Manufacturing and agriculture top sectors to boost the economy

Manufacturing, agriculture, and digitisation of the informal economy are the three sectors singled out by a State think tank with the potential to boost the country’s productivity.

The Kenya Institute for Public Policy Research and Analysis (Kippra) in its latest report says Kenya’s economy is susceptible to macro-economic shocks which always shrink the gross domestic product (GDP).

However, investment in these three sectors, which Kippra cites as critical, has the potential to build the economy’s resilience against such shocks. The 2024 Kenya Economic Report, while referencing the World Bank, notes that productivity growth has generally weakened in the global economy due to shocks such as financial crises, natural disasters, and epidemics.

The think tank says Kenya has made significant strides in recent years, but there are still pressing issues that need to be addressed.

“Gaps such as low productivity levels in some sectors, limited access to finance, inadequate infrastructure, and a high level of informality in the economy hinder the country from exploiting its full economic potential to achieve inclusive growth,” the report says.

The Ukraine-Russia conflict, climate-related incidents, and Covid are some of the shocks the economy has been subjected to. Kippra says productivity improvement plays a pivotal role in driving economic development, reducing poverty, and creating opportunities for all segments of society.

By increasing productivity levels across various sectors, it notes, a country can unlock its full potential and propel the economy towards a path of sustained and inclusive growth.

“However, for deeper analysis and based on the understanding of critical sectors where productivity can be upscaled, the KER 2024 emphasizes manufacturing, agriculture, and digitalisation of the informal sector,” the report says. These three sectors have been singled out based on an analysis that looked into how the Kenyan economy reacted to both global and domestic shocks.

For example, between 1979-2001, the economy stagnated causing a rise in poverty levels that peaked at 57.2 per cent, which Kippra links to external economic shocks, policy missteps and challenges, and internal conflicts.

Another incident is the drought between 2008 and 2011 which the report says caused widespread losses and damage and slowed real GDP growth by an average of 2.8 per cent a year.

Similarly, the 2022/23 drought led to crop failure and the death of animals, thus leading to negative growth for the agriculture sector.

“However, between November 2023 and February 2024, the country experienced good rainfall, and this led to improved farming activities in some parts, given that agricultural production in Kenya is rain-fed,” the report says.

The analyses also extended to simulations that showed the impact these sectors have on the economy directly and indirectly.

“For instance, improvements in total factor productivity in the manufacturing sector have a direct impact on the manufacturing sector and an indirect impact on agri-food and services,” the report says.

“Further, the simulations reveal that the impacts of productivity improvements have the largest impacts in the services sector followed by manufacturing and agri-food, and this may be attributable to a changing economic structure towards a services-based economy (servitude growing in the economy) and the differences in the sector’s forward and backward linkages.”

Kippra says Kenya can reap the benefits discussed by putting in place measures towards enhancing productivity in the agri-food, manufacturing, and services sectors.

“There is a need for productivity improvement across all the sectors given that they are all complementary,” the report adds.