adoption of
and the appropriate production process. modern technology and innovations to
Specifically, the commitment of various increase farm productivity.
allocations for crop promotion, seed, and
input supply, and farmer training needs 6. Support value chain development:
to be actualized in coordination with the Implement fully the proposed value chains
counties. for the prioritized crops in MTP IV to help
farmers add value to their products and
2. Achieve the Malabo commitment to increase their incomes and productivity
government spending on agriculture: for the targeted crops. This is important
Generate and allocate adequate for the country to help reduce the amount
spending on agriculture from the national of food import bills incurred in the country.
budget on agricultural-specific activities.

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158
 CHAPTER

7
DEVELOPING SKILLS FOR PRODUCTIVE AND FUTURE READY WORKFORCE

DEVELOPING SKILLS FOR

PRODUCTIVE AND FUTURE
READY WORKFORCE

Kenya has invested substantially in skills development through the expansion

of the education and training sector, the development of apprenticeship and
internship programmes, and workplace training programmes. However,
skills development is faced with inequality in access to training opportunities,
low quality education outcomes, and low transition to tertiary education. In
addition, low enrolment rates in priority areas related to the BETA pillars
indicate a disconnect between skills development and national skills needs.
The apprenticeship programmes offered in the informal sector suffer from
structural limitations and inadequate standards. Workplace training faces
financial costs borne by organizations. There is, therefore, a pressing need
to reimagine and realign skills development to meet the national priorities and
evolving skills demands. This includes mobilizing adequate funding through
public-private partnerships for targeted scholarships, loans, and bursaries
to students to pursue priority programmes; establishing the National Skills
and Funding Council to oversee funding initiatives for supporting skills
development; retooling workers in the labour market towards national priority
areas, and through conditional exchange programmes; and allocating
resources to enhance centres of excellence in areas such as dairy training,
leather development, agricultural colleges, and medical colleges. Additionally,
there is a need to effectively enforce the existing education policies to ensure
no repetition, universal basic education, and 100 per cent transition. Equitable
funding formulas for free primary and free day secondary education need to
be enforced, and grassroot campaigns undertaken to encourage enrolment
and retention of learners at all levels of education and training. Further,
there is a need to strengthen the implementation of the Recognition of Prior
Learning Policy by creating awareness of RPL and providing tax incentives
for training. The government could foster industry-academia partnerships
to address skills shortages and mismatches. Adequate financial resources
need to be allocated to support the implementation of curriculum reforms in
terms of human resources, enabling legal and institutional framework and
infrastructure consistent with relevant courses.

7.1 Introduction For a country to prosper, it requires adequate

T
and appropriately skilled workers. Therefore,
he development of relevant and quality skills development must focus on adequacy,
skills is fundamental for enhanced relevance, quality, and adaptability of the
productivity and economic growth workforce. Governments need to invest in
(ILO and OECD, 2018; ILO, 2008; skills development, including expanding the
CEDEFOP, 2007). Countries with higher skill education and training sector, establishing
levels record higher worker productivity and apprenticeship and internship programmes,
faster and more resilient economic growth. implementing workplace training initiatives

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and lifelong learning to meet the demands of mismatch (Government of Kenya, 2022). Skills
the economy, and keeping pace with changing availability and access to training opportunities
skills needs. The key factors that influence relevant to labour market needs are important
skills development include technological factors for enabling productivity. There is
changes, globalization, climate change, and a positive correlation between education
demographic dynamics. These dynamics are attainment and productivity as shown in Figure
reshaping labour markets, thus creating a need 7.1. Kenya’s investment in education and
for developing adaptable and forward-looking training has seen education attainment rise in
skills. years of schooling from 10.7 years in 2018 to
11.6 years in 2022, which has contributed to
Skills development is at the core of the national sustaining high output per worker, increasing
development agenda and is underpinned by from US$ 3,778 to US$ 4,059 in 2022.
the Kenya Vision 2030, which identifies skills Singapore and South Korea have both invested
development as a key foundation. In addition, significantly in education and training, resulting
the Bottom-up Economic Transformation in high levels of education attainment for their
Agenda (BETA) identifies skills development populations. However, the productivity disparity
as a key input in the implementation of its between the two countries can be attributed
five pillars: Agricultural transformation and to various factors, including differences in
inclusive growth; Transforming the MSMEs economic structure, industrial composition,
economy; Housing and settlement; Healthcare; innovation ecosystems, and labour market
and Digital superhighway and creative dynamics.
economy. These pillars highlight the essential
skills needed across the diverse sectors to Kenya can enhance the implementation of BETA
achieve the development objectives with by learning from the successful strategies of
economic transformation. In this regard, the aspirator and comparator countries to address
government aims to establish a National Skills its challenges of low labour productivity. Key
and Funding Council that amalgamates the lessons include adopting precision agriculture
Higher Education Loans Board (HELB), Kenya and sustainable practices and integrating large-
Universities and Colleges Central Placement scale farming techniques with smallholder
Service (KUCCPS), Technical and Vocational inclusivity. Supporting MSMEs through finance
Education and Training (TVET), and University and innovation hubs like Germany and India,
Funding Board. The National Skills and Funding implementing efficient public housing models,
Council will be key in overseeing funding upgrading informal settlements and inclusive
initiatives to support the four avenues of skills policies to ensure equitable development like
development in the country. Singapore and South Africa. Strengthening
primary healthcare and digital health initiatives
The country is faced with low labour productivity inspired by Cuba and Rwanda and lastly,
despite being ranked highest among the investing in high-speed Internet infrastructure
East African countries. The low productivity to support tech startups, and promote digital
is attributed to inadequate technical skills literacy to drive the digital economy like South
(TIFA, 2017), weak work attitudes and ethics, Korea.
inadequate adoption of technology, and skills

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Figure 7.1: Output per worker and education attainment in 2018 and 2022

2022 2018

5,000 14.00 4,000 12.00

4,000 12.00 10.00
3,000
Output per worker in USD

10.00

Education attainment in years

8.00

Output per worker in USD

3,000

Education attainment in years

8.00
2,000 6.00
2,000 6.00
4.00 4.00
1,000 1,000
2.00 2.00
- 0.00 - 0.00

Output per worker 2022 Output per worker 2018

Education attainment 2022 Education attainment 2018

2022 2018

120,000 15 120,000 15
100,000 100,000
Output per worker in USD

Output per worker in USD

Education attainment in years

Education attainment in years

80,000 10 80,000 10
60,000 60,000
40,000 5 40,000 5
20,000 20,000
- 0 - 0
Singapore South Korea Singapore South Korea

Output per worker 2022 Output per worker 2018

Education attainment 2022 Education attainment 2018

Data source: ILO Stats and World Bank (2018; 2022)

Note: Skills level is proxied by education attainment. Higher education levels suggest a more
skilled workforce.

7.2 Status of Skills Development the educational curriculum mirrors the country’s
efforts to address the evolving needs of its
Skills development is mainly achieved through people and the challenges of a rapidly changing
education and training, apprenticeship and world. From 1964 to 1985, the country adopted
internship programmes, workplace training and the 7-4-2-3 system, which comprised seven
learning, and lifelong learning programmes. years of primary education, four years of lower
secondary, two years of upper secondary, and
7.1.1 Education and training three years of university education. In 1985,
Kenya implemented the 8-4-4 system, which
In the Kenya, education is provided through comprised eight years of primary education,
formal and informal schooling. The evolution of four years of secondary education, and four

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years of university education. In 2017, the of Free Primary Education (FPE) in 2003, Free
country initiated another major reform by Day Secondary Education (FDSE) in 2008,
introducing the Competency-Based Curriculum subsidized tertiary education, the 100 per
(CBC), replacing the 8-4-4 system. The 2-6- cent transition policy in 2018, infrastructure
3-3-3 system schooling system includes pre- development, establishment of low-cost
primary school (2 years), primary school (6 boarding schools in ASALs in the 1970s,
years), junior school (3 years), senior school (3 provision of sanitary towels in 2011, curriculum
years), and Technical and Vocational Education reforms in 2017, prior learning recognition, and
and Training (TVET), and University education rebranding efforts of technical and vocational
(3 years). The pre-primary, primary, and education and training to ensure that no one
secondary schooling level lay the foundation by is left behind. These initiatives have led to an
providing fundamental literacy, numeracy, and increase in enrolment at all levels of education
cognitive skills essential for further learning and and training as presented in Table 7.1. The
employment. consistent increase in enrolment trends across
all levels of education and training institutions
Access and participation at all levels of signifies a favourable path towards the
education are fundamental components of development of adequate skills, which in turn is
building an adequate skilled workforce for poised to positively impact productivity levels in
productivity. The government education and diverse sectors of the economy.
training initiatives include the implementation

Table 7.1: Enrolment trends in education institutions (2018-2023) in numbers

Level of training 2018 2019 2020 2021 2022 2023

Pre-primary 3,390,545 2,738,587 2,832,897 2,845,265 2,868,000 2,885,636
Primary 10,542,500 10,072,040 10,170,065 10,285,063 10,364,153 10,241,000
Secondary 2,942,705 3,260,007 3,520,433 3,691,915 3,858,079 4,109,500
TVET institutions 359,852 430,598 451,205 503,798 562,499 642,726
Universities 519,462 509,468 546,699 562,066 562,925 579,380
Total enrolment 17,755,064 17,010,700 17,521,299 17,888,107 18,215,656 18,458,242

Data source: KNBS (2022; 2023; 2024), Economic Survey

The enrolments and retention for Special Needs Despite the gains made in access to education,
Education (SNE) learners and marginalized the number of out-of-school children was
groups in primary and secondary education still high at 21.9 per cent and 45.9 per cent
have continued to increase due to government for primary and secondary school levels,
interventions through the disbursement of respectively, in 2020. For ASAL counties, this
FPE and FDSE capitation, tuition top-up, and was at 28.1 per cent and 52.7 per cent for primary
boarding subsidy grants, which increased and secondary education levels, respectively,
the number of trainees enrolled in TVET and compared to the non-ASALs at 12.9 per cent
SNE institutions. The SNE institutions include and 34.9 per cent (see Annex Table A7.1). For
Machakos Technical Training Institute (TTI) for instance, at the primary education level, the
the Blind; Karen TTI for the Deaf; Sikri TTI for net enrolment rate (NER) was 78.1 per cent in
the Deaf and Blind; and Nyangoma TTI for the 2020 (see Annex Table A7.2), indicating that
Deaf. Enrolment in these institutions increased 22 per cent of the expected learners are not
from 2,414 in 2019 to 3,805 in 2022. in school and, therefore, a sizeable number

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of learners are still missing in the formal skills Poverty also plays a critical role, as some
development. At the secondary education level, families cannot afford the fees required
the NER of 53.2 per cent implies that half of the for secondary education. Additionally, the
school-going learners who are supposed to be distance to schools in rural areas often makes
in secondary education are missing this level of it challenging for students to attend school
education. regularly. Gender disparities further exacerbate
the problem, with girls more likely to drop
On average, more than 40 per cent of learners out due to early marriages or cultural beliefs
who begin Grade one (1) do not progress to that favour boys’ education. Poor academic
Form four (4), indicating a substantial dropout performance can lead to disengagement and
rate as evidenced by data presented in Table discouragement, prompting students to leave
7.2. Of the 2012-2023 cohort, learners joined school. Lastly, the quality of education in some
Grade one (1) in 2012 and were expected to schools is lacking due to inadequate resources,
complete Form four (4) in 2023, assuming the unqualified teachers, and insufficient physical
no repetition policy and 100 per cent transition infrastructure, which collectively discourage
policy apply. However, only 58 per cent of students and contribute to higher dropout
this cohort completed Form four (4), implying rates. Consequently, low completion rates
wastage in education and training. This could pose a barrier to accessing higher education
be attributed to the increased rate of teenage opportunities and hinder skills development.
pregnancies, high absenteeism of learners in
day secondary education, and the motorcycle
business being considered as an alternative to
education.

Table 7.2: Tracing cohort completion from grade one to Form four, 2009-2023

Cohort from grade Grade one Number Number Completion rate at Completion rate
one to form four enrolment completed completed form grade eight (%) at form four(%)
grade eight four
Completion for 1,381,100 952,021 743,253 69% 54%
2009 to 2020
Completion for 1,468,500 1,003,446 822,501 68% 56%
2010 to 2021
Completion for 2011 1,503,900 1,060,710 876,674 71% 58%
to 2022
Completion for 1,542,800 1,088,989 899,453 71% 58%
2012 to 2023

Data source: Authors’ compilation using data from KNBS (Various), Economic Survey

There is a low transition rate from primary to gap in educational attainment inhibits the
secondary education and from secondary to development of essential skills needed for the
tertiary education, despite the government workforce. Moreover, the low transition rate
policy advocating for 100 per cent transition. from secondary to tertiary education, at 32 per
With only 78.6 per cent of students transitioning cent in 2022, further exacerbates the issue
from primary to secondary education in 2022, by limiting access to higher education and
a substantial portion (22%) of the population specialized skills development opportunities. As
remains underserved by formal education a result, the workforce may lack the necessary
systems (MOE, 2023; National Education qualifications and competencies demanded by
Sector Strategic Plan, 2023-2027). This the labour market, thus impacting productivity.

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At basic education, which includes pre- boys, including, among others, Mandera (0.54),
primary, primary, and secondary school levels, Wajir (0.58), Turkana (0.62), Garissa (0.68),
the Gender Parity Index (GPI) varies across and Samburu (0.74). The GPI in access to
counties (Annex Table A7.3). GPI was low in TVET was at 0.86 against a desired GPI of 1.0,
the ASALs, with males having an edge over with males having an edge over females. This
females. The overall GPI at pre-primary was is primarily due to gender bias and stereotypes,
0.97 in 2020, which was within the acceptable and regional disparities in the distribution and
range of between 0.97 and 1.03, implying equipping of TVET institutions. The GPI at
that there was gender parity in access to pre- the university level is 0.68, with male students
primary education in 2020. There were 15 having an edge over female students.
counties that had not met the desirable parity
at the pre-primary education level, while 22 At the tertiary level, the combined enrolment for
counties had achieved gender parity in access both TVET and university accounted for a 15
to pre-primary education. Isiolo County had per cent gross enrolment rate compared to the
gender disparity in favour of girls with a GPI global average of 36 per cent in 2022. These
of 1.05, while Mandera, Wajir, Garissa, Tana low enrolments could imply a potential gap in
River, Samburu and Lamu had GPI of 0.66, the acquisition of higher skill levels critical for
0.80, 0.81. 0.90 0.90 and 0.93, respectively, various industries and sectors, suggesting
implying gender disparities in favour of boys. a shortage of skilled professionals such as
engineering, technology, healthcare, and other
At the primary level, GPI in ASAL counties of specialized areas. From Table 7.3, data shows
Mandera, Garissa, Wajir, and Turkana was that over half (55%) of learners are enrolled
lower, implying that there was gender disparity in education, services, business, and arts
in favour of boys while Isiolo, although being and humanities-related courses compared to
an ASAL county, had a gender disparity of 1.08 24 per cent in professions of agriculture, ICT,
in favour of girls. GPI at the secondary school health and engineering, manufacturing and
level, as of 2020, shows that 16 counties construction, which comprise of national priority
had achieved gender parity at the secondary areas under BETA. Further, the BETA sectors
education level. Further, there was gender such as health, agriculture, ICT, manufacturing,
disparity in favour of girls in 18 counties, and construction that demand skills have very
including Vihiga (1.2), Elgeyo Marakwet (1.12), low enrolment rates of between 5.0 per cent
Machakos (1.11), Meru (1.11), and Kisumu and 7.0 per cent of the total enrolments (Table
(1.1). Gender parity was yet to be achieved in 7.3).
13 counties, where the disparity was in favour of

Table 7.3: Enrolment in universities by field of education and training in 2022

Cluster Doctorate Masters Postgraduate Bachelors Total Share of

total
Agriculture, forestry, fisheries and 1,549 1,313 112 25,697 28,671 5.33%
veterinary
Health and welfare 1,270 4,819 48 30,531 36,668 6.81%
Engineering, manufacturing and 344 1,014 0 27,911 29,269 5.44%
construction
Information and communication 261 2,682 0 31,488 34,431 6.40%
technology
Arts and humanities 1,390 4,382 36 30,211 36,019 6.69%
Business and administration 7,603 24,889 170 90,930 123,592 22.96%

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Law 24 724 2 6,478 7,228 1.34%

Education 2,510 9,985 887 107,404 120,786 22.44%
Services 275 508 97 9,531 10,411 1.93%
Natural science, mathematics and 2,527 4,619 42 42,416 49,604 9.21%
statistics
Social science, journalism and 2,688 6,752 22 52,193 61,655 11.45%
information

Data source: Commission for University Education (CUE) 2022

Note: Learners pursuing diploma have been excluded. University programmes are classified into ten (10) clusters adapted from the
International Standard Classification of Education (ISCED)

Performance in national examinations, which is which is the minimum for qualifying for diploma
a key measure of quality, is low. In 2022, out entry at TVET, was 24 per cent in 2022. The
of those who sat for the Kenya Certificate of percentage of candidates scoring between D+
Secondary Education, only 20 per cent attained and below who qualify for certificate level and
the minimum university entry qualification (C+ artisan courses at vocational technical training
and above), implying that majority of the youth centres was 56 per cent in 2022.
were not qualified to join university. The number
of candidates scoring a mean grade of C and C-,

Figure 7.2: KCSE mean grade, 2017-2022

80
72
68
70
61 60
60 55 56
share of total in %

50

40

30 26 24
21 22 20
19 18 19 18
20 17
14
11
10

0
2017 2018 2019 2020 2021 2022

Attained Minimum University entry Attained Minimum TVET Entry D+ and below

Data source: KNBS (Various), Economic Survey

Further, the quality and relevance of Curriculum (CBC). In TVET, the trainer gap
education, training, and research is affected is 6,729 trainers while at universities, staffing
by inadequate human resources. The staffing is below optimal in specialized fields such as
gap in basic public learning institutions still engineering, medicine, and law. The education
prevails because of the 100 per cent transition sector introduced the Teacher Professional
and implementation of Competency-Based Development (TPD) programme to enhance

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professionalism in the teaching service for skills essential for success in the workplace.
delivery of CBC, but there has been resistance Skills developed through apprenticeship and
partly because of the cost implication to the internship include technical skills specific to
teacher to pay for the course, and additional industry and soft skills such as communication,
commitment required in terms of time. teamwork, and problem-solving. These
programmes enable participants to acquire
The education sector has fully embraced practical skills and expertise directly applicable
the rollout of the CBC at the basic education to their chosen field, preparing them for entry-
level, and Competence-Based Education and level positions and career advancement
Training (CBET) curriculum at the tertiary level opportunities. Similarly, internship programmes
since 2017. These are the main policy tools to provide students and graduates with practical
respond to skill needs and emerging skills gaps. experience and skills relevant to their academic
These new curricula are expected to address disciplines, spanning fields such as business
skills mismatch between training institutions and administration, information technology,
the job market. Through hands-on, experiential engineering, agriculture, and healthcare.
learning approaches, students are empowered
to develop real-world skills that directly Various types of formal and informal
translate to their chosen fields. Moreover, the apprenticeship arrangements are currently
flexibility offered by these curricula allows in operation within the country. Formal
learners to pursue learning pathways tailored apprenticeships are commonly conducted
to their career aspirations. However, to ensure within workplace settings and are supplemented
the success of CBC and CBET implementation, with classroom-based learning sessions.
a huge investment is required in terms of These structured programmes encompass
infrastructure, human resources, provision apprenticeships necessary for the fulfilment
and development of learning materials, of TVET requirements, and higher education
capacity building, advocacy, and awareness training, which may receive financial support
creation. There is a need to increase advocacy, from employers, educational institutions, or
awareness, and stakeholder engagement for governmental bodies.
the smooth implementation of curriculum and
assessment reforms. While there are policy The country is implementing the national
provisions under FPE and the Basic Education apprenticeship programme and dual training
Act (2012) to provide free and compulsory pre- in TVET to improve the occupational skills and
primary education for all learners at the basic competencies of out-of-school youth. The youth
education level, the policy is yet to be enforced are trained on-the-job by master craft persons
at pre-primary education, as education at this for a period of three (3) months to one (1)
level is funded by parents and households. year. The national apprenticeship programme
Additionally, there is a need for the FPE funding was piloted at Rivatex, Moi University, in the
formula to be revised to ensure it addresses the field of textiles, specifically spinning, weaving,
equity aspect, especially for poor populations. finishing, tailoring, and textile engineering.
The dual training provides an opportunity for
7.2.2 Apprenticeship and internship learners to be attached to industry 30 per cent
programmes of their training course time while 70 per cent of
their training takes place in the classroom.
Apprenticeship and internship programmes
serve as vital pathways for skills development, Conversely, informal apprenticeships
offering individuals practical training involve apprentices acquiring skills through
opportunities to enhance their employability and hands-on experience alongside seasoned
career prospects. These programmes focus on artisans within informal business ventures.
cultivating a diverse set of technical and soft Informal apprenticeship can be defined as

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an informal system of skills transfer from a The effectiveness of apprenticeship and

master craftsperson to a novice apprentice. internship programmes is underpinned by a
The apprentice gains proficiency through structured system involving collaboration among
observation, emulation, and iterative practice multiple stakeholders, including government
alongside the master craftsperson. The agencies, educational institutions, industry
transfer of knowledge and skills is based on partners, and training providers. Accredited
an agreement (written or verbal) between technical and vocational training institutions
master craftsperson and apprentice in line with typically deliver apprenticeship programmes,
local community norms and practices, and the while universities, colleges, and private sector
training is not regulated by the law of a country. organizations facilitate internship placements.

In the informal economy (which accounts for The Public Service Commission (PSC)
83% of total employment), apprenticeships are internship programme in Kenya is structured to
the main means of learning skills and acquiring offer planned and systematic work experience
competencies for employment. There have to graduates for a specific duration, as outlined
been several strategies, such as the introduction in the Internship Policy and Guidelines for the
of a training programme to upgrade the skills of Public Service (2016). The programme aims to
crafts persons, implementation of Recognition equip interns with practical skills and experience,
of Prior Learning (RPL)21 to recognize skills enhancing their employability in the job market.
acquired through informal training as a way Upon successful completion of the 12-month
of connecting formal and informal systems internship, interns are awarded a certificate as
and improving livelihoods. Collectively, these proof of their participation and skills acquired.
policy aspects create an enabling environment Interns are deployed across various Ministries,
for the effective implementation and scaling State Departments, corporations, and public
up of apprenticeship programmes, thereby universities, allowing them to gain hands-on
contributing to the development of a skilled experience in their respective fields. Employers
and competitive workforce capable of driving have established training programmes tailored
innovation and sustainable development in for fresh graduates, acknowledging that
Kenya. fulfilling the government’s commitment to paid
internships could enhance the skilled labour
Despite these efforts, informal apprenticeships force. Additionally, 33 per cent of employers
have several shortcomings. First, they lack have taken advantage of the government tax
systematic organization and structure, rebate incentive offered for hiring 10 fresh
resulting in significant variations in the quality graduates as interns for a period ranging from
of instruction provided by skilled crafts persons. six (6) to 12 months.
Secondly, there are limited training standards
and effective quality assurance mechanisms, In addition, the locum programmes for health
exacerbating inconsistencies in the training professionals provide opportunities for
process. Thirdly, inadequate working temporary or part-time work arrangements,
conditions and occupational safety measures allowing healthcare professionals to fill in for
further compound the challenges faced by absent colleagues or supplement their income
apprentices. Additionally, apprentices often while maintaining flexibility in their schedules.
lack comprehensive theoretical knowledge This is supported by the Medical Practitioners
to complement their practical skills, and the and Dentists Act (2012). The Teachers Service
informal nature of agreements between crafts Commission Internship Policy requires teachers
persons and apprentices making enforcement employed on internship terms to serve for a
difficult, potentially leading to exploitation. full two years before becoming eligible for
permanent and pensionable employment.
21
Recognition of Prior Learning (RPL) is a process used to identify and certify can-
didate’s competencies regardless of when, where, and how they acquired the skills
against prescribed standards or learning outcomes.

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The Presidential Working Party on Education of supportive systems and mechanisms within
Reform (2022) recommended a mandatory organizations to facilitate continuous learning
three-month community service programme and skill development. The Employment Act
for graduates of senior school before joining 2007 outlines provisions related to training and
tertiary institutions, and a further nine months of skills development, including the requirement
mandatory community service after completion for employers to provide employees with
of tertiary education. A certificate of compliance opportunities for skills upgrading and career
to the community service is to be issued as advancement. Employers play a critical role in
proof before admission into the world of work. creating a conducive learning environment by
This has been incorporated in the MTP IV. investing in training infrastructure, resources,
and technologies, and fostering a culture of
7.2.3 Workplace training and learning learning and innovation.

Workplace training and learning initiatives The government’s training policy focuses
play a pivotal role in fostering continuous skill on consistently enhancing the essential
development and professional growth among competencies, knowledge, skills, and attitudes
employees. These programmes are designed of public servants to address performance gaps
to equip individuals with the knowledge, effectively (Public Service Code of Regulations).
competencies, and abilities required to thrive in Emphasis is placed on short, skill-oriented
their respective roles and contribute effectively training programmes. All public servants are
to organizational success. Workplace training required to undergo a minimum of five days
encompasses a wide range of activities, of training annually, with newly recruited or
including on-the-job training, workshops, transferred officers mandated to receive
seminars, mentoring, coaching, and e-learning, induction within three months of joining their
tailored to meet the diverse learning needs respective organizations. Furthermore, training
and preferences of employees across various initiatives must align closely with the identified
industries and sectors. training needs of Ministries, Departments, and
Agencies (MDAs).
The types of skills developed through
workplace training and learning initiatives In this regard, MDAs have invested in the
are diverse, covering technical, managerial, continuous professional development of their
and interpersonal competencies essential for employees within their respective job cadres.
job performance and career advancement. These programmes often involve financing
Technical skills training focuses on enhancing employees’ participation in professional training
proficiency in specific tasks, processes, courses, workshops, and certifications relevant
and technologies relevant to employees’ to their job roles and career progression. This
roles. Managerial skills development aims approach reflects a commitment to enhance
to strengthen leadership, decision-making, employee skills, knowledge, and competencies,
problem-solving, and project management thereby increasing productivity, job satisfaction,
capabilities, empowering employees to and organizational effectiveness.
effectively manage teams, resources, and
projects. Interpersonal skills training, including Organizations often develop training policies,
communication, teamwork, conflict resolution, procedures, and guidelines to standardize
and emotional intelligence, cultivates positive training practices, ensure consistency, and
work relationships, collaboration, and effective promote accountability. Additionally, employee
communication channels within organizations. performance appraisal systems incorporate
training and development goals and objectives
The effectiveness of workplace training and to align individual learning needs with
learning initiatives hinges on the establishment organizational priorities and objectives.

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However, the challenge of budgetary industrial training for enhanced productivity.

constraints presents a major obstacle to The country, through NITA, is implementing
implementing comprehensive workplace the National Skills Development Policy (2020),
training programmes. Organizations may which envisages promoting and supporting
struggle to allocate sufficient funds for training labour market-responsive education and
initiatives, particularly in the face of competing training to enhance employment, economic
priorities and limited financial resources. development, and environmental sustainability.
The policy provides for the establishment of
Sectors characterized by high labour mobility the Industrial Training Levy Fund to serve
face unique challenges related to employee employers through continuous skills upgrading
attrition and turnover. Constant turnover of of employees, who in turn improve their output.
skilled workers can disrupt training efforts, However, there are challenges related to
leading to knowledge gaps and continuity funding, which can affect NITA’s effectiveness
issues within organizations. Retaining trained in overseeing and promoting industrial training
employees becomes increasingly challenging in and skills development initiatives across the
sectors where job opportunities are abundant, country.
necessitating strategies for talent retention and
succession planning to mitigate the negative The guidelines on the bond for training public
impacts of high attrition rates on workplace servants (2018) provide for bonding employees
training initiatives. Some of the strategies for for a period of obligatory service within
retaining staff include bonding agreements, the public service so that the Public Service
recognition, and rewards, and offering attractive can benefit adequately from the knowledge,
compensation and benefits packages. skills, competencies, and positive attitudes
acquired by employees who have undergone
Identifying the precise areas where employees training. The training bonds contain a clause
lack the necessary skills or knowledge can that offers the employee an option to repay the
be challenging due to inadequate data, bond value (the sum expended in training the
especially in rapidly evolving industries where employee) where such an employee desires to
job requirements change frequently. Without leave the service of the employer, before the
accurately identifying these gaps, training time specified in the bond or undertaking.
programmes may fail to effectively meet the
needs of employees and the organization, 7.2.4 Lifelong learning
leading to inefficiencies and decreased
productivity. Through structured curricula and pedagogical
approaches, schools and universities cultivate
Time constraints pose challenges to workplace not only subject-specific knowledge but also
training by limiting the availability of employees transferable skills such as problem-solving,
for training activities. Busy work schedules, communication, and collaboration, which are
tight deadlines, and operational demands may vital in today’s dynamic workforce.
make it difficult for employees to dedicate time
to training. Balancing training commitments Lifelong learning initiatives serve as
with regular job responsibilities can be a foundational pillars for personal and
logistical challenge, requiring careful planning professional development, empowering
and coordination to minimize disruptions to individuals to acquire new knowledge, skills,
workflow while maximizing the effectiveness of and competencies throughout their lives.
training interventions. Lifelong learning encompasses a broad
spectrum of formal, non-formal, and informal
The National Industrial Training Authority (NITA) learning opportunities designed to meet the
is mandated to regulate and facilitate quality diverse learning needs and aspirations of

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individuals across various stages of life and strategies, and initiatives aimed at promoting
career trajectories. From early childhood equitable access to quality education and
education to adult education and professional lifelong learning opportunities for all. The
training, lifelong learning initiatives aim to foster Basic Education Act (2013) and the Technical
continuous growth, adaptability, and resilience and Vocational Education and Training Act
in an ever-changing world. (2013) provide a legal framework for the
provision of education and training services,
The types of skills developed through lifelong including lifelong learning programmes. The
learning initiatives are diverse and encompass National Education Sector Plan (2023-2027)
a wide range of domains, including academic, outlines strategic priorities and interventions
vocational, technical, traditional, and life for improving education access, quality, and
skills. Lifelong learning programmes provide relevance across all levels of education.
individuals with opportunities to acquire Furthermore, government-led initiatives
foundational literacy and numeracy skills, such as the Kenya Institute of Curriculum
enhance their critical thinking, problem-solving, Development (KICD) and the Kenya National
and decision-making abilities, and develop Qualifications Authority (KNQA) support
practical competencies relevant to their curriculum development, accreditation, and
personal and professional lives. Additionally, quality assurance processes to enhance the
lifelong learning fosters the cultivation of socio- effectiveness and relevance of lifelong learning
emotional skills such as empathy, resilience, programmes.
adaptability, and cultural competence, enabling
individuals to navigate complex social dynamics The 97th Session of the International
and contribute positively to their communities Labour Conference in 2008 emphasized a
and societies. comprehensive approach to skills development,
including lifelong learning from early education
The effectiveness of lifelong learning initiatives to continuous skills enhancement for workers
depends on the availability of accessible, and entrepreneurs. It stresses the importance
inclusive, and quality learning opportunities of core skills such as literacy, numeracy,
tailored to the diverse needs and contexts and problem-solving, which are essential for
of learners. Formal education institutions, adaptability. Higher-level skills are vital for
including schools, colleges, and universities, accessing high-quality jobs. The portability of
play a central role in delivering lifelong learning skills, starting with core skills, enables workers
programmes, providing structured curricula, to apply their expertise in different sectors.
learning resources, and academic support Additionally, the system emphasizes the
services to learners of all ages. Non-formal codification and standardization of skills for easy
education providers, such as community-based recognition across labour markets. Ultimately,
organizations, vocational training centres, and employability hinges on core skills, education
adult education programmes offer flexible access, training opportunities, motivation, and
learning pathways and alternative approaches the ability to seize career prospects (ILO, 2008).
to learning for individuals who may face barriers
to traditional education. Informal learning 7.3 Skills Demand Status in Kenya
settings, including workplaces, community
spaces, and online platforms, serve as valuable In the skills forecast, skills are categorized
arenas for experiential learning, knowledge based on the highest level of qualification
sharing, and skills acquisition outside formal that individuals in employment hold. This
educational contexts. classification follows the official International
Standard Classification of Education (ISCED)
Policy support for lifelong learning is reflected framework, which classifies skills as high level,
in national education and training policies, medium level, and low level. This classification

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provides a structured way to assess the for these roles. Conversely, other occupational
educational qualifications of the workforce. groups such as elementary positions generally
require only basic skills, aligning with their
Borrowing from ISCED, Kenya has developed more straightforward job requirements. This
the occupational skills requirements and connection between educational qualifications
categorized them into four levels (Table 7.4) as and occupational demands is crucial for
prescribed in the Kenya Standard Classification understanding the skills composition of the
of Occupations 2022 (KeSCO-2022). Certain workforce, identifying potential gaps, and
occupational groups, such as professionals, tailoring educational and training programmes
typically demand high-level skills, given the to meet the skills needs of various sectors.
specialized knowledge and expertise needed

Table 7.4: Description of the skill levels

Skill level Description

1st skill level Primary education level leading to a certificate of primary education qualification or basic skills/
skills for life. Primary education serves as a foundation for future skill development.
2nd skill level Secondary education qualification. Secondary education builds upon the primary level, providing a
broader set of skills.
3rd skill level Vocational education and training qualification (diploma and/or certificate). Vocational education
and training is essential for sectors that require practical and specialized skills.
4th skill level Higher education includes undergraduate and postgraduate degrees or equivalent. Occupations
demanding skills at the 4th level require a highly educated and specialized workforce.

Data source: KNOCS 2000 revised to KeSCO-2022

In the agriculture sector, most (76.53%) of the skill levels can indeed be a contributing factor
workforce has skills at the 1st skill level, indicating to the lower productivity in the industrial sector
that they have primary education qualifications. within the country. Advanced skills, often
However, there is a need for a smaller but associated with the 3rd and 4th skill levels, are
significant portion of the workforce (Agricultural crucial for driving productivity, especially in
Equipment Operators) to be developed with industries where technological advancements
more advanced skills, particularly in the areas and innovation play a significant role. To
of technology, research, and management. enhance productivity in Kenya, investment in
education and training programmes that focus
The industry sector has a relatively balanced on developing advanced skills in this sector is
distribution of skills across different levels. This crucial.
reflects the diverse nature of industrial activities,
which may require a range of skill sets. Half of The services sector, including areas such as
the workforce in the industry sector possesses hospitality, finance, and healthcare, exhibits a
skills at the primary level qualification. However, relatively even distribution of skill levels, which
the presence of a smaller percentage of workers reflects the skills composition within the services
with skills at the 3rd skills level (15.66%) and sector, with most of the workforce possessing
4th skill level (5.53%) in the industry sector skills at the 1st and 2nd skills levels. This sector
indicates the demand for specialized expertise relies on a mix of basic, intermediate, and
in this sector. A low proportion of advanced advanced skills.

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Figure 7.3: Sectoral skills demand status in Kenya (%), 2021

76.53

60.31
51.45

41.43

27.78
27.23

22.05
19.02
16.57

15.66

11.67
11.55

5.71
5.53
5.22

1.35

Agriculture Industry Services Total

1st skill level 2nd skill level 3rd skill level 4th skill level

Data source: KNBS (2021), Kenya Continuous Household Survey

7.3.1 Health sector veterinarians, veterinary research officers,

and pharmacists. The nursing and mid-wife
The health pillar under BETA prioritizes occupational group demonstrates a significant
the development of the pharmaceutical 80.42 per cent of professionals operating at the
manufacturing industry with a target of making 3rd skill level.
Kenya a regional pharmaceutical manufacturing
hub. In this regard, a skilled health workforce Generally, the health sector’s skills distribution
is fundamental to attaining the national indicates that a considerable percentage of the
development goals. The health workforce workforce operates at the 3rd skill level, at 65.70
includes those that provide technical health per cent of the total workforce within the sector.
services such as physicians, doctors, nurses, This emphasizes the paramount importance of
midwives, and clinical officers, and those that specialized skills and qualifications within the
support the health services such as hospital health sector, aligning with the critical nature of
managers, and ambulance drivers, among healthcare services.
others. Based on the KeSCO classification,
most of the occupations in the health sector Additionally, the sector demonstrates a
require 3rd and 4th skill levels. moderate presence at the 4th skill level, with
28.63 per cent of the workforce holding
As presented in Table 7.5, most of the health advanced degrees or equivalent qualifications.
professionals’ workforce have 3rd skill level Conversely, the distribution at the 1st and 2nd
(46.9%) and 4th skill level (42.91%), underlining skill levels is relatively limited, signifying the
the specialization and expertise required within advanced nature of the sector’s roles and the
this group. Health professionals include medical demand for specialized training and education.
doctors, medical research officers, dentists,

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Table 7.5: Skills distribution status in the health sector (%)

Health Sector 1st skill level 2nd skill level 3rd skill level 4th skill level
Health professionals 6.34 3.84 46.90 42.91
Nursing and mid-wife - 2.13 80.42 17.45
Other associate medical, nursing and nutrition workers 11.08 4.99 66.62 17.3
Total as a share (%) 2.78% 2.88% 65.70% 28.63%

Data source: Authors’ construction using Kenya Continuous Household Survey data, 2021.

Note: Computation of skill levels (for example, 1st skill level) is as a share of the total.

Based on WHO norms, the minimum SDG Thus, it is estimated that an additional 136,649
index threshold of skilled health professionals (an equivalent of 61%) will be required to bridge
(doctors, nurses and midwives) is 4.45 per 1000 the gap. The shortage and high variability in
population.22 In Kenya, the technical health the distribution of healthcare workers hinder
workforce for 2021 was 85,851 skilled health the achievement of Kenya’s health outputs
professionals against the required threshold of and outcomes. This calls for strengthening
222,500 based on WHO norms (Figure 7.4). the health workforce through human capital
development to ensure everyone has access
22 Health workforce requirements for universal health coverage and the Sustainable
Development Goals. (Human Resources for Health Observer, 17). https://iris.who.int/ to a qualified health worker to achieve the
bitstream/handle/10665/250330/9789241511407-?sequence=1
prioritized national health goals.

Figure 7.4: Skills gap for health workforce in Kenya in 2021

100%

39%

Demand Skill supply Gap

-61%

Data source: Authors’ construction using Kenya Continuous Household Survey data, 2021

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7.3.2 Agriculture, forestry, and fishing 11.73 per cent at the 2nd skill level. The crop
and animal producers sub-group indicate that
Agriculture is an important sector in the economy, 72.39 per cent of the workforce operates with
with a majority of the people depending directly 1st skill level, emphasizing the need for basic
or indirectly on it for their livelihoods. Agriculture agricultural knowledge.
accounts for 21.8 per cent of GDP and employs
a third of the national labour force (KNBS, The agriculturalists sub-group has a distinct skills
2024). Given its importance, the performance of distribution, with 61.33 per cent of professionals
the sector is reflected in the performance of the at the 4th skills level, reflecting the demand
whole economy. Furthermore, the importance for high-level expertise in certain agricultural
of the sector has been emphasized in the professions due to the advanced nature of their
national development agenda and priorities as roles. Agriculturalists and related professionals
articulated in the Kenya Vision 2030 and the conduct research, improve or develop concepts,
BETA 2023-2027. theories, and operational methods, and apply
scientific knowledge relating to crop husbandry.
The majority of the workforce within the They include agriculturalists, horticulturists,
field crop, vegetable, and horticultural farm forestry scientists, and soil scientists.
workers sub-group operate with the 1st skills
level, representing 77.29 per cent of the total With the increasing modernization of agriculture,
workforce. This underscores the prevalence of skills related to agriculture technology, such as
individuals with primary education qualifications precision farming, agricultural data analysis,
engaged in field and horticultural work. The sustainable farming practices, value addition,
poultry, dairy, and livestock producers sub- digital marketing, and mechanization are
group indicate that 76.16 per cent of the expected to play a vital role in the sector.
workforce operates at the 1st skill level and

Table 7.6: Selected occupational skills level status in the agriculture sector in 2021

Agriculture Sector 1st skill level 2nd skill level 3rd skill level 4th skill level
Field crop, vegetable, and horticultural farm workers 77.29% 15.24% 6.26% 1.09%
Poultry, dairy, and livestock producers 76.16% 11.73% 8.32% 2.04%
Crop and animal producers 72.39% 19.91% 5.97% 1.49%
Agriculturalists and related professionals 17.6% 11.68% 9.4% 61.33%
Total 73.94% 17.87% 6.25% 1.61%

Source: Authors’ construction using Kenya Continuous Household Survey data, 2021

Note: Computation of skill level (for example, 1st skill level) is as a share of the total.

7.3.3 Manufacturing indicating a considerable presence of

individuals with more specialized skills.
The data reveals that within the manufacturing Additionally, 11.38 per cent operate at the 3rd
labourers’ group, a significant proportion of the skill level, emphasizing the demand for specific
workforce, 35.31 per cent, possesses skills competencies within this group. The 4th skill
at the 1st skill level, signifying a substantial level is relatively low, constituting only 2.0 per
reliance on individuals with basic qualifications cent of the manufacturing labourer’s workforce.
in this category (Table 7.7). The 2nd skill level This demonstrates that the sector mainly relies
accounts for 51.31 per cent of the workforce, on individuals with lower to intermediate skill

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levels for their labour-intensive roles. This is an basic qualifications within this group. Notably,
indication of low productivity, given the sector’s this group does not have any representation at
demand for highly advanced skills. the 2nd skill level, highlighting the unique and
specialized nature of their roles. Instead, the
Production and related engineers depict a 3rd skill level is entirely comprised of 43.16 per
different skills distribution. Under this category, cent of the workforce, underlining the advanced
56.84 per cent of the workforce operates at skills and expertise required for engineering
the 1st skill level, indicating the importance of positions within the manufacturing sector.

Table 7.7: Selected occupational skills level status for the manufacturing sector in 2021 (%)

1st skills level 2nd skills level 3rd skills level 4th skills level Total
Manufacturing labourers 35.31% 51.31% 11.38% 2.00% 100%
Production and related engineers 56.84% - 43.16% - 100%
Total share 35.72% 50.34% 11.98% 1.96% 100%

Data source: Authors’ construction using Kenya Continuous Household Survey data, 2021.

Note: Computation of skill level (for example, 1st skill level) is as a share of the total.

7.3.4 Information and communication in the Konza Technopolis, and the launch of
technology (ICT) the Open University of Kenya. The demand for
digital skills is expected to be on the rise and
In Kenya, 18.4 per cent of all formal sector calls for quality education and training to supply
employment is in occupations with high ICT both high-end ICT experts and the general
intensity, indicating a significant shift towards knowledge required for the application of ICT in
jobs that heavily rely on digital technologies the workplace.
(WEF, 2018). The country has experienced
phenomenal growth as a technology hub It is important to highlight that there is a shortage
in Africa, including IT skills in software of skilled individuals for all these occupations
development, data analysis, digital marketing, across various age cohorts, as indicated in
fintech, and digital learning. Kenya also boasts Table 7.8. This calls for the urgent need for
of quality ICT infrastructure and access to skills development and training programmes to
Internet broadband that has led to the launch of address the skills gap in this critical sector.
ICD innovation hubs, government investments

Table 7.8: Skills gap analysis for occupations in ICT (years) in 2021

Occupation Modal years of schooling Skills gaps

(O*NET)
15-19 20-24 25-29 30-34
Computer science teachers, post-secondary 18 -10 -6 -10 -10
Software developers, systems software 16 -8 -4 -8 -8
Computer user support specialists 16 -8 -4 -8 -8
Network and computer systems 16 -8 -4 -8 -8
administrators
Computer systems analysts 16 -8 -4 -8 -8
Information security analysts 16 -8 -4 -8 -8

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Computer network support specialists 16 -8 -4 -8 -8

Computer programmers 16 -8 -4 -8 -8
Software developers, applications 16 -8 -4 -8 -8
Bioinformatics scientists 16 -8 -4 -8 -8
Web administrators 16 -8 -4 -8 -8
Computer systems engineers/ architects 16 -8 -4 -8 -8

Source: Authors’ construction using Kenya Continuous Household Survey data, 2021, and O*NET
data

Occupations within the ICT sector necessitate Majority of computer programmers possess a
high-level skills, with the majority falling under 4th skill level. Similarly, most computer systems
the 4th skill level as presented in Table 7.9. engineers possess 3rd skill level.

Table 7.9: Selected occupational skills demand status for the ICT sector

ICT Occupation 1st skill level 2nd skill level 3rd skill level 4th skill level
Data processing - 18.43% 31.26% 50.32%
Computer programmers - - 20.40% 79.60%
Computer system engineers 7.50% 11.81% 79.25% 1.43%
Network and computer systems administrators 12.40% 19.14% 41.23% 27.23%
Web administrators - 22.35% 64.06% 13.58%

Source: Kenya Continuous Household Survey data, 2021

A deeper analysis was undertaken to compare require 2nd or 1st skill levels, then they are highly
the highest level of education qualification skilled and overqualified. Data shows that 38 per
attained by a worker with the occupation skills cent of medium-skilled workers with secondary
level required for the occupation they are in education qualifications hold occupations that
currently. The workers are categorized as require 1st skills level and 26 per cent of high-
workers with 2nd skill levels as medium-skilled skilled workers with a tertiary education hold
and those with 3rd and 4th skill levels as highly low or medium-skilled occupations. This can be
skilled. Therefore, if medium skilled workers attributed to the labour demand not providing
hold occupations with 1st skill level, then they are adequate quality jobs for the growing number
medium-skilled and overqualified. Similarly, if of tertiary graduates entering the labour market.
the highly skilled workers hold occupations that

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Figure 7.5: Vertical qualification mismatch in Kenya, in 2021

26%

38%

Medium skilled overqualification rate Highly skilled overqualification rate

Source: Authors’ calculations based on Kenya Continuous Household Survey data, 2021

Note: Vertical qualification mismatch by level of education arises when their level of education is
above that required for their job; they are considered overqualified

Several key sectors within the economy have activities sector calls for advanced technical
a pronounced demand for skills at the 3rd and and managerial skills at the 4th skill level.
4th skill levels, indicating the importance of The need for high-level expertise arises from
advanced skills (Table 7.10). For instance, close the intricacies, responsibilities, and critical
to two-thirds of workers in the professional, decision-making required in these industries.
scientific, and technical activities possess
a university degree and above in terms of The 3rd skill level, which signifies a proficiency
qualification; real estate sector at 43.26 per attained through technical vocational education
cent; financial and insurance activities at and training (TVET), plays a pivotal role in
37.73 per cent; and financial intermediation several sectors in Kenya. Notably, the electricity
services indirectly measured at 37.63 per supply sector leads with half of its workforce
cent. This underlines the requirement for possessing 3rd skill level, signifying the technical
advanced knowledge and expertise in higher and highly specialized nature of the industry,
education qualifications, aligning with the which relies on skilled technicians for efficient
complex and multifaceted nature of these operations. Additionally, the human, health, and
sectors. Additionally, sectors such as public social work activities sector, education sector,
administration and defense, electricity supply, and ICT sector demonstrate notable demands
and education highlight the value of higher for the 3rd skill level at 48.89 per cent, 47.6 per
education in professions that require advanced cent, and 41.23 per cent, respectively. These
expertise. The ICT sector relies on advanced demands align with the need for individuals
skills for software development, cybersecurity, with practical and specialized skills to meet
network management, and technology the complexities of healthcare, education, and
innovation. Human health and social work information technology. Furthermore, sectors

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such as financial and insurance activities, demand for the 3rd level of skills. Generally, these
professional, scientific, and technical activities, sectors highlight the critical need for advanced
public administration and defense, and the skills to enhance productivity and meet the
manufacturing sector also express a significant multifaceted demands of their respective areas.

Table 7.10: Sectors demanding advanced skills with data indicating available skill levels
in 2021

Sector 4th skill level (%) 3rd skill level (%)

Professional, scientific, and technical activities 56.16 25.62
Real estate 43.26 9.40
Financial and insurance activities 37.73 27.72
Financial intermediation services indirectly measured 37.63 -*
Public administration and defense 34.08 22.42
Electricity supply 33.22 52.95
Arts, entertainment, and recreation 30.30 12.08
Education 29.34 47.60
Information and communication technology 27.23 41.23
Human health and social work activities 23.66 48.89
Manufacturing 6.77 19.00

Data source: Authors’ construction using Kenya Continuous Household Survey data, 2021

*Indicates that the 3rd skill level for the financial and insurance activities sector was not available
as per the 2021 KCHS data

7.4 Skills Projections trends offer valuable insights into the types of
skills needed in the Kenyan context over the
Kenya, like many other countries, is faced medium and long-term.
with an evolving demand for skills that are
driven by the changing economic landscape, 7.4.1 Demographic dynamics
globalization, technology, and climate change.
Increased access to education and an expanding The growth in Kenya’s population is expected
university education provides a rich opportunity to remain high in the next decade, projected
to not only develop a skilled workforce but also to increase to 55 million in 2028. The working
align education and training to the demands of population age structure (15-64 years) which
the emerging economy. While a comprehensive was equivalent to 60 per cent of the total
skills inventory is undoubtedly crucial for the population in 2022 is projected to expand to
country’s development, it is increasingly clear 63 per cent in 2028, presenting a significant
that understanding emerging trends in skills supply of labour available for various industries
demand holds greater significance. These and sectors.

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 DEVELOPING SKILLS FOR PRODUCTIVE AND FUTURE READY WORKFORCE

As the working-age population grows, it is expansion in the workforce highlights the

essential to ensure that individuals within this pressing need to make substantial investments
age group are equipped with appropriate skills in skills development. As the number of
to contribute effectively to the future productive individuals seeking employment opportunities
workforce. From the projection, it is expected increases, it becomes imperative to ensure
that the labour force will increase to about 35 that they possess the necessary skills and
million by 2030, out of whom those employed qualifications to not only secure jobs but also
will be approximately 22 million based on the contribute effectively to the evolving labour
baseline scenario of 2022. This anticipated market.

Table 7.11: Population and employment forecasts, 2022-2028

Employment 2022 2023 2024 2025 2026 2027 2028

projection
15-64 years 30,345,904 31,140,324 31,934,744 32,729,164 33,513,621 34,298,077 35,082,533
(labour force)
Employed 19,148,200 19,649,477 20,150,755 20,652,032 21,147,023 21,642,013 22,137,003

Data source: Authors construction using Kenya Continuous Household Survey data (2021) and
KNBS population projections (2022)

7.4.2 Sectoral projections competitiveness, investing in skills development

aligned with the changing demands of industry
The sectorial forecast based on the Budget and markets becomes paramount. Table 7.12
Policy Statement and Budget Review and presents additional workers required by sector
Outlook Paper (BROP) shows that the GDP from 2024 to 2028 in various economic sectors,
average growth rate is projected at 6.3 per cent which will experience increasing demand for
in 2028. The primary economic sectors that labour. Thus, there is a need to align workforce
generate demand for future skills in Kenya are training and education programmes with the
predominantly found within the services sector evolving needs of these sectors to ensure an
(accounting for 38% of the total workforce) adequate supply of skilled workers. Considering
and the agriculture sector (accounting for this workforce expansion, it is crucial to channel
51% of the total workforce). This implies that efforts towards fostering a productive and
these sectors will push the demand for skills in future-ready workforce, emphasizing skills that
Kenya for the future workforce. As the country can drive innovation, adaptability, and overall
strives for sustained economic growth and economic progress.

Table 7.12: Projected additional workers required by sector, 2024-2028

Sectors 2023 2024 2025 2026 2027 2028

Agriculture, forestry and 483,122 537,566 608,378 666,113 718,331 775,172
fishing
Mining and quarrying 7,088 7,887 8,926 9,773 10,539 11,373
Manufacturing 48,946 54,462 61,636 67,485 72,776 78,534
Electricity supply 1,314 1,462 1,655 1,812 1,954 2,109
Water supply; sewerage, 2,083 2,318 2,623 2,872 3,097 3,342
waste management
Construction 50,394 56,074 63,460 69,482 74,929 80,858

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Wholesale and retail trade; 132,192 147,089 166,464 182,261 196,549 212,102
repairs
Transportation and storage 49,460 55,034 62,283 68,194 73,540 79,359
Accommodation and food 19,036 21,182 23,972 26,247 28,304 30,544
service activities
Information and communi- 3,821 4,251 4,811 5,268 5,681 6,130
cation
Financial and insurance 7,418 8,254 9,342 10,228 11,030 11,903
activities
Real estate 3,146 3,500 3,961 4,337 4,677 5,047
Professional, scientific, and 10,417 11,591 13,118 14,363 15,489 16,715
technical activities
Administrative and support 25,391 28,252 31,974 35,008 37,752 40,740
service activities
Public administration and 11,528 12,827 14,516 15,894 17,140 18,496
defence
Education 39,907 44,404 50,253 55,022 59,336 64,031
Human health and social 11,178 12,437 14,075 15,411 16,619 17,934
work activities
Arts, entertainment, and 2,026 2,255 2,552 2,794 3,013 3,251
recreation
Other service activities 25,785 28,690 32,470 35,551 38,338 41,372
Activities of households as 22,833 25,406 28,753 31,481 33,949 36,636
employers
Financial intermediation ser- 35 39 44 48 52 56
vices indirectly measured
Total 957,121 1,064,981 1,205,268 1,319,645 1,423,097 1,535,705

Data source: Authors’ construction using 2024 Budget Policy Statement; Kenya Continuous
Household Survey data (2021) and KNBS population projections (2022)

Because of the expanding economy, there impediment. The Industrial Policy (2012),
is a need to develop additional skills to fit in BETA, and MTP IV identify inadequate skills
the national priority sectors and the emerging as a key challenge to the development of
labour dynamics. The Bottom-up Economic the textiles and leather sector. The projected
Transformation Agenda (BETA) and the workers across the value chains are presented
Medium-Term Plan IV identify textiles and in Table 7.13. Workers in the textile sub-sector
leather as core priority value chains. This is are projected to increase from 13,153 in 2022
due to their direct impact on the workforce and to 18,517 in 2028. In the leather sub-sector,
the export market. Despite the importance of workers are expected to increase from 103,889
these value chains, the shortage of adequately in 2022 to 146,254 in 2028.
trained and skilled workforce is a significant

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Table 7.13: Projected workers required in textile, leather, and pharmaceuticals sub-sectors

Workers required 2022 2023 2024 2025 2026 2027 2028

Textiles 13,153 13,837 14,598 15,459 16,402 17,419 18,517
Leather and related products 103,889 109,292 115,303 122,105 129,554 137,586 146,254
Pharmaceuticals 16,971 17,853 18,835 19,947 21,163 22,476 23,892

Data source: Authors’ construction using 2024 Budget Policy Statement; Kenya Continuous
Household Survey data (2021) and KNBS population projections (2022)

7.5 Key Messages and 3. Skills developed through informal

Recommendations apprenticeship is faced with limited
systematic organization and structure,
7.5.1 Key messages limited training standards and quality
assurance mechanisms, inadequate
1. Skills development is a key priority in working conditions, and safety measures,
achieving the national development limited theoretical knowledge to
agenda. Presently, BETA has identified complement practical skills, and difficulties
key priority areas that require quality skills in enforcing informal agreements between
to support delivery. These are agriculture; craftsperson and apprentices, which could
micro, small, and medium enterprises; result in exploitation. In response to these
housing and settlement; healthcare; and challenges, the government has rolled out
digital superhighway and creative economy. the implementation of the RPL policy.
However, the current skills development
approach is not aligned to deliver the 4. Workplace training provides an opportunity
national priority areas as seen in the low for skills development for individuals in
enrolments, especially in courses related employment who need to enhance their
to BETA pillars. As a result, the country skills to adapt to current trends or career
may need to realign skills development growth. Some of the challenges that impact
to achieve the set agenda. The emerging workplace training include financial costs
skills demand that includes technological borne by organizations in providing staff
changes, globalization, climate change, training, cost of staff time foregone by
and demographic shifts should inform areas workers when they are on training, and
that require skills development. likely turnover of trained workers.

2. In education and training, as one of the 5. The national priority sectors have skills
channels for developing skills, the country shortages, especially for qualified workers.
has made great strides in improving These include the health, manufacturing,
access and education attainment. The and ICT sectors. A majority (77%) of the
achievements include the implementation of workforce employed in the agriculture
FPE, FDSE, subsidized tertiary education, sector possesses 1st skill level. Further,
and infrastructure development. However, the presence of a smaller percentage of
the sector faces challenges of inequalities, workers with skills at the 3rd level (16%)
wastage, poor education outcomes, and and 4th skill level (6%) in the industry
gender disparity, which hinder the sector’s sector points to the demand for specialized
ability to maximize its human capital expertise in this sector. The services sector
potential for enhanced productivity. has a workforce possessing skills at the 3rd
skill level (19%) and 4th skill level (12%).

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To achieve the government’s development 2. Provision of outreach programmes could

priorities in textile and leather, attention encourage enrolment and retention of
needs to be directed towards developing a learners at all levels of education and training.
skilled workforce. An additional 5,364 and This can be done through campaigns at
42,365 workers will be required in 2028 grassroot levels through various channels,
for the textile and leather sub-sectors, including print media, radio, television, and
respectively, highlighting the anticipated social media. In addition, there is a need to
workforce needs between 2023 and 2028. review the Free Primary Education Policy
to include pre-primary education level to
6. There is a vertical qualification mismatch enable all learners to access universal
with 38 per cent of medium-skilled workers basic education at no cost. Policies for free
who possess secondary education pre-primary education need enforcement,
qualification holding occupations that and funding formulas to ensure equity.
require 1st skill level and 26 per cent of high- Removing all indirect costs related to
skilled workers with a tertiary education education, such as the cost of uniforms,
holding low- or medium-skilled occupations. textbooks, and transportation would make
This can be attributed to the labour demand basic education completely free.
not providing adequate quality jobs for
the growing number of tertiary graduates 3. The Recognition of Prior Learning (RPL)
entering the labour market. policy acknowledges apprenticeship in
the informal sector as a valuable pathway
7.5.2 Policy recommendations for skills development. To ensure the
effective implementation of this policy,
1. The government could deliberately refocus there is a need to conduct widespread
skills development to address the national awareness campaigns among employers
priority areas and the dynamics in the and employees through channels such
labour market. This can be done through: as radio, television, and social media. In
addition, there is a need to enforce the
i) mobilizing adequate financial resources implementation of tax rebates for training
through public-private partnerships to expenditures to alleviate budget constraints
provide targeted scholarships, loans, by providing financial relief to organizations
and bursaries to students to study these investing in employee development.
programmes;
ii) retooling workers in the labour market 4. Allocating adequate financial resources
towards the national priority areas by to support the implementation of
offering them conditional exchange curriculum reforms in terms of capacities
programmes; and infrastructure would address skills
shortages and mismatches. This is because
iii) establishing the National Skills and the implementation of these curriculum
Funding Council to oversee funding reforms requires heavy investment in
initiatives for supporting skills human resources, enabling legal and
development in the country; and institutional framework, and infrastructure
consistent with relevant courses. Further,
iv) allocating adequate financial resources
the academia needs to develop strong
for strengthening centres of excellence
partnerships with industries, businesses,
that offer training in priority areas.
and community organizations to understand
their evolving needs and align educational
delivery accordingly.

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8
PRODUCTIVITY AT THE COUNTY LEVEL: FOCUS ON ARID COUNTIES

PRODUCTIVITY AT THE
COUNTY LEVEL: FOCUS
ON ARID COUNTIES

County productivity is important to the country in achieving sustainable and

inclusive economic growth. Economic activities take place at the county
level and, therefore, interventions to enhance productivity at this level would
increase productivity at the national level. From the analysis, although arid
counties have the smallest economies, they have latent natural resources
such as land, wildlife, and renewable energy resources that hold the potential
for sustainable economic growth. However, climate change, insecurity, and
inadequate infrastructure constrain the growth and optimal utilization of
their potential. Additionally, arid counties have a comparative advantage in
livestock production, but the potential in the livestock value chain is yet to be
fully exploited. While the services sector dominates the share of county GVA,
it is the non-market services that dominate in arid counties. On employment,
the low quality and quantity of labour in the arid counties, coupled with low
labour utilization, has significant implications on productivity. Consequently,
arid counties have the lowest labour productivity. Therefore, it is important
to create an enabling environment for the private sector to exploit the latent
natural resources and expand market-oriented activities. As a priority is
investing in human capital development to enhance the quality of labour. In
addition, full integration of livestock production into the leather value chain
is required.

8.1 Introduction is therefore growing need to close regional

C
productivity gaps to realize inclusive economic
ounty labour productivity is of growth and social cohesion. Regional disparities
paramount importance for the country in labour productivity levels impact the overall
to achieve economic wellbeing and economic growth rate and closing these gaps
long-term prosperity. It is not only an could contribute to stronger national economic
important indicator of economic efficiency at performance. Analyzing labour productivity at
the sub-national level but also has far-reaching the sub-national level is especially important in
implications for inclusivity in various aspects Kenya where there are significant differences
of the economy, society, and individuals. in human capital and essential infrastructure
Governments, businesses, and individuals indicators between counties.
have a vested interest in fostering a productive
economy to achieve sustained inclusive growth To gain an in-depth understanding of county
and prosperity. labour productivity, counties were grouped
by their level of aridity. The aridity levels are
Economic activities take place at the sub- measured based on moisture availability, with
national levels and, therefore, interventions to eight (8) counties classified as arid presenting
enhance labour productivity at this level would 85-100 per cent aridity level, 13 counties are
increase productivity at the national level. There semi-arid, presenting 30-84 per cent aridity

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level, eight (8) counties have 10-29 per cent by extreme levels of seasonality and climate
aridity level while 18 counties have less than 10 variability manifested by frequent and prolonged
per cent aridity (Table 8.1). Both arid and semi- droughts and water scarcity. The arid counties
arid lands (ASALs) are often characterized

face more extreme weather conditions, with high temperatures throughout the year that result in
high rates of evapotranspiration that are more than twice the annual rainfall.

Table 8.1: Classification of counties by level of aridity

Arid counties Semi-arid counties (30-84%) Semi-arid Counties (10-29%) Non-ASAL counties
Wajir Tharaka Nithi Lamu Siaya
Marsabit West Pokot Homa Bay Trans Nzoia
Garissa Meru Migori Nyamira
Samburu Baringo Narok Kirinyaga
Turkana Kilifi Elgeyo Marakwet Busia
Mandera Taita Taveta Nyeri Bomet
Isiolo Kajiado Kiambu Kisii
Tana River Kwale Nakuru Kericho
Laikipia Nyandarua
Embu Murang’a
Machakos Bungoma
Makueni Vihiga
Nandi
Uasin Gishu
Nairobi
Kisumu
Kakamega
Mombasa

Data source: State Department for ASALs

Arid counties, on average, have the smallest counties have the largest size of GVA. All
total Gross Value Added (GVA)23, followed by county categories experienced growth in output
the semi-arid counties while the non-ASAL between the two county government regimes,
23
Gross value added is the measure of the value of goods and
but they showed no signs of convergence in
services produced in an area, industry or sector of an economy. growth as the gap between the four categories
Gross value added is the value of output minus the value of of counties has remained consistent.
intermediate consumption.

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Figure 8.1: Average size of county gross value added (Ksh millions), 2013-2022

300000.00 270693.49

250000.00 215144.04
185195.28
200000.00
GVA (Millions)

151786.23
150000.00
111539.74
92375.60
100000.00
32393.90 43175.13
50000.00

0.00
Arid Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL
County Governments regimes

First County Governments (2013-2017) Second County Governments (2018-2022)

Data source: KNBS (2023), GCP Report

Arid counties had the highest average growth that disrupt economic activities (mainly
rate at 33.28 per cent, the non-ASAL at 25.81 livestock production) in the counties). Although
per cent, semi-arid (10-29%) at 22.01 per cent the arid counties have comparatively smaller
while semi-arid (30-84%) at 20.74 per cent GVA, they have comparatively higher growth
between the two county government regimes. rates characterized by episodic recoveries from
The arid counties growth rate has been erratic, the decline occasioned by drought episodes.
with both sharp peaks and sharp deeps when All county categories experienced decline in
compared to other county categories. This is GVA growth rate in 2020 due to the COVID-19
largely attributed to climate change effects pandemic.
manifested by severe and frequent droughts

Figure 8.2: Overall county GVA growth rate, 2014-2022

15.00
Overal GVA growth rate

10.00

5.00

0.00
2014 2015 2016 2017 2018 2019 2020 2021 2022
-5.00
Year

Arid Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL

Data source: Authors’ computation using KNBS (2023) GCP data

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Arid counties also have the lowest GVA per of counties. However, overall poverty remained
capita during the two county government unchanged, indicating that there are still
regimes, while the non-ASAL counties have the challenges with inclusive growth. Other
highest. This has implications on the quality of emerging issues such as the cost of living and
life and poverty indicators in the counties. The the effects of COVID-19 could be dampening
GVA per capita increased between the two the benefits of economic growth.
county government regimes for all categories

Figure 8.3: Average GVA per capita Figure 8.4: Overall poverty (%)

180,000.00 80.00
Average GVA per capita

160,000.00 70.00
140,000.00

Overall poverty (%)

60.00
120,000.00
100,000.00 50.00
80,000.00 40.00
60,000.00
30.00
40,000.00
20.00
20,000.00
- 10.00
0.00

County category
County categories
GVA per capita (2013-2017)
GVA per capita (2018-2022) 2015/16 2021

Data source: KNBS (2023) GCP and 2019 Census, KIHBS 2015/16, KNBS (2021) Kenya Poverty
Report

Arid counties are endowed with latent them to grow their economies while continuing
resources such as land, wildlife resources, and with biodiversity conservation, which is key for
renewable energy, indicating the high potential sustainable development. Additionally, these
they have for economic growth. Land, a natural counties have a high potential for renewable
capital and an economic development asset, is energy generation that is critical in supporting the
significantly larger in the arid counties compared country’s energy transition agenda of achieving
to the other county categories. The counties 100 per cent renewable power by 2030. These
also have more wildlife resources and wildlife clean energy sources are mainly wind and solar
habitats that thrive due to the vast land, lower that, if fully exploited, will generate value for
population density, and government efforts on arid economies through increased economic
the conservation of wildlife. This significant output, employment opportunities, access to
tourism potential provides opportunities for electricity, and improved infrastructure.

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On the contrary, arid counties have lower levels that discourage settlement, lower
population density compared to other county employment opportunities, and the insecurity
categories, indicating a lower quantity of and infrastructural challenges the region
labour needed for the production of output. experiences.
This is strongly linked to the high aridity

Table 8.2: Natural resource endowment by county category

Endowments Arid Semi-arid (30-84%) Semi-arid (10-29%) Non-ASAL

Land mass (km²) 46,721.73 10,584.45 5,691.18 1,913.60
Population density 14.96 112.17 311.55 1100.31
Number of national parks 19 18 11 12
(proxies wildlife resources)
Renewable energy Wind energy, solar Geothermal energy, solar Geothermal energy, Hydropower
sources energy, hydropower energy, wind energy, solar energy
hydropower

Data source: County CIDPs 2018-2022

The growth of economic output is affected by Arid counties have disadvantages in the
the quality of physical infrastructure and the quality and quantity of physical infrastructure
availability of physical and monetary capital. as depicted by low access to electricity, low
Inadequate physical infrastructure in both access to improved water and sanitation,
quantity and quality negates productivity, adequate housing, low Internet connectivity,
as more time is wasted in the production and inadequate road infrastructure. They also
process. It also contributes to high production have lower financial inclusion and bank usage,
and transaction costs, thus disincentivizing which impacts the growth of the private sector.
investments. Also, inadequate access to credit This limitation constrains their ability to fully
inhibits the growth of the private sector. exploit their natural endowments and attract
investments that would create employment.
Table 8.3: Essential infrastructure and capital

Essential infrastructure and capital indicators Arid Semi-arid Semi-arid Non-ASAL

counties (30-84% (10-29%)
Distribution of population using the Internet (2019) 9.54 19.26 22.89 21.18
Percentage of households with access to 20.53 36.38 47.64 45.26
electricity (2019)
Access to improved sanitation (2018) 39.13 72.83 58.00 59.67
Access to improved water (2018) 53.46 62.31 62.26 73.33
Rural access index (2018) 13.46 64.39 62.38 86.57
Percentage of households with adequate housing 32.42 63.86 57.09 51.08
quality (2019)
Financial inclusion level (2021) 74.68 80.86 82.59 84.00
Percentage of households by bank usage (2021) 17.14 37.88 43.69 46.41

Percentage of households using mobile money) 73.33 77.78 80.30 81.33

(2021)

Data source: KRB 2018, KPHC 2019, FinAccess 2021, KIHBS 2015/16,

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The ASAL counties face severe security multifaceted and extend beyond immediate
challenges (Figures 8.5 and 8.6). This is mainly casualties. Insecurity impacts the social
in the form of theft of livestock in the North cohesion, economic growth, and psychological
Rift ASAL counties and incidences of terrorist wellbeing of the affected populations. The
attacks in the North-Eastern border arid disruption of the economy through the loss of
counties. Although theft of livestock also occurs productive assets exacerbates poverty and
in the non-ASAL counties, the scale is higher deprivation, causing economic downturn in the
in the ASAL counties, with larger herds being affected counties. Displacement of households
stolen. The severity of this crime is higher in arid affects their access to education and health
counties due to the proliferation of small arms services, thus creating humanitarian crises.
and light weapons, which have made the crime Banditry has also been shown to instigate
deadly. The increased severity and frequency of recurring cycles of inter-communal conflicts as
banditry attacks in the North Rift ASAL counties trust and social cohesion are eroded, making
has led to the region being declared a national the affected counties volatile areas, which
emergency, and six counties were gazetted as discourage investment prospects.
disturbed and dangerous in February of 2023.
Consequently, there was increased deployment Therefore, continuous implementation of
of security personnel to conduct security interventions geared towards ending the
operations to tackle the persistent insecurity in security challenges of the Northern ASALs
the region. is needed for the counties to fully utilize their
potential for inclusive economic development in
The repercussions of both banditry and the country.
terrorism incidences in the Northern ASAls are
Figure 8.5: Percentage of theft of Figure 8.6: Percentage of terrorist
livestock in total county crime, 2016- attacks in total county crime, 2016-
2020 2020

60.00 6.00
Percent age of t heft of livest ock in t ot al count y crimes

Percentage of terrorism in total county crimes

50.00 5.00

40.00 4.00

30.00 3.00

20.00 2.00

10.00 1.00

0.00 0.00
2016 2018 2020 Overall 2016 2018 2020 Overall
year Year

Arid Semi-arid (30-84%) Arid Semi-arid (30-84%)

Semi-arid (10-29%) Non-ASAL Semi-arid (10-29%) Non-ASAL

Data source: National Crime Research Centre

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 PRODUCTIVITY AT THE COUNTY LEVEL: FOCUS ON ARID COUNTIES

8.2 Sectoral Analysis of Gross Value arid (10-29%), and non-ASAL counties GVA,
Added respectively. The share of agriculture to county
GVA is the second largest among the broad
The share of the services sector in county GVA is sectors. It is higher in the non-ASAL counties,
the largest for all the four categories of counties. with an average contribution of 37 per cent. It
It is particularly dominant in the ASAL counties, contributes to 30.6 per cent, 29.4 per cent, and
accounting for an average contribution of 58.2 27. 5 per cent of the GVA of semi-arid (30-84
per cent, 54.9 per cent, 53.2 per cent, and 49.4 per cent), arid and semi-arid (10-29 per cent),
per cent of the arid, semi-arid (30-84%), semi- respectively.
Figure 8.7: Share of broad sectors in the county GVA, 2013-2022

100%
Sh ar e o f b r o ad se ct o r s i n co u n t y GVA (%)

90%
80%
55.25 54.57 53.84 52.76 49.64 49.19
70% 57.62 58.82
60%
50%
12.12 11.42
40% 14.13 14.82 12.94
10.82 12.07 16.19
30%
20% 36.22 37.81
31.08 27.72 26.13 29.05 29.10 32.26
10%
0%
ARID ARID SEMI ARID SEMI ARID SEMI ARID SEMI ARID NON-ASAL NON-ASAL
COUNTIES COUNTIES (30-84%) (30-84%) (10-29%) (10-29%)

2013-2017 2018-2022 2013-2017 2018-2022 2013-2017 2018-2022 2013-2017 2018-2022

County Government regimes

Share of Agriculture in the County GVA Share of Industry Sector in the County GVA
Share of Services Sector in the County GVA

Data source: Author’s computation using KNBS (2023) GCP data

8.2.1 Agriculture sector raw materials to the manufacturing sector.

Moreover, it is a market for industrial goods
The agricultural sector is a crucial part of the such as machinery, equipment, fertilizer, animal
economy. It provides employment opportunities feeds, and agro-chemicals used in agricultural
along the various value chains, from production, production. It is linked with many off-farm
processing, wholesaling, and retailing to final service activities such as transportation and
consumption. In addition, it is a major source supply chains for agricultural inputs.
of foreign exchange through the export of food
and cash crops. The sector has strong forward The agriculture GVA growth rate in arid counties
linkages to the rest of the economy. Therefore, fluctuates more than in other county categories.
apart from being a source of employment This is because livestock production, the
through farming, business, and research, it is dominant sector, is highly vulnerable to
a primer for industrialization, and supplying droughts. The drought episodes experienced in

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201424 and 2016/201725 resulted in a negative with climate change, droughts are becoming
growth rate for the agricultural GVA in these more severe and frequent, eroding their
counties. Similarly, the more recent multi-year adaptive capacity and narrowing the recovery
drought26 (2021-2023) and the 2021 locust periods. Mobility is becoming limited due to
invasion dampened the recovery from the population pressure and changes in land
COVID-19 pandemic. use. The losses have had long-term negative
effects on livelihoods and household welfare
The effects of the 2021-2023 multi-year and ASAL county economies in aggregate.
drought episode were significantly severe, The government at county and national levels
resulting in the decimation of about 2.6 million has been implementing interventions aimed
livestock, and significantly reducing the value at mitigating the losses. This includes the
and productive capacity of the herds that promotion of the uptake of livestock insurance
survived.27 Pastoralists have always managed and promoting production of pastures and
to use indigenous knowledge and mobility to forage supplementation. The promotion of
manage climate variability and were able to livestock insurance has mainly been through
survive and thrive in marginal lands. However, the Index-Based Livestock Insurance (IBLI)
24
In January 2014, the Government of Kenya declared an impending drought that programme, but the uptake has been sub-
affected an estimated 1.6 million people.
25
The severe drought in Kenya, 2016-2017, affected 23 of 47 counties, affecting more optimal. The statistics available show that as of
than two million people.
26
The Horn of Africa region experienced the worst drought in 40 years since October 2019, only about 200,000 people were insured
2020.
27
https://www.un.org/africarenewal/magazine/january-2023/climate-change-de- under all IBLI programmes combined in Kenya
stroys-livelihoods-kenyan-pastoralists#:~:text=The%20State%20Department%20
of%20Livestock,suffering%20without%20pasture%20and%20water.
and Ethiopia.

Figure 8.8: Agriculture sector GVA growth rate, 2014-2022

40
Agriculture sector growth rates by

30
county category (%)

20

10

0
2014 2015 2016 2017 2018 2019 2020 2021 2022
-10

-20
Year
Arid Counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL National Average

Data source: Author’s computation using KNBS 2023 GCP data

The high aridity levels in arid counties limit rain- maize compared with the non-ASAL counties.
fed crop production. This is reflected in the low This is because of larger agricultural holdings
area harvested for maize compared to the other in these counties when compared with the non-
county categories (Figure 8.9). The semi-arid ASAL counties.
counties have the highest area harvested for

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Maize production is lowest in the arid counties. addition, maize production has been declining
However, it has been increasing over the years, over the years, with the lowest production
with the highest production being in 2018. The experienced in 2020. Maize production is
semi-arid counties, despite having a higher highest in the non-ASAL counties, which
area of harvested maize, have lower maize experience more favourable climatic conditions.
production, indicating lower yield (MT/HA). In

Figure 8.9: Area harvested (hectares) for maize production, 2012-2020

80,000.00

70,000.00
Area Harvested (Hectares)

60,000.00

50,000.00

40,000.00

30,000.00

20,000.00

10,000.00

-
2012 2013 2014 2015 2016 2017 2018 2020
Year

Arid counties Semi-Arid (30-84%) aridity Semi-arid counties (10-29% aridity) Non-ASAL

Data source: NIPFN

Figure 8.10: Maize production (metric tons), Figure 8.11: Maize yield (MT/HA), 2012-2021
2012-2020

160,000.00 2.5
M ai ze p r o d u ct i o n ( M e t r i c t o n s)

140,000.00 2
Maize yield (MT/HA)

120,000.00 1.5
100,000.00 1
80,000.00 0.5
0
60,000.00
Yield (MT/HA)

Yield (MT/HA)

Yield (MT/HA)

Yield (MT/HA)

Yield (MT/HA)

Yield (MT/HA)
Yield(MT/HA)

Yield(MT/HA)

40,000.00
20,000.00
-

2012 2013 2014 2015 2016 2017 2018 2020

Year Year
Arid counties
Arid counties
Semi-Arid (30-84%) aridity
Semi-Arid (30-84%) aridity
Semi-arid counties (10-29% aridity)
Semi-arid counties (10-29% aridity)
Non-ASAL
Non-ASAL

Data source: NIPFN (2020)

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The comparative advantage of ASAL counties The leather value chain is one of the key value
lies in livestock production. Arid counties, which chains under MTP IV, therefore, increased
practice pastoralism, have the highest number investments through the establishment of
of beef cattle, sheep, meat goats, and camels tanneries and leather processing factories
compared to the rest of the county categories. in arid counties is needed to fully tap this
They have higher monetary values for main potential. The semi-arid counties practice
livestock products, particularly beef and goat agro-pastoralism, having both crop production
meat as shown in Figure 8.12. Despite having and livestock production systems, as seen in
lower numbers of dairy cattle, the arid counties Figures 8.9 and 8.12. The semi-arid (10-29%)
have significantly higher value of milk produced have advantages in dairy production, having the
when compared with the semi-arid (30-84%) highest number of dairy cattle on average and
and the non-ASAL counties, reflecting the dual- the highest value of milk produced. They have
purpose nature of the livestock kept in the arid the highest value for mutton as both wool and
counties. The highest number of camels are meat sheep production thrive in these counties.
found in the arid counties, providing milk and The semi-arid (10-29%) show higher monetary
meat, which are highly valued in the major value for wool production, which is one of the
towns. raw materials for the textile industry.

Arid counties show advantages in other The semi-arid (30-84%) have lower comparative
livestock by-products such as hides and skins, advantages in livestock production. On
with higher monetary values when compared average, they have a lower number of livestock
with the other county categories. Hides and compared to the other ASAL categories
skins are mainly sold in Marsabit, Isiolo, and and lower value of livestock products. This,
Garissa while in Mandera, Wajir, Turkana, and combined with lower maize yield, results in
Garissa, they have low sales for hides and skins lower overall agriculture output for these county
despite high livestock production, implying categories. They, however, show advantages in
low utilization of these products. Despite this honey production, having both a higher number
comparative advantage, the full potential of the of beehives and a higher value of honey
livestock value chain is yet to be fully tapped. produced.

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Figure 8.12: Percentage of livestock across the county categories, 2019

120.00
99.05
100.00

73.20
Percentage of livestock

80.00 66.95
56.49 56.61
60.00
43.49 43.31 42.07
37.83 37.59 38.42
40.00 37.30 36.02 31.77 28.86
25.85 20.50 21.91
19.52 19.85 33.34
20.00 9.42 11.98
6.76 4.08 3.84 6.04 12.48
0.65 2.77 0.21 1.32 2.61 2.96 0.10
0.00
0.00

Livestock category

Arid counties Semi-arid (30-84%) Semi-arid (10-29%) Non-ASAL

Data source: KNBS (2019), Population census

Figure 8.13: Total value of main livestock Figure 8.14: Total value of other livestock
products (Ksh million) products (Ksh million)

6,000.00 45

40
5,000.00
To t a l v a l u e ( k sh m i l l i o n )

35
4,000.00
30
Total value (ksh million)

3,000.00 25

2,000.00 20

15
1,000.00
10

-
5

0
hides skins wool

Livestock product Other livestock products

Arid Counties Semi-Arid (30-84%) Arid Counties Semi-Arid (30-84%)

Semi-Arid (10-29%) Non-ASAL counties Semi-Arid (10-29%) Non-ASAL counties

Data source: NIPFN (2020)

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8.2.2 Services sector

The services sector had growth rates for all the years under review, with declines experienced in
201628 and the highest decline in 2020 due to the COVID-19 pandemic. The high-contact service
industries such as wholesale and retail; transportation and storage; and accommodation and food
services bore the brunt of the COVID-19 mobility restrictions.
28
This could also be attributed to drought, as the main services sector is the wholesale and retail trade, which also depends on products from agriculture - retail of food, beverag-
es and tobacco products.

Figure 8.15: Services sector GVA growth rate, 2014-2022

20
Service sector growth rate
by county category (%)

15

10

0
2014 2015 2016 2017 2018 2019 2020 2021 2022
Year

Arid Counties Semi-Arid 30-84% Semi-Arid 10-29%

Non-ASAL National Average

Data source: Author’s computation using KNBS (2023) GCP data

Among the arid counties, the services sector lower contributions to the county output by the
is dominated by public administration and private sector. For semi-arid and non-ASAL
defence at 37.3 per cent. The dominance of counties, market services, particularly transport
non-market services in the services sector GVA and storage sector are the dominant contributor
indicates that public investments and projects to services GVA at 23.8 per cent for semi-arid
may be serving as expansionary policy tools (10-29%), 21.8 per cent for semi-arid (30-84%)
to stimulate overall economic activity in these and 20.9 per cent for non-ASAL counties.
counties. This indicates that counties have

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Figure 8.16: Share of service sectors in service broad sector GVA, 2013-2022

100%
9.53 8.49 12.12 11.42 12.34 12.12 11.42
Share of services sectors in services broad sector

80% 13.07
16.23 16.74 15.55 15.33 16.23 16.74
60% 35.34 39.31
13.16 12.77 11.43 11.06 13.16 12.77
40% 1.75
11.13 10.00 2.52 2.62 1.65 2.52 2.62
20% 1.52 1.56 20.16 23.52 21.75 25.83 20.16 23.52
12.09 12.84
10.87 9.11 12.31 11.56 12.40 11.43 12.31 11.56
0%
GVA (%)

ARID ARID SEMI ARID SEMI ARID SEMI ARID SEMI ARID NON-ASAL NON-ASAL
COUNTIES COUNTIES (30-84%) (30-84%) (10-29%) (10-29%) 2013-2017 2018-2022
2013-2017 2018-2022 2013-2017 2018-2022 2013-2017 2018-2022
County categories

Wholesale and retail trade; repair of motor vehicles Transport and storage

Accommodation and food service activities Information and communication

Financial and insurance activities Real estate activities

Professional, scientific and technical activities Administrative and support service activities

Public administration and defence Education

Human health and social work activities Other service activities

Data source: Author’s computation using KNBS (2023) GCP data

The contribution of the tourism sector to county reserves in the arid counties, only Samburu
GVA (proxied by accommodation and food National Reserve receives a significant number
services) is very low at an average of 1.5 per of visitors. The low exploitation of this tourism
cent, 2.57 per cent, 1.75 per cent and 2.57 per potential is attributable to infrastructural
cent for arid, semi-arid (30-84%), semi-arid (10- challenges that discourage investments in
29%) and non-ASAL counties, respectively. The hotels and accommodation, and insecurity
arid counties are well endowed with unexploited issues that are prevalent in the arid counties.
tourism potential. Of the 19 national parks and

Table 8.4: Tourism sites

Tourism sites Arid Semi-arid (30-84%) Semi-arid (10-29%) Non-ASAL

National parks/ National reserves 19 18 11 12
Museums and snake parks 4 10 5 7
Nature and wildlife conservancies 19 78 43 6
Cultural festivals 7 10 6 2

Data source: 2018-2022 CIDPs, Online sources

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8.2.3 Industrial sector and II. However, it experienced a recovery

in 2020 as the demand for face masks and
The industrial sector growth rate is positive for all sanitizers increased. The arid counties did not
the years under review, although declines were experience a high decline as their main sector
experienced in 2016/17 and 2019 for most of in the industry broad sector is the construction
the counties. The decline in 2016 experienced sector while the other counties have bigger
by all county categories is attributable to a shares of the manufacturing sector. Similarly,
drought episode. The manufacturing sector in while the industry sector declined in the other
Kenya has strong backward linkages with the county categories in 2019, the arid counties
agriculture sector as it relies heavily on its raw experienced the highest growth rate. Notably,
materials. The industry sector growth declined this is the year that the Lake Turkana Windfarm
in 2019, due to a slowdown in the construction was commissioned and began feeding to the
sector growth rate with the completion of the national grid.
Standard Gauge Railway (SGR) Phase I

Figure 8.17: Industry sector GVA growth rate 2014-2022

25

20
Industry sector growth rates
by county category (%)

15

10

0
2014 2015 2016 2017 2018 2019 2020 2021 2022
Year

Arid Counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL National Average

Data source: Author’s computation using KNBS (2023) GCP data

A disaggregated analysis of the industry energy, railway infrastructure, and housing

broad sector revealed that the share of the development since devolution, which have
manufacturing sector has been declining from led to higher growth rates in the construction
2013 to 2022 as the share of the construction sector. The National Construction Authority
sector increased for all county categories. The acknowledges this upward trend in growth and
decline in the share of manufacturing GVA is attributes it to increased government budgetary
due to its slower growth rates compared to allocation towards infrastructure development
the construction sectors. There have been and the affordable housing agenda.29
significant investments in infrastructural 29
https://nca.go.ke:82/media/Construction_Industry_Outlook_-_1st_Edition.pdf
enhancements, particularly roads, healthcare,

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Figure 8.18: Share of industry sectors to industry GVA, 2013-2022

100%
17.33 24.43
28.29 35.32 29.62
80% 3.93 41.59
53.42 54.65 11.41 3.61 3.79
4.40
Share of industry sectors to industry

60% 10.67 18.88 3.36 6.08

17.60 3.08
4.88
40% 9.86 7.65 52.39
4.83 11.44 45.34 44.89 56.77
38.78 48.55
20% 22.58 19.35
GVA(%)

9.31 6.92 14.95 12.10 8.01

0% 4.94 3.13 1.90
Arid Arid Semi-Arid Semi-Arid Semi arid Semi arid Non-ASAL Non-ASAL
Counties Counties (30-84%) (30-84%) 10-29% 10-29%

2013-2017 2018-2022 2013-2017 2018-2022 2013-2017 2018-2022 2013-2017 2018-2022

County Categories

Mining and quarrying Manufacturing

Electricity supply Water supply; sewerage, waste management

Construction

Data source: Author’s computation using KNBS (2023) GCP data

The construction sector is broad and in essential infrastructure, which have been
encompasses various activities related to historically lower in these counties. Devolution
the building of houses, factories, offices, and has played a big role in infrastructural
schools. It entails the building of physical developments in the ASALs as counties
infrastructure such as roads, bridges, ports, allocate resources to county roads and the
railroads, sewers, and tunnels, and the establishment of county headquarters. The
maintenance and repair of all structures. The dominance of this sector in the arid counties
construction sector is particularly dominant in can also be attributed to the comparatively
the arid counties industry GVA at an average higher development budget absorption rate
share of 54 per cent. This can be attributed as seen in Figure 8.19, indicating the focus on
to increased urbanization and investments infrastructural development.

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Figure 8.19: Average development budget absorption rate (2013/14-2021/22)

64.00 62.77
A v e r a ge d e v e l o p m e n t b u d ge t

62.00
-2022)

60.00

58.00 56.87 56.78

expenditure (2013

56.00 55.17

54.00

52.00

50.00
Arid counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL
County categories

Data source: OCOB reports 2013/14-2021/22

The growth of the manufacturing sector is vital The share of electricity supply in the industrial
as it has backward and forward linkages with sector has increased for the arid counties (Figure
other sectors such as agriculture, extractives, 8.18). This is because of more exploitation of
and trade and can spur overall economic growth. renewable energy such as geothermal, wind,
Arid counties can grow their manufacturing and solar. This has presented opportunities for
sector by investing in the livestock product lowering the cost of electricity as geothermal is
value chain, which could offer job opportunities more reliable and cheaper compared to hydro
as they are more labour intensive. This can be and thermal power.
an entry point for livelihood diversification in the
face of climate change.

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Figure 8.20: Energy generation by source (Gwh)

6,000
Contribution of energy generation

5,000
by source (Gigawatt hour)

4,000

3,000

2,000

1,000

0
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Source of energy

Hydro Geothermal Thermal Wind Solar

Data source: EPRA energy and petroleum statistics Reports 2021 and 2023

Although investments in renewable energy economic transformation and growth. However,

in some of these arid counties have opened the disparities in education indicators among
the regions for development, there is a need the four county categories raise concerns
to ensure that the local community benefits about the prospects of inclusive economic
from employment opportunities, growth of growth in the country. Arid counties have lower
other industries, and electricity connectivity. net enrolment rates at the three levels of basic
Green jobs in renewable energy production are education, which impacts the quality of future
another entry point for building the resilience of labour. The lower adult literacy rates in the arid
arid economies. This has implications for skills counties are indicative of lower educational
development to improve employability in green attainments of the current labour force.
jobs.
Arid counties have comparative disadvantages
8.3 Quality and Labour Utilization in other indicators such as stunting rates and
teenage pregnancy rates. Stunting impedes
8.3.1 Quality of labour childhood development, adversely impacting
learning and leading to negative long-term
Investment in education and training by consequences on human capital. Teenage
enhancing the quality of workers is one way pregnancy has lasting implications on health,
of improving labour productivity. Investment in educational attainment, and the quality of the
education promotes the development of skilled labour force, especially if the teenagers do not
and specialized labour that is necessary for get back to school.

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Table 8.5: Human capital indicators

Human Capital Indicators Arid Semi-arid Semi-arid Non-ASAL

(30-84%) (10-29%)
Adult literacy rate (2019) 46.36 80.45 86.04 87.79
Pre-primary NER (2019) 27.16 70.94 76.42 79.00
Primary schools NER (2020) 38.53 84.96 84.01 87.12
Secondary schools NER (2020) 16.74 58.88 59.21 65.19
Percentage of stunted children (2022) 26.68 31.96 24.03 25.03
Percentage of children 12 -23 months fully vaccinated 62.00 75.76 73.61 80.76
(2022)

Percentage of teenage pregnancy 21.42 16.36 16.73 12.39

Data source: KDHS 2022, KPHC 2019, Basic Education Statistical Booklet, 2020

8.3.2 Working age population and lower percentage of the working age population
employment status to total county population. This indicates a lower
quantity of labour, which creates challenges
The arid counties have a comparatively smaller for economic growth and increases population
size of the working age population as seen in the dependency and incidences of child labour.

Figure 8.21: Percentage of working age population to total county population, 2019

57.31
Percentage of working age

58 56.62
56.04
population to total county

56
54
population

52
49.44
50
48
46
44
Arid Semi-arid (30-84%) Semi-arid (10-29%) Non-ASAL
County Category

Data source: Author’s computation using KNBS (2019) census data

Among the four categories of counties, labour resources are being used and indicates
arid counties showed lower employment to how efficiently an economy provides jobs for
population rates compared to the rest of the people who want to work. The lower rates in
county categories. Employment to population the arid counties are, therefore, indicative of
rates measure the extent to which available challenges in labour utilization and job creation.

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Figure 8.22: Employment to population ratio by county category, 2019

70.0 66.4 66.2 65.4

60.0
Em p l o y m e n t t o p o p u l a t i o n

51.3
50.0
40.0
30.0
ratio (%)

20.0
10.0
0.0
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County Category

Data source: Author’s computation using KNBS 2019 Census data

A disaggregation of employment to population than females, which contrasts with the other
ratio by gender shows that there is little county categories. This means there is potential
disparity. The arid counties, however, show to even engage more women in productive
more employment to the population of males economic activities.

Figure 8.23: Employment to population ratio by gender, 2019

50.0 44.6
43.3 41.8 41.7 41.5 42.3
Em p l o y m e n t t o p o p u l at i o n r at i o (%)

45.0
38.0 36.5
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

Male Female

Data source: Author’s computation using KNBS (2019) Census data

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Disaggregation by the youth and non-youth the perceived low employability of the non-youth
age categories as defined by the Constitution population due to lower education attainment
of Kenya 2010 shows little disparity in the likely contributes to lower employment to
employment to population rates for the semi- population rates in these counties. This affects
arid and non-ASAL counties. In the arid the quantity of labour available to produce
counties, the employment to population rate is county output and has implications on county
higher for the youth categories compared to the economic performance and individual savings
non-youth category. Since education is a key and investments.
element for better employment opportunities,

Figure 8.24: Employment to population by age category, 18-34 and 35-64 years, 2019

40.00
33.85 33.62
Em p l o y m e n t t o p o p u l at i o n r at i o b y age

35.00 32.70 32.29

31.14 30.82
30.00 27.65

25.00
20.00 18.07
categories (%)

15.00
10.00
5.00
0.00
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County Category

youth (18-34 years ) adult ( 35-64 years)

Data source: Author’s computation using KNBS (2019) Census data

The percentage of persons under 18 years attainment of formal skills needed for alternative
working (5-17 years) in arid counties is higher livelihoods and industrial transformation of
when compared with the other categories of counties. Climate change through frequent
counties. The cultural practices may explain droughts that force communities to migrate,
this as children and teenagers in pastoral coupled with insecurity caused by frequent
communities play an important role in livestock banditry attacks in the arid counties disrupt
production as they graze the livestock. Although learning activities and are a possible cause
this is critical in helping them attain indigenous of the high out-of-school children engaged in
knowledge that is critical for the sustenance economic activities.
of pastoralism, it is at the expense of early

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Figure: 8.25: Percentage of persons (5-17 years) working by county category, 2019

20.00
18.16
Percentage of persons (5-17 years)

18.00
16.00
14.00
12.00
working

10.00
8.00
6.00
4.00 3.31
2.41
1.46
2.00
0.00
ARID SEMI ARID 30-84% SEMI-ARID 10-29% NON-ASAL
County categories

Data Source: Author’s computation using KNBS (2019) Census data

8.3.3 Unemployment rate

Arid counties showed a higher overall unemployment rate compared to the other county categories
as shown in Figure 8.26.

Figure 8.26: Unemployment rate by county category, 2019

25.0 23.0

20.0
Unemployment rate (%)

15.0

10.0
7.3
6.4 6.3
5.0

0.0
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

Data source: KNBS (2019) Population Census

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Although unemployment rates are higher for the and non-youth categories (figure 8.27). This
youth category (18-34 years) in all categories of strongly indicates labour under-utilization in the
counties, the arid counties have comparatively arid counties.
higher unemployment rates for both the youth

Figure 8.27: Unemployment rate by age category, 2019

14.00 13.19

12.00
Unemployment rates

10.00
8.00 6.72
6.00 4.75 4.20 4.22
4.00 2.58 2.08 2.01
2.00
0.00
Arid Counties Semi-Arid counties (30-Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

18-34 35-64

Data source: Author’s computation using KNBS (2019) Population Census

A disaggregation of unemployment by gender than women to actively seek work as women

shows higher unemployment rates among engage in unpaid care work that constrains
males compared to females in all county labour participation.
categories (Figure 8.28). Men are more likely

Figure 8.28: Unemployment rate by gender, 2019

16.00
13.41
14.00
12.00
Unemployment rate

10.26
10.00
8.00
5.31
6.00 4.47 4.40
3.52 3.11 3.28
4.00
2.00
0.00
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

Male Female

Source: Author’s computation using KNBS 2019 Population Census

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8.3.4 Inactivity rate expected as this age category is still seeking

education. However, the higher inactivity rates
There are little disparities in total inactivity rates for persons of prime age in the arid counties
between counties regardless of their levels of compared with the other counties is of concern
aridity. All county categories show high inactivity as it indicates lower labour utilization.
rates for individuals 15-24 years, which is

Figure 8.29: County labour inactivity by age categories, 2019

30.00 27.42
26.36
In act i v i t y r at e b y age cat e go r y

24.35 24.90
25.00 22.48
21.30
20.25
20.00
15.70
15.00

10.00 8.65
4.65 5.07 4.93
5.00

0.00
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

15-24 years 25-64 years total inactivity rate for working age (15-64)

Data source: KNBS (2019), Population Census

All county categories showed slightly higher have a job but are constrained by excessively
inactivity rates by females compared to men heavy and unequally shared household and
(Figure 8.30). Often, women who would like to care work.

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Figure 8.30: Inactivity rate by gender

45.00 39.53
41.79 41.27 42.52
40.00 36.52 37.75 39.16
35.00 32.36
Inactivity rate

30.00
25.00
20.00
15.00
10.00
5.00
0.00
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

Male Female

The high inactivity by discouraged jobseekers responsibilities such as homemaking and child
in arid counties is of concern as these potential caring responsibilities which also explains
workers are generally considered under- Figure 8.30, which showed females having
utilized (Figure 8.31). A majority of these job higher inactivity rates. This is another indicator
seekers cite lack of jobs in their locality as of labour under-utilization as it consists of
the main reasons why they chose not to seek persons who would like to have employment
work. The arid counties also showed higher but are constrained.
percentages of people not working due to family

Figure 8.31: Reasons for inactivity by county category, 2021

120.00

100.00

80.00

70.08
60.00
90.47 89.15 92.66
40.00

20.00 17.45

12.47 8.00 9.21 5.35

0.00 1.53 1.64 1.99
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County category

Discouraged job seekers Family responsibilities Other inactive

Source: Author’s computation using KNBS Kenya Continuous Household Survey 2021

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8.4 Sectoral Employment would pull labour from agriculture. The share of
employment in the industry sector is the lowest
The agriculture sector is the main source of in all categories of counties. It is, however,
employment for most counties regardless of the comparatively higher in the semi-arid (30-84%)
aridity levels, employing 51-60 per cent of the counties.
county population as shown in Figure 8.32. The
semi-arid counties (30-84%) have the highest Agro-processing presents opportunities for the
reliance on agriculture for employment while transfer of labour from agriculture to industry.
the arid counties have the lowest at 51.6 per For arid counties, opportunities lie in the leather
cent. The agriculture sector is often associated industry as the counties are predominantly
with low productivity. It is seen as a reservoir practicing livestock production. Investment
of under-employed workers as the common in the leather industry presents benefits to
perception is that it is for those who have not livestock production not only by increasing the
secured formal employment. The continued potential incomes but also by helping improve
dominance of the agriculture sector in the animal husbandry and provision of extension
share of employment indicates a low transfer of services. There are 16 tanneries in Kenya;
labour out of agriculture into higher productivity eight (8) in Nairobi County, three (3) in Kiambu
sectors such as industry and services. County, two (2) in Machakos County, and one
(1) each in Nakuru, Kilifi, and Narok counties,30
The shocks caused by climate change are indicating a sub-optimal distribution of the
some of the push factors that lower reliance tanneries across counties. Similarly, data from
on agriculture employment in arid counties, the Kenya Association of Manufacturers show
leading to the transfer of labour into sectors less that although there are 1,786 MSMEs within
affected by climate change. For arid counties, the Kenyan leather value chain, the majority
the services sector has provided labour flows are within major cities and towns in semi-arid
from agriculture, as it is the second highest and non-ASAL counties.
employer. There is less labour in industry, which
could indicate low investment in industries that 30
https://leathercouncil.go.ke/list-of-tanneries/

Figure 8.32: Share of employment by broad sectors per county category, 2021

100%
8.29 9.18 8.79 9.70
Sh ar e o f e m p l o y m e n t b y b r o ad

90%
80%
30.66 33.19 31.41
70% 40.08
60%
sectors (%)

50%
40%
30% 60.16 58.02 58.86
51.64
20%
10%
0%
Arid Counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL
County categories

Agriculture Services Industry

Data source: KNBS (2021), Kenya Continuous Household Survey

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8.4.1 Employment in agriculture sector, with a small proportion involved in

crop production. Mixed farming is dominant in
A disaggregation of employment in the semi-arid (30-84%) and non-ASAL counties.
agriculture sector shows that for arid counties, Among the semi-arid (10-29%) counties, crop
the majority are employed in the livestock production is dominant.

Figure 8.33: Employment in agriculture sub-sectors by county category, 2021

70.00
Pe r ce n t age o f p e r so n s e m p l o y e d i n

60.00
4.79 2.97 4.44
agriculture sub -sectors

50.00
0.53
0.71
17.26
40.00 27.65 29.26
2.69
30.00
40.77
5.38 2.44
20.00
32.35
10.00 19.72 21.41

4.75
0.00
ARID COUNTIES SEMI ARID (30-84%) SEMI ARID (10-29%) NON-ASAL
County categories

Crop Production Livestock production Mixed Farming Fishing/fish farming paid farm labour

Source: Author’s computation using KNBS (2021) Kenya Continuous Household Survey 2021

8.4.2 Employment in the services sector because of its low employment capacity and
limits set by the Public Finance Management
The majority of the employment in the services regulations. The transport and storage sector,
sector is in the wholesale and retail trade, which dominated the services sector output
which is dominated by the informal sector and in the semi-arid and non-ASAL counties has
is associated with low productivity. The public shares of employment at 3.63 per cent, 5.26 per
administration and defense sector, which cent and 4.24 per cent for semi-arid (30-84%),
dominated the arid counties services GVA has semi-arid (10-29%) and non-ASAL counties,
a low share of employment at 1.81 per cent respectively.

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Figure 8.34: Employment in the services sector by county category, 2021

45.00
Em p l o y m e n t i n t h e se r v i c e se c t o r s

40.00

35.00
4.52
30.00 1.81
3.48
25.00 3.60
3.47 1.08 3.81
2.29 0.73
20.00 5.88 0.99 1.76
2.60
15.00 5.26 4.24
3.63
10.00
16.98
5.00 10.38 12.29 12.08

0.00
ARID COUNTIES SEMI ARID (30-84%) SEMI ARID (10-29%) NON-ASAL
County category
Activities of extraterritorial organizations and bodies
Activities of households as employers; undiffrenciated goods
Other service activities
Arts, Entertainment and Recreation
Human health and social work activities
Education
Public administration and defence; compulsory social security
Administrative and support service activities
Professional, scientific and technical activities
Real Estate
Financial and Insurance
Information and Communication
Accomodation and Food Services
Transport and Storage

Source: Author’s computation using KNBS (2021), Kenya Continuous Household Survey

8.4.3 Employment in the industry sector employment share of manufacturing and

construction sectors in the semi-arid (30-84%)
Employment in the industry sector is low when and the non-ASAL counties. The construction
compared to the other broad categories and sector is highly volatile, and employment in the
is mainly concentrated in the construction and sector is subject to significant fluctuations. The
manufacturing sectors. Employment in the construction industry is also subject to seasonal
construction sector is particularly dominant employment patterns, raising concerns over
in arid counties. There is little disparity in the the sustainability of employment in the sector.

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Figure 8.35: Employment in the industry sector by county category, 2021

12.00
Sh ar e o f e m p l o y m e n t i n t h e i n d u st r y

10.00

8.00
4.81 4.70
4.31
6.00
5.70
sectors

0.71 0.78
4.00 1.06

2.00 0.38 4.20 4.22

3.42
2.21
0.00
Arid Counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL
County categories

Manufacturing Mining Construction

Source: Author’s computation using KNBS (2021) Kenya Continuous Household Survey
Employment in the manufacturing sector in the these counties have raw materials for the
arid counties is in few sub-sectors as shown leather industries, survey data from the Kenya
in Figure 8.36. This reflects the presence of Continuous Household Survey 2021 did not
few manufacturing firms in these counties. establish presence of employment in the
Low technology manufacturing firms have leather industry, indicating untapped potential
the highest share of employment. Although in the leather value chain in these counties.

Figure 8.36: Arid counties’ share of employment in the manufacturing sector, 2021

80.00
68.45
70.00
Share of employment (%)

60.00
50.00
40.00
30.00
20.00 14.45
4.36 5.40 5.86
10.00 0.75 0.73
0.00
food products textiles paper and fabricated computer, agricultural Repair and
paper products metal products electronic and and forestry installation of
optical machinery machinery and
products equipment
Manufacturing sub -sectors

Source: Author’s computation using KNBS (2021) Kenya Continuous Household Survey

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The semi-arid (30-84%) have employment food products. These counties have created
more spread across various sub-sectors employment in the leather industry, thus taking
of the manufacturing sector. Despite this, advantage of the advantages they have in
employment is still concentrated in the low livestock production.
technology manufacturing such as textiles and

Figure 8.37: Semi-arid counties (30-84%) share of employment in the manufacturing sector,
2021

25.00
21.87
Share of employment (%)

20.00
14.74
15.00
10.90 10.72
10.00 7.87 7.53

3.38 2.74 3.20 3.21 3.93

5.00 1.90 2.46
1.02 0.14 0.34 0.87 0.60 1.30 0.62 0.14
0.19 0.33
0.00

Manufacturing sub-sectors

Source: Author’s computation using KNBS (2021) Kenya Continuous Household Survey

Similarly, the semi-arid counties (10-29%) employment concentrated in the low technology
have employment more spread across various manufacturing as shown in Figure 8.38.
sub-sectors of the manufacturing sector, with

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Figure 8.38: Semi-arid counties (10-29%) share of employment in the manufacturing sector,
2021

30.00 27.97
25.00
Share of employment

20.00
15.00 10.74 11.62
9.29 7.94
10.00
3.85 4.23 3.29 2.07 2.35 4.14
5.00 1.40 1.56 1.62 1.56 1.35 1.62 2.53
0.05 0.80
0.00

Manufacturing sub -sectors

Source: Author’s computation using KNBS (2021) Kenya Continuous Household Survey

Likewise, the non-ASAL counties have more manufacturing sub-sectors still dominate the
diversity in employment in the manufacturing share of employment (Figure 8.39).
sub-sectors although, the low technology

Figure 8.39: Non-ASAL counties’ share of employment in the manufacturing sector

20.00 18.75
18.00 15.81
Share of employment

16.00
14.00
12.00 9.50
10.00 8.50 8.91
7.45
8.00 6.07 5.53
6.00 3.82 3.09
3.07
4.00 1.94
2.00 0.09
1.12 1.11 0.70 0.89 0.62 1.76 0.220.14 0.66 0.25
0.00

Manufacturing sub-sectors

Source: Author’s computation using KNBS (2021) Kenya Continuous Household Survey

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8.5 County Labour Productivity A comparison of the ASAL and non-ASALs

established that non-ASAL counties have
8.5.1 Overall labour productivity the highest labour productivity growth rates
(between 2016 and 2021) at 28.3 per cent, and
County labour productivity was computed and semi-arid (10-29%) at 21. 9 per cent, semi-arid
measured as County Gross value added per (30-84%) at 14.3 per cent while arid had the
labour for two years (2016 and 2021) as per lowest growth at 2.8 per cent. Semi-arid (30-
the available data on employment.31 The city 84%) showed lower productivity in both years.
counties of Nairobi, Mombasa, Kisumu, and The counties in this category rely heavily on
Nakuru had the highest labour productivity agriculture for employment despite agriculture
levels. Cities and urban areas have advantages having a lower share of county GVA. These
in essential infrastructure, and higher population counties also rely on crop production and mixed
density, which attracts scale economies and farming for employment, despite having lower
hence higher labour productivity. maize yield.
31
The measure used is the apparent labour productivity measured as gross value
added per person employed.

Figure 8.40: Labour productivity by county category, 2021

0.500 0.392
0.386
0.400 0.335 0.344 0.317
0.290 0.305
0.253
Labour productivity

0.300
0.200
(million)

0.100
0.000
Arid Counties Semi-Arid counties (30- Semi-Arid counties (10- Non-ASAL Counties
84%) 29%)
County Categories

2016 2021

Source: Author’s computation using KNBS KCHS (2021) and KNBS GCP (2021)

8.5.2 Sectoral labour productivity ASAL counties. For all categories of counties,
agriculture has the lowest productivity despite
Labour productivity in the industry sector is having the highest share of employment. This
highest in arid and semi-arid (30-84%) counties, reflects the dominance of small-scale, low
while the services sector has higher labour technology production systems that result in
productivity in the semi-arid (10-29%) and non- low agricultural output.

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Figure 8.41: Labour productivity per broad sector by county category, 2021

2.50 2.22

2.00
Sectoral labour productivity

1.50
1.00 1.03
0.85 0.82
1.00 0.62 0.69 0.81 0.67 0.77
0.51
(million)

0.33 0.41
0.50 0.19 0.26

0.00
Arid Counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL National Average
County categories

Agriculture sector labour productivity Industry sector Productivity

Services sector labour productivity

Source: Author’s computation using KNBS KCHS (2021) and KNBS GCP (2021)

A disaggregation of industry labour productivity forks dams and geothermal in central and
shows that for the arid counties, higher labour North Rift ASAL counties. Although electricity
productivity is in the manufacturing sector supply had shown growth in output for the
while the electricity sector has high labour arid counties, the employment levels were low
productivity for the other three categories of and were not captured in the survey data to
counties. This is attributed to the high output enable computation of labour productivity. This
of the electricity supply in these counties that indicates the low employment capacity of high
have significantly exploited electricity supply capital-intensive industries, such as electricity
sources, such as hydropower in the seven supply.

Figure 8.42: Labour productivity in the industry sectors, 2021

60.00 48.44

40.00
Labour productivity

18.99 16.93
20.00 12.48 10.63
7.02 7.97 4.51 4.61
2.780.49 2.88 1.140.813.011.29
2.00 1.650.961.880.81 0.902.641.08
0.00
Arid counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL
County categories

Wholesale and retail trade Transport and storage Acoomodation and food services
Information and communication Financial Services Real estate
Professional and Technical Services Administraion and support services Public administration and defence
Education Public Health Other service activities

Source: Author’s computation using KNBS KCHS (2021) and KNBS GCP (2021)

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A disaggregation of labour productivity for the vis a vis the output explains the higher labour
services sectors showed that the real estate productivity. The output for the real estate sector
sector had the highest labour productivity for in arid counties is mainly the operation of self-
all categories of counties. This sector entails owned or leased real estate in the towns and
buying, selling, renting, and operating of self- urban centres. Wholesale and retail trade has
owned or leased real estate and the activities the lowest labour productivity in all categories
of real estate agents. In the arid counties, the of counties, despite having the highest share of
low employment levels in the real estate sector employment among the services sectors.

Figure 8.43: Labour productivity in the services sectors, 2021

60.00 48.44

40.00
Labour productivity

18.99 16.93
20.00 12.48 10.63
7.02 7.97 4.51 4.61
2.780.49 2.88 1.140.813.011.29
2.00 1.650.961.880.81 0.902.641.08
0.00
Arid counties Semi-Arid 30-84% Semi-Arid 10-29% Non-ASAL
County categories

Wholesale and retail trade Transport and storage Acoomodation and food services
Information and communication Financial Services Real estate
Professional and Technical Services Administraion and support services Public administration and defence
Education Public Health Other service activities

Source: Author’s computation using KNBS KCHS (2021) and KNBS GCP (2021)

A disaggregation of labour productivity in the maize production. The arid counties show
agriculture sub-sectors was limited by the higher labour productivity as the labour
availability of gross value added for crop and involved in maize production is low. Although
livestock sub-sectors. However, an analysis of non-ASAL counties have higher labour in
labour productivity in maize production using maize production, they also have comparative
available data on maize yield revealed low advantages in maize production, and therefore
labour productivity in semi-arid counties that higher labour productivity.
have a higher number of persons involved in

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Figure 8.44: Labour productivity in maize Figure 8.45: Average maize yield
production

0.2736 2.00 1.88

0.3000 1.70
1.80
L a b o u r p r o d u c t iv it y in m a iz e

0.2500 1.60
0.2000 1.40

Average Maize yield (MT/HA) 2012-2020

0.1467 1.20 1.02
0.1500 1.00 0.87
0.0975
0.1000 0.0664 0.80
production

0.60
0.0500 0.40
0.0000 0.20
0.00

County category County category

Source: Author’s computation using NIPFN (2020) data and KNBS KCHS (2021)

Using available data on livestock production ASAL counties have lower labour productivity in
and analysis of labour productivity, arid counties livestock production. The concern is mainly for
have higher labour productivity in livestock the semi-arid counties (30-84%), that continue
production, particularly in the rearing of cattle. to have low output in crop and livestock
The semi-arid counties (10-29%) have higher production despite having the highest share of
labour productivity in the rearing of goats and employment in the agriculture sector.
sheep. The semi-arid (30-84%) and the non-

Figure 8.46: Labour productivity in livestock production

50,000.00
Labour productivity

38,551.61
40,000.00

30,000.00 25,550.43
22,017.26
20,000.00 15,422.69
12,224.71 12,069.80
8,657.24 7,052.72
10,000.00

-
Cattle Goat and sheep
Livestock categories

Arid counties Semi-Arid (30-84%) aridity Semi-arid counties (10-29% aridity) Non-ASAL

Source: Author’s computation using NIPFN (2020) data and KNBS KCHS (2021)

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8.6 Key Messages and contributions by the market services

Recommendations (private sector) to the county output. The
contribution by accommodation and food
8.6.1 Key messages services (proxies of the tourism sector)
is very low despite significant tourism
1. County economic structures resources in the counties, signifying
untapped potential.
Arid counties have the smallest gross
value added and the highest episodic iii) The share of manufacturing in the arid
growth rates. The growth rate has been counties industrial GVA is low and
volatile because of climate change declining due to its slower growth rates.
effects, which disproportionately affect This is of concern since its backward and
arid counties, thus hindering convergence forward linkages with other sectors such
in economic growth across the counties. as agriculture, trade, and manufacturing
This notwithstanding, these counties has the potential to drive economic
have latent natural resources in the form transformation in the region. The
of land, renewable energy sources and construction sector dominates the arid
tourism that hold significant potential counties’ industry GVA due to increased
to grow their economies. However, urbanization and investments in essential
challenges in access to essential physical infrastructure.
and capital infrastructure and persistent
insecurity inhibit optimal utilization of this 3. Quality and quantity of labour
potential.
i) Arid counties have comparatively lower
2. Sectoral contribution to GVA labour quality as reflected by lower basic
education enrolment rates and health
i) Arid counties have comparative indicators that affect the quality of the
advantages in livestock production. future labour force. Additionally, these
These counties produce most of the counties have a lower quantity of labour
beef cattle, sheep, and goats in the as seen in the smaller size of the working
country and have significant livestock age population to total county population
by-products, mainly hides and skins. and lower employment to population ratio
However, livestock production is yet to for the non-youth category. Lastly, the
be fully integrated into the leather value arid counties experience low utilization of
chain. Climate change through frequent the available labour as reflected by higher
and severe droughts is inhibiting the unemployment rates and higher inactivity
full realization of arid counties livestock rates for persons of prime age. Labour
production. Although interventions such inactivity due to discouraged job seekers
as Index-Based Livestock Insurance and is comparatively higher in arid counties,
feed production have been rolled out by indicating the presence of persons willing
the government and the private sector, to engage in labour but are limited due to
the uptake remains low. job unavailability.

ii) The share of the services sector in ii) Cultural practices, climate change, and
county gross value added is the largest insecurity are impeding the acquisition of
for all counties. However, in the arid formal skills by children and teenagers in
counties, the non-market services (public arid counties. Although cultural practices
administration and defense) dominate are key to the acquisition of indigenous
the service sector GVA, indicating smaller knowledge needed for the sustenance

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of pastoralism, formal skills are needed explains the lower labour productivity
for the economic transformation of the growths.
counties. Therefore, the acquisition of
both skills is important for the counties to ii) Labour productivity in arid counties is
exploit their potential. highest in the industry and services
sectors and lowest in the agriculture
4. Sectoral employment sector. Although high labour productivity
is in capital-intensive sectors such as
i) There is a low transfer of labour from electricity supply, they have limited
agriculture to other sectors as agriculture employment capacities and require
dominates the employment shares in high level skills. Manufacturing has high
all county categories. Employment in labour productivity in arid counties and
agriculture is comparatively lower in arid can employ both low skilled and high
counties compared to semi-arid and skilled persons, thus creating more job
non-ASAL counties, indicating climate- opportunities.
change induced push factors. The
wholesale and retail trade absorbs labour 8.6.2 Policy Recommendations
from agriculture in these counties. The
sector is characterized by high levels of 1. To optimize the livestock production
informality and low output, leading to low potential in arid counties and grow the
labour productivity. counties’ economies, there is a need to:

ii) The construction sector dominates i) Continue building climate resilience in the
employment in the arid counties in the livestock sub-sector in arid counties. This
industry sector. The construction industry can be achieved by increasing the uptake
is often subject to seasonal employment of weather-based insurance schemes
patterns, raising concerns over the for livestock production, promoting the
sustainability of employment in the use of asset-backed insurance and
sector. The manufacturing sector has the subsidizing premiums for disadvantaged
lower share of employment; furthermore, pastoralists; optimal utilization of the
employment in this sector is concentrated information provided by the National
in low technology manufacturing, such as Drought Management Authority through
food and textiles. the drought early warning systems
to encourage commercial offtake of
5. Labour productivity livestock, which would help mitigate
losses; counties can also consider
i) Arid counties had the lowest labour establishing county livestock enterprise
productivity growth between 2016 and fund that will finance pastoralists to
2021 compared to the other county restock after drought episodes to
categories. This indicates lower efficiency accelerate recovery.
in the use of labour, which is attributable
to climate change threats that lower the ii) Optimally exploit the livestock value chain
output from agriculture (which is the in arid counties through the integration of
main employer) and concentration of livestock production into the leather value
alternative employment in low productivity chain. This can be achieved by increasing
services sectors such as the wholesale the supply of hides and skins through
and retail trade. The low labour utilization strategies such as creating awareness
due to inadequate job creating industries among pastoralists on the value of hides

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and skins, increasing extension services project, which entails upgrading Isiolo
to improve the quality of hides and skins, and the towns near Lake Turkana to
and facilitating aggregation and pooled resort cities.
sales of hides and skins to increase
producers bargaining power. This needs ii) Accelerate infrastructural development
to go in tandem with efforts that increase to open the region for investments. This
the number of leather processing facilities includes fast-tracking and completing the
by providing incentives to local leather LAPSSET transboundary corridor that
product manufacturers to establish passes through the arid counties.
tanneries in arid counties.
iii) Curb insecurity in the arid counties,
iii) Increasing investments in meat especially banditry; there is a need
processing for export. This will require to continue with the current efforts
increasing the number of modern of deploying security services and
abattoirs and meat processing facilities establishing permanent security services
in the arid counties as a majority are in in the areas most affected. But this
Nairobi and other major cities. Other needs to be done in tandem with using
key investments are implementing the traditional institutions to encourage
livestock identification and traceability community-led peace building initiatives
system, which will ensure that livestock to achieve sustainable peace. In addition
products meet the food safety standards to measures against terrorism, there is a
required by the international market; and need for more community engagement
promoting the growing of pasture for feed in security decisions through community
security to address the losses in the arid policing to enhance community resilience
counties pastoral systems. This will go in and improve intelligence gathering.
tandem with innovations on better and There is also a need for more youth
drought-resistant fodder varieties. The empowerment and engagement efforts to
agricultural innovation ecosystem has reduce radicalization.
been largely focused on crops and dairy
farming; there is a need for research to 3. To create jobs and optimally utilize the
develop low-cost fodder varieties that labour in arid counties, there is a need
target pastoralists. to:

2. To reduce the dominance of non-market i) Provide incentives to attract

services in arid GVA and encourage investment in industries that
the development of market-oriented expand employment opportunities.
services, there is a need to: Currently, capital-intensive
industries established in the arid
i) Leverage tourism resources in the counties are not adequately utilizing
arid counties; this will entail marketing labour, and therefore the need to
the tourist sites in the counties to encourage investments in labour-
encourage local and international intensive industries.
tourism. Incentivizing players in the hotel
and accommodation to invest in tourist ii) Increase funding to businesses
facilities in the arid counties; leveraging established by vulnerable groups
on cultural tourism and desert safaris that such as women and youth to ensure
are unique to the region; developing of inclusive support of persons in the
resort cities that are part of the LAPSSET informal sector.

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4. To improve the quality of labour in arid move during droughts; and increasing
counties, the national government funding to the Adult and Continuing
needs: Education programme to increase the
number of facilities and trainers.
i) To encourage participation in the Adult
and Continuing Education programme ii) To accelerate the implementation of
to improve the quality of the current programmes aimed at improving the
labour force. This can be done through effectiveness of the education system
increasing awareness campaigns on the in arid counties to improve the quality
benefits of adult learning targeting out-of- of the future labour force. This can be
school youth and adults in arid counties; done through increasing funding to the
improving the effectiveness of adult programmes currently being implemented
learning centres in the arid counties by by NACONEK, such as mobile schools,
investing in mobile adult learning centres school feeding programmes, and low-
that target nomadic pastoralists who cost boarding schools.

i
This chapter benefitted from the support and guidance of CGE Demetra simulations on productivity by Shadrack Mwatu (KIPPRA), Victor Nechifor and Emmanuele Ferrari (both
from the JRC–Seville). Technical support during the drafting of the chapter was also provided by Dr Rose Ngugi and Dr Eldah Onsomu (both from KIPPRA).

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 CHAPTER

9
LEVERAGING STRATEGIC PARTNERSHIPS IN UNLOCKING TECHNOLOGY TRANSFER

LEVERAGING STRATEGIC
PARTNERSHIPS IN UNLOCKING
TECHNOLOGY TRANSFER

Technology is important in the socio-economic transformation and overall

development of a country. Appropriate adoption and implementation of
technologies are critical for enhancing productivity and inclusive growth.
Inadequate access to technology undermines a country’s potential in agriculture,
energy, manufacturing, health, education, infrastructure development, digital
economy, and various services sectors. The current reconfiguration of
global economic order, the rise of new major economic powers, renewed
engagement with traditional development partners, new dynamics of global
governance, revitalization of South-South and Triangular Cooperation, and
admission of the African Union as a permanent member of the G20 could
provide an opportunity for deeper technology and innovation cooperation.
For Kenya to benefit from the potential opportunities, strengthening strategic
partnerships with both emerging and developed economies is imperative.
Further, reforming policy and institutional environment is critical for attracting
frontier technologies’ investors. Similarly, the use, adoption, and adaptation
of frontier technologies calls for the establishment of digital infrastructure,
skills, financial inclusion, and availability of domestic credit. Lastly, the
prioritization of strategic partnerships to harness technology for healthcare
and vaccine production, development of sustainable textile and apparel
industry, infrastructure development and connectivity and harnessing of
skills, knowledge, and technical know-how emanating from international
academic mobility are imperative for the enhancement of productivity and
inclusive growth in Kenya.

9.1 Introduction States and Non-State actors in the international

T
system (Moran, 2022).
echnology has an enormous influence
on the international system since it is Countries depend on technology for long-
one of the key determinants in shaping term growth due to its impact on productivity,
international relations (Mallik, 2016). development of society, education, and
Technology is central to human life as it shapes economy through discovery, transfer,
international affairs and diplomatic issues, diffusion, and application of new knowledge.
including economic policies, energy, disease The relevance of technology to promote
prevention, medicine, security, and nuclear development calls for the need of every country
proliferation (Giacomello et al., 2021). Further, to either generate its technology or acquire
technology is critical in pursuing national goals it from other States (Dos Santos, 2020).
for countries, including promoting economic Therefore, International Technology Transfer
development and national security, and is fundamental in sustaining the economic
therefore, countries with technological edge growth, industrialization, and development
are likely to gain strategic advantage over other of a transferee country (Cinar et al., 2020).

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Transfer of technology is one of the major knowledge sharing (Task Team on South-South
components of technical cooperation (Mallik, Cooperation, 2011).
2016). Through the acquisition of knowledge,
experience, equipment, and machinery, South-South Cooperation is anchored on
developing countries are likely to accelerate horizontal partnerships based on equity,
their socio-economic transformation and overall trust, mutual benefit, and long-term relations
development. as an alternative development cooperation.
Further, the key principles of South-South
Many countries tend to rely on technology Cooperation include common endeavour of
invented abroad (Milner and Solstad, 2021). people and countries of the South based on
Consequently, technology has a political shared experiences, common objectives, and
economy dimension as it plays a significant solidarity; partnerships among ‘equals’ and
role in the distribution of wealth and power. free from conditionalities; respect for national
Since technology is largely controlled by a few sovereignty, ownership, and priorities as defined
techno-economic powers and multinational by national development plans and strategies.
corporations (MNCs), technology transfer has South-South Cooperation is informed by
the potential to be employed as a strategic the core principles of the 1955 Bandung
instrument by States to advance their national Conference (Asia-Africa Conference); the 1978
interests. Unequal access to technology is one Plan of Action for Promoting and Implementing
of the obstacles to achieving sustainable and Technical Cooperation among Developing
inclusive development (Pandey et al., 2021). Countries (the Bueno Aires Plan of Action); the
The inequities in access to technology are 2005 Bali Strategic Plan (BSP) on Technology
deeply rooted in power asymmetries in the Support and Capacity Building; the 2009
global economic and political order, which have Nairobi Outcome Document of the High-level
shaped unequal development and technology United Nations Conference on South-South
transfer to developing countries. Cooperation; and the 2015 Addis Ababa Action
Agenda of the Third International Conference
The North-South technology transfer paradigm on Financing for Development.
has traditionally denoted developing countries’
reliance on technology from developed South-South Cooperation (SSC) is an important
countries (Raslan, 2021; Urban, 2017). means of development cooperation and
Historically, the North-South cooperation is technology transfer. Traditional development
perceived as a broad framework of development partners and the United Nations are increasingly
cooperation in the political, economic, social, supporting the SSC through triangular
cultural, environmental, and technical domains. cooperation. Subsequently, South-South and
However, the relationship has been largely Triangular Cooperation has emerged as an
characterized by power asymmetries in favour important modality for development cooperation
of developed countries. Countries in the Global and has been singled out as a vital mechanism
South have increased their cooperation for for the implementation of the Agenda 2030 for
decades in trade, agriculture, health, education, sustainable development. Thus, South-South
communication, research, infrastructure, and and Triangular Cooperation play a crucial role
energy to address their common development in accelerating human development as it has
challenges (United Nations Environment increasingly demonstrated its contribution to
Programme, 2020). In various global forums, the development outcomes through a variety
South-South Cooperation (SSC) has been of flexible cooperation modalities, including
endorsed as a mechanism for capacity knowledge exchanges, technology transfers,
development and technology transfer. Three financing, peer learning, and support, and
pillars of development cooperation include seeking common solutions to development
financial assistance, technical assistance, and challenges (UNDP, 2016). Through this

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model of international cooperation, Southern Cooperation, and South-South and Triangular

development assistance providers can benefit Cooperation models. Specifically, the chapter
from the financial and technical support, delves into how Kenya navigates the emerging
experience, and technical know-how of multipolar economic order to attract appropriate
multilateral organizations and traditional technologies for its economic growth and
development partners (FAO, 2014). Therefore, development through strategic partnerships
South-South and Triangular Cooperation and South-South and Triangular Cooperation
is viewed as a pragmatic development frameworks.
cooperation model for the effective exchange of
knowledge, experience, skills, resources, and 9.2 Reconfiguration of Global Economic
technical know-how for the benefit of emerging Order
and developing economies.
The reconfiguration of the global economic
Leveraging strategic partnerships in unlocking order represents a pivotal shift in the dynamics
technology transfer through South-South of international trade, finance, and governance.
Cooperation, and South-South and Triangular As geopolitical landscapes evolve, economic
Cooperation will be critical in enhancing powerhouses realign, and technological
productivity and inclusive growth for healthcare advancements reshape industries; the
and vaccine production; adoption of frontier traditional structures governing global economic
technologies, textile industry; and infrastructure relations are being challenged and transformed.
development in Kenya. Since 2017, Kenya This section examines the strategies nations
has elevated its bilateral relations with the are employing to navigate this evolving
world’s major economies including China, geopolitical landscape and provides a deeper
the United States, the European Union, and understanding of the new economic paradigm
the United Kingdom to strategic partnerships taking shape on a global scale.
level. Moreover, Kenya’s quest for deeper
engagement with newly industrialized 9.2.1 Role of BRICS in development
countries and other emerging economies from cooperation
various world regions demonstrates potential
strategic partnerships. With the deepening of The emergence of new and resurgent global
bilateral relations with pivotal countries in the players is increasingly shifting the balance of
emerging multipolar world, it is expected that power in the world economic order as shown
strategic partnerships will be entrenched in in Table 9.1. The shift of the economic balance
Kenya’s multilevel diplomacy involving active of power and subsequent restructuring of the
participation from various state institutions global economic system could be an opportunity
and actors. Similarly, strategic partnership for the Global South to enhance its agency in the
has been identified as crucial not only for international development cooperation agenda.
the promotion of economic cooperation, The increasing role of emerging economic
international trade, and investment but also powers and newly industrialized economies in
for the realization of the Bottom-up Economic development financing, technical assistance,
Transformation Agenda (BETA) objectives. This and outward Foreign Direct Investment
chapter explores the significance of strategic could expand opportunities for technology
partnership diplomacy in enhancing technology cooperation and knowledge transfer in the
cooperation through revitalized South-South Global South.

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Table 9.1: Major countries, regions, and their shares in aggregate GDP (%), 2005-2022

2005 2010 2015 2020 2022

Advanced economies 52.3 52.3 42.4 42.5 41.7
Emerging markets and developing economies 47.7 47.7 57.6 57.5 58.3
European Union 14.8 14.6 12.0 12.0 12.0
United States 20.1 19.7 15.8 15.9 15.5
Japan 6.4 5.8 4.2 4.0 3.8
United Kingdom 3.0 2.9 2.4 2.2 2.3
Canada 1.8 1.8 1.4 1.4 1.4
China 15.4 13.6 17.3 18.3 18.4
India 5.9 5.4 7.0 6.8 7.3
Russia 2.6 3.0 3.3 3.1 2.9
Brazil 2.6 2.9 2.8 2.4 2.3
South Africa ---- ---- ---- 0.5 0.6

Data source: IMF (Various), World Economic Outlook

The BRICS (Brazil, Russia, India, China, and United States’ GDP decreased from 20.1 per
South Africa) have emerged as a potential cent in 2005 to 15.5 per cent in 2022. Further,
force to leverage their collective strengths Japan’s GDP dropped from 6.4 per cent in 2005
to drive global economic growth, innovation, to 3.8 per cent in 2022. With new members
and adoption of frontier technologies. China’s including Egypt, Ethiopia, Iran, Saudi Arabia,
aggregate global GDP increased from 15.4 and the United Arab Emirates since January
per cent in 2005 to 18.4 per cent in 2022 as 2024, the BRICS+’s influence could make a
shown in Figure 9.1. India has also made significant impact on investment, innovation,
modest growth during the same period. The and knowledge and skills sharing.

Figure 9.1: Trend in aggregate global GDP of major economic powers (%), 2005 - 2022

United States Japan United Kingdom China India Russia Brazil

20.1

19.7

18.4
18.3
17.3

15.9
15.8

15.5
15.4

13.6

7.3
6.8
6.4

5.9

5.8

7
5.4

4.2

3.8
3.3

3.1
2.9

2.9

2.9
2.8

4
2.6
2.6

2.4

2.4

2.3

2.3
2.2
3

2005 2010 2015 2020 2022

Data source: IMF (Various), World Economic Outlook (Various)

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New institutions of transregional cooperation Due to its flexibility, strategic partnerships are
and connectivity such as the Belt and Road largely used by rising powers, middle-sized and
Initiative, New Development Bank, Contingent small countries (Boni, 2022). As a foreign policy
Reserve Arrangement (CRA), and Asian tool anchored on diplomatic dialogue, strategic
Infrastructure Investment Bank are critical in partnerships engage in mutual learning
providing alternative development models and problem-solving that could be crucial
(Duggan et al., 2022). Due to structural for technology cooperation and knowledge
changes in the international system and power sharing (Michalski, 2019). Therefore, pragmatic
distribution shifts, strategic partnerships have strategic partnership could be crucial for the
become a significant feature of international acquisition of requisite technology for enhanced
relations (Michalski, 2019). Strategic partnership productivity and inclusive growth in developing
denotes privileged bilateral relationships countries.
between states and between States and non-
State actors, to enhance diplomatic dialogue 9.2.2 Significance of frontier technology
and solve myriads of development challenges for productivity
at bilateral, regional, inter-regional, and global
levels. Frontier technologies, including digital
and physical technologies, have potential
The trend of GDP growth for major economic applications for sustainable development as
powers from 2005 to 2022 reflects varying their adoption and innovation in production
trajectories. The United States experienced processes increase overall productivity (United
fluctuations in GDP growth, with periods of Nations Economic and Social Commission
expansion and contraction influenced by for Asia and the Pacific, 2018). Some of the
factors such as the global financial crisis of frontier technologies that have developed in the
2008. Japan’s GDP growth showed a more last two decades include artificial intelligence,
subdued pattern, characterized by declining Internet of Things (IoT), big data, blockchain,
growth rates between 2005 and 2022. The 5G, 3D printing, drone technology, robotics,
United Kingdom faced economic challenges, solar PV, biofuel and biomass, wind energy,
including the impact of Brexit, which influenced green hydrogen, electric vehicles, gene editing
its GDP growth over the years. China emerged and nanotechnology.
as a global economic powerhouse, consistently
exhibiting robust GDP growth, and positioning The emergence of frontier technologies
itself as a key player in the world economy. India heralds optimism to eliminate hunger and
demonstrated significant economic growth, epidemics, increase life expectancy, reduce
driven by factors such as demographic trends greenhouse emissions, automate repetitive
and economic reforms. Russia’s GDP growth tasks in factories, improve quality of life, and
was influenced by fluctuations in oil prices and create decent jobs (United Nations, 2018).
geopolitical factors impacting its economic Frontier technologies have offered promise
performance. Generally, the major economic to businesses as increased interconnectivity
powers showcased diverse growth patterns between machines and computer systems
influenced by both domestic and global factors has fundamentally transformed the capacity
over the review period (Figure 9.1). of firms to manage their supply, productivity,
and delivery relations across geographically
The main economic powers across the globe dispersed stages of value chains (UNCTAD,
use strategic partnerships to achieve foreign 2022). Similarly, frontier technologies have the
policy objectives. Strategic partnerships are potential for governments to transform public
based on a balance of mutual advantages and service delivery by using digital technologies
commitments, and therefore mutual interests of that strengthen public institutions’ capabilities
partner actors are fundamental (Schmidt, 2010). and empower citizens. Additionally, frontier

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technologies can be deployed for environmental its position, excelling in R&D and industry.
protection and preservation (United Nations, China made significant progress, notably in
2023). ICT and finance readiness, while India also
advanced, particularly in R&D and industry.
However, frontier technologies are currently Russia remained consistent in the top 30, with
dominated by advanced economies and a few strengths in R&D and industry, while Brazil
emerging economies, leading to disparities maintained stability around the top 40, focusing
in the knowledge landscape (United Nations, on industry readiness. Singapore continued to
2023). Moreover, several developing countries excel across all dimensions, positioning itself
still face enormous barriers to tapping into among the top countries consistently. These
the opportunities as they have inadequate rankings provide valuable insights into how
investments in infrastructure, skills, and countries are positioned to embrace frontier
research capabilities to acquire the technologies. technologies based on their capabilities in key
Frontier technologies risk exacerbating existing areas essential for technological advancement
inequalities and creating new ones across the and innovation.
globe (United Nations, 2021).
Countries that are least prepared to use, adopt,
The indicators for frontier technology readiness and adapt frontier technologies are largely
include information and communication from Latin America, the Caribbean, and Sub-
technology (ICT), skills, research and Saharan Africa. High-income economies with
development, industrial capacity, and finance. very high index values tend to have advanced
The Readiness Index highlights areas in which infrastructure, including ICT technologies, a
countries can improve to enable a greater highly skilled population, developed industry,
use, adoption, and adaptation of frontier and better access to finance. ICT indicator
technologies (UNCTAD, 2013). The ranking is comprises access and speed of the Internet and
dominated by high-income economies while other ICT services and products. Skills indicator
emerging economies fall in the second tier of looks at the level of education of the population
the ranking as shown in Table 9.2. The Frontier in a country. Literacy, numeracy, and digital
Technologies Readiness Index for selected skills are necessary for frontier technologies.
countries in 2021 and 2022 reveals a diverse Research and Development (R&D) comprises
landscape of technological preparedness. a number of scientific publications on frontier
The United States consistently leads the technologies and a number of patents filed on
rankings, demonstrating high readiness frontier technologies. Industry activity consists
across ICT, skills, R&D, industry, and finance. of exports of high technology manufactures,
Japan improved slightly, particularly in R&D and exports of digitally deliverable services.
readiness, while the United Kingdom showed Finally, access to finance refers to domestic
fluctuations but maintained strength in skills credit to the private sector.
and industry. Germany remained solid in

Table 9.2: Frontier Technologies Readiness Index for selected countries, 2021 and 2022

Total score 2022 rank 2021 rank ICT rank Skill rank R&D rank Industry Finance
rank rank
United States 1.00 1 1 11 18 2 16 2
Japan 0.88 19 18 10 51 7 13 3
United Kingdom 0.89 17 3 20 12 6 44 12
Germany 0.92 7 9 24 17 5 12 40
China 0.74 35 25 117 93 1 8 4

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India 0.66 46 43 95 109 4 22 75

Russia 0.76 31 27 43 32 13 54 69
Brazil 0.71 40 41 50 55 18 51 57
South Africa 0.61 56 54 71 77 36 67 25
Kenya 0.32 117 105 120 135 83 93 107
Egypt 0.49 83 87 91 66 47 90 119
Singapore 0.96 3 5 7 8 17 4 17
Saudi Arabia 0.65 47 50 46 44 20 119 77

Data source: UNCTAD (2023), Technology and Innovation Report

Despite the overall underperformance of Sub- ensuring that the ranking of R&D and Industry
Saharan African countries in the global Frontier improves. Actualization of the BETA pillars and
Technologies Readiness Index, South Africa, enablers offers opportunities for tapping into
and Mauritius have made progress on finance frontier technologies. Similarly, Africa’s general
indicators emerging among the top 50 at performance in the frontier technologies
positions 25 and 34 globally respectively (Table uptake could also be improved through the
9.3). South Africa has also ranked 36 globally implementation of the AU Agenda 2063, Digital
in R&D. Kenya’s best performance are R&D Transformation Strategy for Africa (2020-2030),
and industry at positions 83 and 93 globally. the Policy and Regulatory Initiative for Digital
The overall performance across indicators Africa (PRIDA 2018), AU Data Policy 2022 and
shows that concerted efforts are critical in other AU infrastructure-related policies.
scaling up ICT, Skills, and Finance as well as

Table 9.3: Frontier Technologies Readiness Index for top ten Sub-Saharan African countries,
2021 - 2022

Total 2022 rank 2021 rank ICT rank Skills R&D rank Industry Finance
score rank rank rank
South Africa 0.61 56 54 71 77 36 67 25
Mauritius 0.54 73 77 96 57 82 74 34
Namibia 0.36 104 91 129 111 104 66 53
Botswana 0.35 108 111 109 102 103 128 94
Ghana 0.35 109 103 99 122 81 107 154
Gabon 0.35 111 94 105 98 149 76 148
Cabo Verde 0.33 115 101 97 110 160 153 51
Kenya 0.32 117 105 120 135 83 93 107
Eswatini 0.32 118 107 141 114 124 72 131
Nigeria 0.32 119 124 119 108 68 157 153

Data source: UNCTAD (2023) Technology and Innovation Report

Figure 9.2 demonstrates the relationship Conference on Trade and Development

between frontier technology and productive (UNCTAD) and measures preparedness to
capacities for developing and developed adopt and benefit from frontier technologies,
countries. The Frontier Technologies Readiness with indices of one (1) indicating the highest
Index is prepared by the United Nations preparedness to adopt and benefit from the

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technologies. The productive capacities index reveals that developing countries have lower
is a measure of productivity ranging from 0-100, adoption of frontier technologies compared to
with higher scores indicating a more developed developed countries. In terms of productive
and diversified economy enjoying a strong capacities, developing countries have lower
foundation for sustainable growth. Figure 9.2 productivity compared to developed countries.

Figure 9.2: Frontier technology index against productive capacity for developing and
developed countries, 2008-2021

1.1 110
Frontier technology (0- 1)

Productive capacity (0 - 100)

1 100
0.9 90
0.8 80
0.7 70
0.6 60
0.5 50
0.4 40
0.3 30
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Frontier technology-developing countries

Frontier technology- developed countries
Productive capacities-Developed economies
Productive capacities-Developing economies

Source: Author impression based on data from UNCTAD

Frontier technologies are expected to support and regional levels to harness technology that
productivity and inclusive development as could be crucial in their development plans.
they support industrial activity and economic Similarly, countries in the Global South that are
growth. The diffusion of the technologies from still lagging in the use, adoption, and adaptation
the developed to the developing countries of frontier technologies should be proactive
is further expected to support inclusive in laying a strong foundation for improving
development in areas such as agriculture, ICT infrastructure, R&D, skills, industry, and
education, health, manufacturing, business and access to credit through pragmatic policies and
finance, insurance, infrastructure development, strategies.
environment, and climate action.
9.3 Health and Vaccine Production
The reconfiguration of the global economic
order in which emerging economic powers have In recognition of the gravity of the public
increased their agency in global governance health problems facing developing countries
could be an opportunity for other developing and LDCs, especially HIV and AIDs, malaria,
countries to access technology through tuberculosis, and other epidemics, the Fourth
South-South and Triangular Cooperation. Due Ministerial Conference of the WTO adopted
to its flexibility and emphasis on economic the Doha Declaration on the Trade Related
cooperation, developing countries could Aspects of Intellectual Property Rights (TRIPS)
employ strategic partnerships both at bilateral Agreement and Public Health in November

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2001 to reaffirm flexibility of TRIPS in in Figure 9.3 (World Health Organization, 2022).
responding to public health emergencies. The COVID-19 underscores the need to consider
Doha Declaration affirmed that the Agreement the development of vaccine manufacturing
should be interpreted and implemented in a capacity to safeguard the quality of healthcare
manner supportive of WTO members’ right to in the continent and responses to current and
protect public health and promote access to future pandemics and disease outbreaks.
medicines for all (WTO, Ministerial Declaration,
Paragraph 4, 2001). Intellectual Property Rights (IPRs) refer to
rules, norms, and regulations that prevent
The magnitude of devastation caused by the the unauthorized use of intellectual products
COVID-19 pandemic highlighted the need (Kumar, 2023). The protection and enforcement
to address the tension between the right to of IPRs should contribute to the promotion
health and Intellectual Property Rights (IPRs) of technological innovation, and the transfer
(Chen, 2021). At the height of the COVID-19 and dissemination of technology for the
pandemic, access to vaccines and other health mutual advantage of producers and users
technologies remained highly asymmetric of technological knowledge, in a manner
despite the concerted efforts by national that promotes social and economic welfare
governments and international institutions to and ensures that rights and obligations are
advance equitable access (Kohler et al., 2022). guaranteed. Signatories to the Trade Related
Two years after the outbreak of the COVID-19 Aspects of Intellectual Property Rights (TRIPS)
pandemic, high-income countries had achieved Agreement may adopt measures necessary
full vaccine coverage in 70 per cent to 90 per for the protection of public health and nutrition
cent of their population, while only 15.8 per and undertake appropriate measures to
cent of the population in low-income countries prevent the abuse of intellectual property
had received at least a dose of the vaccine. rights by right holders and practices that might
Despite being home to 17 per cent of the global unreasonably restrain trade or adversely affect
population, Africa carries 25 per cent of the the international technology transfer (Article 8
global disease burden (Correa, 2023; Path of TRIPS Agreement). The types of intellectual
et al., 2023). Further, Africa consumes nearly property in the Agreement include copyrights
25 per cent of the globally produced vaccines and related rights, trademarks, geographical
but imports 99 per cent and 95 per cent of its indications, industrial designs, patents, and
vaccines and medicines, respectively, as shown trade secrets.

Figure 9.3: Share of vaccine volumes by manufacturer WHO region (%), 2023

99 98
100 93

90
80 71 68 66
70
60
50
%

32 34
40
27
30
20
7
10 1 2
0
African Region Regions of Eastern European Southeast Asia Western Pacific
Americas Mediterranean Region Region Region

Locally supplied from the region Imports from other regions

Data source: World Health Organization data

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While local African vaccine manufacturing Mediterranean regions tend to be the most
supplies are estimated at 1.0 per cent of the dependent on imports from other regions for
total continent’s demand, Southeast Asian their vaccine supplies. Nonetheless, global
region’s local vaccine production is estimated vaccine manufacturing is concentrated in
at 93 per cent (African Union and Africa CDC, Southeast Asia.
2022). Generally, the African and Eastern

Table 9.4: Vaccine manufacturing capacity in Africa

Country Vaccine manufacturing Year of establishment Manufacturing stage

facilities
1. Egypt VACSERA 1881 Fill and finish
Pack and label
Biogeneric Pharma 2005 Research
Minapharm 1958 Research
Fill and finish
2. Tunisia Institut Pasteur Tunis 1958 Drug substance manufacturing
Fill and finish
3. Algeria Saidal 1982 Drug substance manufacturing
Import for distribution
4. Morocco Sensyo Pharmatech 2024 Fill and finish
Institut Pasteur Du Maroc 1929 Import for distribution
Galenica 1978 Drug substance production
Fill and finish
Pack and label
Sothema 1976 Pharmaceutical manufacturing company
5. Senegal Institut Pastuer De Dakar 2009 Drug substance manufacturing
Fill and finish
Pack and label
6. Nigeria Innovative Biotech Ltd 2005 Research and development
Biovaccines Nigeria 2005 Research
Limited Pack and label
7. Ethiopia Ethiopian Public Health 1995 Pack and label
Institute Import for distribution
8 Ghana Ghana Health Ministry 2024 Drug substance manufacturing
9. Kenya Afrigen 2022 Drug substance manufacturing
10. Uganda Dei Biopharma 2022 Drug substance manufacturing
11. Rwanda Rwanda Biomedical 2023 Drug substance manufacturing
Centre
12. Botswana Botswana Baylor 2026 Drug substance manufacturing
Children’s Clinic
13. South Africa Aspen 1997 Fill and finish
Biovac 2003 Research and development
Drug substance manufacturing
Fill and finish
Pack and label
Import for distribution

Source: Saied (2022)

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African vaccine manufacturers are in thirteen produce, and supply over 60 per cent of the
(13) African countries with varying degrees total vaccine doses in Africa by 2040 (African
of capacity (Table 9.4). Two major vaccine Union and Africa CDC, 2022). The strategy
manufacturing are drug substance production will be adapted to regional specifics through a
or manufacturing and drug product production Framework for Action (FFA), which is anchored
(Path et al., 2023). While drug substance on the premise that the continent should
production entails producing active vaccine adopt a fully integrated ecosystem to generate
components (antigen), drug product production investments that could support all steps of the
involves producing the final vaccine product, vaccine manufacturing supply chain, including
including formulation, fill, and finish. Drug research and development (R&D); drug
substance production or manufacturing is the substance (DS) production or manufacturing;
most cost-intensive and technically challenging and fill and finish (F&F). Successful
stage. Most human vaccine facilities in Africa implementation of FFA is expected to deliver
engage in fill, finish, pack, and label. Among 13 multiple benefits to Africa, including sovereign
operational vaccine firms and organizations in health security, regional regulatory and trade
the continent, ten (10) have developed fill and policy harmonization, technological expertise,
finish (F&F) capacity, five have drug substance and economic impact. Africa can deepen
(DS) production or manufacturing, and three cooperation with other developing countries
engage in Research and Development (R&D). including China, India, Brazil, Argentina, and
Cuba that have significant capacity in vaccine
Notably, many African countries have developed production (Correa, 2023).
manufacturing capabilities for other biologics
such as veterinary vaccines, monoclonal The establishment of an mRNA tech transfer
antibodies, and sera (Wellcome Trust et al., hub in the continent at Afrigen Biologics and
2023). Veterinary vaccines are manufactured in Vaccines in South Africa to support Low and
16 African countries, including Kenya, Tanzania, Middle-Income Countries (LMICs) to produce
Ethiopia, South Africa, Egypt, Zimbabwe, their vaccines is central to tech transfer and
Malawi, Botswana, Nigeria, Morocco, Senegal, technical know-how. In February 2022, six
Democratic Republic of Congo, Niger, Burkina African countries including Egypt, Kenya,
Faso and Mauritius. Africa could optimize on Nigeria, Senegal, South Africa, and Tunisia
synergy between the production of human were chosen as recipients of mRNA technology
vaccines and the production of other biologics. by the WHO (2022). The emerging hub and
spoke model is expected to share technology
In response to the immense global inequities in and technical knowledge for the development
the COVID-19 vaccine distribution, the African and licensing of mRNA vaccines with local
Union and major stakeholders in the global firms. The establishment of mRNA hubs is a
health sector launched various initiatives, critical strategy for present and future health
including the continental COVID-19 Vaccine challenges by ensuring that LMICs get access
Development and Access Strategy, which are to medicines and vaccines.
central in the AU’s call for a new public health
order. The AU also established the African The reforms for the IPRs regime are necessary
Medicines Agency with the main objective of to enable developing economies to develop
enhancing the capacity of State Parties and their infant industries and for the adoption of
RECs to regulate medical products to improve green innovation and growth that are critical
access to quality, safe, and efficacious medical for enhanced productivity in the Global
products in Africa (African Union, 2019). The South. During their meeting in Indonesia in
Partnerships for African Vaccine Manufacturing November 2022, the G20 recognized the need
(PAVM) framework aims to enable the African to strengthen local and regional health product
vaccine manufacturing industry to develop, manufacturing capacities and cooperation

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in addition to sustainable global and regional ecosystems in developing countries through

research and development networks to facilitate international cooperation, solidarity, and
better access to vaccines, therapeutics, strategic partnerships at various levels.
and diagnostics (VTDs) across the world,
especially in developing countries. The G20 9.4 Textile Industry and Clothing Sector
also underscored the importance of technology
transfer and knowledge sharing on voluntary Asian countries are major players in the global
and mutually agreed terms. Further, the G20 textile and clothing industry. China, Bangladesh,
supports the WHO mRNA Vaccine Technology Vietnam, and India are strategically positioned
Transfer and the spokes in all the world’s in the apparel global supply chains, whereas
regions to share technology and technical the largest apparel consumer markets are
know-how. The role of the G20+ and BRICS+ is largely concentrated in Europe, North America,
critical for negotiating a pandemic treaty that will and other high-income countries such as Japan
provide an inclusive and equitable framework (Whitfield and Triki, 2023; Ayoki, 2017). China’s
and responses to future pandemics while the ascension to the World Trade Organization
AU still collaborates with other G20 members (WTO), and various preferential trade
through North-South Cooperation, South-South agreements saw the shift to the geography
Cooperation, and Triangular Cooperation. of textile production as Asia emerged as the
main source of textile and clothing exports
The COVID-19 pandemic was a turning point (Fernández-Stark et al., 2022). Moreover, the
for African countries and the African Union in 1995 phasing out of the Multifibre Arrangement
terms of rethinking better measures to ensure (MFA) that imposed quotas on the amount
that public health is protected and improved of clothing and textiles developing countries
through local manufacturing of vaccines and could export to developed economies opened
other diagnostics. It is also important to revisit opportunities for countries in the Global South
TRIPs reforms to unlock technology for low- including China, Bangladesh and Vietnam to
income and least-developed countries. This will expand their respective textile and apparel
need concerted efforts from the World Health industries.
Organization, United Nations agencies, G7,
G20, and other stakeholders to support health Figure 9.4: Values of exports of apparel and
clothing, 2013-2022 (US dollar in thousands), 2013-2022

China European Union Bangladesh Vietnam Turkiye

India Cambodia Pakistan Indonesia United States

120000000

100000000

80000000

60000000

40000000

20000000

0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Data source: International Trade Centre (2023)

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China’s predominance in the textile and of scale, and strong logistical services. China
apparel sector is visible between 2013 and and other Asian countries such as India,
2022 as shown in Figure 9.4. This could largely Bangladesh, and Vietnam might have also
be attributed to low-cost labour, economies benefitted from the phase-out of the quotas.

Table 9.5: Africa’s top exporters of apparel and clothing, US dollar million, 2013-2022

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Global 207,727 232,521 217,985 215,729 224,340 235,397 234,082 206,256 233,767 255,767
Morocco 2,261 2,401 2,060 2,238 2,401 2,533 2,424 1,911 2,518 2,726
Tunisia 2,037 2,010 1,552 1,580 1,610 1,808 1,709 1,454 1,668 2,726
Egypt 867 781 865 889 989 106 1,100 891 1,264 1,658
Madagascar 190 243 192 239 291 268 268 266 266 301
Kenya 140 201 183 206 190 218 231 198 231 225
South Africa 229 217 204 186 195 198 198 166 219 203
Mauritius 327 361 350 322 299 318 282 201 179 195
Eswatini 76 97 95 105 133 151 157 117 149 157
Lesotho 62 107 93 159 178 151 128 149 167 150
Ethiopia 10 11 25 20 27 51 85 48 62 49

Data source: International Trade Centre (2023)

Africa’s major apparel and clothing exports Second-hand clothing (SHC) is growing
are from Morocco, Tunisia, and Egypt (Table in response to the increasing demand for
9.5). Despite being recognized as a critical affordable clothing products (Dissanayake
economic pillar for Africa’s industrialization, and Pal, 2023). The phenomenon of SHC and
the textile industry has stagnated in several its supply chain is highly globalized, diverse,
countries since the early 1980s (Brooks and complex, fragmented, and it is not limited to
Simon, 2012). The current structural trends in North-South relationship due to the spread of
the global value chains of the textile industry the trade across various geographic regions in
present an opportunity for Africa to rebuild its the world (Hernandez, 2019; Dissanayake and
textile industry as sustainability, circularity, Pal, 2023). While historically major exporters
and climate crisis become critical in the of SHC were in the Global North, there is an
production processes (Whitfield and Triki, increasing trend in which countries in the
2023). Understanding the trends in the global Global South are emerging as major exporters,
textile and apparel industry is crucial for Africa especially from Asia. For instance, China’s
to explore new opportunities that support the SHC exports have increased significantly in
sector’s growth. the past decade. Other top exporters from the
Global South are from Asia and include India,
Pakistan, and Vietnam as shown in Table 9.6.

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Table 9.6: Top ten world’s exporters of second-hand clothing (US dollar million), 2013-2022

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Global 62,481 66,518 61,098 60,498 63,421 66,830 66,833 122,932 91,558 85,211
China 26,825 28,472 26,954 25,724 26,469 27,848 27,890 75,584 41,857 37,667
India 4,712 4,613 4,616 4,564 4,962 5,240 5,163 4,771 6,677 6,020
Pakistan 3,685 3,906 3,759 3,803 3,961 4,076 4,070 4,277 5,515 5,638
Germany 2,835 3,083 2,772 2,823 2,803 3,134 3,091 4,193 4,080 3,505
Turkiye 2,462 2,530 1,899 1,954 2,016 2,052 1,815 3,188 2,038 2,771
US 2,166 2,226 2,182 2,001 2,138 2,179 2,227 2,458 2,892 2,939
Vietnam 1,172 1,302 1,370 1,359 1,449 1,579 1,815 3,188 2,038 2,086
UK 1,142 1,146 1,034 1,009 1,048 1,112 1,087 1,098 948 883
Netherlands 1,108 1,231 1,031 1,120 1,120 1,279 1,329 1,729 1,916 1,652
Belgium 1,023 1,084 968 1,010 1,028 1,083 1,045 1,345 1,246 1,152

Data source: International Trade Centre (2023)

In 2022, the major importers of second-hand Republic of Congo (DRC), Ukraine, India,
clothing were Pakistan, Guatemala, United Arab United Kingdom (UK), India and Tanzania.
Emirates (UAE), Kenya, Ghana, Democratic

Table 9.7: Major importers of second-hand clothing (US dollar million), 2013-2022

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Pakistan 159 182 209 239 240 284 230 204 402 422
Guatemala 64 65 97 98 107 107 121 98 157 209
UAE 21 36 15 15 58 76 100 81 110 176
Kenya 96 100 103 126 126 167 173 114 172 169
Ghana 72 65 79 80 85 90 72 183 214 164
DRC 109 94 100 113 117 81 128 141
Ukraine 128 104 97 127 154 154 183 158 176 133
India 121 122 113 87 99 93 98 72 81 109
UK 28 29 20 11 61 75 72 54 76 108
Tanzania 61 74 62 61 47 81 106 106 105 108

Data source: International Trade Centre

The growth of the SHC sector in the past three million in 2019, slowing down to US$114 million
decades reflects the demand for SHC among and increasing to US$ 172 million in 2021.
Kenyan households (Institute of Economic However, Kenya’s SHC imports experienced a
Affairs, 2021). Globally, Kenya was among slight drop in 2022. Nonetheless, it is notable
the top ten importing countries for the SHC that the SHC sector contributed Ksh 1 billion in
between 2013 and 2022, as shown in Table revenue to the government through import tax
9.7. The value of Kenya’s second-hand clothing (Institute of Economic Affairs, 2021).
steadily rose from US$ 96 million to US$ 173

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Currently, there are no ‘international’ increasingly suffocated the infant textile industry
instruments guiding the SHC trade. States in Africa. Despite intervention measures to
tend to rely on bilateral agreements on the revitalize the textile industry, African countries
governance and management of the SHC are yet to have a breakthrough like their Asian
sector. In an asymmetric bilateral or bi- counterparts. With the emergence of trends
multilateral relationship, the powerful State that are beginning to focus on sustainable
is likely to impose its will on other partner(s), textile development, African countries could
despite the laid down procedures in the explore opportunities that might enable them
bilateral agreement. The reaction of the United to modernize the textile sector by adopting
States on the planned three-year phase-out of affordable technologies that can be effective
SHC imports by the East African Community from the production of fibre to the manufacturing
(EAC) partner States in 2016 illustrated how of apparel.
asymmetric partnership could adversely
affect development policy choices of regional 9.5 Infrastructure Development: Belt and
economic communities (RECs) in Africa. While Road Initiative
the EAC Heads of States’ directive in March
2016 was aimed at arresting the decline of Infrastructure sectors’ technical performance
indigenous textile and clothing (T&C) industry has been inadequate in developing countries
by exercising their collective agency through due to State monopolies, weak regulatory
the implementation of a coordinated trade and framework, and poor maintenance. Moreover,
industrial strategy, the Secondary Material investment in the infrastructure sectors has
and Recycled Textiles (SMART) industry filed been a challenge due to several factors,
a petition with the Office of the United States including a need for huge investment, large
Trade Representative (USTR) demanding the land acquisition, government regulation, weak
withdrawal of the EAC’s eligibility for the AGOA institutions, and State fragility and instabilities,
preference scheme (O’Reilly and Heron, 2022). hence increasing investment risks (Jiaoe et
al., 2021). To respond to the poor performance
The second-hand clothes in Kenya and the of technology transfer in the infrastructure
wider EAC region are deemed to be cheaper sector, developing countries are increasingly
and of better quality in some circumstances implementing and restructuring regulatory
than new clothing, hence the increasing reforms. Kenya aims at cost-effective, world-
demand (Katende-Magezi, 2017). In Kenya, class infrastructure facilities and services,
over two million people are engaged in the SHC as infrastructure is critical in facilitating and
sub-sector, which covers handling, alterations, accelerating socio-economic development
refinements, and distribution (Institute of in the country (Republic of Kenya, 2007;
Economic Affairs, 2021). While the availability 2018). Similarly, infrastructure is a crucial
of second-hand clothes offers households a enabler for the realization of the objectives of
wide range of choice of products, technology the government’s Bottom-up Economic and
transfer is yet to be established as the clothes Transformation Agenda.
are largely imported as finished goods.
China’s Belt and Road Initiative (BRI) aims to
Africa’s textile and apparel industry has promote the connectivity of Asia, Europe, and
faced numerous challenges in the past three Africa and their adjacent seas, to establish
decades, as Asian countries especially China, and strengthen partnerships among countries
Bangladesh, India, and Vietnam emerge as along the Belt and Road (The State Council,
the main exporters of textile products. During 2015). In addition, the BRI had stretched
the same period, the African market has to Latin America and other regions, with
been targeted by exporters of second-hand more than 150 countries and more than 30
clothing and other merchandise. The trend has international organizations having signed the

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Belt and Road cooperation with China by 2023 (Dollar, 2019). By January 2024, there were
(Chair’s Statement, 2023). The BRI is critical in over 150 countries and over 30 international
transforming the construction industry and built organizations participating in the BRI. Almost
environment in Africa (Shukra et al., 2021). all African countries have signed MoUs with
Two main components of the BRI are the New China on BRI. Kenya is a key partner in the BRI
Silk Road Economic Belt and the 21st Century as its ports and other transport infrastructure
Maritime Silk Road (Irandu and Owilla, 2020). are crucial BRI linkages to landlocked countries
in the region (Komakech and Ombati, 2023).
The BRI has five major routes, namely: the Kenya and China signed a BRI Memorandum
Silk Road Economic Belt, which comprises of Understanding on the sidelines of the
Northwest China and Northeast China to Europe Forum on China-Africa Cooperation (FOCAC)
and the Baltic Sea through Central Asia and summit held in September 2018 in Beijing,
Russia; Northwest China to the Persian Gulf China. Similarly, Kenya’s top leadership has
and the Mediterranean Sea passing through participated in the Belt and Road forums in
Central Asia and West Asia; and Southwest 2017, 2019, and 2023.
China through the Indochina Peninsula to
the Indian Ocean. The 21st Century Maritime Since it was launched in 2013, the BRI has
Silk Road comprises two routes, namely from witnessed concrete and steady achievements
coastal ports of China crossing the South in infrastructure building, trade, and investment
China Sea, passing through the Malacca Strait promotion, joint construction of industrial parks
and reaching the Indian Ocean, eastern African and free trade zones, financial cooperation, and
coast, extending to Europe; and from coastal cultural exchange that are expected to benefit
ports of China, crossing the South China Sea both China and participating countries (Zhang,
and extending to the South Pacific (People’s 2018). The Government of Kenya undertook
Republic of China, 2017). various measures, including an overhaul of the
institutional and policy framework related to the
The third component of the BRI is the Digital railway transport system, and land appropriation
Silk Road, which includes digital technological to ensure the SGR’s completion (Jiaoe et al.,
development, the development of digital 2021). A large-scale infrastructure investment
standards, and the expansion of the digital such as the Standard Gauge Railway (SGR)
infrastructure. China has signed bilateral is highly dependent on the specific institutional
agreements for digital cooperation and and cultural environment of the transferor
infrastructural development, with approximately state (China) and, therefore, a comprehensive
40 countries by early 2024 (Patil and Gupta, consideration of technology, institution, and
2024). The BRI aims to build infrastructure such culture of both transferor and transferee (Kenya)
as roads, railways, ports, and power plants to is key in technology transfer. Customization and
increase connectivity between Asia, Africa, and modification are key in ensuring that technology
Europe and their adjacent seas (Zhang, 2018). transfer fits within the internal cultural structure
From a geopolitical and strategic perspective, of the transferee country. In other words,
the BRI enables China to consolidate economic considering the intimate knowledge of local
and diplomatic relations with the participating cultural systems and factors is important for the
countries and diversify China’s imports of energy effective adoption of technologies from other
and other resources through economic corridors countries.

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Figure 9.5: Chinese investments in the Belt and Road countries, 2013-2022, US dollar
billions

140

120 125.6
120.1
113.9
100 107.6 109.5

96 98.6
80

60 68.7 67.8
61.8

40

20

0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Data source: China’s Belt and Road Portal (various reports)

The five pillars of BRI are: policy coordination, promoting technological development and
facilities connectivity, unimpeded trade, financial advancement in Africa. Through initiatives such
integration, and people-to-people bonds as as the China-Africa Science and Technology
articulated in the document Vision and Actions Partnership Plan (CASTPP) and the China-
of Jointly Building Silk Road Economic Belt and Africa Renewable Energy Cooperation, China
21st Century Maritime Silk Road (The State has provided funding and technical support for
Council, 2015). Cooperation in science and various projects in African countries. Launched in
technology entails the establishment of joint 2009, the CASTPP aims to promote technology
laboratories/research centres, international transfer and collaboration between China and
technology transfer centres and maritime African countries. The strategy intends to
cooperation centres; promotion of science- strengthen Africa’s technological capability
tech personnel exchange, cooperation in and promote sustainable development across
tackling key science-tech problem and working several industries, including infrastructure,
together to improve science-tech innovation agriculture, and health.
capabilities. To enhance cooperation in
science and technology under the BRI, China Due to the greater difference between China
has established China-ASEAN Mariculture and Kenya regarding technology foundations,
Technology Joint Research and Promotion political systems, and cultural environments,
Centre, China-South Asia Technology Transfer technology transfer could be realized
Centre and China-Arab Nations Technology through technology localization, institutional
Transfer Centre (People’s Republic of China, improvements, and cultural integration.
2017). Technology adoption and re-invention is central
to technology transfer and spill-over (Shukra
China’s collaboration with African countries et al., 2021). The SGR largely contributed
in technology transfer has been critical in to technology transfer to unskilled labourers

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through learning by doing (Wissenback and regional countries and development partners,
Wang (2017). The concept of technology Kenya could explore how to tap into available
localization and cultural integration is like technology that can enhance the country’s
customization and translative adaptation that physical and digital infrastructure. Similarly,
has been championed by Kaizen methodologies the government should invest in institutions
in which the transferor country is supposed and programmes such as the Kenya Industrial
to understand the indigenous values and Research and Development Institute (KIRDI),
proactively accept views and proposals by Kenya Industrial Property Institute (KIPI),
the transferee country (Jin and Ohno, 2022). Kenya National Innovation Agency (KENIA),
Technology transfer under development Technology Transfer and Extension Services
cooperation tends to be organized under (TTES), Technology and Innovation Support
the asymmetric power balance between the Centres (TISCs) to play a major role in
transferor (outsider) and transferee (insider). technology and innovation development
As a result, the transferee might be hesitant and transfers. Their active participation in
to propose alternative models despite having infrastructure development could be crucial in
intimate knowledge of the local cultural systems. integrating transferred technologies from other
It is, therefore, imperative that both sides countries with relevant indigenous technologies.
should pay attention to the value structure and
institutions of the recipient country to ensure 9.6 International higher education and
successful technology transfer. technology transfer

Infrastructure development and connectivity a. Inbound international students

have emerged as key enablers for economic
growth and enhancing productivity. Kenya’s Since the beginning of the 21st century,
Vision 2030, medium-term plans, and the international student mobility has experienced
Bottom-up Economic and Transformation a three-fold increase as more students pursue
Agenda have identified infrastructure as a higher education outside their home countries
key facilitator for accelerating socio-economic as shown in Table 9.8. Alternative destinations
growth and development. Since its launch have also emerged in other world regions (Glass
in 2013, China’s Belt and Road Initiative has and Cruz, 2022). While Northern America and
increasingly played a major role in connecting Western Europe are still a major destination for
regions and continents through comprehensive many international students, other countries
infrastructure investment and development. especially in East Asia, and Central and Eastern
Kenya is a pivotal state in the region due to its Europe are increasingly positioning themselves
location as a littoral state of the Indian Ocean. as new education hubs for overseas higher
Through collaboration and cooperation with education (Bhandari, et al 2018).
Table 9.8: Inbound International Students, 2000-2021

2000 2005 2010 2015 2020 2021

World 2,106,938 2,798,376 3,801,061 4,811,182 6,376,355 6,387,487
Arab states - 156,637 231,751 330,207 469,527 496,040
Central and Eastern Europe 145,725 222,228 348,198 566,577 822,948 891,228

Central Asia 27,568 42,717 43,869 40,103 108,807 136,305

East Asia and Pacific 297,878 460,727 736,285 920,306 1,327,318 1,248,024
Latin America and Caribbean 58,561 95,721 160,319 170,106 269,538 280,405
North America and Western 1,330,276 1,703,097 2,110,212 2,555,088 3,135,036 3,092,122
Europe

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South and West Asia 9,711 14,908 30,248 59,150 77,703 76,383
Sub-Saharan Africa - 102,338 140,176 169,642 165,475 166,977
Small Island developing - 85,073 115,837 101,683 106,329 111,316
countries

Data source: UNESCO Institute of Statistics

The proportion of international students b. Outbound international students

pursuing studies in Northern America and
Western Europe has steadily reduced from The origin of mobile students is also important
63.13 per cent in 2000 to 48.4 per cent in 2021 in understanding the dynamics of international
(Table 9.8). On the other hand, the proportion higher education and the factors that determine
of international students studying in East Asia the choice of their destinations. In 2000,
and Pacific, and Central and Eastern Europe North America and Western Europe, East
regions have progressively increased from Asia (23.24%), and Pacific regions (23.03%)
14.13 and 6.91 per cent in 2000 to 19.53 and had almost the same numbers of outbound
13.95 per cent in 2021, respectively. Further, the international students (Table 9.9). Two decades
share of international students seeking tertiary later, East Asia and Pacific has emerged as a
education in the Arab states has made modest leading region for outbound students accounting
progress from 5.59 per cent in 2005 to 7.76 per for 24.42 per cent of the world’s international
cent in 2021. Latin America and the Caribbean students. The share of outbound students from
region have also experienced a modest growth Arab states and South and West Asia regions
from 2.77 per cent in 2000 to 4.38 per cent in has increased significantly between 2000 and
2021. 2021.

Table 9.9: Outbound international students, 2000-2021

2000 2005 2010 2015 2020 2021

World 2,106,938 2,798,376 3,801,061 4,811,182 6,376,355 6,387,487
Arab states 176,193 216,260 292,184 440,810 564,767 588,648
(8.36%) (7.72%) (7.68%) (9.16%) (8.85%) (9.21%)
Central and Eastern Europe 205,704 273,146 390,598 441,708 453,610 473,913
(9.76%) (9.76%) (10.27%) (9.18%) (7.11%) (7.41%)
Central Asia 58,161 81,532 131,283 248,742 362,504 391,169
(2.76%) (2.91%) ((3.45%) (5.17%) (5.68%) (6.12%)
East Asia and Pacific 485,257 745,855 1,047,347 1,296,484 1,670,861 1,560,368
(23.03%) (26.65%) (27.55%) (26.94%) (26.20%) (24.42%)
Latin America and Caribbean 128,953 187,855 260,357 290,373 410,755 408,018
(6.12%) (6.71%) (6.84%) (6.03%) (9.38%) (6.38%)
North America and Western 489,753 488,613 577,818 692,846 836,281 827,444
Europe (23.24%) (17.46%) (15.20%) (14.40%) (13.11%) (12.95%)
South and West Asia 129,521 235,649 355,299 501,342 867,220 862,976
(6.14%) (8.42%) (9.34%) (10.42%) (13.60%) (13.51%)
Sub-Saharan Africa 184,590 251,466 309,393 370,879 416,343 441,537
(8.76%) (8.98%) (8.13%) (7.70%) (6.52%) (6.91%)
Small Island developing 73,198 87,697 98,962 99,036 110,228 108,507
countries (3.37%) (3.13%) (2.60%) (2.05%) (1.72%) (1.69%)

Data source: UNESCO Institute of Statistics

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Factors that have contributed to the of knowledge transfers across borders,

diversification of student mobility destinations governments in developing countries should
include the global financial recession in consider facilitating international academic
2008/09; tight visa restrictions and stringent mobility through targeted policies and strategies
immigration policies; the rise of Asian economic that benefit countries of origin of outbound
powerhouses; the establishment of strategic mobile students. The emerging multipolar
education hubs across several countries; the geography of international student mobility
introduction of English-taught programmes in could be an opportunity for knowledge sharing
other countries (Kirloskar and Inamdar, 2021). and technology cooperation in the students’
The appeal of alternative destinations for home countries.
international education is also strengthened
by their cultural, linguistic, and geographic 9.7 Key Messages and Policy
proximity as well as the growing number of Recommendations
internationally ranked universities found in
other world regions (Glass and Cruz, 2022). 9.7.1 Key messages
This has led to the growth of regional mobility
as several countries invest capital in education 1. The emergence of major economic
infrastructure to establish themselves as the powers especially from the East has
destination for international students. While contributed to the reconfiguration of
traditional Western countries remain a top the global economic order as agency
destination for international education, the of countries in the Global South
emerging trend in the past two decades of the increase through the BRICS alliance.
21st century shows that their relative influence The revitalization of South-South and
could be on the decline with the rise of planned Triangular Cooperation in the past two
and emerging international education hubs in decades has led to increased trade,
Asia, Eastern Europe, and the Gulf (Cui et al., investment, and cooperation in several
2022; Glass and Cruz, 2022). sectors including energy, agriculture,
health, climate action, and renewed
Geopolitics of knowledge production provides development cooperation among
insights into transnational flows of knowledge developing countries. Increasingly,
in a multidirectional process as an agency countries are adopting strategic
in knowledge and technology disperses to partnership frameworks for their bilateral,
other political geographies (Wang and Zhang, trilateral, and multilateral relationships.
2020). Increasingly, the world is experiencing a The dynamics of emerging global
dynamic power shift in global research as non- governance could offer opportunities for
Western knowledge systems and science are new forms of cooperation in technology
getting recognized (Shen et al., 2022). Students acquisition, innovation, and knowledge
and faculty engaged in cross-border mobility sharing.
are steadily described as knowledge agents
who have the agency to acquire, circulate, 2. The growth of frontier technologies in
and produce knowledge and can navigate the last two decades is an important
through knowledge networks and geopolitics of milestone in technological invention
knowledge. and advancement. However, the
use, adoption, and adaptation of
With knowledge/education hubs emerging in these technologies are concentrated
other world’s regions, international mobility’s largely in high-income countries and
agency could be critical in facilitating not only some advanced emerging countries.
knowledge and technology transfer but also Nonetheless, frontier technologies
knowledge circulation. To overcome challenges could offer a window of opportunities

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for developing countries to leapfrog opportunities for countries that have

to sustainable development and signed MoUs with China to participate in
acceleration of industrial growth if the Initiative. Nonetheless, technology
countries that lack new technologies transfer has been minimal in mega
strategically invest in capacity infrastructure development projects
development and develop appropriate such as the Standard Gauge Railway.
policies and strategies. Successful infrastructure development
cooperation could require the input of
3. Reliable and effective healthcare professionals in negotiations to ensure
systems with adequate healthcare measures to attract technology and
personnel, infrastructure, and local skills for the locals.
manufacturing of vaccines and other
biologics are crucial for public health. The 6. International academic mobility has
outbreak of the COVID-19 pandemic in the potential for technology transfer,
2020 was a turning point for developing knowledge circulation, and skills
countries to prioritize the development development that could benefit the
of sustainable healthcare ecosystems. country of origin of international students
The current political economy of the and academics. Through targeted
TRIPS regime and the corporate power policies and strategies, Kenya could
of global pharmaceuticals call for benefit from its diaspora’s expertise,
international cooperation in reforming skills, and technical know-how. There is
institutions that might undermine public a need to consider incentives that might
health and human welfare across the enable citizens abroad to contribute
globe, especially from less developed to the country’s development through
countries. knowledge remittances.

4. The textile sector not only plays an 9.7.2 Policy recommendations

important role in industrialization but
also contributes to job creation and 1. To benefit from the emerging multipolar
poverty reduction. However, the sector world, strengthen strategic partnerships
has stagnated in the past three decades with both emerging economies
due to inadequate policies and neglect. and developed economies through
Increasingly, new trends in the textile enhanced bilateral cooperation, South-
and apparel industry are progressively South Cooperation, and Triangular
focusing on sustainable textile Cooperation: This may involve rethinking
development. A better understanding of diplomatic tools of engagement to
dynamism in the sector could be critical target critical technologies for the digital
for African countries in their plans for economy and overall inclusive growth
reviving the textile industry. The revival and development. Establish South-
of the sector should be a priority in the South and Triangular frameworks to
country’s external engagement as the enable the country to benefit from new
acquisition of appropriate technology global governance.
and innovation cooperation are key for
future growth and progress in the sector. 2. To harness frontier technologies, and
improve policy environment that suits
5. Infrastructure is a key enabler for the use, adoption, and adaptation of the
accelerating socio-economic growth new technologies. This might involve
and development. The launch of China’s policy and institutional reforms to support
Belt and Road Initiative has offered public-private partnerships and improve

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the business environment that will countries that have made progress in
attract investors of frontier technologies the textile industry. In addition, invest
to the domestic market. Other reforms in new and affordable technology, new
should target the development of digital machines, and policy reforms that will
infrastructure, improvement of skills at enable two levels of government and the
all levels of education, and enhancing private sector to establish a sustainable
financial inclusion to improve domestic textile industry.
credit availability.
5. To optimize benefits from BRI and other
3. Optimize on the opportunity offered infrastructure development supported
through the nomination of Kenya as by other development partners, the
one of the six African countries to government needs to ensure that state
benefit from mNRA technology by negotiators understand the implications
investing in technological absorptive of such infrastructure development
capabilities and policy frameworks cooperation for Kenya’s national
that could accelerate local vaccine interests. There is a need to involve
manufacturing and other therapeutics engineers and other professionals
within the country. Further, consolidate in the negotiations of infrastructure
and implement the AU-led reforms and development projects to ensure that
initiatives to strengthen national and every strategic partnership enhances
regional healthcare systems. technology cooperation and transfer.

4. To revive the textile industry, there 6. To benefit from international academic

is a need to strengthen the capacity mobility, documentation of students
development of farmers who are key in and faculty abroad might be crucial for
the production of raw materials such as planning purposes. Targeted policies
cotton, wool, and other forms of fibres. and strategies are critical in tapping their
Through strategic partnerships, conduct skills and knowledge for the betterment
an elaborate survey and benchmarking of the country.
in selected Asian countries and in African

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 CHAPTER

10
ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

ENHANCING PRODUCTIVITY
IN THE PUBLIC SERVICE

The introduction of a devolved system of government in 2013 significantly

transformed the country’s public service, leading to adjustments in
employment practices as functions were decentralized to the county level.
Despite this, freezes in public service recruitment and disruptions from the
COVID-19 pandemic disrupted labour dynamics. Variations among counties
underscore the importance of strategic policies, infrastructure, human
capital investments, and governance reforms in stimulating productivity and
economic growth. While there has been an increase in national productivity,
disparities persist across counties, necessitating targeted interventions
in technology access, personnel quality, infrastructure, and governance.
Enhancing public service delivery requires a holistic approach involving
capacity building, performance management contracting, technology
integration, and oversight body establishment. Challenges in budgetary and
financial management, including revenue target shortfalls and low allocations
to wages and salaries, operational and maintenance spending and capital
expenditure, and increased pending bills affect public service quality.
Public satisfaction hinges on creating a conducive business environment,
promoting national values, and upholding good governance practices. There
is a need for a coordinated and strategic approach to capacity building and
human resource management across all government levels. This includes
the development of standardized training programmes, streamlining
recruitment processes, offering competitive salaries, and implementing
performance management systems. Targeted interventions focusing on
technology access, personnel quality, infrastructure development, and
governance practices are recommended to enhance productivity. In
addition, a comprehensive approach to public service delivery should involve
expanding training programmes, leveraging technology for digitization and
automation, and promoting citizen engagement. Strengthening budgetary
and financial management practices is crucial, including improving revenue
collection strategies, enhancing budget execution, and addressing pending
bills. Creating an enabling environment for businesses, promoting national
values, and upholding good governance practices are also crucial in
improving public satisfaction and enhancing productivity.

10.1 Introduction entails efficient use of public funds, increased

E
citizen satisfaction, public trust, accountability,
nhancing productivity in public service cost reduction, and value for money (World
delivery is crucial in producing Bank, 2021). The focus on productivity aligns
environmentally sustainable, high- with the national goals outlined in Kenya Vision
quality, and cost-effective goods and 2030, the Constitution (2010), and the Bottom-
services. Productivity in the public sector up Economic Transformation Agenda (BETA),

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emphasizing the importance of progressive of competitiveness is low. For instance, in

enhancement of public service efficiency. 2019, Kenya held the 95th position out of 140
countries in global competitiveness. In terms of
The government has undertaken various governance effectiveness, Kenya’s estimates
interventions to enhance productivity in public have ranged from approximately -0.3 to -0.54
service since independence. This includes from 2012 to 2022, falling within the lower
initiatives outlined in the initial National range of the governance performance scale
Development Plan (1964-1970), Wage of -2.5 (weak) to 2.5 (strong). Furthermore,
Guidelines (1973-2005), Sessional Paper No. performance on Transparency International’s
1 of 1986 on Renewed Economic Growth, Corruption Perceptions Index (CPI) has
National Development Plan (1997-2001), consistently remained low over the past two
Economic Recovery Strategy for Wealth and decades, with the country ranking 123 out of
Employment Creation (2003-2007) and Kenya 180 countries in the 2022 report.
Vision 2030. Some of these initiatives include
training and capacity building through the Kenya While progress has been made in areas such
School of Government and other relevant as Ease of Doing Business with the score rising
agencies, technology and ICT infrastructure from 56.0 per cent in 2012 to 73.2 per cent in
development, performance management 2020, there is still work to be done to meet global
contracting, transparency and accountability, competitiveness standards. Thus, by focusing
and the establishment of huduma centres. on productivity enhancement strategies and
These initiatives were aimed to create an aligning with national development goals, the
environment that fosters productivity, efficiency, country can work towards a more efficient,
and effectiveness in the public service, productive, and effective public service that
ultimately benefiting both employees and the benefits both employees and citizens.
citizens they serve.
10.2 Performance of the Public Service
Additionally, in 2018, the government launched
a Framework for Recognising Productivity Delivery of public service involves a broad field
and Performance in the Public Service. of activities and functions aimed at providing
The Framework is a comprehensive guide essential services to the public, key among
to improve productivity in the public sector them healthcare, education, infrastructure,
by linking financial rewards to measurable social services, and administrative functions
productivity and performance, stakeholder at both national and county levels. This
engagement and collaboration, alignment with encompasses ensuring access to quality
national development goals, and recognition services for all citizens, promoting transparency
as a driver of productivity. By incentivizing and accountability in governance, implementing
employees to enhance their productivity and effective policies and programmes to address
performance, aligning with national objectives, societal needs, and upholding integrity and
and emphasizing the role of recognition in ethical standards in public institutions.
driving performance, the framework represents
a shift towards a more comprehensive and Public service in Kenya is structured through
collaborative approach to improving productivity governmental activities typically managed by
in the public sector. public administration. This includes creating and
interpreting laws, implementing programmes,
Despite past interventions to boost productivity, national defense, public order and safety,
labour productivity was low at 2.01 in 2022 immigration services, foreign affairs, and
compared to the standard benchmark compulsory social security activities (UN(ISIC),
productivity index of at least five (5) for global 2008). As such, public administration plays
competitiveness. This implies that the level a vital role in the effective functioning of

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government institutions and the delivery of and county levels. For the counties, the public
public services, in ensuring the wellbeing of administration growth rate averaged 13.7 in
society. Therefore, public administration is 2013- 2017 compared to 8.7 in 2018-2022.
used as a proxy for measuring productivity in
public service. The contribution of public administration to GDP,
both nationally and at the county level, has been
(a) Public administration growth and relatively stable. In the period before devolution
contribution to GDP (2008-2012), in the first medium-term plan
(MTP I), public administration contributed 5.8
The growth of national and county public per cent to GDP. The contribution decreased
administration contribution to GDP peaked to 5.2 per cent with the second medium-term
in 2015 at 12.5 per cent and 25.9 per cent plan (MTP II) and increased to 5.9 per cent in
respectively (Figure 10.1). This reflects a the third medium-term plan (MTP III). For the
bounce from the significant decline in 2013, counties, the public administration contribution
which followed the introduction of the devolved to GCP averaged 5.8 per cent across all the
system of government. The growth path was counties in both the first and second generation
disrupted by the heightened political risk in 2017 of county governments. Important to note is that
and the COVID-19 pandemic in 2020. As such, the contributions were susceptible to political
since 2019, growth in public administration risks, the COVID-19 pandemic, and weather
has been on a decline both at the national shocks.

Figure 10.1: Public administration growth rate and contribution to GDP/GVA (%), national
and county, 2012-2022

30.00 7.00
25.9
25.00 6.00

Contribution to GDP/GVA
20.00
5.00
5.0
15.00
Growth rate

12.5 4.00
10.00
3.00
5.00
2.00
0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
-5.00 1.00

-10.00 -7.6 0.00

PA Growth Rate, GDP, National PA Growth Rate, GVA, County

Contribution to GDP, (%), National Contribution to GVA, (%), County

Data source: KNBS, Economic Survey (various years), and Report of the Revised and Rebased
National Accounts

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Experience varied across the counties on the decline. Counties with larger populations and
contribution of public administration to GCP urban centres tend to have higher demands for
(Figure 10.2). Among the counties that improved public services and administrative functions. As
included Kitui, Machakos, Turkana, and Lamu such, Nairobi, Mombasa, and Nakuru counties,
possibly due to strategic policy implementations, are likely to exhibit higher contributions of public
investments in infrastructure and human administration to GCP. Counties with smaller
capital, and governance reforms. These efforts populations and less urbanized areas such as
boosted productivity and economic output in Lamu, Isiolo, Tana River, and Tharaka Nithi
these regions. Counties with cities such as have a lower share of public administration to
Nairobi, Mombasa, and Nakuru experienced a GCP.

Figure 10.2: Counties public administration contribution to GCP (%), 2013-2022

Data source: KNBS, GCP 2023

(b) Growth in employment in the public from 94.3 per cent in 2012 to 77.7 per cent
service in 2023. In contrast, employment in county
governments has shown a significant increase
Public sector wage employment increased over the years, with a substantial rise from
from 662.1 thousand jobs in 2012 to 992.8 37.7 thousand jobs in 2012 to 221.4 thousand
thousand jobs in 2023 (Figure 10.3). This jobs in 2023. The share of county government
translates to an average of 31.6 per cent of employment to total public sector employment
the total wage employment. Employment in notably increased, from 5.7 per cent in 2012 to
the national government also experienced 22.3 per cent in 2022. The percentage of public
growth, rising from 624.4 thousand jobs in administration employment as a share of total
2012 to 771,500 jobs in 2023. The percentage public sector employment was relatively stable,
of total public service employment attributed ranging from 31.2 per cent to 35.7 per cent over
to the national government gradually declined the years.

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Figure 10.3: Trends and composition of employment in the public service, national and
county governments, 2012-2022

1200 94.3 100

86.1 90
Wage employment '000'

82.0 80.6 79.7 78.9 78.8 76.8 77.7

1000 78.0 76.9 77.4 80
800 70

Percentage
60
600 50
35.2 35.2 35.2 35.7 35.7 34.6 40
400
31.4 32.5 32.7 31.2 31.8 35.1
18.0 19.4 20.3 21.1 21.2 22.0 23.1 22.5 22.3 30
200 13.9 23.2 20
5.7 10
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
National Government County governments Total public sector

% of national Government % of county government % of public administration

Data source: KNBS, Economic Survey 2023 (various years)

The national government public service In the period 2014 to 2016, public service
employment rate witnessed a decline in recruitment was frozen, which means gaps
2013 (Figure 10.4) due to the devolution of existing were not filled and this had implications
certain functions to the counties, resulting on productivity. In 2017, the freeze on hiring was
in a redistribution of public service positions lifted, allowing for the recruitment of employees
to the county level. Devolution transferred in the national public service. Between 2018
14 functions to the county governments. As and 2020, there was a reinstatement of the
a result, county governments have had to freeze on labour force recruitment, and this
increase their workforce to effectively deliver was exacerbated in 2020 by the COVID-19
services at the local level. pandemic. However, in 2021, there was an
increase in the recruitment of new employees
in the public service sector.

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Figure 10.4: Labour force in the public service growth rate at the national level, (2012 - 2022)

20.00 11.35 11.35 11.11 12.00

18.78 10.96
18.00 10.37
9.66 9.74 9.57 10.40 10.00
16.00 9.12 9.23 10.53
14.00
8.00

Share of PA
Growth rate

12.00
10.00 6.00
8.00 6.82
5.94 4.00
6.00
4.50
4.00 4.43 2.69 2.00
2.73
2.00 1.55
2.02 2.20
0.00 1.07 0.82 0.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Growth rate Share of PA to total wage employment

Data source: KNBS, Economic Survey 2023 (various years)

The workforce in the majority of the ASAL efforts to address socio-economic challenges
counties such as Wajir, Marsabit, Turkana, unique to ASAL areas. However, counties
West Pokot, and Kajiado grew from 2016 to such as Lamu, Kiambu, and Kericho have
2023 (Figure 10.5). This growth in the labour experienced a decline in the same period. The
force in ASAL counties may be attributed to workforce decline in these counties could have
various factors such as government initiatives been influenced by factors such as changes
to promote development in these regions, in economic activities, shifts in employment
increased investment in public services, and opportunities, and migration patterns.

Figure 10.5: Labour force in the public service growth rate at county level (2016-2023)

350.00

300.00

250.00

200.00
Growth rate

150.00

100.00

50.00

0.00
ISIOLO
SAMBURU
TANA RIVER
MANDERA
WAJIR
MARSABIT
TURKANA
EMBU
BARINGO
LAIKIPIA
MACHAKOS
THARAKA NITHI
MAKUENI
KITUI
MERU
KILIFI
TAITA TAVETA
KWALE
KAJIADO
WEST POKOT

HOMA BAY
LAMU
NYERI
ELGEYO/MARAKWET
MIGORI
NAROK
KERICHO
KIRINYAGA
NAIROBI CITY
UASIN-GISHU
KISUMU
MURANG’A
MOMBASA
BOMET
KISII
SIAYA
NYANDARUA
BUSIA
KAKAMEGA
TRANS NZOIA
NYAMIRA
VIHIGA
BUNGOMA
NANDI
KIAMBU
NAKURU

-50.00

-100.00

Arid counties Semi-Arid counties (30-84%) Semi-Arid counties (10- Non-ASAL counties
29%)

Data source: Ethnic and Diversity 2023 of the County Public Service and Author’s computation

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

10.3 Productivity in Public Service pressures, the quality of policy formulation

and implementation, and the credibility of the
To assess productivity in public service, government’s commitment to such policies.
various measures were used including labour
productivity in public administration, Public a) Public administration labour
Affairs Index (PAI), the Country Policy and productivity
Institutional Assessment (CPIA), and the
governance effectiveness perceptions. All Public administration productivity was computed
aimed to bring out areas that require policy as the public administration gross value added
attention in improving the efficiency and per worker. At the national level, productivity in
effectiveness of public service delivery. Labour public administration increased gradually from
productivity serves as a fundamental measure 0.5 in 2002 to 2.1 in 2023 (Figure 10.6). In the
of output per unit of labour input, reflecting the period before devolution (2002-2012) labour
efficiency of service delivery. The Public Affairs productivity in public administration averaged
Index provides a framework for monitoring 0.87. The productivity increased steadily to
public service delivery at the county level, an average of 1.11 during the first MTP, 1.46
offering insights into fiscal management, in the second MTP, and 1.86 in the third MTP.
economic performance, and transparency. The increase in productivity is attributed to the
The CPIA evaluates governance structures, emphasis on the need for improved service
policy implementation, and institutional delivery, efficiency, and effectiveness in the
capacity, while the governance effectiveness public sector. Also, prioritization of productivity
reflects perceptions of the quality of public and performance improvement in the public
services, the quality of the civil service and service.
the degree of its independence from political
Figure 10.6: Labour productivity in public service (public administration), national level
(2002-2022)

2.50 0.50
Labour productivity in public service

0.41 2…
0.40
2.00 1.9 1.9
0.27 1.8 2.0 0.30
0.23 1.7
1.6
1.7 0.20
Growth rate
1.50 0.16 1.3 0.21
0.14 1.5
0.09 1.2 0.07 1.2 0.11 0.10
0.07 0.10
1.0 1.2 0.05
0.00 0.9 1.0 1.0 1.1 0.07
1.00 -0.02 0.03 0.05 0.00
0.02 0.01
0.7
0.5 -0.09 -0.10
0.50
0.5 0.5
-0.20
-0.21
0.00 -0.30

Labour Productivity in Public Sector Growth rate

Data source: KNBS (Various), Economic Surveys, Report of The Revised and Rebased National
Accounts, and Authors’ computation

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Public administration labour productivity varied invested more in human capital development,
across the counties ranging from 0.90 to 15.24 implemented effective governance structures,
with an average of 3.88 in 2021 (Figure 10.7). and prioritized transparency and accountability
Out of the 47 counties, 31 counties had public in their operations.
administration productivity below the average
level of 3.88, while 16 counties exhibited In addition, the data indicates that labour
productivity levels above the average. The productivity in public administration is lowest
counties of Busia, Turkana, Nyamira, Elgeyo
in arid counties at 3.0, followed by non-ASAL
Marakwet, Kisii, Migori, Trans Nzoia, Kericho,
Marsabit, and Murang’a were identified as counties at 3.6 and semi-arid counties at 4.75.
part of the bottom 10 counties with the lowest This variation in labour productivity across
public administration productivity. Conversely, different types of counties could be influenced
Nyeri, Nyandarua, Bomet, Machakos, Kisumu, by factors such as access to resources,
Nairobi, Kilifi, Taita Taveta, Baringo, and Kiambu infrastructure development, human capital
counties were among the top 10 counties with investment, climate conditions, and overall
the highest public administration productivity. economic development. Arid counties face
challenges related to limited resources, harsh
The differences in public administration environmental conditions, and lower levels of
productivity among these counties could economic activity, which can impact productivity
be attributed to various factors such as
access to technology, quality of personnel, levels. Conversely, non-arid counties have
infrastructure development, transparency better access to resources, infrastructure,
and accountability mechanisms, efficiency in and economic opportunities, leading to higher
project implementation, and overall governance labour productivity in public administration.
practices. Counties with higher productivity levels

Figure 10.7: Public service productivity (GVA (millions) per person employed) at the county
level, 2021
15.24
PUBLIC SERVICE PRODUCTIVITY

9.38
8.38
8.00

8.00
7.00
6.26

5.35
5.00
4.52
4.47

4.37
4.29
4.13

4.00

4.03
4.02

3.96
3.86

3.00
3.71

3.59
3.53
3.41
3.48
3.20

3.18
3.08
3.09

3.05
3.03

3.04
2.96
2.86

2.87
2.65

2.67

2.56
2.58
2.34

2.30
2.35
1.92

1.90
1.53

1.44
1.34

0.90
MACHAKOS
TANA RIVER
WAJIR

LAIKIPIA

KAJIADO
GARISSA
MARSABIT

ISIOLO

MERU
TURKANA

MANDERA

BARINGO

VIHIGA

SIAYA

KAKAMEGA

NANDI

UASIN-GISHU

MOMBASA

KIRINYAGA

NYANDARUA

BOMET
KISUMU

NAIROBI

AVERAGE
ELGEYO MARAKWET

MIGORI
NAROK

LAMU

KIAMBU

BUSIA

NYAMIRA

KISII

TRANS NZOIA

KERICHO

MURANG’A

BUNGOMA
THARAKA NITHI

KWALE

WEST POKOT

EMBU

MAKUENI

KITUI

KILIFI

TAITA TAVETA
SAMBURU

NAKURU

HOMA BAY

NYERI

ARID COUNTIES SEMI-ARID COUNTIES (30-84%) SEMI-ARID COUNTIES (10-29%) NON-ASAL COUNTIES AVERAGE
AXIS TITLE

Data source: County GCP 2021, Kenya Continuous Household Survey (KCHS) 2021 and Author’s
Computation

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

b) Public Affairs Index of 0.62, while 19 counties exhibited scores

above this average. The counties of Marsabit,
The Public Affairs Index (PAI) serves as a Lamu, Samburu, Wajir, Laikipia, West Pokot,
framework for monitoring the delivery of Homa Bay, Turkana, Busia, and Garissa were
public services at the county level in Kenya. identified among the bottom 10 counties with the
With the average scores ranging from 0.52 lowest public affairs index scores. Conversely,
to 0.73 in 2022 (Figure 10.8), the PAI offers Kiambu, Nairobi, Mombasa, Machakos,
a comprehensive assessment across various Kajiado, Kisumu, Uasin Gishu, Kakamega,
pillars such as fiscal management, economic Nyeri, and Nyandarua were among the top 10
performance, human capital development, counties with the highest public affairs index
infrastructure, transparency, accountability, scores.
and more. Among the pillars making up the
index, the highest average scores were on The disparities in public affairs index scores
transparency and accountability (0.74), and among these counties may be attributed to
human capital development (0.71) while the factors such as economic opportunities, fiscal
lowest average scores were on environmental management, human capital development,
management (0.47), crime and justice (0.53) infrastructure quality, transparency, and
and economic growth (0.56) (Lutta et al., 2022). accountability practices. Counties with higher
index scores have stronger governance
Out of the 47 counties, 28 counties had a structures, better fiscal management, and more
public affairs index below the average level efficient public service delivery mechanisms.

Figure 10.8: County scores for public affairs index, 2022, Kenya

0.73
0.70
0.70
0.68
0.68
0.67
0.67
0.66
0.66
0.66
0.66
0.66
0.65
0.65
COUNTY SCORES FOR PAI INDEX

0.64
0.64
0.64
0.63
0.63
0.62
0.62
0.62
0.62
0.62
0.61
0.61
0.61
0.60
0.60
0.60
0.59
0.59
0.59
0.59
0.59
0.58
0.58
0.57
0.57
0.57
0.56
0.56
0.54
0.54
0.53
0.53
0.53
0.52
MARSABIT
LAMU
SAMBURU
WAJIR
LAIKIPIA
WEST POKOT
HOMA BAY
TURKANA
BUSIA
GARISSA
TANA RIVER
ISIOLO
NAROK
BOMET
MANDERA
MIGORI
SIAYA
TAITA TAVETA
KWALE
THARAKA NITHI
VIHIGA
KISII
KITUI
TRANS NZOIA
BARINGO
BUNGOMA
MERU
NYAMIRA
AVERAGE

NANDI
ELGEYO MARAKWET
KILIFI
MURANG’A
KISUMU
MAKUENI
KERICHO
KIRINYAGA
NAKURU
NYANDARUA
NYERI
KAKAMEGA
UASIN GISHU
KAJIADO
MACHAKOS
MOMBASA
NAIROBI CITY
KIAMBU
EMBU

Data source: KIPPRA Public Affairs Index, 2022

A positive correlation between the Public fiscal management, essential infrastructure,

Affairs Index (PAI) and labour productivity in transparency and accountability, environmental
the public service at the county level (Figure management, crime, law and order, and WASH
10.9), indicates that delivery of public service (Water, Sanitation, and Hygiene) tend to be
is linked to labour productivity. This suggests associated with higher labour productivity in
that counties with higher scores in human public administration.
capital development, economic management,

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Figure 10.9: Correlation between labour productivity in public administration and public
affairs index at county level

Data source: KIPPRA Public Affair Index, 2022 and Author’s computations

c) Country Policy and Institutional from 3.5 in 2021 to 3.0 in 2022. The average
Assessment (CPIA) public sector rating across the components was highest on
management and institutions cluster efficiency of revenue mobilization (4.0), followed
ratings by quality of public administration (3.5), quality
of budgetary and financial management (3.4),
The analysis of CPIA public sector management property rights and rule-based governance
and institutions cluster focuses on five (5) (3.1), and transparency, accountability, and
components that include property rights and corruption in the public sector (3.1).
rule-based governance, quality of budgetary
and financial management efficiency of revenue When compared to other countries, Kenya’s
mobilization, quality of public administration, ratings are generally higher than those for
transparency, accountability, and corruption Nigeria, Uganda, and Tanzania, similar to
in the public sector1. The CPIA ratings for Ethiopia, and slightly lower than Rwanda. For
public sector management and institutions Rwanda, the quality of public administration
have consistently remained at 3.4 from 2012 rating and transparency, accountability, and
to 2020. There was a slight increase to 3.6 corruption in the public sector was at an
in 2021 due to the increase in property rights average of 3.7 and 3.5 respectively between
and rule-based governance from 3.0 in 2021 2012 and 2022 as compared to Kenya at an
to 3.5 in 2021. There was a slight decrease average of 3.5 and 3.1, respectively, between
to 3.5 in 2022 mainly due to the decline in 2012 and 2022.
quality of budgetary and financial management

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

Figure 10.10: CPIA public sector management and institutions score (1=low to 6=high),
2012-2022, selected African countries

4
Ratings, 1=Low to 6=High

3.8
3.6
3.6 3.5
3.4 3.4
3.2
3
2.8
2.6
2.4
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Ethiopia Kenya Nigeria Rwanda Tanzania Uganda

Data Source: World Bank (Various Years)

A positive correlation between the Country Policy improvements in property rights and rule-
and Institutional Assessment (CPIA) public based governance, quality of budgetary and
sector management and institutions score and financial management efficiency of revenue
public administration productivity at the county mobilization, quality of public administration,
level (Figure 10.11), indicates that public sector transparency, accountability, and corruption is
management and institutions is associated linked to increased productivity in the public
with labour productivity. This suggests that sector.

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Figure 10.11: Correlation between labour productivity and CPIA public sector management
and institutions score, national level, 2012-2022

Data source: World Bank (Various Years), and Author’s computations

d) Governance effectiveness Comparatively, countries such as Rwanda

consistently outperformed Kenya in governance
Governance effectiveness reflects perceptions effectiveness, while South Africa also
of the quality of public services, the quality of the demonstrated relatively stronger governance
civil service and the degree of its independence performance. In contrast, countries such as
from political pressures, the quality of policy Nigeria, Ethiopia, Tanzania, and Uganda
formulation and implementation, and the exhibited weaker governance performance
credibility of the government’s commitment estimates compared to Kenya. Rwanda’s
to such policies. Governance effectiveness outperformance of Kenya in governance
estimates for Kenya fluctuated between -0.54 effectiveness is attributed to its strong anti-
to -0.3 in the period 2012 and 2022 (Figure corruption measures, efficient public service
10.12) falling in the range of poor governance delivery, investments in human capital
performance. The prolonged elections in 2017 and infrastructure, leadership commitment
led to the decline of the score. to development goals, and emphasis on
accountability and performance-based
management.

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

Figure 10.12: Estimate of governance effectiveness ( -2.5 (weak) to 2.5 (strong) governance
performance) in selected African Countries, 2012-2022

42 41 41 0.50
40 39
39 0.00
38
37
Rank, Kenya

38 37 37
36 36

Scores
36 34 -0.50
34
-1.00
32
30 -1.50
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Rank (Kenya) Kenya Ethiopia Nigeria

Data source: World Bank (2023)

With a positive correlation (Figure 10.13)public services, the quality of the civil service
between governance effectiveness and public
and the degree of its independence from political
administration productivity, this indicates that
pressures, the quality of policy formulation and
as governance effectiveness increases, this is
implementation, and the credibility of the of the
associated with increased labour productivity.
government’s commitment to such policies tend
This suggests that perceptions of the quality of
to be associated with increased productivity in
the public sector.
Figure 10.13: Correlation between labour productivity and governance effectiveness,
national level, 2012-2022

Data Source: World Bank (2023), and Author’s Computations

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10.4 Improving Public Service Delivery This section covers important government
efforts towards building capacity and training
In Kenya, the public service has experienced programmes, including KSG’s capacity building,
a significant transformation in productivity, due on-the-job training, scholarship programmes,
to the following interventions: capacity building and internship programmes.
and training programmes; performance
management; technology integration; setting Kenya School of Government capacity
up of institutions such as the Civil Service building
Commission (CSC), which was renamed
Public Service Commission (PSC), Judicial The Kenya Vision 2030 advocated for the
Service Commission (JSC), Ethics and Anti- creation of the Kenya School of Government
Corruption Commission (EACC), Salaries and (KSG), underscoring the government’s
Remuneration Commission (SRC), National strategic vision for building a competent and
Productivity and Competitiveness Centre ethical public service. The primary intention
(NPCC) and Commission On Administrative behind the creation of the KSG is multi-faceted
Justice - Office of the Ombudsman. and aligns with the core principles of the Vision
2030 agenda.
10.4.1 Capacity building and training
programmes Firstly, the government aims to encourage
public servants with a strong sense of values
Capacity building and training programmes play and ethics pertaining to public service.
a crucial role in enhancing productivity in the Secondly, the KSG is designed to enhance
public service by equipping employees with the the skills and competencies of public servants
necessary skills, knowledge, and competencies across all levels of government. Through
to perform their roles effectively. These a comprehensive collection of training
programmes help employees stay updated programmes, the KSG endeavours to equip
on best practices, new technologies, and public officials with the requisite knowledge,
changing regulations, leading to improved job tools, and capabilities to effectively deliver
performance and service delivery. Additionally, public service. The courses offered cover such
capacity building initiatives foster a culture aspects as integrity, performance management,
of continuous learning and development, leadership, productivity, management of assets
empowering employees to adapt to evolving and liabilities, and public finance management
challenges and contribute more effectively (Table 10.1).
to the organization’s goals and objectives.

Table 10.1: Courses designed to cater to different levels and areas of expertise in the public
service

Course title Targeted cadre Skill/knowledge being impacted

Executive leadership programmes
Coaching and mentoring in the public Heads of departments Competencies to institutionalize
service coaching and mentorship
Strategic leadership development Officers in leadership and policy Strategic thinking, decision-
programme making roles, typically in Job Grades N making, and leadership skills
and above, and their equivalent
Corporate governance Officers in leadership positions or Appropriate governance practices
those preparing to take up such
positions in the public sector
Public service values and ethics Senior officials in public and private Integrity for all staff
programme for senior officers sector organizations

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Management development programmes

Senior management course Middle-level managers in the public Leadership and management
service typically in Job Grades K
Governance and management of HoDs in municipalities and city Management affairs of
urban areas and cities authorities decentralized units
Essentials of counselling in the public HRM officers, counsellors, and heads Technical, personal, and emotional
service of departments adjustments
Communication management programmes
Customer care course Front office staff, secretaries, and Customer service
personal assistants
Communication skills for public Officers in county and national Communication
service officers governments responsible for
packaging and disseminating
information
Public prosecution course Officers responsible for enforcement of Legal and investigative skills
various laws and regulations
Productivity improvement and Human resource directors and Productivity
measurement managers, development officers, and
quality assurance officers
Salary administration and payroll Payroll managers, officers responsible Salary administration
management for payroll management, HR directors,
HR managers, accountants, and
finance officers responsible for payroll
management
Public finance management course Officers responsible for budgeting, Public finance management
revenue policy, financial reporting,
and the financial advisory functions in
county and national governments
Audit committee course Members of audit committees, Audit
ministries, and public sector agencies
Asset management course Officers responsible for the Management of assets and
development and management of liabilities
assets and liabilities, and maintenance
of asset registers
Results-based monitoring and Officers responsible for project Project development and
evaluation development and management from all management
sectors
Grant proposal writing Managers/officers responsible for Project proposals
resource mobilization, planning, and
managing projects in both national and
county governments as well as the
private sector
Performance contracting in the public All managers in the public sector Performance management
service
Staff performance appraisal system Officers holding supervisory positions Performance management
Job evaluation in the public service Heads of HR function/ HR managers, Job evaluation
members of public service boards,
line managers, supervisors/ heads
of departments, job analysts, and
members of job description analysis
committees
Dispute mediation in the public Middle and senior-level managers Dispute resolution
service
Performance management systems Managers Performance management
systems

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Financial reporting under IPSAS The programme targets officers and International public sector
accrual managers involved in public finance accounting standards
management; these include finance
officers, accountants, and auditors
International public sector accounting Accountants, finance officers, asset International accounting standards
standards managers, and auditors
Financial accounting, reporting and Accounts, finance, and treasury Financial accounting
analysis officers in the public sector
Public sector finance management Officers responsible for public finance Public finance management
management
Fraud investigation, detection and Law enforcement agents, internal Fraud investigation and prevention
prevention auditors, treasurers, accountants, and
fund managers in all sectors
Audit and risk assurance Heads of audit and internal auditors Risk management
Revenue enhancements skills course Officers in MDACs responsible for Revenue generation
revenue generation, collection, and
control
eLearning ICT programmes
Performance management systems Managers across all functions Performance management
Advanced Excel for data modelling Managers/ officers Excel tool

Data source: Kenya School of Government

There has been a gradual increase in the number development of infrastructural facilities and
of trained officers (Figure 10.14). However, a curriculum for training both national and county
sharp drop in the number of trained officers government officials.
was evident in 2019/20 and 2020/21, with
only 13,131 and 16,896 officers, respectively, However, the KSG trains below 5.0 per cent of
due to disruptions caused by the COVID-19 public servants annually, both in national and
pandemic. Following the enactment of the act county governments (Figure 10.14). This means
establishing Kenya School of Government in that there could be training programmes outside
2012, during the second MTP (2013-2017), the KSG that attract public servants. Further, there
focus was to have competency-based training are gaps between available knowledge and
and capacity building for improved service decision making especially at the county level
delivery. The Kenya School of Government (Auditor General’s report, June 2022).
(KSG), therefore, put a lot of effort into the

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Figure 10.14: Number of public officers trained and certified in the KSG 2011/12-2022/23

25,000 4.53 5.0

4.52 22,113 3.51
4.31 4.5
3.88
3.36
20,000 18,765 18,349 18,738 18,429 4.0
3.48
2.65 16,896 3.5
No. of officers trained

3.07 14,962 14,817

15,000 2.93 3.0

percentagee
2.60 13,131
11,438 2.5
10,607 10,140 2.22
10,000 2.0

1.5

5,000 1.0

0.5

- -
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
Axis Title

No. of public officers trained % public sector employees trained (less teachers)

Data source: Kenya School of Government (Various Years)

Scholarship programmes to serve a ‘bonding’ period upon completion

of their studies. Bonding typically involves a
Scholarship programmes play a significant commitment to work for the government for a
role in the government’s efforts to enhance specified period, usually equal to the length of
productivity in the public service. These the scholarship. This ensures that the skills and
programmes are designed to provide expertise acquired through the scholarship are
government officers with opportunities to utilized for the benefit of the government and
pursue advanced degrees, acquire specialized the public service. However, the effectiveness
skills, and enhance their expertise in various of bonding can vary depending on various
fields relevant to public service, both locally factors such as the enforcement of the bond, the
and internationally. Scholarships are typically availability of suitable positions upon completion
awarded based on merit, performance, and the of the studies, and the incentives provided to
strategic needs of the government in specific scholars to fulfil their bond obligations.
sectors. Partnerships with countries such as
Japan, Korea, and Australia, often involve Scholarship programmes remain a valuable
agreements where these countries provide tool for enhancing productivity in public
scholarships to Kenyan government officers. service. By providing government officers with
These partnerships are mutually beneficial, opportunities for advanced education and
as they allow officers to access high-quality training, these programmes help to develop a
education and training opportunities abroad, skilled and knowledgeable workforce capable
while also strengthening diplomatic and of driving innovation and delivering high-quality
economic ties between Kenya and the partner services to the public.
countries.
On-the-job training
One key aspect of many scholarship
programmes is the requirement for recipients Job training is a crucial component of the

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government’s efforts to enhance productivity of training programmes by employees.

in public service. It refers to the process of Factors such as lack of awareness, competing
providing employees with the knowledge, priorities, and resistance to change can impact
skills, and competencies required to perform employees’ willingness to participate in training
their jobs effectively. Job training programmes programmes and apply the knowledge and
in the public service are designed to improve skills gained to their work.
employees’ performance, increase their job
satisfaction, and ultimately enhance the overall Despite these challenges, job training remains
productivity of the public service. a critical component of the government’s efforts
to enhance productivity in public service. By
One of the key aspects of job training in the public investing in the skills and competencies of its
service is the focus on continuous learning and employees, the government can ensure that
development. This includes both formal training its workforce remains capable, motivated, and
programmes, such as workshops, seminars, and equipped to deliver high-quality services to the
certification courses, as well as informal learning public.
opportunities, such as on-the-job training,
mentoring, and coaching. These programmes Internship programmes
are designed to ensure that employees have
the skills and knowledge needed to meet the Internship programmes are a critical part of the
evolving demands of their roles and contribute government’s efforts to enhance productivity in
effectively to the achievement of organizational the public service. Internships are structured
goals. Job training programmes in the public training programmes that provide recent
service also play a critical role in addressing graduates with practical work experience,
skills gaps and improving the overall quality of enhancing their employability and preparing
services delivered to the public. By providing them for future careers. These programmes
employees with opportunities to acquire new also help organizations meet their workforce
skills and competencies, these programmes needs by providing a pool of skilled and
help to ensure that the public service remains motivated individuals.
responsive to the needs of citizens and can
deliver high-quality services efficiently and The government has implemented various
effectively. internship programmes aimed at different
groups, including graduates from universities,
Despite the benefits of job training programmes, colleges, and technical training institutes. These
there are several challenges associated with programmes offer interns the opportunity to gain
their implementation in public service. One hands-on experience in their field of study and
challenge is the limited availability of resources, develop valuable skills such as communication,
including funding and trained personnel to teamwork, and problem-solving. One of the key
deliver training programmes effectively. This internship provisions in Kenya is the Internship
can result in training programmes that are not Policy and Guidelines for the Public Service,
adequately tailored to the needs of employees 2016. This policy provides a framework for
or that do not address critical skills gaps within the implementation of internship programmes
the public service. Another challenge is the need across government institutions. It outlines the
to ensure that training programmes are relevant objectives of the internship programmes, the
and up to date. The rapid pace of technological eligibility criteria for interns, and the roles and
change and evolving job roles require that responsibilities of both the interns and the host
training programmes be regularly reviewed and institutions.
updated to ensure that they remain effective
and meet the needs of employees. Additionally, Under this policy, interns are required to undergo
there may be challenges related to the uptake a structured training programme for a specific

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period, typically ranging from three to twelve Performance contracting was first introduced
months. During this time, interns work under in Kenya through the Parastatal Reform
the supervision of experienced professionals, Strategy Paper in 1991, with initial pilot
gaining practical skills and knowledge relevant projects at Kenya Railways and the National
to their field. Upon successful completion of Cereals and Produce Board. The positive
the internship programme, interns are awarded outcomes observed in these pilot projects,
a certificate as proof of their participation. such as improved administrative and financial
This certificate can be valuable when seeking performance and enhanced service delivery,
employment, as it demonstrates to potential led to the decision to expand performance
employers that the individual has acquired contracting to all ministries, departments, and
practical work experience in addition to their agencies (MDAs). This expansion aimed to
academic qualifications. By providing young foster a performance-oriented culture in the
graduates with practical work experience, public sector and to establish accountability
these programmes help to develop a skilled for outcomes. To support the implementation
and competent workforce, which is essential for of performance contracting, the Kenyan
enhancing productivity and driving economic government established a Performance
growth and development. Contract Steering Committee in 2003 and issued
State Corporations (Performance Contracting)
Despite their benefits, internship programmes Regulations in 2004. These regulations defined
face challenges. One challenge is ensuring performance as the assessed outcomes of
that interns are given meaningful tasks that achieving agreed-upon performance targets.
contribute to their professional development. The government also mandated all permanent
Another challenge is the transition from secretaries/accounting officers and chief
internship to permanent employment, as some executive officers of state corporations to have
interns may struggle to secure long-term performance contracts.
positions after completing their internships.
Additionally, there may be challenges related A monitoring and reporting system was
to the availability of resources and funding for established to ensure systematic and ongoing
internship programmes, as well as ensuring that evaluation of performance. Public agencies
internships are accessible to a diverse range were mandated to submit quarterly and annual
of candidates. Addressing these challenges is performance reports in specified formats.
essential for ensuring the effectiveness and The assessment of each public agency’s
sustainability of internship programmes in performance was based on the performance
enhancing productivity in the public service.Top contract they signed and their annual
of Form performance report (Government of Kenya,
2010). Public organizations were mandated
10.4.2 Performance management to establish Performance Management
contracting Committees in accordance with Regulation 15
of the Public Service Commission (Performance
Performance management contracting is one Management) Regulations, 2021. The primary
of several reform initiatives that the government responsibility of the performance management
has introduced in its efforts to enhance service committees is to oversee and assess the
delivery. A Performance Contract (PC) is a execution of performance contracts.
management tool employed to prioritize an
organization’s annual objectives and measure On performance management contracting,
performance against agreed targets. It outlines 42.8 per cent of organizations had aligned
the shared performance commitments and their strategic plans to BETA, 48.8 per cent
responsibilities of the parties involved (PSC, had constituted performance management
2023). contracting committees and 46.4 per cent

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signed performance contracts with the part of its overall digital transformation. The
government during 2022-2023. In addition, digital government goal is to improve access,
out of the 145,967 officers who set targets, quality, transparency, equity, efficiency, and
less than half, 62,898 (43.1%) were appraised effectiveness of government services. The
while the rest were not. This indicated that the blueprint outlines outcomes such as improved
implementation of performance management efficiency and productivity of government,
was still not effective in most public improved citizen services with e-government,
organizations, negatively impacting service accelerated achievement of SDG and social
delivery (PSC, 2023). The Public Service agenda, cost savings, promoted transparency
Commission found that in 2021-2022 some and reduced corruption, and improved ease of
of the reasons provided by organizations for doing business (Republic of Kenya, 2019).
not signing performance contracts included:
delay in the Cabinet Secretary signing the PC; The second pillar of the 2022-2032 Information
board members being in transition; and the Communication Technology (ICT) Digital
organization not being fully operationalized. Masterplan underscores the importance of
digitizing and automating government records.
10.4.3 Technology integration It also advocates for enhancing the integration
and interoperability of government services, as
The government has recognized the well as reviewing and automating all essential
importance of technology integration as a key government services.
strategy to enhance productivity in the public
service sector. By actively promoting the use The Public Service Commission in 2023
of Information and Communication Technology revealed that 415 (79.3%) of organizations
(ICT) in public service, e-government was reported having digitized 4,532 services,
initiated in 2003 with the primary objective of documented 3,388 (74.8%) services, and
reducing corruption and improving public sector automated 1,378 (30.4%), showing a low
performance. The subsequent establishment uptake of automation.
of the E-Government Strategy in 2004
and the creation of the E-Government Unit Government-to-Citizen (G2C)
aimed to provide guidelines for harmonizing
government ICT initiatives, further emphasizing E-citizen, the main e-government platform
the commitment to leveraging technology for in Kenya, serves as a government-to-citizen
enhancing productivity in public service. (G2C) portal, providing various services
online, including business name search and
Further to this, the government took registration, marriage-related services, driving
proactive steps by establishing a task force licenses, land searches, clearances, passport
on blockchain and artificial intelligence via and visa applications. The e-citizen platform
Kenya Gazette Notice Number 2095 of 2018. enables citizens to sign up, apply for government
This task force was tasked with developing services, and conveniently pay using mobile
strategies for the effective application of these money, credit cards, debit cards, and online
emerging technologies. The World Economic banking. Another key G2C platform is the KRA
Forum in 2018 highlighted that blockchain iTax system. With the COVID-19 pandemic, the
and artificial intelligence offer an unparalleled government accelerated the provision of online
level of integrity, security, and reliability to the public services. The Judiciary responded to
information they handle, thereby reducing the the pandemic by launching the electronic case
risks associated with a single point of failure. management system in 2020, limiting physical
access to justice. Currently, the government
The digital economy blueprint of 2019 guides offers 120 public services online on the e-citizen
e-government development in the country as platform and other government websites. New

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online services, such as Ardhi Sasa (the National Huduma mashinani outreach programme;
Land Information Management System) and Huduma contact centre, and Huduma E & M
Chanjo Kenya (the COVID-19 vaccination service. Looking at the Huduma of customers
registration and certification system), were served daily (Figure 10.15), a gradual increase
launched in 2021. in the number of customers served daily was
observed from 2013 to 2022, reaching a peak
In 2014 the government established Huduma of 60,000 customers served daily. However, a
Kenya Service Delivery Programme mandated sharp drop in the number of customers served
to transform public service delivery to access to daily was evident in 2020, with only 20,000.
efficient, effective, and citizen-centric services This decline is due to disruptions caused by the
through one-stop-shop platforms. Before the COVID-19 pandemic.
establishment of the programme (before 2013),
the public service was characterised by long The distribution of Huduma Centres across the
queues; lengthy and manual processes; poor country ensures equal access to services for
customer care; inaccessible, unavailable, all citizens. With 52 centres located in various
inaccurate, and delayed information across the counties, these centres serve as accessible
country. This was heightened by multiple entry points where citizens can efficiently access
points for any single service leading to high a wide range of government services. This
costs in providing and accessing services, which distribution strategy aims to reduce the need
caused numerous public complaints (Republic for citizens to travel long distances or incur high
of Kenya, 2023). Huduma Kenya Service costs to access government services, aligning
Delivery platform has operationalized service with the goal of providing equitable service
delivery platform, including Huduma centres; delivery nationwide.

Figure 10.15: Number of customers served daily at Huduma centres, 2013-2022

70000
60,000
60000 55,000
No. of customers served daily

52,000
50000 45,000
42,000
40000
32,000
30000 25,000
20,000
20000
12,000
10000
700
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Data source: Kenya School of Government (Various Years)

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Government-to-Business (G2B) services, NOFBI contributes to bridging the

digital divide and fostering digital inclusion.
Under the Government-to-Business (G2B)
function, the government has implemented Moreover, the Kenya Trade Portal serves as
several key initiatives to enhance business an online platform that provides businesses
operations and promote economic growth. with essential information on trade regulations,
The State Department of Trade initiated procedures, and requirements for importing
the Electronic Single Window System, a and exporting goods. By offering a centralized
significant ICT infrastructure project aimed at source of trade-related information, the portal
enhancing efficiencies, optimizing port space, enhances transparency, reduces trade barriers,
and reducing corruption in alignment with the and facilitates cross-border trade activities.
goals of the Kenya Vision 2030. This system This initiative plays a critical role in promoting
streamlines processes for businesses involved international trade, enhancing market access,
in international trade, making it easier to comply and supporting business growth in Kenya.
with regulatory requirements and facilitating
smoother transactions. In 2002, the government Lastly, the Business Registration Service
launched the Integrated Financial Management (BRS) is a G2B initiative designed to simplify
Information System (IFMIS) to promote the process of business registration and
transparency in the utilization of public financial licensing in Kenya. By providing a one-
resources. IFMIS has played a crucial role in stop shop for business registration services,
improving financial management practices, the BRS streamlines procedures, reduces
ensuring accountability, and enhancing the bureaucracy, and promotes ease of doing
efficiency of financial transactions within the business in the country. This initiative aims to
public sector. By providing a centralized platform create a more business-friendly environment,
for financial operations, IFMIS has contributed attract investment, and support the growth
to greater fiscal discipline and oversight. of enterprises across various sectors of the
economy.
Additionally, the government established
Konza Technopolis, a strategic initiative aimed Government-to-Government (G2G)
at advancing effective links between the public
and commercial sectors. Konza Technopolis For Government-to-Government (G2G)
seeks to streamline business operations both interactions, IFMIS is utilized by both the
domestically and internationally, encourage the national and county governments and has been
adoption of Information and Communication integrated with other government agencies.
Technology (ICT) within the country, and The Uadilifu Case Management System,
promote sound ICT governance. Positioned developed by the Office of Director of Public
as a technology powerhouse in the region, Prosecutions (ODPP) in 2020 and integrated
Konza Technopolis plays a pivotal role in into the Independent Police Oversight Authority
driving innovation and economic development (IPOA) system and the Judiciary e-filing system,
through technology. Furthermore, the National aims to enhance effectiveness and efficiency
Fibre Optic Broadband Infrastructure (NOFBI) within the criminal justice system (Ministry of
Project was proposed to establish a national ICT, Innovation and Youth Affairs, 2020). The
public broadband network with access points Integrated Population Registration System is
in every county. This project aims to attract also a G2G initiative that aims to modernize
and stimulate private sector participation in and streamline the process of registering
the provision of rural telecommunications and managing population data in Kenya. By
services, thereby enhancing connectivity and integrating data from various government
promoting economic growth across the country. agencies, such as the National Registration
By expanding access to high-speed Internet Bureau and the Department of Immigration, the

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IPRS enhances data accuracy, security, and average scores for e-government, online
interoperability. In addition, the Kenya TradeNet service index, telecommunication infrastructure
System is an electronic platform that facilitates index, and e-participation index were 0.23,
trade processes and documentation for 0.28, 0.24, and 0.49, respectively, during this
importers, exporters, and government agencies period.
involved in trade facilitation. By automating
trade procedures and reducing paperwork, the Comparing Kenya to other African countries,
system enhances efficiency, transparency, and Kenya’s ratings are generally higher than Nigeria,
compliance in cross-border trade activities. Uganda, Ethiopia, and Tanzania, but lower than
South Africa and Rwanda in all components.
E-participation Rwanda, for example, had an average score for
e-government of 0.21, an online service index
E-participation in Kenya primarily occurs of 0.29, a telecommunication infrastructure
through government websites offering online index of 0.17, and an e-participation index of
information and participatory tools such as 0.51 between 2012 and 2022. On the other
social media, websites, and emails for citizen hand, South Africa had an average score for
interaction with ministries, departments, and e-government of 0.30, an online service index
agencies (MDAs) and county governments. of 0.31, a telecommunication infrastructure
The Public Service Commission report (2023) index of 0.44, and an e-participation index of
revealed that out of the 478 public organizations 0.77 during the same period.
that reported to have functional websites, 432
(90%) were confirmed to be functional. Article Rwanda stands out for its remarkable progress
232(1) of Chapter 13 of the Constitution of in e-participation, indicating a strong emphasis
Kenya 2010 highlights transparency and the on citizen engagement in governance. South
provision of accurate and timely information as Africa, on the other hand, demonstrates a high
key principles of public service. E-participation online service index and telecommunication
contributes to transparency, accountability, and infrastructure index, highlighting its robust
citizen participation, principles entrenched in the online service offerings and well-developed
Constitution (UNESCO, 2014). The budgetary telecommunication networks.
process is open to citizen participation, as
the National Treasury has been publishing For the countries outside Africa, the
financial budgets online since 2007. The Office United Kingdom had an average score for
of the Controller of Budget regularly publishes e-government of 0.91, an online service index
online expenditure figures, allowing Kenyans to of 0.95, a telecommunication infrastructure
compare budgets against actual financial figures index of 0.85, and an e-participation index of
and raise queries in case of discrepancies. 0.97 between 2012 and 2022. The United
States had an average score for e-government
Status of e-government and e-participation of 0.88, an online service index of 0.96, a
telecommunication infrastructure index of
From 2012 to 2022, Kenya has shown consistent 0.78, and an e-participation index of 0.94
growth in e-government development, online during the same period. Both the United
service provision, and the quality of its Kingdom and the United States demonstrate
telecommunication infrastructure (Figure 10.16). exceptional performance across various
This progress is attributed to advancements indices, characterized by their advanced online
in digital government services, including the services, well-established telecommunications
development of e-information on policies, laws, infrastructure, and a strong focus on citizen
and archives on portals and websites. Kenya’s participation in governance.

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Figure 10.16: The e-government development index and e-participation index in selected
African countries and aspirator countries outside Africa, 2012-2022

1.20
1.00
0.80
Scores

0.60
0.40
0.20
0.00
2012
2014
2016
2018
2020
2022

2012
2014
2016
2018
2020
2022

2012
2014
2016
2018
2020
2022

2012
2014
2016
2018
2020
2022
E-gov. development Online service index Telecommunication E-participation index
index infrastructure index

Kenya Rwanda South africa

Tanzania Ethiopia Uganda
Nigeria United Kingdom United States

Data source: United Nations, E-government surveys (various years)

The government under BETA has committed to 10.4.4 Setting up of oversight bodies
increase and fast-track broadband connectivity
across the country by constructing 100,000km Over time, the government has set up various
of national fibre optic connectivity network. bodies as part of its intervention measures to
This is aimed to enhance government service strengthen public service delivery. The bodies
delivery through digitization and automation focus on various aspects of public service
of critical processes, making 80 per cent of including human resource management;
government services available online (BETA, operations; behavioural-integrity; remuneration;
2022). According to ICT Authority, a total of productivity; and administrative justice (Table
8,900kms national fibre optic connectivity 10.2).
network across the country has been built.ii

Table 10.2: Oversight bodies strengthening public service delivery

Year Body Area of focus Core mandate

1954 Civil Service Commission (CSC) Human resource management Provide competent human
renamed Public Service Commission resources
(PSC) in 1963
1955 Auditor General Office Operations compliance Identify areas of improvement and
recommend corrective actions

2009 State Corporations Advisory Remuneration Foster efficiency in remuneration

Committee practices. Review and investigate
affairs of State Corporations
2010 Judicial Service Commission Behavioural integrity Uphold high ethical standards

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2010 Office of the Director of Public Behavioural integrity Prosecute cases of corruption
Prosecutions and malpractice
2010 Salaries and Remuneration Remuneration Advice on salaries and
Commission remuneration
2011 Ethics and Anti-Corruption Behavioural integrity Prevent and address corrupt
Commission practices
2011 The Commission on Administrative Administrative justice Safeguarding the rights of citizens
Justice (Office of the Ombudsman) and ensuring transparency and
fairness
2016 National Productivity and Productivity Guide on productivity
Competitiveness Centre management strategies

Public Service Commission Authority (KRA), tax compliance and Ethics

and Anti-Corruption Commission (EACC).
The PSC is tasked with overseeing human The purpose of submitting these certificates
resource management, recruitment, and is to demonstrate the ethical standing of the
performance evaluation in the public sector. applicants, ensuring only individuals with
It ensures that public servants are appointed impeccable professionalism are admitted to the
based on merit and performance criteria. public service. Moreover, candidates entering
The mechanisms, measures, and tools to professional roles within the public service
guarantee a transparent and accountable must provide a subscription certificate from
recruitment and promotion process is through their respective professional bodies to confirm
consideration of merit and ability, taking their good standing with these organizations.
into account qualifications, experience, and
performance. Furthermore, the Commission Ministries, Departments, and Agencies
supervises recruitment, maintains a confidential (MDA’s) report to the PSC quarterly providing
report system for employees, and follows updates on various aspects of public sector
procedures and principles for selection in operations. This reporting mechanism
acting promotions and appointments. The enhances accountability and allows for effective
Commission also ensures that appointments, oversight of human resource management
promotions, and transfers are conducted based practices. The reports spell out adherence to
on job-related criteria and legitimate position the Commission’s guidelines, policies, and
requirements. Through the performance regulations for recruitment, training, promotion,
appraisal results, the commission can and disciplinary procedures within the MDA’s.2
objectively and fairly promote employees.1 To monitor compliance, the commission
conducts audits, reviews, and assessments
In addition, various requirements have been to ensure that human resource management
demanded by the PSC, particularly regarding the practices align with established standards and
integrity and ethical conduct of each individual regulations.
who applies for advertised positions. Individuals
applying for positions in the public service must The commission also provides training and
meet several requirements, including providing capacity-building initiatives to enhance the
specific certificates to validate their eligibility. human resource management capabilities
These certificates include a recent certificate of within MDAs. This includes training programmes
good conduct from the Directorate of Criminal for human resource (HR) personnel or
Investigations (DCI), clearance certificates from workshops to disseminate best practices. The
the Higher Education Loans Board (HELB), establishment of service Level Agreements
Credit Rating Bureau (CRB), Kenya Revenue with MDAs has also been instrumental in
2
Guidelines for Development and Review of Human Resource Management Instru-
1
Public Service Commission Act.pdf
ments for State Corporations.

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determining adherence to commitments in their service are not easy to measure, issues such
service charters. Where non-compliance or as morale and motivation which are easily
malpractice is reported, the PSC may conduct measurable still do not have any measurable
investigations and take enforcement actions goal baseline. As a result, the actual impact
against implicated individuals or entities. This of the strategies being employed currently is
could involve disciplinary measures, corrective not well known (Ong’era, A., and Musili, B. M.,
actions, or recommendations for organizational 2019). Some of the emerging issues affecting
restructuring. human resources include employee wellbeing
and increased prevalence of mental issues.
For accountability purposes, the Commission The need for the development of policies and
regularly publishes reports summarizing its guidelines for the adoption of remote working
findings, recommendations, and actions taken and flexibility, which was accelerated by the
regarding human resource management COVID-19 pandemic to reduce commuting
across MDAs. These reports serve to enhance time and enhance productivity is also one of the
transparency, accountability, and continuous issues that should be addressed. To keep pace
improvement within the public service. Further, with the rapid advancements in technology to
the commission fosters strategic collaboration transform the way work is done and to aid in
and engagement with relevant stakeholders mainstreaming disability issues, encouraging
including civil society organizations, and regular skills gaps analysis among MDAs,
international partners, which is crucial upskilling employees to meet technological
for effective oversight of human resource demands is crucial, and redefining job roles
management practices. Regular engagement to align with emerging technologies has been
facilitates information sharing, problem-solving, upheld in the country just like other comparator
and the exchange of best practices as part of the countries.
efforts to promote professionalism, efficiency,
and integrity within the public service of Kenya.2 In Singapore for instance, there has been
massive investment in technology to streamline
At the county level, County Public Service processes, automate tasks, and enhance
Boards (CPSBs) mirror the PSC’s functions that efficiency in public service delivery. Ensuring
is, overseeing human resource management competency recruitment and training of top
within county governments. These boards play talent and continuous training has been
a crucial role in maintaining accountability and elemental. The Civil Service College (CSC) of
transparency in the county’s public service Singapore provides a wide range of training
operations. Through their role in recruitment, and development programmes tailored to the
promotions, and disciplinary processes (Njagi needs of public servants. In Denmark, there
Ireri, M. E., and Guyo, W., 2018), CPSBs have is an emphasis on flexible working hours to
brought services closer to the people and accommodate the needs of employees to allow
promoted accountability in county government employees to balance work and personal life
operations. effectively to enhance wellness. South Korea
has rapidly adopted technology and innovation
Although PSC has initiated such reforms as in public service management, leveraging
skills development, fostering of values, and advancements such as AI, big data, and
promotion of equity and equality through automation to enhance productivity.
the Human Resource Strategy Framework
for the Public Service, the real need to State Corporations Advisory Committee
professionalize, inspire, and improve staff
morale within the public service in the country The State Corporations Advisory Committee
is not well functioning. It has been noted even (SCAC) was established under section 26
though professionalism issues within the public of the State Corporations Act, Cap. 446.

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

It was formed to advise the President on of the Judiciary in Kenya. By overseeing

various matters related to state corporations, the recruitment, promotion, and discipline
including reviewing, and investigating their of judicial officers, the JSC has upheld high
affairs, recommending necessary actions, ethical standards and ensured the judiciary’s
advising on appointments and staff matters, impartiality. Through transparent and merit-
and examining proposals for new business based processes, the JSC has promoted
ventures.3 In addition, the State Corporations accountability and professionalism within the
Advisory Committee (SCAC) advises on judiciary, contributing to public trust in the legal
public servants’ terms and conditions in state system. The commission’s efforts have led
corporations, ensuring compliance with payroll to a more efficient and effective judiciary that
management policies and promoting efficiency upholds the rule of law and delivers justice
in remuneration practices. By fostering fairly and impartially.
efficiency in remuneration practices and
ensuring consistency across state entities, the The JSC employs a productivity index to assess
SCAC has contributed to a more streamlined the performance of judges and judicial officers
and accountable public sector. in the country. For performance management,
the JSC institutionalized performance
Auditor General Office management in 2016 to enhance and monitor
the effectiveness of judicial staff and judicial
To assess productivity in the public sector, officers. For quality assurance, the commission
the OAG conducts audits, assessments, advances continuous judicial education through
and reviews to evaluate the efficiency and the Kenya Judiciary Academy to enhance the
effectiveness of productivity within government competence, skills and knowledge of judicial
entities. The office also employs financial officers, staff and judges. The Judiciary
audits, budget implementation reviews, and Transformation Framework has been critical in
performance audits to ensure public sector promoting service delivery, which has culminated
transparency and accountability. Additionally, in decentralization to enhance access to justice
the Auditor General’s Office utilizes mechanisms for all citizens through magistrate and mobile
such as financial and performance reports, courts. The commission has supported digital
budget transparency, public participation transformations by embracing digitization
requirements, and supervision to hold public and automation through e-filing, virtual court
entities accountable. proceedings, and the Case Tracking System to
increase transparency and accountability, and
Some of the emerging issues regarding public reduce delays in the dispensation of justice.
sector productivity include challenges in the Through this, the commission has invested in
implementation, management, and placement informed decision-making processes by relying
of skilled staff within civil service institutions. on up-to-date data and information to inform
These challenges impact the overall productivity staff and judges’ deployment.
and efficiency of the public sector workforce,
emphasizing the need for improved processes Ethics and Anti-Corruption Commission
and strategies to enhance productivity in the
public sector.4 The Ethics and Anti-Corruption Commission
(EACC), founded in 2011, has been at the
Judicial Service Commission forefront of combating corruption and promoting
integrity in public sector operations. Through
The Judicial Service Commission (JSC), investigations, prosecutions, and public
established in 2010 has been instrumental in awareness campaigns, the EACC has worked
safeguarding the independence and integrity to prevent and address corrupt practices
3
The State Corporations Advisory Committee (SCAC) within government institutions. By holding
4
Report of the Auditor -General on Ministry of Labour for the year ending June 2022.

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accountable those engaged in corruption of quality in its operations, the ODPP adds
and malpractice, the EACC has sent a strong value by promoting trust in the justice
message that unethical behaviour will not be system and ensuring public service delivery
tolerated. The commission’s activities have led meets expectations. The ODPP is guided
to increased transparency, reduced corruption, by Excellence Charter 2020, which aims to
and improved governance practices in Kenya’s enhance service delivery through accountable
public sector creating a more conducive work use of public resources.
environment that fosters productivity and
excellence among public servants. Salaries and Remuneration Commission

Some of the focused initiatives that the Salaries and Remuneration Commission (SRC)
commission has recently been involved in provides guidance on salaries and benefits for
include integrity and corruption prevention in public service employees, ensuring fairness
Ministries, Departments, and Agencies pilots and equity in remuneration practices. The
on performance measurement are ongoing commission has helped maintain a level playing
in selected sectors such as health and some field and promote professionalism in the public
agencies; nurturing future professionals through service.
public education programmes to encourage the
youth to embrace integrity and intolerance to The performance-based pay concept used
corruption. by the commission assists in ensuring there
is rationality in payment of public and state
The commission has also collaborated with officers based on their performance and
the Ministry of Education to create awareness productivity. The commission makes use of
through integrity clubs to provide an opportunity Manpower Development and Productivity
to participate in activities promoting diversity Management with the necessary skills needed
and inclusion. The Kenya National Integrated to perform effectively, which translates to better
Civic Education Programme (K-NICE) is one of performance and organizational effectiveness
the multi-stakeholder government-led initiatives leading to high productivity in the public sector.
for creating the necessary civic awareness
on issues including corruption and unethical National Productivity and Competitiveness
behaviour. Centre

Office of the Director of Public Prosecutions The National Productivity and Competitiveness
Centre (NPCC) plays a vital role in enhancing
The Office of the Director of Public Prosecutions productivity and competitiveness within public
(ODPP) was established in 2010 to prosecute service in Kenya. By guiding productivity
cases of corruption and malpractice within the management strategies, the NPCC aims to
public service. ODPP has been at the forefront of drive efficiency and effectiveness in public
prosecuting cases of corruption and malpractice service. Through initiatives such as capacity
within the public service. By enforcing the rule building programmes, benchmarking exercises,
of law and holding accountable those engaged and productivity assessments, the NPCC
in corrupt practices, the ODPP has contributed contributes to fostering a culture of continuous
to fostering a culture of accountability and improvements and innovation.
integrity in public service.
The NPCC focuses on productivity
The ODPP emphasizes quality assurance management as part of Kenya’s Vision 2030
initiatives by ensuring that prosecutions are goals to raise the country’s competitiveness and
conducted fairly, effectively, and in accordance productivity levels. By implementing strategies
with the law. By maintaining high standards and programmes such as mainstreaming

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productivity training for public servants, 2016. To enhance the levels of awareness of
the Centre can set performance targets for the public, the Commission investigates and
Ministries, Departments, and Agencies (MDAs) prosecutes violations of the Act, and thus
across Kenya, aiming to improve productivity exposes inefficiencies. As a result, this fosters
through training and skill development and a fair and efficient public sector environment
thus playing a critical role driving economic conducive to productivity and effective service
growth. The NPCC has strategic collaborations delivery.
with TVETs and partnerships with private
entities such as the KCB foundation aimed at 10.5 Productivity and Financial
manpower and skill development to increase Management
productivity in the public sector.
A key factor to consider is how public service
Commission on Administrative Justice productivity is related to the quality of budgetary
and financial management including revenue
The Commission on Administrative Justice, collection and expenditure allocations. This
commonly known as the Office of the section discusses the quality of budgetary and
Ombudsman serves as a key oversight body financial management at both national and
responsible for investigating complaints county levels.
of maladministration, abuse of power, and
violations of rights within the public sector. a) Quality of budgetary and financial
By providing a mechanism for redress and management at national and county
accountability, the Ombudsman plays a crucial levels
role in safeguarding the rights of citizens and
ensuring transparency and fairness in public At the national level, the CPIA index indicates that
service. The Commission on Administrative Kenya’s efficiency in revenue mobilization and
Justice has facilitated the resolution of equity of public resource use has consistently
numerous complaints and grievances related been rated at four (4) out of six (6) from 2012
to public services. Through the investigations to 2022 (Figure 10.17), reflecting a moderate
and recommendations, the Ombudsman has to high-quality assessment. However, there
promoted accountability, transparency and has been a decline in the quality of budgetary
good governance practices within government and financial management practices, with
institutions enhancing public trust and the rating decreasing from 3.5 in 2012 to 3.0
confidence in the administration. in 2022. This slight decrease in 2022 may be
linked to factors such as economic conditions,
To ensure effective public service delivery, external shocks, and disruptions from the
by enforcing the right to access information 2022 elections affecting budget execution and
as provided by the Access to Information Act financial management practices.

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Figure 10.17: CPIA rating (1=low to 6=high), 2012-2022

4.5
Rating, 1=low to 6=high

4
3.5
3
2.5
2
1.5
1
0.5
0
Efficiency of revenue Equity of public resource use Quality of budgetary and
mobilization financial management

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Data source: World Bank (Various Years)

At county level, the public affairs index by mobilization (Figure 10.18). This is attributed to
KIPPRA, evaluated fiscal management by lack of a system in place and qualified personnel
assessing 10 indicators including development for revenue management. Conversely, levels of
expenditure, recurrent expenditure, personnel automation of revenue collection in non-ASAL
emoluments, and own-source revenue. Arid counties were particularly high, with counties
counties recorded the lowest score of an using electronic payment systems and some
average of 0.73 in fiscal management and the counties being completely cashless.
lowest score of an average of 0.02 in revenue

Figure 10.18: Scores for fiscal management indicators, county level, 2022

1.20

1.00

0.80

0.60

0.40

0.20

0.00
Share of personnel Resolve on Resolve on Development Recurrent OSR Achievement OSR Revenue Fiscal
development emoluments to recurrent development expenditure expenditure share to of OSR Regulatory management Management
expenditure total revenue expenditure expenditure budget budget equitable targets framework Index
ceiling pending bills pending bills execution execution share

Arid counties Semi-Arid counties (30-84%) Semi-Arid counties (10-29%) Non-ASAL counties

Data source: KIPPRA Public Affairs Index, 2022

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

b) Revenue collections the overall revenue growth, there have been

shortfalls in meeting set targets across financial
While there has been a steady increase in years.
revenue collection over time, notable revenue
collection growth declines occurred in 2014/15 The shortfall in revenue collection and low
and 2016/17 (Figure 10.19) due to disruptions growth over a financial year may lead to budget
from the devolved system of governance and constraints, affecting the government’s ability to
heightened political risks. It is worth noting that fund essential services and projects efficiently.
the tax and non-tax revenue surpassed the This, in turn, can result in delays or limitations
revised target at 103.1 per cent in 2015/16. This in service delivery, reduced capacity for public
reflects a bouncing from a significant decline investments, and constraints on resource
in 2014/15, which followed the introduction of allocation for key programmes.
the devolved system of government. Despite

Figure 10.19: Revenue collection, national level, 2012/13-2022/23

3500 0.50

0.43
3000 0.40
0.37

0.30
2500
0.24
0.20

Growth over FY
Ksh. Billions

2000 0.15 0.13

0.11 0.10
0.08 0.07
1500
0.00
-0.02
1000
-0.10

500 -0.20
-0.21

0 -0.30
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Target Collected Growth over financial year

Data source: OCOB, Annual National Government Budget Implementation Review Report

At the county level, the growth rate in the amount challenges or limitations in revenue generation
of own source revenue collected from the first during the transition period. Conversely,
government to the second government varied Kakamega, Siaya, Nyamira, Nyandarua,
across the counties ranging from -0.19 to 1.44 Mandera, Homa Bay, Lamu, Makueni, Tharaka
with an average of 0.51 (Figure 10.20). Out of Nithi, Taita Taveta, and Mandera counties were
the 47 counties, 17 counties had a growth rate among the top 10 counties with the highest
in the amount of own source revenue above the public administration productivity demonstrating
average level of 0.51, while 30 counties had a strong performance in revenue collection,
growth rate below the average indicating that indicating effective financial management and
most counties performed below the average potentially robust economic activities.
growth rate. The counties of Wajir, Samburu,
Garissa, Meru, Nakuru, Busia, Nairobi, Kisumu, In addition, the data indicates that the growth
Bomet, and Machakos were identified as part of rate in the amount of own source revenue
the bottom 10 counties with the lowest growth
collected from the first county government to
rate in the amount of own source revenue
showing that that these counties experienced the second county government is lowest in

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arid counties at 0.33, followed by non-ASAL may have attracted more economic activities,
counties at 5.1 and semi-arid counties at 0.53. leading to increased revenue generation from
This variation in own source revenue growth sources such as property taxes, permits, and
rate across different types of counties could fees. Arid counties face challenges related
be influenced by factors such as automated to infrastructure, which can impact revenue
revenue collection systems in place, favourable collection. Conversely, non-arid counties have
policy supporting business, investment, and better access to resources, infrastructure,
revenue collection. In addition, counties that and economic opportunities, leading to higher
invested in infrastructure development projects revenue collection.

Figure 10.20: Growth rate (%) in the amount of own source revenue collected from the first
government to the second government, 2013-2022

1.92
1.63
1.44

1.30
1.16

1.14
1.11
GROWTH RATE(%)

0.99
0.96

0.90
0.91
0.80

0.73
0.63

0.55
0.55

0.55

0.51
0.48

0.45
0.43
0.42

0.43
0.41
0.38
0.38

0.37
0.35
0.28

0.28

0.28
0.25
0.23

0.23

0.23
0.21
0.20

0.19

0.16
0.10
0.07
0.05
0.04

0.03
SAMBURU

G A R IS S A

M A R S A B IT

ISIOLO

TURKANA

TANA RIVER

MANDERA

MERU

MACHAKOS

BARINGO

KITUI

EMBU

WEST POKOT

KWALE

KILIFI

KAJIADO

LAIKIPIA

TAITA TAVETA

THARAKA NITHI

MAKUENI

NYERI

MIGORI

KIAMBU

NAROK

ELGEYO MARAKWET

LAMU

HOMA BAY

NAIROBI CITY

BUNGOMA

KISUMU

BOMET

NANDI

KIRINYAGA

TRANS NZOIA

UASIN GISHU

VIHIGA

MURANG’A

KERICHO

MOMBASA

KISII

NYANDARUA

NYAMIRA

SIAYA

KAKAMEGA

AVERAGE
NAKURU -0.04

BUSIA -0.07
WAJIR -0.19

ARID COUNTIES SEMI-ARID COUNTIES(30-84%) SEMI-ARID COUNTIES (10-29%) NON-ASAL COUNTIES

Data source: OCOB, County Governments Annual Budget Implementation Review Report,
2021/22

With a positive correlation (Figure 10.21) with increased labour productivity. Meaning,
between the change in own source revenue increased labour productivity of the workforce
collected by counties and labour productivity in is associated with increased revenue collection
the public service, this suggests that increased capacities put in place by the counties and
own source revenue collected is associated effective delivery of public services.

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

Figure 10.21: Correlation of labour productivity in public service with the change in own
source revenue

Data source: OCOB, County Governments Annual Budget Implementation Review Report, and
Author’s computation

c) Budget allocation to wages and the national government’s revenue. In addition,

salaries the total amount allocated to the recurrent
budget including salaries and wages has
The allocated budget for wages and salaries consistently remained significantly below the
has remained significantly below the stipulated planned recurrent budget. Various studies have
ceiling of 35 per cent (Figure 10.22) set by the consistently shown that higher salaries and
Public Finance Management Act 2012, Section wages often increase employee motivation and
15(2)(b). This section mandates that the productivity hence the need to increase salaries
national government’s expenditure on wages and wages to enhance labour productivity in
and benefits should not exceed 35 per cent of public service.

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Figure 10.22: Wages and salaries spending, national level, 2013/14-2022/23

3000 30.0

2500 24.7 25.0

20.4 21.6 20.2 20.2

20.0 19.6 20.1
2000 20.0
19.3
18.5

Percentage
Million

1500 15.0

1000 10.0

500 5.0

0 0.0
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Planned (Recurrent) Allocated (Recurrent)

Spent (Wages and salaries) Share of wages and salaries to the total budget

Data source: OCOB, Annual National Government Budget Implementation Review Report

At the county level, the higher wage and the second county government is lower in arid
salaries spending in the second government counties at 62 million, followed by non-ASAL
compared to the first government (Figure 10.23) counties at 107 million and semi-arid counties
is primarily due to increase in workforce in the at 146 million. This variation in salaries and
second government, necessitating increased wages could be attributed to factors such as
expenditure to accommodate more employees. workforce composition and administrative
The data reveals that the change in wages and structures in each county.
salaries from the first county government to

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

Figure 10.23: Wages and salaries spending, county level

800
685
700 611
600
500 463
408
Billions

368 371 375

400
263 268 282
300 247 229 253 235
194 210
200 139 153 143 161
117 107 125
100 63

-
Budget Expenditure Wages and Budget Expenditure Wages and
salaries salaries
First government Second government

Arid counties Semi-Arid counties (30-84%) Semi-Arid counties (10-29%) Non-ASAL counties

Data source: OCOB, Annual National Government Budget Implementation Review Report

With a positive correlation (Figure 10.24) Meaning, an increase in salaries and wages
between the change in salaries and wages and boosts the morale of employees and enhances
labour productivity in the public service, this the productivity of their workforce and delivery
indicates that increased salaries and wages are of public services more effectively.
associated with increased labour productivity.

Figure 10.24: Correlation of productivity in public service with salaries and wages

Data source: OCOB, County Governments Annual Budget Implementation Review Report, and
Author’s computation

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d) Operational and maintenance allocation. This peak could also be attributed to

spending a strategic decision to prioritize maintenance
and operational activities to enhance service
National level delivery and efficiency within the public sector.
Conversely, the decline in operational and
There has been a notable gap between the maintenance spending in 2020/21 can be
planned recurrent expenditure, recurrent largely attributed to the impact of the COVID-19
spending, and the actual allocated amounts pandemic. The pandemic led to budget
to operations and maintenance in government constraints, reallocations of funds to address
budgets (Figure 10.25) leading to a low share urgent healthcare and economic needs, and a
of operational and maintenance to the total shift in priorities towards pandemic response
government budget. The share of operational and recovery efforts. This led to reduced
and maintenance spending to the total budget allocations for non-essential operational and
remained low between 2013/14 to 2015/16 maintenance activities during this period,
ranging from 1.8 per cent to 2.4 per cent. The leading to the observed decline in spending on
operational and maintenance spending peaked operational and maintenance in 2020/21.
in 2016/17 and declined in 2020/21 due to the
impact of the COVID-19 pandemic. Insufficient funding for operational and
maintenance needs can have implications for
The share of operational and maintenance the facilitation of work within the public sector
spending to the total budget peaked in 2016/17 including delays in infrastructure repairs,
due to a possible increase in infrastructure equipment upgrades, and other essential
projects, equipment maintenance, or other tasks, ultimately impacting the efficiency and
operational needs that required higher funding productivity of public services.

Figure 10.25: Operational and maintenance spending, national level, 2013/14-2022/23

3000 18.0
16.42
2750
14.58 16.0
2500
13.50 14.0
2250 12.38
2000 12.0

Percentage
1750
10.0
1500
Millions

8.0
1250 8.98
1000 6.0
5.49
750
4.0
500 2.4 1.8 1.87 2.02
2.0
250
0 0.0
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Planned (Recurrent)
Allocated (Recurrent)
Spent (Operations and Maintenance)

Data source: OCOB, Annual National Government Budget Implementation Review Report (various
years)

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

County level ASAL counties (Figure 10.26). This suggests

that a higher level of financial resources were
There is a noticeable increase in operations directed towards operations and maintenance
and maintenance spending in the second in the second government, especially in
government to the first government by Ksh 259 counties with a lower aridity index.
billion, with the highest change observed in non-

Figure 10.26: Operational and maintenance spending, county level

800
700
600
500
Billions

400
300
200
100
0
Budget Expenditure Operations & Budget Expenditure Operations &
Maintenance Maintenance
First government Second government

Arid counties Semi-Arid counties (30-84%) Semi-Arid counties (10-29%) Non-ASAL counties

Data source: OCOB, County Governments Annual Budget Implementation Review Report

With a positive correlation (Figure 10.27) between ensuring technology systems are up to date
the operational and maintenance and labour for improved performance, facilitating efficient
productivity in the public service, this indicates service delivery processes, boosting employee
that improved operations and maintenance are morale and safety, and ensuring long-term
associated with increased labour productivity. cost savings by avoiding unexpected repairs
This suggests that maintaining infrastructure enhances productivity in public service.
to prevent breakdowns and reduce downtime,

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Figure 10.27: Correlation of productivity in public service with operational and maintenance
spending

Data source: OCOB, County Governments Annual Budget Implementation Review Report, and
Author’s computation
e) Capital expenditure The low budget for capital expenditure can
have significant implications for infrastructure
National level development, asset acquisition, and other
long-term investments within the public sector
There has been a low share of capital expenditure affecting the efficiency and effectiveness of
in the total government budget (Figure 10.28). service delivery in public service.

Figure 10.28: Capital expenditure spending, national level, 2013/14-2022/23

3000 0.70

2500 0.58 0.60

0.50
2000
Percentage
Millions

0.40
1500
0.30
1000 0.25
0.20
0.17
500 0.13
0.08 0.10
0.08 0.07 0.07 0.08
0 0.01 0.00
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Planned (Recurrent)
Allocated (Recurrent)
Spent (Capital expenditure)
Share of capital expenditure to the total budget

Data source: OCOB, Annual National Government Budget Implementation Review Report (various
years)

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 ENHANCING PRODUCTIVITY IN THE PUBLIC SERVICE

County level 84%) (51 billion), semi-arid counties (10-29%)

(43 billion) and arid counties (12 billion) (Figure
From the first government to second 10.29). Despite the increase in development
government, there was a noticeable increase budgets, the actual development expenditure
in development budget across counties (Figure in the second government period was lower
10.29), with the highest development budgets than the budgeted amounts for most counties,
increase observed in non-ASAL counties (81 indicating potential challenges in fully utilizing
billion), followed by semi-arid counties (30- allocated funds for development projects.

Figure 10.29: Development expenditure spending, county level

400,000
350,000
300,000
250,000
200,000
Milions

150,000
100,000
50,000
-
Budget Development Budget Development
First government Second government

Arid counties Semi-Arid counties (30-84%) Semi-Arid counties (10-29%) Non-ASAL counties

Data source: OCOB, County Governments Annual Budget Implementation Review Report (Various
years)

With a positive correlation (Figure 10.30) to perform their duties efficiently, increased
between the development expenditure and access to education, healthcare facilities and
labour productivity in the public service, this training opportunities that enhance employee
indicate that improved development expenditure skills and knowledge, and better healthcare
is associated with increased labour productivity. services that contribute to a skilled, healthier
This suggests improved infrastructure and and more productive workforce thus enhancing
facilities that make it easier for employees public service.

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Figure 10.30: Correlation of productivity in public service with development expenditure

Data source: OCOB, County Governments Annual Budget Implementation Review Report, and
Author’s computation

f) Pending bills of services provided to the public. Moreover,

the presence of a high number of pending bills
Pending bills refer to bills that have not been can create financial uncertainty for businesses
paid by the government within the agreed and service providers, affecting their cash flow
payment terms. The accumulation of pending and operational stability. This, in turn, may
bills can have significant implications for the lead to challenges in meeting their financial
productivity of public services and service obligations, investing in growth opportunities,
delivery at the national level. When bills or maintaining consistent service levels. This
remain unpaid, suppliers and service providers section covers pending bills at national and
may face financial constraints, leading to county levels.
disruptions in the supply chain and potential
delays in the delivery of goods and services The increase in the value of pending bills from
to government agencies. This can result in Ksh 334 billion in 2019/20 to Ksh 568 billion in
strained relationships with suppliers, reduced 2022/23 (Figure 10.31) indicates a concerning
trust in the government’s payment processes, trend of growing financial obligations that have
and ultimately impact the quality and timeliness not been settled by the government.

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Figure 10.31: Pending bills at the national level, 2019/20-2022/23

600 568
505
500

400 360
334
Billions

300

200

100

-
2019/20 2020/21 2021/22 2022/23

Data source: National Treasury and Planning, Quarterly Economic and Budgetary Review (Various
years)

At the county level, the increase in pending bills and (10-29%) (Figure 10.32). In contrast, arid
from the first county government to the second counties exhibited the smallest increase in
government showed a notable trend across pending bills. This increase can be attributed to
counties, with non-ASAL counties experiencing various factors such as economic challenges,
the most significant rise, followed by semi- administrative changes and higher project
arid counties with aridity indices of (30-84%) implementation.

Figure 10.32: Pending bills, county level

600
542

500

400
Billions

300

200
147

100 74
43 50 53
27 37

First government Second government

Arid counties Semi-Arid counties(30-84%) Semi-Arid counties(10-29%) Non-ASAL counties

Data source: OCOB, County Governments Annual Budget Implementation Review Report, and
Author’s computation

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10.6 Public satisfaction with public displayed a consistently positive trend, rising
service delivery from 56.0 per cent in 2012 to 73.2 per cent in
2020 (Figure 10.33). Kenya has enhanced its
Public satisfaction with public service delivery business environment through various reforms
is crucial for assessing the effectiveness of and policies. These include simplifying business
government initiatives and programmes. This registration processes, improving access to
section delves into key factors influencing credit through credit information systems and
public satisfaction with public service delivery, collateral registries, strengthening property
including creating an enabling environment rights protection, investing in infrastructure
for business, promoting good governance development to improve connectivity,
practices, and upholding national values. streamlining regulatory processes, facilitating
These elements play a vital role in enhancing trade through customs procedures, and
productivity within the public service sector, enhancing investor protection mechanisms, for
fostering transparency, accountability, and instance, Public Offers Listing and Disclosures
efficiency in service delivery. Act and the Investor Compensation fund.

a) Creating an enabling environment for Rwanda emerges as a stand-out performer

business among selected countries (Figure 10.33). It
has made significant strides toward business
Creating an enabling environment for business registration through online registration and
is crucial for enhancing productivity in the public the elimination of bureaucratic obstacles that
service. By fostering a conducive atmosphere attract investors. Rwanda has heavily invested
for businesses to thrive, the government in infrastructure to promote connectivity to
can stimulate economic growth, attract support business operations. The country has
investments, and generate revenue that can be a well-maintained road network, a modern
channelled back into public service delivery. A airport, a reliable power supply, and the Kigali
vibrant business environment not only boosts Innovation City, a technology park supporting
the economy but also creates opportunities for innovation and entrepreneurship. Rwanda has
collaboration between the public and private committed to providing investors with a wide
sectors, leading to innovation, efficiency, and business network by proactively embracing
improved service delivery in the public sector. investment and trade policies to support
This section highlights the status of creating foreign investment. Other initiatives that have
an enabling environment for businesses at the opened the country include agreements such
national and county levels. as the African Continental Free Trade Area
(AfCFTA). The Business Development Fund
The Ease of Doing Business Index plays a and the Rwanda Development Bank are part of
crucial role in evaluating the efficiency and a well-regulated and strong business financing
effectiveness of government regulations and mechanism supporting business development
processes that influence businesses. The and growth.
Ease of Doing Business score for Kenya has

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Figure 10.33: Ease of doing business scores in selected African countries, 2012-2022

80
75
70
65
Score

60
55
50
45
40
2012 2013 2014 2015 2016 2017 2018 2019 2020

Kenya Rwanda South Africa Ethiopia Tanzania Uganda

Data source: World Bank, 2023

The status of the County Business Environment while 29 counties exhibited scores above this
for Micro and Small Enterprises (MSEs) varies average. The counties of Samburu, Garissa,
across different counties (Figure 10.34). With Tharaka Nithi, Lamu, Marsabit, Isiolo, Meru,
an average score of 29.3, the County Business Narok, Tana River, and Kitui were identified
Environment for Micro and Small Enterprises among the bottom 10 counties with the lowest
(MSEs) offers a comprehensive assessment CBEM scores. Conversely, Elgeyo Marakwet,
across various indicators such as self-regulation, Busia, Embu, Laikipia, Kirinyaga, Trans Nzoia,
access to markets, crime and public security, Nyeri, Kiambu, Nandi, and Nairobi counties
licensing and issuance of permits, access to were among the top 10 counties with the
government procurement opportunities, and highest CBEM scores.
more. Among the indicators making up County
Business Environment for Micro and Small The disparities in CBEM scores among these
Enterprises (MSEs), the highest scores were counties may be attributed to factors such as
on self-regulation (74.2), access to markets worksite infrastructure, market conditions,
(71.2), crime and public (70.8), security, ease technical capacity, governance practices,
of access to road infrastructure (70.5) while regulatory framework, financial inclusion, and
the lowest scores were on patenting (0.62), risk management. Counties with higher CBEM
innovation (1.64) and Internet connection (3.94) scores have stronger scores in self-regulation,
(Njenga, G., et al.,2022). access to markets, crime and public security,
licensing and issuance of permits, access to
Out of the 47 counties, 18 counties have CBEM government procurement opportunities and
2022 scores below the average level of 29.3, more.

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Figure 10.34: The overall county business environment for MSEs score, 2022

37
36
35
34

34

34
34
34

33
32

32
32
32
32
31
31

31

29.37
31

31

30
30
30
30
30

30
30
30

29
29

29

28
28
28
28

28
27

26
25
24

24
23
23

23

22

22
21
18
SAMBURU

GARISSA

MARSABIT

ISIOLO

TANA RIVER

MANDERA

TURKANA

WAJIR

THARAKA NITHI

LAMU

MERU

KITUI

MACHAKOS

MAKUENI

KAJIADO

HOMA BAY

WEST POKOT

TAITA TAVETA

KILIFI

KWALE

BARINGO

EMBU

LAIKIPIA
NAROK

NYAMIRA

MIGORI

NAKURU

ELGEYO MARAKWET

NYERI

KIAMBU

SIAYA

KISII

BOMET

KAKAMEGA

BUNGOMA

NYANDARUA

MOMBASA

MURANG’A

UASIN-GISHU

KERICHO

VIHIGA

KISUMU

BUSIA

KIRINYAGA

TRANS NZOIA

NANDI

NAIROBICITY

AVERAGE
ARID COUNTIES SEMI-ARID COUNTIES (30-84%) SEMI-ARID COUNTIES (10- NON-ASAL COUNTIES
29%)

Data source: KIPPRA, 2022 (CBEM)

A positive correlation between the CBEM scores markets, crime and public security, licensing
and labour productivity in the public service and issuance of permits, access to government
(Figure 10.35) indicates that the delivery of procurement opportunities, and more tend to
public service is linked to CBEM. This suggests be associated with higher labour productivity in
higher scores in self-regulation, access to public service.

Figure 10.35: Correlation of productivity in public service with county business environment
for MSEs score

Data source: KIPPRA, 2022 (CBEM) and Author’s computations

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b) National values indicating a society’s commitment to harmony,

non-violence and cooperation. A higher GPI
National values play a pivotal role in enhancing score indicates a greater level of violence in
productivity in the public service by shaping the a country. This index is not only a measure of
organizational culture, guiding behaviour and peace but also an indicator of overall wellbeing
fostering a sense of purpose and commitment and productivity, as peaceful societies tend to
among employees. Embracing and upholding be more conducive to economic growth due to
national values within public institutions can the stability.
create a conducive work environment that
promotes efficiency, professionalism, and Kenya’s performance in the Global Peace Index
service excellence. from 2017 to 2023 has shown fluctuations, with
slight improvements and deteriorations over the
During the second MTP (2013-2017) the years, with a score of 2.25 in 2023 as compared
Government implemented the Public Service to Rwanda’s 2.05 and Tanzania’s 2.05 (Figure
Transformation Strategy aimed at creating 10.36). Notably, Kenya had consistently
an efficient and effective public service with improved in the global ranking from 129 to
moral and ethical standards and a highly 117 out of 163 countries in 2017 and 2023,
motivated human resource capacity for efficient respectively. Comparatively, Rwanda and
public service delivery. The strategy aimed to Tanzania have demonstrated more consistent
address the global governance environment by progress in peacefulness during this period,
enhancing responsible citizenship and value- attributed to proactive policies and initiatives
based public service. promoting social cohesion, conflict resolution
mechanisms, and investments in peacebuilding
National level efforts. These countries’ focus on sustainable
development, inclusive governance, and
The Global Peace Index (GPI) is used to community engagement has likely contributed
measure the status of national values. It serves to their better performance in maintaining
as a reflection of societal values by rating peace and stability.
the level of peacefulness among countries,

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Figure 10.36: The Global Peace Index (GPI) scores in selected African countries, 2017-2023

3.5 130

128
3
126
2.5 124

Global Rank
122
2
Index

120
1.5
118

1 116

114
0.5
112

0 110
2017 2018 2019 2020 2021 2022 2023

Kenya Rwanda South Africa Ethiopia

Tanzania Uganda Kenya's Rank

Data source: Global Peace Index (GPI) data sets 2017-2023

The county value systems programme is also Integration Commission (NCIC) on the ethnic
aimed at infusing national values within counties and diversity of county public service (2023).
by building harmony and cohesion in all the 47 Nairobi, Mombasa, Nakuru, Busia, Embu,
counties. The programme aims to promote in- Lamu, Marsabit, Isiolo, Tharaka Nithi, Taita
county unity by aligning the devolved units to Taveta, Narok, Tana River, and Trans Nzoia
the country’s guiding principles. are among these counties. By hiring more than
70 per cent of members of the majority ethnic
Diversity regarding ethnicity in public service group for county public service, 34 out of 47
is a barometer of values since it shows a counties violated the County Government Act
dedication to justice, equity, and respect for (2012) section 65(1) (e) which requires that the
every person, no matter what their background. county boards ensure that 30 per cent of entry-
A county’s commitment to accepting diversity level vacancies are filled by candidates that are
and advancing a society in which all people not from the dominant ethnic community in the
have equal opportunities and representation is county.
demonstrated by its efforts to promote diversity
and inclusion in the public service workforce. 10.7 Key Messages and
The commitment to inclusivity shows a value Recommendations
system that ideals diversity, equity, and the
recognition of the unique contributions that 10.7.1 Key messages
individuals from various backgrounds bring to
the table. 1. The introduction of a devolved system
of government in 2013 significantly
In Kenya, only 13 counties have complied transformed the country’s public service
with the constitutional threshold on ethnic landscape by decentralizing functions to
diversity and inclusivity in employment as per the county level, prompting adjustments
the audit report by the National Cohesion and in employment practices. Counties were

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compelled to enlarge their workforce to management remain. Addressing these

effectively manage devolved functions. challenges is crucial for achieving the
Nevertheless, freezes on public service government’s goal of providing high-
recruitment during 2014-2016 and quality services to the public.
2018-2020, coupled with the disruptions
caused by the COVID-19 pandemic, 4. While the country has demonstrated
disrupted labour force dynamics. The efficiency in revenue mobilization and
varying experiences among counties equitable use of public resources,
highlight the critical role of strategic the quality of budgetary and financial
policies, infrastructure and human management practices has declined.
capital investments, and governance Despite steady growth in revenue
reforms in stimulating productivity collection, there have been shortfalls in
and economic development. Counties meeting set targets, leading to potential
with larger populations and urban budget constraints that affect the
centres face heightened demands for government’s ability to fund essential
public services, leading to a greater services and projects efficiently.
contribution of public administration to Allocated budgets for wages and
Gross County Product (GCP). salaries have consistently remained
significantly below the stipulated ceiling
2. There exists an increase in national of 35 per cent. There is also a notable gap
productivity, but significant disparities between planned recurrent expenditure
exist across counties, indicating the and actual allocated amounts to
importance of targeted interventions. operations and maintenance. This
Policies need to focus on factors leads to a low share of operational
such as access to technology, and maintenance spending in the total
quality of personnel, infrastructure government budget. In addition, there
development, and governance is a low share of capital expenditure
practices to address these disparities. in the total government budget, which
Additionally, improvements in human can have significant implications for
capital development, economic and infrastructure development and long-
fiscal management, transparency, and term investments. The accumulation of
accountability are crucial for enhancing pending bills at both national and county
productivity in the public sector. levels indicates a concerning trend of
growing financial obligations that have
3. Improving public service delivery not been settled by the government,
requires a multifaceted approach potentially impacting the quality and
involving capacity building, timeliness of services provided.
performance management contracting,
technology integration, and the 5. Public satisfaction with public service
establishment of oversight bodies. delivery is influenced by creating a
These interventions aim to enhance favourable environment for businesses,
the skills and competencies of public promoting national values, and
servants, promote accountability and upholding good governance practices.
transparency, and leverage technology Improving the business environment,
for efficient service delivery. Despite embracing diversity, and ensuring
progress, challenges such as low ethical standards in the public service
training programme uptake and are crucial for enhancing productivity
implementation gaps in performance and service delivery.

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10.7.2 Policy recommendations promoting e-participation for increased

citizen engagement. Coordination
1. Establish a coordinated and strategic among government, civil society, and
approach to capacity building and stakeholders is essential for effective
human resource management across implementation, leading to improved
all levels of government. This should accountability, transparency, and
involve the development of standardized service quality.
training programmes tailored to the
specific needs of the national and 4. Strengthen budgetary and financial
county governments, ensuring that management practices at both national
public servants are equipped with and county levels in Kenya. This
the necessary skills and knowledge involves improving revenue collection
to deliver services effectively. In strategies, enhancing budget execution
addition, efforts should be made to and financial management practices,
streamline recruitment processes, offer ensuring compliance with the 35 per
competitive salaries and benefits, and cent ceiling for wages and salaries
implement performance management spending, increasing allocation to
systems to enhance accountability and operations and maintenance, prioritizing
performance. capital expenditure, and addressing the
accumulation of pending bills. These
2. Implement targeted interventions recommendations aim to enhance
that focus on enhancing the quality the quality of budgetary and financial
of personnel by improving access to management practices, ultimately
technology, investing in infrastructure improving public service productivity
development, and strengthening and service delivery in Kenya.
governance practices. In addition, there
is a need to improve human capital 5. There is a need to focus on creating an
development, enhance economic enabling environment for businesses,
and fiscal management, and promote promoting national values, and
transparency and accountability. These upholding good governance practices.
measures can help create an enabling This can be achieved by implementing
environment for enhanced productivity reforms to simplify business registration
and efficiency in public service delivery. processes, improving access to credit,
strengthening property rights protection,
3. The government needs to prioritize a and investing in infrastructure
comprehensive approach to enhance development. Additionally, efforts
public service delivery. This includes should be made to promote diversity
expanding training programmes to and inclusivity in the public service,
improve the skills of public servants, ensure ethical standards, and enhance
streamlining performance management conflict resolution mechanisms. These
contracting to align with organizational measures can help improve public
goals, leveraging technology satisfaction with service delivery and
for digitization and automation, enhance productivity within the public
strengthening oversight bodies for sector.
monitoring and enforcement, and

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11
LEVERAGING DIGITALIZATION TO INCREASE PRODUCTIVITY IN THE INFORMAL ECONOMY

LEVERAGING DIGITALIZATION
TO INCREASE PRODUCTIVITY
IN THE INFORMAL ECONOMY

The informal economy contributes over 83 per cent of total employment

and only 3.2 per cent of value added to the economy. Establishments
using digital tools such as mobile for business, mobile money platforms,
computers, and websites in production, processing, and marketing are
regarded as digitalized. Consequently, the high level of digitalization is
associated with high labour productivity. Digitalization levels dependent
on factors such as digital skills, digital literacy levels, cost of digital tools
such as smartphones and computers, and digital infrastructure development
such as Internet and electricity connectivity. To support digital business,
the government is building digital hubs in all 290 constituencies to provide
free WIFI that will enhance the uptake of online business. The government
also plans to build 100,000 kilometres of optic fibre to accelerate Internet
connectivity. Infrastructure development such as the Internet and electricity
connection support the adoption of digital tools, which enhances productivity.
the government is also supporting informal businesses to develop digital
skills through programmes such as Ajira and Jitume. The use of digital tools
offers opportunities for improving operational efficiency, expanding market
reach, and accessing financial services. To enhance the digitalization of the
informal sector, the government needs to expand its investment in digital
skills and digital literacy development programmes that target the population
in rural and underserved areas as well as underserved sectors such as
the MSMEs including by expanding the scope of the universal service
fund. Furthermore, the government needs to enhance the affordability,
accessibility, and competitiveness of digital infrastructure by fast-tracking the
implementation of its programmes on Internet connectivity, broadband fibre,
and electricity connectivity in different parts of the country. Also ensuring
the county aggregation industrial parks are adequately equipped with such
infrastructure. Lastly, the government needs to accelerate the production of
locally produced digital tools such as mobile phones to increase the supply of
affordable and quality tools. It can do this by subsidizing costs and providing
incentives for digital investments in the country.

11.1 Introduction transformed optimizing operations, enhancing

L
customer experiences, and unlocking new
everaging digitalization to increase opportunities for businesses. The informal
productivity in the informal economy economy accounted for approximately 85 per
holds immense potential for driving cent of all new jobs created in 2023 (KNBS
economic growth, improving livelihoods, 2024), which demonstrates the significant role
and fostering inclusive development. Through played by informal businesses in providing
digitalization, economic activities such as livelihood opportunities for a large portion of the
production, processing, and marketing are population. However, the sector is characterized

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by low productivity as it accounts for 10.4 transformation. The private sector also plays a
per cent of MSME gross value added and critical role in the digitalization of the informal
contributes 3.2 per cent to the whole economy, sector. As demonstrated by the case of
KNBS (2016). This is attributed to factors such Safaricom, which is a giant tech company that
as limited access to resources such as credit, has introduced a pricing model for 4G phones
low level of technology, small-scale operations, where one acquires the phone and pays for as
and low level of skills. low as Ksh 20 per day until one finishes the
payments, and one owns the phone fully. This
Integrating digital technologies into the has enabled the informal sector players who are
operations of informal businesses can lead low-income earners to be able to access digital
to substantial improvements in productivity. phones, which contribute to the digitalization of
Digitalization can streamline business the sector.
processes and automate tasks and workflows.
For instance, adopting digital payment The government is partnering with international
systems can facilitate quicker and more secure organizations to mobilize resources to
transactions, eliminating the reliance on cash support digital transformation in the country.
and reducing the risk of financial losses. Recently, Kenya received grants to support the
Additionally, digital record-keeping systems development of the digital economy in Kenya
can improve data management and enable through a project funded by the World Bank in
businesses to track sales, expenses, and support of digitalization of the economy. Phase
inventory more accurately. Digital platforms one runs from 2023-2028 and the second
are also transforming the informal sector by phase ends in 2030. The grant is supporting
offering quality services and access to work digital infrastructure and services, therefore,
opportunities. Job seekers can also register supporting Kenya’s digital economy growth by
their profiles on digital platforms such as increasing access to high-speed Internet for
Ajira and Fundi (KEPSA, 2023). The sector is government, industries, and individuals. The
embracing digital platforms that are coming other area to be supported is investing in digital
up and offering digital services. Consequently, government services and policies needed to
big businesses and startups are creating an transform government operations. Additionally,
enabling environment and digital channels the grants aim to support and equip young
that enable informal business owners to gain Kenyans with digital skills and empower them
access to data and services they typically would to be able to compete in the international job
not access as an unregistered business. This markets. Most of the young people targeted
provides a new path for collaboration between are found in the informal sector. Therefore, the
big and small informal businesses. project will contribute to building digital skills for
them, which is one of the challenges hindering
Digital transformation in the informal sector transformation in the sector.
requires the joint efforts of the government,
private sector, and enterprises (Raisanen and Vision 2030 supports digitalization as it outlines
Tuovinen, 2020). The Government plays a role the use of technology and innovations to
in promoting the digital processing of informal support different sectors to spur growth and
businesses and enabling digital transformation industrialization including the informal sector.
by raising digital transformation awareness, Furthermore, it stresses the importance of the
increasing labour-power competence, development of the informal sector in attaining
providing technical and financial support, and the goal of industrialization. The National ICT
strengthening data communication infrastructure Policy, 2019, is the other framework supporting
(Mukaila Ayanda and Sidikat Laraba, 2011). digitalization. It outlines the ICT development
This creates an enabling environment for goals and creates a framework for their timely
other actors to work and contribute to the realization. The objective of the policy is among

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other things to give every Kenyan access to preparedness. However, Kenya’s connectivity
reliable, affordable, high-speed broadband is concentrated in urban areas with rural areas
connectivity. It also aims to give the interests being disadvantaged due to low investment in
of the private sector top priority to foster digital infrastructure, affordability of devices
entrepreneurship, innovation, investment, and and data bundles, digital illiteracy, and poor
growth. In addition, the policy aims to leverage access to spectrum. Currently, Kenya has
ICT to promote sustainable development, six (6) submarine fibre cables connecting it
accelerate human development, bridge the to the world. Peace cable, DARE1 (Djibouti
digital divide, and develop a knowledgeable Africa Regional Express 1), TEAMS (The East
society. African Marine System), EASSy (East African
Submarine Cable System) and Lion2. In 2023,
In Africa, Kenya is ranked 5th behind South total mobile Internet subscriptions in the country
Africa, Morocco, Algeria, and Egypt by the was 47.96 million out of which 67.1 per cent
Huawei Global Connectivity Index in terms of its were for mobile broadband (Figure 11.1).

Figure 11:1 Internet connectivity in Kenya, 2023

Data source: Communication Authority (CA)

This chapter explores the role of digitalization in operations. This section gives an overview of the
increasing productivity in the informal economy. informal economy including the firms and their
It looks at the characteristics of the firms in activities and labour market characteristics.
the informal sector and identifies the digital
tools, digital infrastructure, digital skills; digital (a) Registration status of firms
services; government policy, and support for
digitalization. The chapter attempts to examine The informal sector is characterized by small
empirically the implications of digitalization firms, which are generally unregistered
on labour productivity and provides policy and unregulated by the government. These
recommendations. enterprises are mainly owned by families on
small-scale, rely on indigenous resources
11.2 Overview of Informal Economy such as readily available resources, labour
intensive technology, and find themselves
Understanding the informal economy is crucial in a competitive market. There are over 5.9
as it gives a glimpse of its characteristics and million unlicensed establishments countrywide,

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an indication of a growing informal economy of locational site has significant implications on

(KNBS, 2016). The largest proportion of the the approach to be adopted in the provision of
informal establishments, 40.6 per cent, operate essential infrastructure to facilitate digitization
in open places, 24.8 in temporary structures, of the informal firms. The location of enterprises
and 13.8 per cent in permanent structures as within the sector is influenced by the nature of
shown in Figure 11.2 (KNBS, 2016). This type the economic activities they engage in.
Figure 11.2: Type of informal establishments operating structure, 2016

Others 0.9

Vehicle 0.5
Type of Structure

No structure 40.6

Temporary structures 24.8

Semi permanent 19.3

Permanent 13.8

0 5 10 15 20 25 30 35 40 45
Percent

Data source: MSME, 2016

Establishments in the informal sector use b) Informal sector labour participation

various forms of ICT such as mobile phones,
tablets, computers, cameras, fax, cameras, The sector remains the main source of
radios, television sets, photocopiers, and employment in Kenya (Figure 11.3) contributing
printers. Computers are mainly used for about 83.4 per cent of the employed population.
scanning (0.4%), printing (16.0 per cent), data The employment rate in this sector rose by 4.6
storage (19.0 %), data processing (2.1%) and per cent, which translated to 16 million jobs in
Internet services (60.0%). The use of these 2022 (KNBS 2023). Of these, 58.6 per cent were
digital tools and services are used at different own workers while 16.5 were paid employees.
levels across sectors as discussed in (Figure Terms of engagement for those employed
11.8). The low broadband Internet connection include those regularly paid, casuals, family
across counties and high connection charges workers, and apprentices. Those engaged
may be attributed to low adoption of these in this category include second-hand clothes
technologies CBEM, (2022). dealers, hawkers, dressmakers, housekeepers,
security guards, and carpenters. Their skill
profile, years of schooling, and experience
influence their earnings and level of income.
Some of the challenges they face are low levels
of skills and constraints from getting credit
facilities due to informality, therefore, affecting
their productivity.

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Figure 11.3: Employment contribution by sector (2017-2022) (%)

Data source: KNBS Economic Survey (2017- 2022)

c) Informal activities across sectors (19%) (Figure 11.4) A majority of the informal
enterprises are in the service sector operating
Activities within the informal sector are in wholesale and retail trade, motorcycles, and
concentrated around manufacturing (20%), repair of motor vehicles. Many businesses
wholesale and retail (58%), transport and within the accommodation and food service are
communication (3.0%), construction (3.0%), small restaurants selling food and beverages.
community (12%), social and personal services

Figure 11.4: Persons engaged in the informal sector by activity, 2017-2022

100.0 4.5 4.5 4.5 4.3 4.7 4.7

90.0 9.7 9.7 9.7 9.2 10.0 11.6
3.1 3.1 3.1 2.7 2.8 2.8
80.0
70.0
60.0
Percent

50.0 59.9 59.9 59.8 61.2 59.7 58.4

40.0
30.0
20.0 2.6 2.6 2.6 2.8 2.7 2.6
10.0 20.2 20.2 20.2 19.8 20.1 20.1
0.0
2017 2018 2019 2020 2021 2022

Manufacturing Construction

Wholesale and Retail, Hotels & Restaurants Transport and communications

Community, Social and Personal Services Others

Data source: KNBS Economic Report (2022, 2012, and 2013)

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d) Innovation in the informal sector have introduced new marketing methods, new
products, or new production techniques. Most
Informal firms engage in product, process, and of the innovative firms engaged in product
marketing innovations. Innovation levels in the innovation, with 7.0 per cent in the informal and
informal sector are low with less than 10 per 15 per cent in the formal sector.
cent of enterprises having reported that they

Table 11.1: Distribution of innovative firms in the informal and formal sectors

Year Type of Innovations Total

Product Process Marketing Innovative Firms Non-innovative Firms Total Firms
Informal 1,3144 (7) 487 (3) 697 (4) 2,498 (14) 15,397 (86) 17,895 (100)
Formal 925 (15) 437 (7) 601 (10) 1,963 (31) 4,306 (69) 6,269 (100)

Data source: KNBS MSME Survey, 2016

e) Education levels for participants in shows that a higher percentage of innovative

the informal market firms have owners whose highest level of
education is secondary education - product
Education influences the level of innovation innovation (41%), process innovation (38%),
within the sector. Firms whose employees/ and marketing innovation (41%).
owner(s) have high education levels tend to
be more innovative. The informal sector is Micro and medium enterprises are the least
known to have low educational levels among its adopters of innovation compared to small
players. Those with primary education (39.7%), enterprises. An inspection of the innovation
secondary education (19.0%), certificate rigidity levels reveals that informal micro and
(3.7%), diploma (3.9%), degree (1.2%), and medium enterprises are more rigid to innovation
none (31.4%). Comparing education levels and than small informal enterprises.
innovation, the analysis presented in Table 11.2

Table 11.2: Owners’ highest level of education achieved (%)

Product Innovation Process Innovation Marketing Innovation

None 1 1 2
Primary 23 25 22
Sercondary 41 38 41
Vocational, Polytechnic or College 24 24 22
University 10 10 11
Total 100 100 100

Data source: KNBS MSME Survey, 2016

Training for the informal sector is crucial financial management (25.6%), technical skills
in sharpening or enabling them to acquire (24.92%), market access (15.53%), climate
new skills. In assessing the extent to which change (2.92%), post-harvest management
MSEs participated, in training and in which (5.07%), business advisory (17.23%), and
areas, 50.66 per cent indicated that they had technical skills (8.61%), (CBEM, 2022).
undertaken training in the last three years in Additionally, during the COVID-19 pandemic,

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about 6.4 per cent underwent training to Kenya (ISSOS, 2020). Additionally, the youths
understand ways to innovate to survive during (below 18-34 years) who are owners of the
the pandemic. businesses are at 53.1 per cent. This shows the
crucial role the two groups play in ensuring the
11.3 Government Intervention in the development and growth of the sector.
Digital Economy
The government is also supporting women
The Digital Economy Blueprint (2019) is a through a programme referred to as
framework that seeks to drive the country ‘AjiraForShe’ Apprenticeship Programme that
towards the realization of a successful and is being implemented by eMobilis, a partner for
sustainable digital economy. It is guided Ajira Digital. Young women are being trained
by pillars that drive digital economy growth to acquire digital skills that prepare them for
including digital government, digital business, the labour market. The programme objective
infrastructure, innovation-driven, and digital is to build opportunities for young women in
skills. These pillars are discussed in this section Kenya in the digital economy by enabling them
to understand how the government is supporting to take up digitally enabled work opportunities
the informal sector for digital transformation. and engage in digital entrepreneurship space.
The women-owned businesses tend to be
a) Digital business smaller in scale and struggle since they have
limited access to financial support. Therefore,
The pillar aims to develop a robust digital engaging in such training programmes, enable
market characterized by advanced consumer them to be well-connected and linked to such
protection, fair competition, resilient data crucial opportunities. The participants can
infrastructure, increased quality of financial build their skills in financial record keeping,
inclusion, and greater regional integration. It purchasing, and business management. These
has three focus areas namely: digital financial skills are crucial in running their businesses
services, digital content, and digital trade. and allowing women to take their space thus
Integrating ICT in business processes has reducing the digital divide among women who
proven to be a critical solution to survival have historically been imbalanced in the digital
of enterprises during uncertainties. For space.
this to happen, businesses need to remain
interconnected among themselves, with their Online platforms and mobile applications can
customers, and with the government. offer entrepreneurs in the informal economy
valuable insights into market trends, pricing
The government plans to build ICT hubs in all strategies, and customer preferences. Digital
wards in the 290 constituencies. The project is technologies can enable owners of informal
at the inception stage with a pilot being done enterprises and their workers not only to earn
in Limuru. The objective of the project is to but also to gain access to improved inputs
support entrepreneurs access free Wi-Fi. It and larger markets, obtain adequate capital
will also enhance awareness and uptake of and credit, and reduce transaction risk in the
online platforms for employment and business day-to-day running of their activities (Aker
opportunities. This will help accelerate the 2008; Aker and Mbithi 2010; Choi et al. 2020;
adoption of digital technologies providing Ongori and Migiro 2010). Some of these online
an avenue for accessing critical business platforms include MESH, which is a platform
information and training resources among the for informal businesses and has more than
youths and women in the informal economy. In 150,000 members. It has a programme that
the distribution of informal employment within equips young entrepreneurs with digital, and
the informal sector, 53.1 per cent of women are financial skills and market participation enabling
owners and operators of informal businesses in them to build resilient businesses positioned

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for growth. It allows young people access to and automating VAT systems to enhance
tailored business tools, peer networks, and revenue. This will involve the installation of 100,
mentorship, which allows them to participate 000km of fibre cable which is expected to create
in formal business. Uhuru Market is another 25,000 Wi-Fi hotspots available to the public. It
online platform named after the market that is will target 1450 wards and will be distributed in
allowing the informal sector to sell their wares market areas. Currently, within Nairobi County,
online. This initiative saves time for buyers and there are 17 hotspots located in City Market and
it is flexible. Muthurwa. The informal sector will benefit from
such initiatives as they are distributed across
b) Digital infrastructure the country.

The goal of the pillar is to achieve affordable, Internet connectivity is critical for informal
accessible, reliable infrastructure for an businesses as it allows access to markets.
inclusive digital economy. Infrastructure is Connectivity across counties indicates Vihiga
identified as an enabler of the digital economy. leading at 12.6 per cent and Baringo lowest
at 0.6 per cent (Figure 11.5). The challenges
The focus areas under the infrastructure pillar faced in Internet connectivity are attributed
are broadband, infrastructure, connectivity that to low broadband Internet connection to the
is reliable, affordable, and secure, management worksites across counties, a poor network
of digital assets; payment systems; and data connection to support Internet (9.5%), high
centres. Internet connectivity is not universal in connectivity charges (17.28%), lack of Internet
different parts of the country, which slows down infrastructure (17.39%), lack of awareness and
digitalization. importance of Internet (10.10%) (CBEM, 2022).
The average score for the connection was 3.94
(CBEM, 2022). This implies only three (3) in
The Government under the Bottom-up
every 10 MSMEs indicated to be using phone
Economic Transformation Agenda is targeting and modem Internet.
to build the Digital Superhighway. This is part
of the government’s efforts to strengthen the The informal sector still lags in terms of
digital economy and ensure inclusivity. The broadband connectivity, poor Internet
objective of the programme is to strengthen the penetration rate, and data centres for data
ICT backbone by increasing the fibre network processing, which then affects the rate of
across the country, reducing the cost of Internet technology adoption.
connectivity, enhancing e- government services,
Figure 11.5: Internet connectivity across counties informal sector (%), 2022

14.0

12.0

10.0

8.0
Percent

6.0

4.0

2.0

0.0
Garissa
Baringo
Meru
Samburu
Turkana
Nyamira
Taita Taveta
Elgeyo Marakwet
Tharaka Nithi
Muranga
Kisii
Kilifi
Nyeri
Uasin Gishu
Kirinyaga
Kakamega
Nyandarua
Laikipia
Makueni
Mombasa
Kisumu
Bungoma
Kericho

Nairobi
Homa Bay
Bomet
Machakos
Wajir
Trans Nzoia
Nakuru
Kwale
Kiambu
Migori
Kajiado
Siaya
Nandi
Embu
West Pokot
Narok
Marsabit
Busia
Vihiga

Counties

Data source: CBEM (2022

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Access to electricity is important for digitalization connection at 6.6 per cent (Figure 11.6).
in the informal sector because of its foundational The proportion of establishments accessing
role in enabling the adoption and utilization of electricity was based on the average electricity
digital technologies and services. Assessment bill, procedures undertaken to access electricity
of connection in the informal establishment’s within a worksite, time taken to be connected,
worksites across counties shows Isiolo and the official cost of connecting electricity to the
Baringo counties at 59.2 and 55.6 per cent, worksite, and the number of power outages
respectively (CBEM, 2022). Garissa County experienced in a month.
had the lowest proportion of electricity

Figure 11.6: Electricity connection across counties informal sector (%), 2022

100
90
80
70
60
Percent

50
40
30
20
10
0
Garissa
Kitui
Kajiado
Mombasa
Tharaka Nithi
Makueni
Kwale
Bungoma
Bomet
Lamu
Kericho
Machakos
West Pokot
Nyamira
Kisii
Tana River
Samburu
Marsabit
Kilifi
Mandera
Meru
Turkana
Muranga
Kiambu
Elgeyo Marakwet
Migori
Nakuru
Kakamega
Vihiga

Kisumu
Kirinyaga
Wajir
Narok
Nandi
Nyeri
Nyandarua
Uasin Gishu
Embu

Laikipia
Taita Taveta
Baringo
Isiolo
Trans Nzoia
Siaya
Busia
Nairobi
Homa Bay
Counties

Data source: CBEM (2022)

c) Digital skills The government launched the Ajira programme

in 2018, which is an initiative that aims at
The goal is to develop a digitally skilled boosting employment among the youth through
workforce that is grounded on sound ethical online digital jobs. Participants are trained
practices and socio-cultural values. Digital skill in online marketing, data entry, and content
use at work is essential, and includes computer creation which empowers them, and can start
use skills and specialist ICT skills, such as earning a living by accessing Internet through
those of programmers (OECD, 2019). Firms mobile or computer devices. This initiative can
may also need to reorganize their business help bridge the digital divide gap as the sector
models around intangible assets to seize their suffers from low digital literacy and inadequate
productivity potential (Haskel and Westlake, digital skills leading to a low level of digitalization
2019; Brynjolfsson et al., 2007). Skills and adoption. Lack of requisite skills, therefore,
training are essential in boosting the use of digital makes it difficult to use digital tools.
tools within the informal sector. Establishments
within the informal sector reported to have The Kenya Institute of Curriculum Development
received in the last six (6) years training on approved the teaching of coding in schools
management, technical advice, marketing, in 2022 and the goal was to train 42,000
information and communication technology teachers to deliver the lessons. Additionally,
(ICT), consultancy, business, and finance. mainstreaming of KICD approved lessons
seeks to equip learners with essential skills

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to thrive in a digital economy. Impacting a to share information about digitalization; and

generation with such skills will help the country social systems that the firms find themselves in.
achieve digital economic growth. In addition, The informal sector’s level of digitization is still
Konza Technopolis Development Authority low and some of the establishments that are
is collaborating with Technical Vocational digitalized use digital tools such as computers
Education and Training (TVETs) institutions and mobile for money and online platforms
to implement Jitume, an initiative that aims at such as mobile money, computers, websites,
providing the youth with access to Digital skills, and business phones.
digital services, and opportunities to enable
them to take advantage of technology for job Although the level of penetration of digital
creation. technologies is low, some sectors are already
utilizing technology to increase productivity.
Most activities within informal businesses The use of mobile money was high in the
require basic digital skills. This level of skills construction sector at 66.7 per cent and lowest
provides a foundation for ICT technologies. in agriculture at 32.8 per cent. Use of mobile
Participants learn to operate the keyboards, phones for business was high in construction
download applications, and create documents, at 77.8 per cent and agriculture at 36.6 per
completing basic online transactions such as cent (Figure 11.7). Official use of computers
sending and receiving emails, making Internet was high in accommodation at 11.7 per cent
searches, and filing forms. Further training will and active website ownership was high in
help them enhance their skills to intermediate accommodation at 3.6 per cent and low in
and advanced levels increasing work efficiency. the transportation sector at 2.0 per cent. Most
informal sector enterprises and operators such
11.4 Digitalization in the Informal Sector as second-hand clothes dealers, hawkers,
dressmakers, housekeepers, security, and
Digital technologies play a significant role carpenters use simple technologies and are yet
in increasing productivity in the informal to fully embrace digitalization except for the use
sector. Diffusion of technologies is embraced of mobile phones. Access to computer-based
differently in the informal sector, which is technologies remains low, which is attributed to
influenced by factors such as essential the low level of digital skills among the informal
infrastructure (electricity, Internet, and fibre sectors.
connectivity); communication channels used

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Figure 11.7: Use of digital tools by sector, 2016

11.7
Official use of 1.7
5.8
computers 8.3
4.0
4.3
Digital tools

44.4
Mobile for 44.4
40.8
business 77.8
42.8
36.6
3.6
3.6
Active website 1.6
0.0
0.8
0.3
45.0
Mobile money 56.1
40.7
Platform 66.7
46.5
32.8

0 10 20 30 40 50 60 70 80 90

Percent
Accomodation Transportation Wholesale & Retail Construction Manufacturing Agriculture

Data source: MSME Survey 2016

The Ajira Digital Programme is a digital platform Nyeri, Nairobi, and enviros) and 83 fundis have
partnering with other digital applications to earned digitized wages. Other professionals
register skilled workers. One such application is such as second-hand clothes dealers,
Fundis, which is a mobile application platform dressmakers, and housekeepers advertise their
that enables businesses and homes to find and products and services through online platforms
hire professionals for maintenance, repairs, such as Facebook, Instagram, and Tiktok. That
large projects, and other construction services. is why it is essential to ensure such businesses
(KEPSA,2023). Once those talented and have are connected to affordable infrastructure such
certifications in their fields are registered, they as electricity and the Internet.
undergo theoretical, practical, and soft skills
assessment before onboarding. This initiative Additionally, technological advice received by
has helped transform the sector by eliminating establishments is important in influencing the
high risks of poor quality and projects left adoption of digitalization. Figure 11.8 shows the
incomplete. Other onboarded professions percentage distribution of the establishments by
in the platform include plumbing, masonry, source of technological advice applied. About
carpentry, glasswork, welding, painting, tiling, 83.42 per cent of the establishments did not
and electricians. The platform has already indicate receiving any technological advice. For
onboarded 300 fundis from 11 areas (Nakuru, those who received advice, the main sources
Mombasa, Coastal regions, Machakos, Eldoret, were MSME, salesmen, and publications.

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Figure 11.8: Source of technological advice (%), 2016

Publications 3.84
Salesmen 4.3
NON-MSME 1.05
MSME 4.87
NGO 0.6
Research 0.92
Government 1.01

0 1 2 3 4 5 6

Dasta source: KNBS (2016)

The digital revolution has spurred the workers within the informal sector. To adapt
development of a small but rapidly growing to these changes and build resilience, many
digital sector, with innovative entrepreneurs businesses had to leverage digitalization and
launching new digitally enabled services while do business online. This enabled the informal
creating 21st-century jobs. More significantly, sector to access new markets by integrating
digital technologies are gradually driving digital tools and developing digital marketplaces
productivity gains in traditional industries for informal businesses and traders to continue
through value addition in business processes to sell their goods and services and connect
(Kenya Economy Blueprint, 2019). Online them with existing and new clients (UNDP,
marketplaces and e-commerce platforms are 2023), therefore, increasing the level of
being enabled in the informal sector by the adoption within the informal sector.
use of computers, mobile phone use, and
Internet access. Online shopping companies The high cost of digital tools such as basic
such as Jumia, Kilimall, and other platforms phones and mobile data plans are often out
do business through websites, Facebook, of their reach, which limits the workforce in
Instagram, and TikTok. Although these are the informal economy’s ability to adopt new
formal enterprises, informal businesses can technology. Therefore, the informal sector
learn from them. Traders can reach online workers end up sticking to manual processes
customers through online shopping platforms instead of incorporating technology into their
and deliver their purchased products to them. operations. Figure 11.9 gives further reasons
This in turn generates increased opportunities why the informal sector was not able to
for people in the informal sector as they join the adopt digital tools in their business. The main
distribution sector and benefit from door-to-door contributing factors for low technology adoption
delivery services (World Bank, 2019). Overall, were cost, lack of electricity and some informal
digitalization in this ecosystem is improving sector entities indicated they did not require to
market transparency, enhancing enterprise use ICT in their businesses; and the latter could
productivity, and enabling efficient logistics. apply to open-air businesses. Further, Figure
11.10 shows reasons firms are not using ICT
The onset of lockdown and restrictions on across sectors. For the wholesale and retail
movements as a result of the COVID-19 sector which forms the majority of the informal
pandemic impacted the informal sector as sector, they gave the following reasons; lack of
many people were laid off. The supply chains knowledge (78.13%), not needed (82.22%), no
were disrupted thus affecting the livelihood of electricity (71.23%), not accessible (81.40%),

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too costly (83.06%) and their main reason for electricity is the main reason for not using ICT.
not using is the cost, which is a factor hindering Electricity is an enabler of digitalization, and it
adoption to digitalization. In agriculture, is necessary to drive adoption in the sector.
Figure 11.9: Main reason the business does not use ICT (%), 2016

Not Accessible 0.8

Other 1.0
Lack of knowledge 1.9

No electricity 4.5

Too Costly 14.3

N/A 34.5

Not Needed 43.1

0.0 10.0 20.0 30.0 40.0 50.0

Percent

Data source: KNBS 2016- MSME 2016 Basic Report Survey

Figure 11.10: Establishments’ reasons for not using ICT (%), 2016

Accomodation

Transport

Wholesale & Retail

Construction

Manufacturing

Agriculture

0 10 20 30 40 50 60 70 80 90 100

Lack of Knowledge Not accessible No electricity Not needed Too Costly

Data source: KNBS 2016 (MSME Survey)

Furthermore, the fear of data breaches can data from cyber threats, which can make them
make small businesses reluctant to embrace vulnerable to hacking, data breaches, and other
digital technologies, as they may see them as forms of cybercrime. This can be particularly
a risk to their operations and reputation. Small challenging in a context where there is limited
businesses in the informal sector may not regulation and enforcement of data protection
have the resources or expertise to protect their laws.

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11.5 Digitalization and Labour o Computer for Business - used for a variety
Productivity of functions such as data analysis, design,
financial management, and administrative
Digitization in the informal economy has tasks.
an impact on labour productivity through
production, marketing, and operations. In 11.5.1 Productivity levels in the informal
production, it can streamline processes, and sector
automate tasks leading to increased output. It
can also enable market access through online Most of the activities in this sector suffer from
platforms such as e-commerce, which leads low productivity. This means that workers
to increased sales. In marketing, businesses get low value for the input invested into their
can use digital platforms to showcase their businesses. Assessment of the average labour
goods and services, therefore, increasing their productivity across sectors shows services
visibility, increased sales leading to productivity. leading at Ksh 11,953.5, agriculture at Ksh
Operations within informal businesses are 10,503.7, and industry at Ksh 8,917.4. Further,
improved and better decision-making achieved when measured in terms of average labour
as digital tools can be used to collect data productivity among the MSEs, Micro was at
and analyse market trends. The identified Ksh 6095.4, Small at Ksh 11490.8, and Medium
digital tools being used include mobile money at Ksh 11818.1. This shows that medium-sized
payments, the use of official computers, mobile enterprises have more labour productivity
for business, and websites. Use of these tools compared to micro and small enterprises.
within the informal sector include:
Income earnings in the enterprises influence
o Mobile phone - applicable in marketing, the wages being paid to their employees.
sales, and customer service, financial Consequently, the monthly wage paid by
communication, advertising, financial informal enterprises is below the recommended
transactions; minimum wage. Thus, most skilled, and non-
skilled informal workers earn below the 2016
o Mobile money platform - this is used to statutory minimum wage rate for a labourer of
make digital transactions, payments, and Ksh17,200.3, Ksh 15,979.5 and Ksh 13,592.7
financial management by business easier for cities, former municipalities, and other cities,
and efficient; respectively (KNBS, 2016). Additionally, Table
11.3 shows workers within the informal sector
o Active website - this is enabled by electricity earn below minimum wage, which was 82 per
and the Internet and is widely used in cent compared to their counterparts in the formal
marketing and sales. Provides information sector at 65 per cent (KNBS 2016). However, in
on products and services as it serves as an 2022, there has been a gradual increase such
online storefront facilitating sales; and that cities wages were Ksh 23868, Ksh 22174,
and Ksh 18862 for former municipalities and
other cities, respectively.

Table 11.3: Minimum wage earning within formal and informal sector rates (2016)

Sector Formal Informal

Below minimum wage 65 82
Above minimum wage 35 18

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The location of the businesses influences the open markets and Jua kali sheds which are
level of productivity such that those in market temporary structures. In terms of those doing
stalls average labour productivity was Ksh innovation, those doing product innovation had
15,880, open markets Ksh 13054 and for Jua slightly higher labour productivity at Ksh 11,771
kali sheds at Ksh 4929. This shows that those compared to those doing process innovation at
in stalls were more productive than those in Ksh 11,768.

Box 11.1 Innovation Diffusion Theory

In understanding digitalization within the informal economy, the Diffusion of Innovations Theory framework by E.M
Rogers 1962 has been adopted. This is one of the most popular frameworks which elaborates how new ideas are ad-
opted in a society. Rogers describes innovation as an idea or projectthat is perceived as new by an individual adopter
or other units of adoption. Although an idea may have been invented a long time ago, those who have not adopted
still perceive it as new. Rogers argues that the uptake of these ideas (technology) is determined by elements such
as communication channels used to pass information, the prevailing social system, technology, the individual charac-
teristics of the potential adopters and finally influenced by innovation itself. In the informal sector, some technologies
adopted include mobile money, mobile for business, websites, and computers.

Communication Channels - Communication is a process by which participants share information. This information
sharing occurs between channels and sources. The source of the information may be an individual or an institution
and the channel is the means that the message goes through to reach the receiver. Diffusion occurs when we have
innovation, units of adoption, two individuals, and a communication channel. The communication system is classified
into mass media and interpersonal channels. Mass media spreads information at a faster rate than interpersonal
channels. These channels may include TV, radio, newspapers, and others. In the context of the informal sector in
Kenya, information on digitalization is crucial as it creates awareness of the need to adopt digitalization and incorpo-
rate it in the business operations. The informal sector received information on technology through publications (3.8%),
salesman (4.3%), non-MSME (1.1% ), MSME (4.9%), NGO (0.6%), research (0.9%), and government (1.0%).

The social system is defined as a set of units that are interrelated and have a defined structure. Since the diffusion
of innovations takes place in the social system, individuals within the system who are the adopters need to embrace
the change. Rogers claims that the nature of the system affects an individual’s innovativeness. In the context of the
informal sector, the gender of the owner, the age of the business, and the sectors are factors making up the social
system. These factors influence the adoption of digitalization within the informal sector.

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Box 11.2: Factors influencing labour productivity

In determining how digitalization affects productivity, an estimation was done using the MSME 2016 survey data.
Labour productivity, which is the dependent variable was measured in terms of output per work. Labour productivity
(log) is measured by the total sales of the firm in a typical month during the last fiscal year divided by the number of
workers at the establishment. The independent variables used to determine how they influence labour productivity
included: Digi-levels (not-digitalized, low-digitalized, moderately digitalized, digitalized, highly digitalized), business
size-category (micro, small, medium), age of business (young=<=5, Medium=>5<20, old=>20) connected to electric-
ity, youth employees and broad sectors.

Table 11.4: Analysis of effects of digitalization on labour productivity

Dependent: log labour productivity Coefficient

Variables
Digi level
Low digitalized 0.03
moderately digitalized 0.06
Digitized -0.09
Highly digitized 1.58***

Business size category

Small -0.96
Medium -2.58

Age business category

Medium(>5<20years) 0.24***
Old business (>20 years) -0.23

Connected2electricity 0.25***

Data source: Author’s computation based on the (KNBS)MSME survey, 2016.

Notes: *** represents significance level at 1.0 per cent; ** significance level at 5.0 per cent and *
significance level at 10 per cent

11.5.2 Technological attributes in the include official use of computers, mobile money
informal sector platforms, mobile for business and whether they
have active websites. Categorization was done
The intensity of digital technologies has proven to understand those who are using digital tools.
to be a good indicator on access of digital Those that do not use these technologies are
technologies by workers which then reflects categorized as “not digitized”, those using one
on diffusion of digitalization in the informal of the technologies as “low digitization”, using 2
enterprises. This affects labour productivity are “moderately digitized”, with 3 technologies
of enterprises in an area (Danquah & Owusu, are “digitized “and those using all the 4 are
2012). Digitization levels for businesses in the “highly digitized”. Analysis show use of the 4
informal sector were categorised depending on technologies which are categorized as highly
the type of technologies that are used. They digitalized as significant. An increase in a unit

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level of digitalization leads to an increase in firm While categorizing the level of digitalization
productivity by 1.57 units. This is an indication across sectors, service is highly digitalized
that adoption of digital technologies and at 0.56 per cent, industry at 0.28 per cent
building of digital capabilities within firms can and agriculture at 0.14 per cent (Table 11.4).
lead to improvements in labour productivity thus Furthermore, medium sized businesses are
contributing to enhanced overall performance highly digitalized at 7.69 per cent. This has
and competitiveness. been associated with higher level of labour
productivity compared to the other sizes of
businesses.
Table 11.5: Level of digitalization across broad sectors and business sizes (%)

Not digitized Low digitalized Moderate Digitalized Highly digitalized

Across Broad sectors
Agriculture 48.29 30.91 19.52 1.14 0.14
Industry 32.91 39.27 26.13 1.41 0.28
Services 36.61 38.61 21.44 2.78 0.56
All sectors 36.92 38.33 21.55 2.66 0.54
Across Business sizes

Micro 37.94 38.49 21.04 2.23 0.31

Small 16.31 34.01 33.5 11.34 4.84
Medium 23.08 46.15 12.82 10.26 7.69

Data source: MSME Survey 2016

Most businesses sell their products to individual connected were more productive by 0.23 units
consumers (89.09%), MSMs (8.01%), non- compared to those not connected. In ensuring
MSMs (2.03%), direct exports (0.08 %) and inclusive growth for Kenya, the informal sector
government (0.12 %). Adoption of technology development is crucial. Electricity connection
therefore enable expanding of market base and which acts as a catalyst in ensuring use of digital
leads to increased labour productivity. tools is important. While a lot is being done
to ensure access to electricity in the informal
11.5.3 Infrastructure sector, universal access has not been achieved
yet. Electricity connections in the broad sectors
(i) Connection to electricity were as follows; agriculture 61.63 per cent,
industry 69.45 per cent and service at 79.80
Businesses that have connection to electricity per cent. Digital tools used were computers,
have significant coefficient indicating that those mobile for business, websites, and mobile
money platform.

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Table 11.6: Electricity Connectivity across sectors

Average labour productivity Electricity Connectivity

Agriculture 7124.1 61.63
Industry 8917.1 69.45
Services 10503.7 79.80
All sectors 11953.5 78.68
Micro 6095.4 78.43
Small 11490.8 83.69
Medium 11818.1 83.33

Data source: MSME Survey 2016

11.5.4 Social System market activities (Maloney, 2004; Nordman et

al., 2016). Labour productivity in female owned
i. Gender of the owner businesses is low and is attributed to lower
education and experience among women
Businesses owned by female and male- female owners in the informal establishments. Women
partners were less productive by 0.23 units inability to obtain physical assets which include
and 0.24 per cent respectively compared to digital tools due to financial constrains or their
the male owned businesses. The presence of choice to engage in activities that require less
women in the informal sector may be a choice capital, contributes to low productivity. (Islam,
as it affords flexibility between homecare and A. M., & Amin, M. 2022).

Table 11.7: Average labour productivity across Gender in business ownership (%)

Average labour Not Low Moderate Digitalized Highly

productivity digitized digitalized digitalized
Across gender
Male- owned 13685 35.25 38.72 22.48 2.95 0.61
Female-owned 13059 40.70 37.49 20.15 1.51 0.15
Male-Female 11828 35.34 38.62 21.44 3.66 0.94
(Partners)

Data source: MSME Survey 2016

ii. Age of business old businesses. Young businesses are most

found in the service sector at 50.3 per cent,
Age of firms in the informal sector influences medium-sized in agriculture at 49.57 and older
their willingness, readiness, and capacity businesses in the industry at 10.73 per cent
of businesses adapt to digital technologies. compared to other sectors.
Businesses have different years of operation
since their inception. Those that were less The analysis indicates that medium aged
than 5 years categorized as young, those with businesses are more productivity by 0.49
above 5 years and less than 20 years were units compared to old businesses. Young,
medium aged and those above 20 years are aged businesses have high labour productivity

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of 0.23 units compared to old aged (above businesses. However, the level of productivity
20years) business. Medium aged firms are is high in old business which is associated with
more inclined to embrace use of technologies their level of penetration in the market and
while older firms tend not to adapt easily as years of experience which are the other factors
they have established traditional ways of influencing the level of labour productivity.
operating their businesses compared to young

Table 11.8: Average labour productivity across age of business

Average labour Not digi- Low digi- Moderate Digitalized Highly digi-
productivity tized talized talized
Across Age of the business
Young 10727 35.59 39.56 21.59 2.74 0.52
Medium-aged 11914 38.60 37.21 20.50 2.77 0.92
Old- aged 12926 38.18 37.11 21.66 2.56 0.50

Data source: MSME Survey 2016

11.6 Key Messages and Policy tools such as computers and mobile
Recommendations phones.

11.6.1 Key messages 3. There are over 5.9 million unlicensed

establishments countrywide, an
1. The informal sector contributed 83.3 per indication of a growing informal
cent of the country’s total employment economy. The largest proportion of the
in 2022; but has low productivity level informal establishments, operate in
contributing only 3.2.per cent of value open places (40.6 per cent), temporary
added to the economy. Establishments structures (24.8 per cent), while 13.8
are leveraging on digitalization to per cent in permanent structures.
increase productivity as digitalization is Therefore, as the government plans to
associated with high labour productivity. roll out the 250,000 hotspots targeting
The use of digital tools such as mobile marketplaces, the informal sector is
phone and computer and digital expected to benefit from it tremendously
services and applications such as as it increases their connectivity.
Internet and websites offer opportunities
for improving operational efficiency, 4. Infrastructure such as Internet and
expanding market reach, and accessing electricity connectivity are enablers of
financial services. digital transformation. However, their
coverage is still low in the informal
2. The level of digitalization vary as service establishment worksites. To tackle
sector is digitalized at 0.56, industry these challenges, the government
at 0.28 and agriculture at 0.14 which through the Bottom-up Economic
shows the low level of digitalization in Transformation Agenda, is planning to
the sector. This is associated with low support Kenya’s Internet connectivity
digital skills (low skills to operate tools by installing 100,000 Kilometres of
and software systems), low digital optic fibre and 250000 ICT hubs in
literacy level and high cost of digital 290 constituencies to provide free

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WIFI to the public. This is expected to the population especially in rural and
enhance level of digitalization in the underserved areas. It can also purpose
informal sector. Additionally, to achieve to increase coverage for digital hubs
the goal of ensuring universal access to allow accessibility by the informal
to electricity by 2030, the government sector. These hubs will provide basic
is implementing electrification projects digital skills to advanced level and build
including trading centres through grid a digitally enabled workforce therefore
extension and installation of solar in off- addressing hinderances to digital
grid areas. These areas are part of the transformation. Additionally, develop
informal sector distributed countrywide. capacity-building programmes that
focus on digital literacy and skills training
5. There are several platforms that have for employees of older firms to help
come up and giving the informal sector them effectively implement and utilize
an opportunity for digital services. technology to improve productivity and
These enterprises use online platforms competitiveness.
like MESH, Jiji, Lynk, (e-commerce
apps), Facebook, Instagram which 2. The government needs to
has resulted to increased customer enhance affordability, access, and
base and in turn increased revenues. competitiveness of digital infrastructure
Additionally, through digitalization, the by fast-tracking implementation of
informal businesses can now access programmes on Internet connectivity,
financial credit services such as Hustler broadband fibre, and electricity
fund which are being enabled by use of connectivity in different parts of the
digital tools. country. Furthermore, expanding the
scope for the Universal Service Fund
6. Female-owned businesses register low to include support development of
labour productivity compared to their such infrastructure for the micro and
male counterparts. This is linked to lower small enterprises will serve to fund
level of education, balancing multiple infrastructure necessary to support
roles at home and workplaces reducing MSMEs. Additionally, accelerate
time spent at work. Additionally, and production of locally produced digital
financial constraints faced by women in tools such as mobile phone to enhance
the informal sector makes them unable affordability for such tools. It can do
to obtain physical assets which are these by subsidizing costs and providing
expensive to obtain due to their level incentives for digital investments in the
of income. These constrains affects the country. To enhance competitiveness
level of labour productivity. of digital infrastructure the government
can encourage more investors in the
11.6.2 Policy recommendations digital sector as increased competition
leads to reduced cost of digital tools
To ensure that the informal sector is leveraging and infrastructure. Moreover, the county
on digitalization to improve on its productivity, aggregation industrial park should
the following recommendations are made. be adequately equipped with digital
infrastructure.
1. Invest in digital skills and digital literacy
development: To bridge the digital 3. To support inclusive growth in the
gap, the government need to continue informal sector there is need to
expanding programmes that targets to create mentorship and networking
build digital skills and literacy among opportunities for women entrepreneurs:

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Connect women in the informal sector development of digital platforms and

with successful digital savvy business technology adoption in the informal
owners to provide guidance, support, sector. Innovators and tech giants are
and insights on leveraging digital tools significant in supporting governments
efficiently. They can share experiences goals as this partnership can help in
and best practices from successful achieving digital economy goals by
businesses. bringing in expertise and resources
to support the development of such
4. Collaborate through the Public initiatives and offer trainings.
Private Partnership (PPPs) to help

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 CHAPTER

12
CONCLUSION AND POLICY RECOMMENDATIONS

CONCLUSION AND POLICY

RECOMMENDATIONS

12.1 Conclusions 4. The government stayed on its

commitment to fiscal consolidation plan
Macroeconomic performance and medium- as fiscal deficit narrowed from 5.6 per
term prospects cent of GDP in 2022/23 to an estimated
4.9 per cent in 2023/24, supported by
1. The economy recorded stronger growth prudent expenditure management and
in 2023, picking up from disruptions enhancement of domestic revenue
of the post-COVID recovery in 2022 mobilization efforts. Moreover, the
by a confluence of prolonged drought, public debt strategy of increased share
tight global financial conditions and of concessional loans has yielded
geopolitical tension that disrupted the positive results, but debt vulnerabilities
supply chains. Overall, the economy remain high. Nonetheless, public
grew by 5.6 per cent in the first three- debt sustainability remains exposed
quarters of 2023 compared to a to exchange rate and interest rates
growth rate of 5.2 per cent in 2022. shocks, volatilities in global financial
The agricultural sector expanded by markets, and rollover risks.
7.0 per cent while the services sector
grew by 6.4 per cent and manufacturing 5. On the external position, current
recorded a growth of 2.1 per cent. account deficit narrowed in 2023 owing
to improved net merchandise trade,
2. Timely monetary policy response secondary incomes, and services
to inflation developments anchored account. Notably, over the years, the
inflation expectations in 2023. poor performing merchandise trade has
However, overall inflation breached the put pressure on the current account
government target band of 5 ±2.5 per balance, while diaspora remittances
cent, driven primarily by fuel inflation have boosted the performance of the
that trended upwards in 2023 on the current account.
backdrop of implementation of VAT on
fuel and developments in the global oil 6. The economy is projected to grow at
markets. 5.7 per cent in 2024, and average 6.0
per cent in the medium-term, assuming
3. Even though lending rates slowly normal conditions prevail. Exploiting
creeped up with increase in Central emerging opportunities should see
Bank Rate in 2023, private sector credit growth at 6.1 per cent in 2024, and 6.6
growth was resilient, growing by 13.9 per cent in the medium-term. Should
per cent in 2023 compared to 12.5 per the downside risks materialize, growth
cent in 2022. Meanwhile, the banking could be depressed to 5.3 per cent in
sector soundness indicators stayed 2024, and 5.6 per cent in the medium-
within the statutory thresholds, but term. Inflation is projected to remain
concerns remain about the increasing within the government target range.
non-performing loans.

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Productivity in the manufacturing sector 10. The level and intensity in use of electricity
in a country is one of the enablers of
7. Because of dominance of MSMEs, which economic growth, its competitiveness
are associated with low technology use, and investment activities. About 90 per
and low investment in research for cent of small and medium-sized firms
development and innovation, enhancing have electricity connections compared
productivity in the manufacturing sector to micro firms. Access to electricity
is a major challenge. For example, the increases labour productivity by 53.5
contribution of food agro-processing to per cent in MSMEs, although the
manufacturing value added increased productivity gains are higher in micro
from 15.0 per cent during the Economic enterprises at 55.4 per cent. The low
Recovery Strategy for Wealth and access to electricity in micro firms is
Employment Creation to 28.4 per because of various challenges, such as
cent with MTP III, while the non-food the number of procedures undertaken
agro-processing and non-agricultural to access electricity, cost of connecting
processing, which uses more advanced electricity to the establishment, time
technology, declined during the same taken to be connected, and high cost of
period. electricity bills.

8. Innovation and patenting are low among Trade and productivity across sector
MSMEs because of low expenditures in
research for development. This indicates 11. Trade plays a pivotal role in driving
a low innovation capability. The medium- the overall productivity of a country
sized firms spent 2.8 per cent on by promoting specialization and
research for development compared to expanding market access by domestic
small and micro firms at 0.8 per cent and producers. However, within the
0.2 per cent, respectively. This indicates wholesale and retail trade sector,
a deficit in the research, knowledge, and MSMEs dominate, with most of them
information infrastructure, and weak operating informally. This limits their
linkage with other firms and research access to government-ready market
institutions. through AGPO. MSMEs engaging with
government procurement demonstrate
9. The engagement of 3rd and 4th skills higher productivity levels than those
required to drive productivity is low. For selling to individual consumers. This
the micro firms, the largest proportion of reflects on the requirements they need
the labour force has 1st level and 2nd to fulfil in making delivery under AGPO.
level skills at 44.1 per cent and 39.9 per However, challenges such as pending
cent, respectively. A smaller proportion bills, bureaucratic processes and
is distributed across the 3rd (12.8%) limited access to finance still limit these
and 4th (3.2%) skill levels, indicating engagements.
that micro firms rely on foundational
and intermediate skills sets. For the 12. The contracting arrangements of
small and medium sized firms, a large MSMEs for procuring goods or securing
proportion of the labour force has the orders show a wide variation, with many
4th level skills at 42.4 per cent and 64.0 relying on informal or non-structured
per cent, respectively, an indication of agreements, especially prevalent
presence of skilled workers. among small enterprises. While a
considerable number of MSMEs opt for

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non-contractual agreements for inputs productivity. Government reforms,

or orders, there is a notable presence of including the introduction of the Retail
formal contractual arrangements within Trade Code of Practice (RTCP) and
the MSME sector, particularly among a prompt government procurements
micro and small enterprises. Firms that payment policy, aim to regulate the
have formal contracts for both inputs and relationships between retailers and
final goods and services demonstrate suppliers, prevent buyer power abuse,
higher labour productivity compared to and promote fair trade practices. These
those without formal contracts. This is reforms have been key in addressing
often the case because formal contracts emerging issues such as delayed
provide clarity, outline responsibilities, payments and financial stability,
and establish expectations, leading contributing to a more transparent and
to smoother transactions, reduced sustainable retail market environment.
disputes, and increased efficiency in In addition, controlling rising counterfeit
operations. goods that poses a challenge to the
productivity growth of the MSMEs calls
13. Firms engaging in export activities for enforcement of regulatory measures
demonstrate higher levels of both at national and county levels.
productivity compared to those not
involved in export trade activities. 16. At international level, implementation
Engagement in export activities not of trade facilitation measures such as
only expands market opportunities but the Single Customs Territory (SCT)
also drives firms towards operational leads to a significant reduction in
efficiency, innovation, and efficiency the time and cost involved in import
improvements that contribute to higher and export processes. This reduction
levels of productivity compared to firms directly correlates with increased trade
solely focused on domestic markets. activities, as streamlined customs
procedures and efficient logistics enable
14. The country faces limitations in businesses to conduct transactions
market infrastructure, including limited more swiftly and cost-effectively.
warehousing and cold storage facilities, Reduced transit times translate to
and inadequate transport infrastructure, quicker delivery of goods, improved
particularly in rural areas heavily supply chain management, lower
dependent on agricultural activities. transportation costs, and ultimately,
This is exacerbated by the slow pace increased productivity for businesses.
in the construction of tier 1 markets This efficiency allows companies to
as envisioned in the Kenya Vision operate more smoothly, meet customer
2030, which are essential for efficient demands promptly, reduce inventory
market operations and trade facilitation. holding costs, and potentially explore
Addressing these infrastructure new market opportunities due to
challenges is vital to enhancing market enhanced trade facilitation. Moreover,
accessibility, reduce post-harvest ongoing trade agreements such as
losses, and support to the overall AGOA and the AfCFTA have enhanced
development of rural economies. Kenya’s export trade, offering avenues
for economic growth through increased
15. Supermarkets play a crucial role exports and imports, with the potential
in wholesale and retail sector, but benefits of driving trade when both tariff
recent closures of branches among and NTMs are eliminated rather than
major chains have impacted sector focusing solely on tariff liberalization.

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Agriculture productivity insurance and development of value

chain development for various crops
17. Agriculture productivity is driven by will raise output and yield for various
implementation of supportive policies crops. Furthermore, focus on value
that focuses on offering incentives for chain development will help increase
investment in agriculture, protecting productivity for the targeted crops such
farmers from risks and price volatility as oil crops, coffee and tea as well as
and ensures market access and value livestock and livestock products.
addition.
Skills development
18. Allocation of adequate funding to
the agriculture sector has been on 22. To realize the objectives of the national
average less than 5 per cent, far below development agenda, particularly in
the Malabo commitment. Adequate critical priority areas outlined in the
funding to the agriculture sector is key Bottom-up Economic Transformation
in enabling investment in the supportive Agenda (BETA), matched skills
rural infrastructure such as storage development is paramount. The existing
facilities to reduce wastage and facilitate skills development framework does
timely input supply and distribution not effectively align with these priority
and development of markets and sectors, as evidenced by low enrolment
value addition to increase outputs and rates in courses relevant to the fields.
productivity. This misalignment poses a significant
challenge to achieving the agenda’s
19. The output and productivity of food objectives and may jeopardize the
and cash crops is driven by the area attainment of national priority agenda.
of land used for production, access to
intermediate input use such as quality 23. Education and training serve as a
seeds and fertilizer and timely planting pivotal channel for skills development.
and application of fertilizer. Though However, the challenges of inequalities,
there is increased use of inputs as wastages, poor education outcomes,
demonstrated by fertilizer import and and gender disparities persist. This
distribution, increases in input use has may hinder the ability to fully harness
not translated into productivity in crop human capital potential, thereby limiting
yields or in the sector productivity as productivity gains.
demonstrated by yields of various crops.
24. Apprenticeship training is another
20. Productivity per work has been avenue for skills development. Given
increasing, but this has not translated to the dominance of informal sector
agricultural productivity. Investment in employment in the country, majority
knowledge and skills development are of apprentices find themselves in the
key in increasing labour productivity, informal setting. Informal apprenticeship
facilitating farmer access to extension programmes lack systematic
services and adoption of modern organization, standardized training,
technology and innovations to increase and quality assurance mechanisms.
farm productivity. Inadequate working conditions, safety
measures, and theoretical knowledge
21. Implementation of various measures further compound these challenges.
spelt out in the BETA plan such as The government has formulated
investment in crop and livestock Recognition of Prior Learning policy that

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recognizes training and qualifications productivity at this level would increase

through comprehensive national productivity at the national level.
qualifications frameworks. Through
RPL, individuals with informal skills 29. Arid counties have the smallest gross
can undergo assessment and receive value added, and the highest episodic
certificates in their respective areas of growth rates. Growth rates have been
expertise. volatile because of climate change
effects, which disproportionately
25. Workplace training presents an affect arid counties, thus hindering
opportunity for skills enhancement convergence in economic growth across
among employed individuals. However, the counties. These counties also have
employers face financial costs in latent natural resources in form of land,
providing staff training, cost of staff time renewable energy sources and tourism,
foregone by workers when they are and thus significant potential to grow
on training and risks associated with their economies. However, challenges
workforce turnover. in access to essential physical and
capital infrastructure and persistent
26. Critical sectors such as health, insecurity are the main challenges
manufacturing, and ICT have skills inhibiting optimal utilization of these
shortages, evidenced by inadequately potentials.
qualified workers. Addressing these
shortages is essential for driving 30. Arid counties have comparative
growth and development in these advantages in livestock production.
sectors. Moreover, projections indicate These counties have 56 per cent of beef
significant workforce needs in sectors cattle, 66 per cent of sheep, 73 meat
such as textile and leather, emphasizing goats, indicating high potential in the
the need for skills development meat processing, leather, dairy, and live
initiatives to meet future demands. livestock export. However, the livestock
value chain is yet to be fully exploited.
27. Vertical qualification mismatch remains Climate change through frequent and
a concern, with a notable percentage severe droughts is inhibiting the full
of medium- and high-skilled workers realization of arid counties livestock
holding occupations that do not production. Although interventions such
align with their qualifications. This as index-based livestock insurance and
mismatch underscores the challenge of feed production have been rolled out by
insufficient quality job opportunities for the government and the private sector,
tertiary graduates, highlighting the need the uptake remains low.
for interventions to bridge this gap and
ensure better alignment between labour 31. The non-market services dominate the
market demands and educational service sector GVA in the arid counties,
outcomes. indicating low contributions by the
private sector to the county output.
Labour productivity at the county level The contribution of the tourism sector
is very low despite the presence of
28. Counties are central to the country significant tourism sites, also indicating
achieving sustainable and inclusive unexploited potential.
economic growth. Economic activities
take place at the county level and 32. There is low transfer of labour from
therefore interventions to enhance agriculture to other sectors as agriculture

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still dominates the employment shares agriculture is comparatively lower in

in all county categories. Employment in arid counties compared to semi-arid
agriculture is comparatively lower in arid and non-ASAL counties, indicating
counties compared to semi-arid and climate-change induced push factors.
non-ASAL counties, indicating climate- The wholesale and retail trade absorbs
change induced push factors. The labour from agriculture in these counties,
wholesale and retail trade absorb labour but the sector is characterized by high
from agriculture in these counties, but levels of informality and low output
the sector is characterized by high levels leading to low labour productivity.
of informality and low output leading to
low labour productivity. 36. Arid counties have the lowest labour
productivity growth compared to the
33. Arid counties have comparatively lower other county categories. This indicates
labour quality as reflected by lower basic lower efficiency in the use of labour,
education enrolment rates and health which is attributable to climate change
indicators that affect the quality of the threats that lower the output from
future labour force. Additionally, these agriculture (which is the main employer)
counties have lower quantity of labour and concentration of alternative
as seen in the smaller size of the working employment in low productivity services
age population to total county population sectors such as the wholesale and retail
and lower employment to population trade. The low labour utilization due
ratio for the non-youth category. These to inadequate job creating industries
counties experience low utilization of explains the lower labour productivity
the available labour as reflected by growths.
higher unemployment rates and higher
inactivity rates for persons of prime age. Leveraging strategic partnership to unlock
Labour inactivity due to discouraged job technology transfer
seekers is comparatively higher in the
arid counties, indicating presence of 37. The emerging economic powers,
persons willingness to engage in labour revitalized South-South and Triangular
but engagement is limited due to job Cooperation, admission of the African
unavailability. Union as a permanent member of the
G20 could be a potential opportunity for
34. Cultural practices, climate change and African countries to acquire appropriate
insecurity are impeding the acquisition technology and enhance innovation
of formal skills by children and cooperation through strategic
teenagers in arid counties. Although partnerships. Due to its flexibility and
cultural practices are key to acquisition emphasis on economic cooperation,
of indigenous knowledge needed for the Kenya could benefit from strategic
sustenance of pastoralism, formal skills partnerships by ensuring that acquisition
are needed for economic transformation of new technologies, technology and
in the counties. Therefore, acquisition of innovation cooperation and knowledge
both skills is important for the counties sharing become a priority in bilateral
to utilize their potential. negotiations and overall external
engagement.
35. There is low transfer of labour from
agriculture to other sectors as agriculture 38. The COVID-19 pandemic was a turning
dominates the employment shares in point for African countries to rethink and
all county categories. Employment in redesign public health ecosystems and

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increase local vaccine manufacturing for technology transfer and innovation

and other therapeutics. Pragmatic that could impart technical know-how
measures should be a priority of the and skills to the locals.
government in reforms of healthcare
systems and tapping into the initiatives 41. International academic mobility has
and opportunities by the World potential for technology transfer,
Health Organization, Africa CDC and knowledge circulation and skills
other stakeholders in supporting the development that could benefit the
development of healthcare ecosystems country of origin of international students
in the continent. and academics. Through targeted
policies and strategies, Kenya could
39. Africa’s textile and apparel industry has benefit from its diaspora’s expertise,
faced numerous challenges in the past skills and technical know-how. There is
three decades as a significant number need to consider incentives that might
of Asian countries emerge as the main enable citizens abroad to contribute
exporters of textile products. Despite to the country’s development through
intervention measures to revitalize the knowledge remittances.
textile industry, African countries are
yet to make a breakthrough, like their The contribution of public service
Asian counterparts. To revive the textile
industry, strengthening of capacity of 42. The contribution of the public service to
farmers who are key in the production GDP has shown relative stability over
of raw materials such as cotton, wool time, supported by Medium-Term Plans.
and other forms of fibres is imperative. However, external factors such as
With new trends in the industry focusing political risks, the COVID-19 pandemic,
on sustainable textile development, and weather shocks have influenced
Kenya could explore opportunities that these contributions, with varying impacts
might support the modernization of the on counties based on their geographical
textile sector by adopting affordable characteristics and population size.
technologies. Notably, the devolution of government
functions in Kenya has led to significant
40. Infrastructure development and changes in the public service landscape,
connectivity have emerged as key with counties facing challenges in
enablers for economic growth and workforce management due to freezes
enhancing productivity. Kenya’s on recruitment and disruptions from
Vision 2030, medium-term plans the COVID-19 pandemic. Strategic
and the Bottom-up Economic and policies, infrastructure investments,
Transformation Agenda have identified and governance reforms are crucial for
infrastructure as a key facilitator for stimulating productivity and economic
accelerating socio-economic growth development, especially in the arid
and development. Since its launch counties.
in 2013, the China’s Belt and Road
Initiative is increasingly playing a major 43. Despite an overall increase in national
role in connecting the world’s regions productivity, disparities across counties
through comprehensive infrastructure remain significant, highlighting the need
investment and development. It is for targeted interventions. Policies
in Kenya’s interest to sharpen its should focus on improving access
infrastructure development diplomacy to technology, enhancing personnel
by deploying professionals to negotiate quality, infrastructure development, and

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governance practices to bridge these Some of the digital tools and online
gaps and improve productivity in the platforms that the informal sector has
public sector. adopted and utilized are mobile phones,
computers and use of Internet and
44. Enhancing public service delivery websites. The tools offer opportunities
requires a comprehensive approach for improving operational efficiency,
involving capacity building, performance expanding market reach, and accessing
management, technology integration, financial services. These have resulted
and oversight mechanisms. Addressing to increased customer base and in turn
constraints such as low uptake of training increased revenue.
programmes and gaps in performance
management implementation is 48. Most of the activities in this sector are
essential for achieving the government’s concentrated in agriculture, services
goal of providing high-quality services and industry sector, and their level of
to the public. digitalization is still low. The level of
digitalization varies as the services
45. While the Country has demonstrated sector is digitalized at 0.56 per cent,
efficiency in revenue mobilization, industry at 0.28 per cent and agriculture
there are concerns about the quality at 0.14 per cent. This is associated with
of budgetary and finance management low digital skills, such that business
practices. The shortfalls in revenue owners are not able to use digital tools
collection targets, low allocations of software, low digital literacy level
to critical areas such as wages and and high cost of digital tools such as
salaries, and lack of capital expenditure computers and mobile phones. To solve
raise concerns about the government’s the issues of skills and digital literacy,
ability to fund essential services and the government rolled out programmes
projects efficiently. such as Ajira and Jitume, aimed at
providing the youth with access to digital
46. Public satisfaction with public service skills, digital services, and opportunities
delivery is determined by creating to enable them take advantage of
a conducive business environment, technology for job creation.
promoting national values, and
upholding good governance practices. 49. Infrastructure such as Internet and
Improving the business environment, electricity connectivity are enablers of
embracing diversity, and ensuring digital transformation. However, their
ethical standards in the public service coverage is still low in the informal
are crucial for enhancing productivity establishment worksites. In increasing
and service delivery. connectivity, the government approved
the implementation of the Bottom-up
The informal sector Economic Transformation Agenda, the
Digital Superhighway which is part of the
47. Despite facing challenges of low government’s efforts in strengthening
productivity levels, the informal sector digital economy and ensuring
continues to significantly contribute inclusivity. The programme is expected
to employment. To counter this to strengthen Kenya’s ICT backbone by
challenge, establishments are trying to increasing the fibre network across the
leverage on digitalization to increase country, reducing the cost of Internet
their productivity as digitalization is connectivity, enhancing e- government
associated with high labour productivity. services and automating VAT systems

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 CONCLUSION AND POLICY RECOMMENDATIONS

to enhance revenue collection. This of climate change. Further, revitalize

will involve installation of 100,000km of economic growth by enhancing sectoral
fibre cable, which is expected to create productivity through sector specific
25,000 WIFI hotspots available to the interventions such as technological
public. advancements, improved management
practices, or better worker training;
50. Labour productivity in female-owned change in sector product mix to value
businesses is low compared to their added goods or service, reduction in
male counterparts. This is linked to costs of raw materials or other inputs.
lower level of education, balancing
multiple roles at home and workplaces 2. Manage overall price developments
reducing time spent at work. This affects through timely and adequate monetary
the level of labour productivity for policy stance to rein in non-food non-
female-owned businesses. Additionally, fuel inflation while investing in initiatives
financial constraints faced by women in that enhance agricultural productivity
the informal sector makes them unable to increase food production and in turn
to obtain physical assets that are ease food inflation. Such initiatives
expensive to obtain due to their level of include scaling small-scale irrigation
income. and lowering input prices to enhance
initiatives such as the ongoing fertilizer
51. Age of firms in the informal sector and seed subsidy programmes.
influences their willingness, readiness,
and capacity of businesses to adapt 3. To address the growing non-performing
to digital technologies. Additionally, loans ratio, there is need to boost
medium-aged firms are more inclined to growth of the private sector activities by
enhance their productivity by embracing enhancing the ease of doing business,
the use of technologies while older reducing bureaucratic hurdles, and
firms tend not to adapt easily as they creating a favourable regulatory
have established traditional ways of environment that encourages banks and
operating their businesses. Young other lending institutions to extend credit
businesses (<5years) digitalized at 48 to the private sector. Also, encouraging
per cent, medium-aged (>5 years & < banks to restructure loans, especially for
20years digitalized at 42 per cent and small and medium-sized enterprises and
old (> 20years digitalized at 10 per cent. offering concessionary loans to sectors
such as agriculture is a priority. Further,
12.2 Policy Recommendations maintaining a sustainable fiscal position
and scaling up implementation of public
In enhancing productivity for sustainable finance management regulations and
and inclusive growth, the following are the PFM Act of 2012 (including in debt and
recommendations. cash management) could prevent the
occurrence of government arrears to
To enhance macroeconomic stability that individuals, suppliers, and banks.
supports productivity for inclusive growth.
4. Sustaining momentum to remain
1. Strengthen agricultural resilience by along the fiscal consolidation path is
investing in irrigation infrastructure, necessary to build fiscal buffers and
drought-resistant crops, and climate- reduce public debt vulnerabilities. This
smart agricultural practices to buffer is through a front-loaded fiscal policy
the economy against future effects stance that prioritizes expansion of the

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tax base, reducing tax expenditures, to support aggregate demand in the

and scaling up revenue mobilization economy, especially for investment,
measures in the medium-term revenue consumption, and exports, and by
mobilization strategy. Further, utilize maintaining appropriate monetary and
supplementary appropriation to fiscal policy interventions. For instance,
rationalize public expenditures and policy makers could leverage strategic
reduce fiscal slippages in state-owned partnerships to promote investment,
enterprises. exports, and technology transfer, while
mitigating potential risks such as payment
5. With elevated risks of debt distress, it of pending bills and mitigating debt
is imperative that debt management vulnerabilities.
strategy emphasizes on diversifying
debt sources by prioritizing acquisition 8. Implement strategies to enhance
of concessional loans from multilateral productivity and innovation within the
institutions, scaling up uptake of grants services sector through investment in
and exploring debt restructuring options technology, skills development, and digital
in a timely manner before maturity of infrastructure development to facilitate
huge debts. Further, exploring issuance collaboration, and access to information.
of use-of-proceeds (U0P) bonds and Additionally, efforts towards fostering
sustainability linked bonds (SLBs) could more synergies and interdependence
be instrumental in driving key BETA between the services sector and other
priorities on health and housing. sectors, through development of industry
clusters and support knowledge sharing.
6. Address weak merchandise trade The services sector could provide
balance through diversification of exports support services such as coordination,
by focusing on high technology sectors marketing, and research for development
such as manufacturing to drive value to manufacturing firms for enhanced
added exports. This is by promoting productivity and competitiveness.
innovation in manufacturing processes
and technologies to improve efficiency 9. County governments to leverage on
and productivity through tax incentives, various government initiatives, such as
grants, and public-private partnerships involving in value chains and accelerating
for research institutions and companies. technological progress, taking advantage
Initiatives towards technology transfer of established County Aggregation
and adoption for the manufacturing and Industrial Parks to promote agro-
sector could be pivotal for the sector. processing, support agri-business, and
Important is the need to lower costs for the investing productive resources in areas
manufacturing sector by reducing tariffs of their unique comparative advantage,
on imports of machinery, equipment, and from crop, livestock, industry and
raw materials. Further, addressing supply- manufacturing, urban development, and
side bottlenecks such a standardization, the services sector. They can institute
market information and cost of production measures that will boost productivity of
will bolter export volumes. factors of production, especially labour
and capital, and diversify economic
7. Policy makers need to be more vigilant activities. Counties need to continuously
on downside risks to ensure timely mitigate and adapt to climate change for
and prudent policy action. Further is sustainable development.

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To enhance labour productivity in schemes and create awareness on the

manufacturing benefits of the schemes to MSMEs.

10. The government to equip and upgrade 13. Promote the use of off-grid productive
existing county industrial development use of energy by providing tax incentives
centres to create an innovation culture to micro firms investing in energy efficient
among MSMEs. Moreover, providing technology in the production process.
fiscal incentives to firms that engage in Additionally, awareness creation on
Industrial Innovation Programme aimed at MSMEs through MSEA on benefits of off-
commercialization of viable innovations is grid productive use of energy for micro
important. These incentives could range enterprises.
from increased government expenditure
on research for development to the To enhance productivity through trade
recommended 2 per cent of the GDP.
Furthermore, this increased financing can 14. Enhance and modernize market
fund research institutions undertaking infrastructure to foster a dynamic and
high quality projects identified through supportive business environment. This
the Kenya National Innovation Agency, includes addressing market issues,
and provision of subsidies. Other prioritizing the completion of tier one
initiatives include provision of tailored markets through sufficient budgetary
public trainings for firms, especially in allocation, establishing adequate
the informal sector to enhance innovation warehouses for aggregation and storage,
and entrepreneurship and speed- constructing sufficient cold storage
up implementation of the Konza City facilities, and addressing the logistical
Technopolis to facilitate establishment constraints by improving rural roads
and growth of medium high and high transport infrastructure to enhance
technology innovations. market accessibility for small farmers.

11. Develop 3rd and 4th skills levels to 15. Encourage MSMEs to formalize their
manufacturing sub-sectors by providing contracting arrangements for procuring
incentives to students enrolling in goods or securing orders by providing
Science, Technology, Engineering, capacity-building workshops, legal
and Math (STEM) through provision of assistance, standardized contract
scholarships and bursaries. Furthermore, templates, and fostering industry
upskilling existing 1st and 2nd level skills collaboration. The shift towards structured
by adapting to changing demands of the contracts establishes expectations,
sector. This is by creating awareness and leads to smoother transactions,
among MSMEs on the benefits of ultimately boosting labour productivity
Industrial Training Levy Fund, which and operational efficiency within the
allows the National Industrial Training MSME sector.
Authority (NITA) to offer training services
to contributing MSMEs. 16. Empower MSMEs in the wholesale and
retail trade to expand into export trade to
12. Improve startup financial capital to MSMEs boost their productivity. To enhance the
through establishment of Industrial quality, sustainability, and competitiveness
Development Fund as envisioned in the of MSME products, it is essential to provide
Industrialization Policy to provide access training in entrepreneurship culture and
to startup capital for MSMEs. Enhance value addition, support the certification
implementation of credit guarantee of MSME products, assist in registering

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Industrial Property Rights (IPRs) for needs to be actualized in coordination

MSMEs, and facilitate their access to with the counties.
local, regional, and international markets
through market development initiatives 20. Generate and allocate adequate
such as funding participation in regional government spending on agriculture
and continental trade fares. from the national budget on agricultural
specific activities. A deliberate action by
17. Fast-track the implementation of Kenya’s the counties to allocate resources for
National AfCFTA implementation strategy the sector will also be key in ensuring
(2022-2027) to boost intra-continental achievement of Malabo commitment for
trade by leveraging on targeted product agriculture sector funding and ensure
and service exports through the agricultural transformation.
AfCFTA Guided Trade Initiative (GTI).
The government to allocate sufficient 21. Reduce post-harvest loss and wastage
resources towards implementing through implementing various agro-
the strategy through the National processing and value chain projects
Implementation Committee (AfCFTA- in MTPIV such as storage and cooling
NIC) and raise awareness within the plants will be crucial in providing the
business community about the potential required infrastructures for storage to
benefits of the AfCFTA. increase outputs, reduce wastage and
increase productivity.
18. Enhance the ongoing trade facilitation
measures such as implementation of 22. Enhance uptake of livestock and crop
the Single Customs Territory to further insurance. Develop and implement crop
reduce the cost of doing trade in the and livestock insurance schemes to
region. To enhance current trade protect farmers from vagaries of weather
facilitation measures, the Northern and ensure they can recover from any
Corridor States can streamline customs failed rain.
procedures for imports, exports, and
transit of goods. This involves reducing 23. Invest in human capital development.
documentation requirements, expediting Ensure agriculture subject is made a
cargo release times, and implementing compulsory subject in secondary schools.
mutual recognition of authorized operator Furthermore, facilitate training and
schemes to promote smoother trade monitor the supply and the requirement
transactions within the region. of various professionals in agriculture
sector such as extension officers, plant
To enhance productivity through agriculture and crop breeders, and other scientists
to ensure adequate well-trained labour
19. Ensure timely procurement of seeds and for the sector. This will help serve the
fertilizer, monitor the distribution and farmers in facilitating farmer access
access by the farmers and ensure use to extension services and adoption of
and application by the farmers is per the modern technology and innovations to
requirements, by sensitizing farmers on increase farm productivity.
various elements of fertilizer use such as
the time of application, application rates 24. Support value chain development by
and the appropriate in the production implementing fully the proposed value
process. Specifically, the commitment of chains for the prioritized crops in MTP4
various allocations for crop promotion, to help the farmers to add value to their
seed and input supply and farmer training products, increase their incomes and

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productivity for the targeted crops. This is 27. The Recognition of Prior Learning (RPL)
important for the country to help reduce policy acknowledges apprenticeship in
amount of food import bill incurred in the the informal sector as a valuable pathway
country. for skills development. To ensure
effective implementation of this policy,
In developing appropriate and adequate it is necessary to conduct widespread
skills awareness campaigns among employers
and employees. This could be achieved
25. Focus skills development to address through various channels, including
the national priority areas, which are radio, television, and social media.
Agriculture, Micro, Small, and Medium In addition, there is need to enforce
Enterprise (MSME); Housing and the implementation of tax rebates for
Settlement; Healthcare; and Digital training expenditures to alleviate budget
Superhighway and Creative Economy. constraints by providing financial relief
This can be done by mobilizing adequate to organizations investing in employee
resources through public private development. This is under Section 15
partnerships to offer targeted scholarships, of the Income Tax Act for the expenditure
loans and bursaries to students to study incurred in relation to salaries and wages.
these priority areas; establishment of the
National Skills and Funding Council to 28. Allocate adequate financial resources to
oversee funding initiatives for supporting support implementation of competency-
skills development in the country; based curriculum (CBC) at basic education
retooling workers in the labour markets level, the competency-based education
towards the national priority areas by and training (CBET) curriculum at TVET,
offering them conditional exchange and expansion of university education.
programmes; and strengthening centres This will help bridge the skills mismatch
of excellence that offer training in priority with the labour market by providing
areas such as the Dairy Training Institute, teachers, professional development
leather, agricultural colleges and medical programmes, enabling legal and
colleges, and by allocating adequate institutional framework, and investing in
financial resources for providing adequate the required infrastructure consistent with
and quality infrastructure and recruitment relevant courses. Further, the academia
of adequate trainers. could establish strong partnerships with
industries, businesses, and community
26. Provide outreach programmes to organizations to understand their evolving
encourage enrolment and retention of needs and align educational delivery
learners at all levels of education and accordingly.
training. The cost of education has been
an impediment for learners to access and To increase counties output, employment
participate in schooling. It is therefore levels and labour productivity
important to review the free primary
education policy to include pre-primary 29. Build climate resilience in the livestock
education level to enable all learners sub-sector in the arid counties. This can
access universal basic education at no be achieved through increasing the uptake
cost. In addition, the government could of weather-based insurance schemes for
remove all indirect costs related to livestock production by creating demand
education, such as the cost of uniforms, for livestock insurance, promoting use of
textbooks, and transportation so that asset-backed insurance and subsidizing
basic education is completely free. premiums for disadvantaged pastoralists;

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continuous promotion pasture and fodder facilities in the arid counties; leveraging
establishment, utilization and conservation on cultural tourism and desert safaris that
through extension services and provision are unique to the region; and developing
of subsidized inputs; funding research resort cities that are part of the LAPSSET
in improved and drought resistant project, which entail upgrading Isiolo and
fodder varieties that target pastoralists; the towns near Lake Turkana to resort
optimal utilization of the information from cities. This can be achieved through
the drought early warning systems to accelerating infrastructural development
encourage early commercial livestock by fast-tracking and completing the
offtake to mitigate losses; establishment LAPSSET transboundary corridor
of county livestock enterprise fund that that passes through the arid counties.
will finance pastoralists to restock after Additionally, curbing banditry in the arid
drought episodes to accelerate recovery. counties by continuing with the current
efforts of deploying security services
30. Optimally exploit the livestock value and using traditional institutions to
chain in the arid counties by increasing encourage community-led peace building
public and private investments in the initiatives to achieve sustainable peace
leather and meat processing industries. will enhance stability in the region and
This could be achieved by creating encourage investments.
awareness among pastoralists on the
value of hides and skins; increasing 32. Create jobs to optimally utilize the labour
extension services to improve the quality; in arid counties and support MSMEs
facilitating aggregation and pooled sales that absorb labour from agriculture by
to increase producers bargaining power; providing fiscal and other incentives to
and providing incentives to local leather attract investment in industries that would
product manufacturers to establish provide employment opportunities and
tanneries in the arid counties. Increasing developing business funds to support the
investments in meat processing for MSMEs.
export. This will require increasing the
number of modern abattoirs and meat 33. Improve the quality of labour in arid
processing facilities in the arid counties counties. This is achievable through
as the majority are in Nairobi and other continuous implementation of adult
major cities. Other key investments are and continuing education to improve
implementing the livestock identification the quality of the current labour force
and traceability system, which will and accelerating the implementation
ensure that livestock products meet the of programmes aimed at improving the
food safety standards required by the effectiveness of the education system.
international market. This includes programmes implemented
by NACONEK, such as mobile schools,
31. Reduce the dominance of non-market school feeding programmes and low-cost
services in arid GVA to encourage boarding schools.
development of market-oriented services
by leveraging tourism resources in the To unlock technology transfer by leveraging
arid counties. This will entail marketing strategic partnerships
the tourist sites in the counties to
encourage local and international 34. Strengthen strategic partnerships with
tourism; incentivizing players in the hotel both emerging economies and developed
and accommodation to invest in tourism economies through enhanced bilateral

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cooperation, South-South Cooperation levels of government and the private

and Triangular Cooperation. This may sector to establish a sustainable textile
involve rethinking diplomatic tools of industry.
engagement to target critical technologies
for enhancing productivity, digital 38. Ensure that state negotiators understand
economy and overall inclusive growth the implications of such infrastructure
and development. Establish South-South development cooperation for Kenya’s
and Triangular frameworks to enable national interests to optimize the benefits
the country to benefit from new global from BRI and other infrastructure
governance. development supported by other
development partners. Involve engineers
35. Improve policy environment that suits and other professionals in the negotiations
the use, adoption, and adaptation of the of infrastructure development projects to
new technologies to harness frontier ensure that every strategic partnership
technologies, this might involve policy enhances technology cooperation and
and institutional reforms to support transfer.
public-private partnership and improving
business environment that will attract To enhance productivity in public service
investors of frontier technologies to
the domestic market. Other reforms 39. Promote and establish a coordinated and
should target development of digital strategic approach to capacity building
infrastructure, improvement of skills at and human resource management
all levels of education and enhancing across all levels of government. This will
financial inclusion to improve domestic entail developing standardized training
credit availability. programmes tailored to the specific
needs of different counties, ensuring
36. Optimize on the opportunity offered public servants have the necessary skills,
through the nomination of Kenya as one streamlining recruitment processes,
of the six African countries to benefit offering competitive salaries, and
from mNRA technology by investing in implementing performance management
technological absorptive capabilities and systems for enhanced accountability and
policy frameworks that could accelerate performance.
local vaccine manufacturing and other
therapeutics within the country. Further, 40. Implement targeted interventions to
consolidate and implement the AU-led improve access to technology, enhance
reforms and initiatives to strengthen personnel quality, invest in infrastructure,
national and regional healthcare systems. and strengthen governance practices.
Prioritize human capital development,
37. Strengthen the capacity of farmers who economic and fiscal management
are key in the production of raw materials improvements, and transparency and
such as cotton, wool and other forms accountability measures to create an
of fibre to revive the textile industry, enabling environment for improved
through strategic partnerships, conduct productivity.
an elaborate survey and benchmarking
in selected Asian countries and in African 41. Prioritize a comprehensive approach to
countries that have made progress in enhance public service delivery, including
textile industry. In addition, invest in new expanding training programmes,
and affordable technology, new machines streamlining performance management,
and policy reforms that will enable two leveraging technology for digitization,

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and promoting e-participation for citizen for employees in established companies,

engagement. Ensure coordination enabling them to effectively integrate
among government, civil society, and and leverage technology for enhanced
stakeholders for effective implementation. productivity and competitiveness.

42. Strengthen budgetary and financial 45. Improve the cost-effectiveness,

management practices at national and availability, and competitiveness of
county levels. Improve revenue collection, digital infrastructure by expediting the
enhance budget execution, comply with execution of initiatives for Internet
the 35 per cent ceiling for wages and access, broadband fibre, and electricity
salaries spending, increase allocation to connectivity across the country.
operations and maintenance, prioritize Additionally, activate the Universal
capital expenditure, and address pending Service Fund by government to aid in the
bills to improve service delivery. advancement of this infrastructure; and
accelerate production of locally produced
43. Focus on creating an enabling digital tools such as mobile phones. This
environment for businesses, promoting will increase affordability for such tools.
national values, and upholding good The government could subsidize the
governance practices. To achieve this, costs and provide incentives for digital
the government could implement reforms investments in the country. To enhance
to simplify business registration, improve competitiveness of digital infrastructure,
access to credit, protect property rights, the government could encourage more
and invest in infrastructure, promote investors in the digital sector as increased
diversity and inclusivity, ensure ethical competition leads to reduced cost of
standards, and enhance conflict digital tools and infrastructure.
resolution mechanisms to improve public
satisfaction and productivity. 46. Establish mentorship and networking
avenues for female entrepreneurs:
T0 ensure that the informal sector is Link women operating in the informal
leveraging on digitalization to improve on economy with accomplished business
its productivity owners proficient in digital technologies
to offer mentorship, assistance, and
44. Invest in the enhancement of digital advice on optimizing digital resources
competencies and literacy to narrow the effectively. This will enable the exchange
digital divide. The government will need of experiences and the sharing of
to expand initiatives aimed at fostering successful business strategies.
digital skills and literacy among all
citizens, particularly in rural areas and 47. Collaborate through public-private
youths in the informal sector. There is partnerships (PPPs) to support the
need to focus on expanding the reach development of digital platforms and
of digital hubs to facilitate access for technology adoption in the informal sector.
informal sector participants. These hubs Innovators and tech giants are significant
will offer a range of digital skills from in supporting the government’s goals, as
basic to advanced levels, fostering a this partnership could help in achieving
workforce proficient in digital technologies the digital economy goals by bringing in
and overcoming barriers to digital expertise and resources to support the
advancement. Furthermore, establish development of such initiatives and offer
training programmes that concentrate on training.
enhancing digital literacy and skills sets

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ANNEXES

Annex 2.1: Classification of the functions of government

First-level Second level

General public services Executive and legislative organs, financial and fiscal affairs, external affairs
Foreign economic aid
General services
Basic research
R&D general public services
General public services n.e.c
Public debt transactions.
Transfers of a general character between different levels of government.
Defence Military defence
Civil defence
Foreign military aid
R&D defence
Defence n.e.c
Public order and safety Police services
Fire-protection services
Law courts
Prisons
R&D public order and safety
Public order and safety n.e.c
Economic affairs General economic, commercial, and labour affairs
Agriculture, forestry, fishing and hunting
Fuel and energy
Mining, manufacturing, and construction
Transport
Communication
Other industrie
R&D economic affairs
Economic affairs n.e.c
Environmental protection Waste management
Wastewater management
Pollution abatement
Protection of biodiversity and landscape
R&D environmental protection.
Environmental protection n.e.c
Housing and community amenities Housing development.
Community development
Water supply

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Street lighting
R&D housing and community amenities
Housing and community amenities n.e.c
Health Medical products, appliances and equipment
Outpatient services
Hospital services
Public health services
R&D health
Health n.e.c
Recreation, culture and religion Recreational and sporting services
Cultural services
Broadcasting and publishing services
Religious and other community services
R&D recreation, culture, and religion
Recreation, culture, and religion n.e.c
Education Pre-primary and primary education
Secondary education
Post-secondary non-tertiary education
Tertiary education
Education not definable by level
Subsidiary services to education
R&D education
Education n.e.c
Social protection Sickness and disability
Old age
Survivors
Family and children
Unemployment
Housing
Social exclusion n.e.c
R&D social protection
Social protection n.e.c

Source: Organization for Economic Co-operation and Development – OECD (2011)

Note: n.e.c.: “Not elsewhere classified”.

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 ANNEXES

Annex 3.1: Macroeconomic projections by other institutions

2023 2024 2025 2026

GDP growth rate projections
National Treasury (BROP 2023) 5.5 5.7 6.0 6.2
Budget Policy Statement 2023 5.5 6.2 6.1 6.2
Central Bank of Kenya 5.5 6.0 - -
African Development Bank – AfDB (AEO) 5.6 6.0 - -
International Monetary Fund – IMF (WEO) 5.0 5.3 - -
NCBA Bank Kenya Macroeconomic Outlook 2023 4.9 5.1 - -

Inflation
AfDB (AEO) 8.6 5.9 - -
IMF (WEO) 7.7 6.6 - -

Current account balance as per cent of GDP

AfDB (AEO 2023) -5.2 -5.0 - -
IMF WEO (2023)/ SSA Outlook (2023) -4.9 -4.9 - -

Annex 5.1: Legal frameworks for consumer protection

Category Implementing agency Act Purpose

Regulatory 1. Kenya Bureau of Standards Act of 2013 To arrange and provide facilities for the
Agencies Standards (KEBs) examination and testing of commodities,
materials, or substances related to their
manufacturing, production, processing,
or treatment
2. Pharmacy and Pharmacy and Poisons To prohibit misleading advertisements,
Poisons Board Board Act Chapter 244 advertisements related to abortion, and
Revised 2018 certain diseases. It provides for offenses,
penalties, and inspection of licenses and
books
3. National Environmental To establish a legal and institutional
Environment Management and framework for environmental
Management Coordination Act amended management, ensuring a clean and
Authority (NEMA) in 2016 healthy environment through pollution
prevention. It protects consumers from
various environmental hazards attributed
to the manufacturing of goods
4. Pest Control Pest Control Products Act To regulate the importation, exportation,
Products Board Cap 346 manufacture, distribution, and use of
pest control products
5. Agriculture Food Agricultural and Food To promote best practices in the
Authority (AFA) Authority Act of 2013 agricultural and aquatic value chain.
It protects consumers against
contaminated food products

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Category Implementing agency Act Purpose

6. Kenya Plant Health Kenya Plant Health To support the administration and
Inspectorate Service Inspectorate Service Act of enforcement of food safety measures.
(KEPHIS) 2012 Safeguards the economy, environment,
and human health by assuring the
quality of agricultural products to prevent
adverse impacts on consumers
7. Kenya Consumer Consumer Protection Act, To undertake or commission studies or
Protection Advisory 2012 research for consumer protection and
Committee publish National and County Consumer
(KECOPAC) Protection Annual Reports
8. Weights and Weights and Measures Act To regulate the use, manufacture, and
Measures of 2012 sale of weights and measures and
provide an international system of units
(SI) and ensure fair trade practices
Health and 1. Competition Competition Act of 2009 To prevent unfair and misleading market
Safety Authority of Kenya practices to protect consumers
2. Kenya Dairy Board Dairy Industry Act 1958; To improve and control the dairy industry
Revised 2012 and its products
3. Ministry of Health Public Health Act of 2012 To protect public health by laying rules
on food hygiene, protection of foodstuffs,
keeping of animals, and protection of
water supplies
4. Kenya Agricultural Kenya Agricultural and To provide an administrative framework
and Livestock Livestock Research Act of for agricultural research and promote
Research 2013 coordination. It regulates, monitors, and
Organization ensures that all agricultural research
(KALRO) conducted by institutes and individuals
aligns with national priorities, ensuring
that products reaching consumers meet
set standards
5. Horticultural Crops Agricultural Act chapter 318 To coordinate, promote, and develop the
Directorate (HCD) production and marketing of horticulture
products. It upholds fair trade practices
and ensures that consumers are
protected from fraudulent activities in the
horticulture sector
6. Government The Food Drugs and To prevent adulteration of food, drugs
Chemists Chemical Substances Act and chemical substances and for matters
Department Cap 254 incidental and connected thereof

The Liquor Licensing Act To make provision for regulating the

Cap 121. sale and supply of liquor and for matters
incidental thereto and connected
therewith
The Alcoholic Drinks
Control Act of 2010
To provide for the regulation of
production, sale, and consumption
of alcohol drinks. To protect the
consumers of alcohol drinks of deceptive
inducement and inform them of the risk
of excessive consumption of alcoholic
drinks
7. National Public Food Drugs and Chemical Prevent adulteration of food, drugs, and
Health Laboratories Substances Act cap 254 chemical substances
(Revised 2012)

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Category Implementing agency Act Purpose

8. KEMRI Science Science and Technology Conducts research to address
and Technology (Amendment) Act, 1979 healthcare needs, develops products,
(Amendment) Act, 1979 and provide services based on scientific
findings. The research contributes to
improving human health and quality of
life, aligning with the goal of protecting
consumers
9. Pharmacy and Pharmacy and Poisons Act Regulates the practice of pharmacy,
Poisons Board Cap 244, ensuring that pharmaceutical products
are handled by qualified personnel
Pharmacy and Poisons Act through licensed outlets, thus prevent
Cap 244 (Revised 2012) the distribution of unsafe medicines while
protecting consumers from potential
harm
10. Department of Meat Control Act Cap 356 To enable control and exercise over
Veterinary Services meat and meat products for human
Animal Diseases Act consumption and over slaughterhouse
and places where meat is processed.
To provide for import and export control
over such meat and meat products
Biosafety National Biosafety Biosafety Act, 2009. To ensure that consumers are made
Authority The Biosafety (Labeling aware that food, feed, or product
Regulations,2012) is genetically modified so that they
can make informed choices. To
facilitate the traceability of genetically
modified organism products to assist
in the implementation of appropriate
risk management measures where
necessary
Standards and 1. Weights and Weights and Measures Act Regulate the use, manufacture, and
Communication Measures of 2012 sale of weights and measures, providing
Department international units (SI)
2. Communication Kenya Information and Protect the interests of
Authority of Kenya Communications Act of telecommunication and postal service
2013 users
3. Kenya Films and Films and Stage Plays Act Regulate the creation, broadcasting,
Classification Board Cap 222 of 1962 possession, distribution, and exhibition of
films and broadcast content to promote
national values and protect children
4. Kenya Revenue Kenya Revenue Authority Provide clear regulations on procedural
Authority Act No. 2 of 1995 Revised aspects and provisions related to
2018 income, value added tax, and excise
duty
5. Ministry of Presidential Executive Formulate policies and laws to regulate
Information, Order No. 1 of 2016 standards and services in the ICT sector,
Communications telcos, and the media
and the Digital
Economy

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Annex 5.2: Descriptive statistics of the firms that export vs those that sell locally

Variable Local market Export market Variable Local market Export

Market
Employees 111.47 221.5 Age Business 18.91 35.08
LogEmployees 3.65 5.6 Share HighSch And 81.83 85.33
Higher
LogSales 17.36 19.28 Research_dev2 1,206,578.95 9,430,257.43
LogCapital 15.58 15.88 Number HighlySkilled 9.64 40.52
logIntermediateInputs 16.51 17.94 Share Highly Skilled 26.6 20.86
CapitalIntensity 198,609.47 598,885.49 Loan 0.95 0.93
BusinessCategory 1.45 2.27 TFP -0.412 0.314

Annex 5.3: Determinants of TFP for exporting firms

=================================================
Dependent variable:
---------------------------
tfp1
-------------------------------------------------
log(Capital Intensity) -0.077 (0.066)
BusinessCategory1 0.443 (1.321)
BusinessCategory2 1.000 (1.322)
BusinessCategory3 1.322 (1.303)
Age Business 0.016(0.008) **
High School and Higher institutions of leaning 0.005 (0.006)
Research_dev 0.276(0.314)
Training -0.302(0.309)
ShareHighlySkilled -0.007 (0.007)
Loan1 0.409(0.518)
Constant -1.384 (1.699)

-------------------------------------------------
Observations 86
R2 0.185
Adjusted R2 0.076
Residual Std. Error 1.264 (df = 75)
F Statistic 1.700* (df = 10; 75)
=================================================
Note: *p<0.1; **p<0.05; ***p<0.01

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Annex 5.4: The factors identified to affect productivity levels are more likely to participate
trade participation. in global value chains and vice versa. The study
also examines productivity as another driver of
Using the World Enterprise Survey (2018) Global Value Chain (GVC) participation. This
dataset, several drivers of GVC participation aspect has received extensive attention in the
were estimated using Tobit model. The theory of heterogeneous firms, as evidenced
results reveal that the positive and significant by notable literature such as Antràs, Fort and
coefficients for large firms across all models Tintelnot (2017). Consistent with existing
imply that, compared to small firms, large firms research, productivity demonstrates a positive
tend to have higher GVC participation. The correlation with GVC participation, as indicated
positive relationship between log of productivity by the coefficients derived for the three modes
and the GVC index remains consistent in of GVC.
all models, indicating that firms with higher

Annex 5.5: Estimated results for the drivers of GVC participation

Model (1) Model (2) Model (3)

GVC index Backward linkage Forward Linkage
Firm size
Medium -0.276 -2.858 12.31*
(-0.11) (-0.53) (1.93)
Large 7.177** 14.62** 23.10***
(2.27) (2.25) (3.10)

Lnproductivity 3.944*** 7.479*** 5.287***

(5.41) (4.93) (3.05)
Firm ownership
% Owned domestically 0.112 0.362 -0.274
(0.76) (1.12) (-0.88)
% Owned by foreigners
0.262* 0.794*** -0.259
(1.77) (2.95) (-1.08)
Innovation
Patent 6.321 0.383 15.01
(1.27) (0.04) (1.33)
-6.120 -13.95 -3.936
Trademark (-1.12) (-1.26) (-0.31)
Industrial design 1.488 -4.796 8.403
(0.47) (-0.74) (1.13)
Research & Development expenditure 9.588 ***
17.38 ***
16.38**
(3.27) (2.86) (2.48)
Internationally Recognized Quality Certification 22.21 ***
0.605 61.96***
(7.80) (0.10) (9.65)

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Obstacles to financial access

Minor obstacle -5.829* -9.488 -7.698
(-1.87) (-1.47) (-1.02)
Moderate obstacle 4.112 3.310 13.82
(1.27) (0.50) (1.81)
Major obstacle -1.389 -0.665 1.939
(-0.40) (-0.09) (0.24)
Very severe obstacle 7.129 -24.79 *
8.912
(1.13) (-1.96) (0.60)
var(e.GVC index) 890.7*** 3459.5*** 3634.3***
(14.15) (12.27) (9.95)

Observations 839 839 839

t statistics in parentheses
*
p < 0.1, ** p < 0.05, *** p < 0.01

Annex 7.1: Out of school learners using NER level by county, 2020

County Primary School Level Secondary School Level

National 21.9 45.9
Baringo 21.7 47.8
Elgeyo Marakwet 8.4 38.3
Embu 12.9 24.1
Garissa 73.3 90.1
Homa Bay 11.2 35.3
Isiolo 62.9 79.6
Kajiado 37.9 62.7
Kiambu 27.5 36.0
Kilifi 21.2 69.1
Kitui 2.0 46.9
Kwale 21.0 73.5
Laikipia 19.8 40.7
Lamu 16.3 64.6
Machakos 12.8 30.2
Makueni 2.9 18.8
Mandera 64.2 88.6
Marsabit 61.1 87.9
Meru 18.3 38.1
Migori 9.7 36.4
Nakuru 14.6 40.8
Narok 28.5 66.5

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Nyeri 11.7 8.4

Samburu 56.0 70.0
Taita Taveta 11.3 32.0
Tana River 51.9 81.1
Tharaka Nithi 0.1 3.0
Turkana 47.0 83.3
Wajir 75.4 85.5
West Pokot 13.6 47.7
ASAL Counties 28.1 52.7
Bomet 14.2 21.6
Bungoma 13.3 37.8
Busia 18.8 57.4
Kakamega 3.1 41.7
Kericho 1.3 24.6
Kirinyaga 10.3 19.2
Kisii 14.3 17.0
Kisumu -1.6 39.2
Mombasa 32.6 68.1
Murang’a 5.6 0.0
Nairobi City 38.2 71.2
Nandi 5.0 40.5
Nyamira 7.6 21.4
Nyandarua 12 24.9
Siaya 17.8 28.6
Trans Nzoia 10.7 37.2
Uasin Gishu 22.7 55.7
Vihiga 5.9 22.4
Non-ASAL 12.9 34.9

Data Source: Ministry of Education (2020), Basic Education Statistical Booklet

Annex 7.2: Net enrolment rate at primary education level by county, 2020

County Primary School Level Secondary School Level

National 78.1 54.1
Garissa 26.7 9.9
Mandera 35.8 11.4
Marsabit 38.9 12.1
Wajir 24.6 14.5
Turkana 53.0 16.7
Tana River 48.1 18.9
Isiolo 37.1 20.4

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Kwale 79.0 26.5

Nairobi City 61.8 28.8
Samburu 44.0 30.0
Kilifi 78.8 30.9
Mombasa 67.4 31.9
Narok 71.5 33.5
Lamu 83.7 35.4
Kajiado 62.1 37.3
Busia 81.2 42.6
Uasin Gishu 77.3 44.3
Baringo 78.3 52.2
West Pokot 86.4 52.3
Kitui 98.0 53.1
Kakamega 96.9 58.3
Nakuru 85.4 59.2
Laikipia 80.2 59.3
Nandi 95.0 59.5
Kisumu 101.6 60.8
Elgeyo Marakwet 91.6 61.7
Meru 81.7 61.9
Bungoma 86.7 62.2
Trans Nzoia 89.3 62.8
Migori 90.3 63.6
Kiambu 72.5 64.0
Homa Bay 88.8 64.7
Taita Taveta 88.7 68.0
Machakos 87.2 69.8
Siaya 82.2 71.4
Nyandarua 88.0 75.1
Kericho 98.7 75.4
Embu 87.1 75.9
Vihiga 94.1 77.6
Bomet 85.8 78.4
Nyamira 92.4 78.6
Kirinyaga 89.7 80.8
Makueni 97.1 81.2
Kisii 85.7 83.0
Nyeri 88.3 91.6
Tharaka Nithi 99.9 97.0
Murang’a 94.4 101.9

Data Source: Ministry of Education (2020), Basic Education Statistical Booklet

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Annex 7.3: Gender Parity Index at all levels of basic education by county, 2020

County Pre-primary Primary Secondary

National 0.97 0.96 1.01
Mandera 0.66 0.60 0.54
Wajir 0.80 0.77 0.58
Turkana 0.94 0.90 0.62
Garissa 0.81 0.73 0.68
Samburu 0.90 0.90 0.74
Narok 0.98 0.95 0.82
Tana River 0.90 0.97 0.83
Lamu 0.93 0.96 0.87
West Pokot 1.00 0.98 0.90
Homa Bay 1.00 0.97 0.90
Kilifi 0.98 0.97 0.92
Mombasa 0.99 1.02 0.95
Marsabit 1.03 0.97 0.96
Trans Nzoia 0.99 0.97 0.97
Siaya 0.99 0.99 0.97
Migori 1.01 0.99 0.97
Kisii 1.00 1.00 0.97
Nyamira 1.00 0.96 0.97
Isiolo 1.05 1.08 0.98
Embu 0.95 0.96 0.99
Bomet 0.97 0.95 0.99
Nyeri 0.96 0.96 1.00
Kericho 0.98 0.95 1.00
Taita Taveta 1.01 0.96 1.01
Baringo 0.96 0.94 1.01
Laikipia 0.97 0.95 1.02
Murang’a 1.01 0.98 1.03
Nandi 0.99 0.94 1.03
Kajiado 0.94 0.97 1.03
Makueni 0.96 0.94 1.04
Nakuru 0.99 0.97 1.04
Nairobi City 1.01 1.01 1.04
Nyandarua 0.95 0.94 1.05
Kiambu 0.99 0.98 1.05
Bungoma 0.98 0.98 1.06
Kwale 0.97 0.97 1.07
Kakamega 1.00 0.99 1.07
Tharaka Nithi 1.00 0.97 1.08
Uasin Gishu 0.99 0.96 1.08
Busia 1.03 0.99 1.09

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Kitui 0.97 0.95 1.10

Kirinyaga 0.94 0.95 1.10
Kisumu 1.01 0.99 1.10
Meru 0.98 0.98 1.11
Machakos 0.97 0.94 1.11
Elgeyo Marakwet 0.98 0.96 1.12
Vihiga 1.00 0.98 1.20

Data Source: Ministry of Education (2020), Basic Education Statistical Booklet

Annex 8.4: Classification of counties by level of aridity

Arid Counties Semi-Arid Counties Semi-Arid Counties Non-ASAL counties

(85 -100%) (30-84%) (10-29%) (Less than 10%)
Wajir Tharaka Nithi Lamu Siaya
Marsabit West Pokot Homa Bay Trans Nzoia
Garissa Meru Migori Nyamira
Samburu Baringo Narok, Kirinyaga
Turkana Kilifi Elgeyo Marakwet Busia
Mandera Taita Taveta Nyeri Bomet
Isiolo Kajiado Kiambu Kisii
Tana River Kwale Nakuru Kericho
Laikipia Nyandarua
Embu Murang’a
Machakos Bungoma
Makueni Vihiga
Nandi
Uasin Gishu
Nairobi
Kisumu
Kakamega
Mombasa

Data source: State Department for the ASALS and Regional Development

354
 Average GVA per Capita Average GVA per Capita

0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000

0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
GARISSA GARISSA
ISIOLO ISIOLO
MANDERA MANDERA
MARSABIT MARSABIT

Arid

Arid
SAMBURU SAMBURU
TANA RIVER TANA RIVER
TURKANA TURKANA
WAJIR WAJIR
BARINGO BARINGO
EMBU EMBU
KAJIADO KAJIADO
KILIFI KILIFI
KITUI KITUI
KWALE KWALE
LAIKIPIA LAIKIPIA

Annex 8.3: Average GVA per capita

MACHAKOS MACHAKOS
MAKUENI MAKUENI

Semi-Arid 30-84%

Semi-Arid 30-84%
MERU MERU
TAITA TAVETA TAITA TAVETA
THARAKA NITHI THARAKA NITHI
WEST POKOT WEST POKOT
Annex 8.2: Average GVA per county (millions)

ELGEYO MARAKWET ELGEYO MARAKWET

HOMA BAY HOMA BAY
KIAMBU KIAMBU
LAMU LAMU
MIGORI MIGORI
Counties

Counties
NAKURU NAKURU
Semi-Arid 10-29%

Semi-Arid 10-29%
NAROK NAROK
NYERI NYERI
BOMET BOMET
BUNGOMA BUNGOMA
BUSIA BUSIA
KAKAMEGA KAKAMEGA
KERICHO KERICHO
KIRINYAGA KIRINYAGA
KISII KISII
KISUMU KISUMU
MOMBASA MOMBASA
ASAL

ASAL
MURANGA MURANGA
NAIROBI NAIROBI
NANDI NANDI
NYAMIRA NYAMIRA
NYANDARUA NYANDARUA
SIAYA SIAYA
UASIN-GISHU UASIN-GISHU
VIHIGA VIHIGA
TRANS NZOIA TRANS NZOIA
ANNEXES

355
356
0
0.2
0.4
0.6
0.8
1
1.2
Labour Partcipation rates
ARID COUNTIES

60.00
65.00
70.00
75.00
80.00
85.00
SEMI ARID (30-84%)
GARISSA

2013
SEMI ARID (10-20%)
ISIOLO
MANDERA NON-ASAL
MARSABIT ARID COUNTIES
SAMBURU SEMI ARID (30-84%)
TANA RIVER

2014

Arid Counties
SEMI ARID (10-20%)
TURKANA
WAJIR NON-ASAL
BARINGO ARID COUNTIES
KENYA ECONOMIC REPORT 2024

EMBU SEMI ARID (30-84%)

KAJIADO

2015
SEMI ARID (10-20%)
KILIFI
NON-ASAL
KITUI
KWALE ARID COUNTIES
LAIKIPIA SEMI ARID (30-84%)

2016
MACHAKOS SEMI ARID (10-20%)
MAKUENI
NON-ASAL
MERU

Semi-Arid counties (30-84%)

TAITA TAVETA ARID COUNTIES
THARAKA NITHI SEMI ARID (30-84%)
Contribution of Agriculture to County GVA
2017

WEST POKOT

Contribution of Service Sector to County GVA

SEMI ARID (10-20%)
ELGEYO MARAKWET Contribution of Manufacturing to County GVA
NON-ASAL
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

HOMA BAY

Annex 8.5: Labour participation rates by county

ARID COUNTIES
KIAMBU

Counties
LAMU SEMI ARID (30-84%)

29%)
2018

MIGORI SEMI ARID (10-20%)

NAKURU NON-ASAL
Annex 8.4: Contribution of broad sectors to county GVA

NAROK

Semi-Arid counties (10-

ARID COUNTIES
NYERI
SEMI ARID (30-84%)
BOMET
2019

BUNGOMA SEMI ARID (10-20%)

BUSIA NON-ASAL
KAKAMEGA ARID COUNTIES
KERICHO
SEMI ARID (30-84%)
KIRINYAGA
2020

Contribution of Mining to County GVA

KISII SEMI ARID (10-20%)

KISUMU NON-ASAL
MOMBASA ARID COUNTIES
Contribution of other industries to County GVA

MURANGA SEMI ARID (30-84%)

NAIROBI
2021

SEMI ARID (10-20%)

Non-ASAL Counties
NANDI
NYAMIRA NON-ASAL
NYANDARUA ARID COUNTIES
SIAYA SEMI ARID (30-84%)
UASIN-GISHU
2022

SEMI ARID (10-20%)

VIHIGA
TRANS NZOIA NON-ASAL
 Uneployment Rate Employment population Ratio

0
10
20
30
40
50
60
70
80
90

0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
38
GARISSA

40.0 36.6
GARISSA

55
ISIOLO

19.1
ISIOLO

48
MANDERA

24.1
MANDERA

53
MARSABIT

19.8
MARSABIT
66

SAMBURU

9.1
SAMBURU
57

Arid Counties
TANA RIVER

Arid Counties

16.2
TANA RIVER
45
TURKANA
TURKANA

29.0
48

WAJIR
WAJIR

30.0
64

BARINGO
BARINGO
73

EMBU

5.1 5.2
EMBU
KAJIADO KAJIADO

11.9
63 60

KILIFI

9.6
KILIFI
66

4.9
KITUI KITUI
63

KWALE

9.6
KWALE

7.1
LAIKIPIA LAIKIPIA

Data source: KNBS (2019), Census

Data Source: KNBS (2019), Census

8.6
MACHAKOS MACHAKOS

5.3
MAKUENI MAKUENI

Semi-Arid counties (30-84%)

MERU MERU

Semi-Arid counties (30-84%)

8.1 7.6
TAITA TAVETA TAITA TAVETA
69 68 68 67 70 70

THARAKA NITHI THARAKA NITHI

Annex 8.7: Unemployment rate by county

WEST POKOT WEST POKOT
63 63

ELGEYO MARAKWET ELGEYO MARAKWET

64

5.7 6.6 6.1 4.6

HOMA BAY HOMA BAY
66

KIAMBU KIAMBU

10.3
County
65

Counties
8.1
LAMU LAMU
63

MIGORI

5.7
MIGORI
66

7.3
NAKURU NAKURU
70
Annex 8.6: Employment to population ratio by counties

NAROK NAROK

Semi-Arid counties (10-29%)

73

Semi-Arid counties (10-29%)

NYERI NYERI
68

BOMET BOMET
64

BUNGOMA BUNGOMA
65

BUSIA BUSIA
65

KAKAMEGA KAKAMEGA
69

KERICHO KERICHO
76

4.1 5.1 3.3 4.6 4.6 4.8 4.2 4.5

KIRINYAGA KIRINYAGA
65

5.8
KISII KISII
60

7.6
KISUMU KISUMU
52

17.6
MOMBASA MOMBASA
74

5.3
MURANGA MURANGA
59

NAIROBI

14.0
NAIROBI

Non-ASAL Counties
Non-ASAL Counties
66

NANDI NANDI

5.0 5.3
66

NYAMIRA NYAMIRA

2.6
75

NYANDARUA NYANDARUA

4.1
68

SIAYA SIAYA
9.3
UASIN-GISHU
60

UASIN-GISHU

4.7
66

VIHIGA 7.0 VIHIGA

TRANS NZOIA
ANNEXES

60

TRANS NZOIA

357
 0
20
40
60
80
100
120

358
Inactivity Rate

0
5
10
15
20
25
35
GARISSA
ISIOLO
GARISSA
MANDERA ISIOLO 30 24 26
MARSABIT
27
MANDERA
SAMBURU MARSABIT

Arid Counties
TANA RIVER
23 23

SAMBURU
TURKANA

Arid Counties
TANA RIVER
WAJIR
26 25

TURKANA
BARINGO WAJIR
27

EMBU BARINGO
20 21

KAJIADO EMBU
KENYA ECONOMIC REPORT 2024

24

KILIFI KAJIADO
KITUI KILIFI
29 28

KWALE KITUI
26

LAIKIPIA KWALE
MACHAKOS LAIKIPIA
MAKUENI MACHAKOS
25

MERU MAKUENI

Semi-Arid counties (30-84%)

TAITA TAVETA MERU

Semi-Arid counties (30-84%)

TAITA TAVETA

Discouraged job seekers

THARAKA NITHI
Annex 8.8: County labour inactivity rates

22 23 24 20 24

WEST POKOT THARAKA NITHI

WEST POKOT

Annex 8.9: Reasons for inactivity by county

ELGEYO MARAKWET
HOMA BAY ELGEYO MARAKWET
30 31 31

HOMA BAY
KIAMBU
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

23

KIAMBU
LAMU
Counties

LAMU
MIGORI
30

29%)

MIGORI
NAKURU

Family responsibilities
NAKURU
NAROK
25 26 25

NAROK

Semi-Arid counties (10-29%)

Semi-Arid counties (10-

NYERI
20

NYERI
BOMET
BOMET
BUNGOMA
BUNGOMA
BUSIA BUSIA

Other inactive
KAKAMEGA
31 30

KAKAMEGA
KERICHO KERICHO
KIRINYAGA
18

KIRINYAGA
KISII KISII
KISUMU
31

KISUMU
28 30 26 29 28

MOMBASA MOMBASA
20

MURANGA MURANGA
25

NAIROBI NAIROBI

Non-ASAL Counties
Non-ASAL Counties

NANDI NANDI
NYAMIRA NYAMIRA
22

NYANDARUA NYANDARUA
SIAYA SIAYA
UASIN-GISHU UASIN-GISHU
29 28 28 30 29

VIHIGA VIHIGA
32

TRANS NZOIA TRANS NZOIA

 ANNEXES

Annex 8.10: County labour productivity 2021

1.40
County Labour Productivity (millions)

1.20

1.00

0.80

0.60

0.40

0.20

0.00
GARISSA
ISIOLO
MANDERA
MARSABIT
SAMBURU
TANA RIVER
TURKANA
WAJIR
BARINGO
EMBU
KAJIADO
KILIFI
KITUI
KWALE
LAIKIPIA
MACHAKOS
MAKUENI
MERU
TAITA TAVETA
THARAKA NITHI
WEST POKOT
ELGEYO MARAKWET
HOMA BAY
KIAMBU
LAMU
MIGORI
NAKURU
NAROK
NYERI
BOMET
BUNGOMA
BUSIA
KAKAMEGA
KERICHO
KIRINYAGA
KISII
KISUMU
MOMBASA
MURANGA
NAIROBI
NANDI
NYAMIRA

SIAYA
UASIN-GISHU
VIHIGA
TRANS NZOIA
NYANDARUA
Arid Counties Semi-Arid counties (30-84%) Semi-Arid counties (10- Non-ASAL Counties
29%)
County

Data: Author’s computation using KNBS Kenya Continuous Household Survey 2021 and KNBS
2023 GCP data

Annex 8.11: Employment in the services sector by county

80
70
60
50
40
30
20
10
0
GARISSA

ISIOLO

MANDERA

MARSABIT

SAMBURU

TANA RIVER

TURKANA

WAJIR

BARINGO

EMBU

KAJIADO

KILIFI

KITUI

KWALE

LAIKIPIA

MACHAKOS

MAKUENI

MERU

TAITA TAVETA

THARAKA NITHI

WEST POKOT

ELGEYO MARAKWET

HOMA BAY

KIAMBU

LAMU

MIGORI

NAKURU

NAROK

NYERI

BOMET

BUNGOMA

BUSIA

KAKAMEGA

KERICHO

KIRINYAGA

KISII

KISUMU

MOMBASA

MURANGA

NAIROBI

NANDI

NYAMIRA

NYANDARUA

SIAYA

UASIN-GISHU

VIHIGA

Semi-Arid counties (10-29%) TRANS NZOIA

Arid Counties Semi-Arid counties (30-84%) Non-ASAL Counties
Activities of extraterritorial organizations and bodies
Activities of households as employers; undifferentiated goods and services-producing activities of households for own use
Other service activities
Arts, entertainment and recreation
Human health and social work activities
Education
Public administration and defence; compulsory social security
Administrative and support service activities
Professional, scientific and technical acthities
real estate
financial and insurance
Information and communication
Accomodation and food services
Transport and storage
Wholesale and retail trade; repair of motor vehicles and motorcycles

Data: Author’s computation using KNBS Kenya Continuous Household Survey 2021

359
 KENYA ECONOMIC REPORT 2024
ENHANCING PRODUCTIVITY FOR SUSTAINED INCLUSIVE GROWTH

Annex 8.12: Employment per county by broad sectors

120

100

80

60

40
Employment

20

0
GARISSA

ISIOLO

BUSIA

KAKAMEGA

KERICHO

KIRINYAGA

KISII

KISUMU

MOMBASA

MURANGA

NAIROBI
MANDERA

MARSABIT

SAMBURU

TANA RIVER

TURKANA

WAJIR

BARINGO

EMBU

KAJIADO

KILIFI

KITUI

KWALE

LAIKIPIA

MACHAKOS

MAKUENI

MERU

TAITA TAVETA

THARAKA NITHI

WEST POKOT

ELGEYO MARAKWET

HOMA BAY

KIAMBU

LAMU

MIGORI

NAKURU

NAROK

NYERI

BOMET

BUNGOMA

NANDI

NYAMIRA

NYANDARUA

SIAYA

UASIN-GISHU

VIHIGA

TRANS NZOIA
Arid Counties Semi-Arid counties (30-84%) Semi-Arid counties (10-29%) Non-ASAL Counties
Agriculture Manufacturing Services Mining Other Industry Counties

Data source: KNBS Kenya Continuous Household Survey 2021

Annex 8.13: Employment in agriculture sub-sectors by county category

90
80
70
60
50
40
30
20
10
0
GARISSA
ISIOLO

KIRINYAGA
KISII
MANDERA
MARSABIT
SAMBURU
TANA RIVER
TURKANA
WAJIR
BARINGO
EMBU
KAJIADO
KILIFI
KITUI
KWALE
LAIKIPIA
MACHAKOS
MAKUENI
MERU
TAITA TAVETA
THARAKA NITHI
WEST POKOT
ELGEYO MARAKWET
HOMA BAY
KIAMBU
LAMU
MIGORI
NAKURU
NAROK
NYERI
BOMET
BUNGOMA
BUSIA
KAKAMEGA
KERICHO

KISUMU
MOMBASA
MURANGA
NAIROBI
NANDI
NYAMIRA
NYANDARUA
SIAYA
UASIN-GISHU
VIHIGA
TRANS NZOIA
Arid Counties Semi-Arid counties (30-84%) Semi-Arid counties (10-29%) Non-ASAL Counties

Crop Production Livestock production Mixed Farming Fishing/fish farming Paid farm labour

Data: Author’s computation using KNBS Kenya Continuous Household Survey 2021
i
https://www.worldbank.org/en/data/datatopics/cpia/cluster/public-sector-management-and-institutions
ii
https://www.icta.go.ke/news?node=296&type=news

360