What does it mean to be a middle-income country?

Kenya is now a lower middle-income country, and about 25 per cent richer than we thought we were. That World Bank designation comes with consequences.

Because we are no longer in the category of the poorest countries in the world, we may lose some of the foreign assistance we have been getting from the international donor community. In many ways, that is actually a good thing.

Throughout Africa, international assistance has become the pressure valve that helps inept and unaccountable rulers stay in office. Being a middle-income country means that we have to start thinking of means of taking full responsibility for the running of our country. That means having a leadership that if left to its devices – without the “adult supervision” of the World Bank, the International Monetary Fund (IMF), and others – can actually formulate policies that will result in both accelerated growth and macroeconomic stability.

Can we do this on our own? For an answer, we should look at Ghana, yet another country that recently earned the designation of a middle-income country. Ghana recently had to go hat in hand to the IMF to help stabilise its economy. The combination of stiff political competition and presence of oil revenue made politicians promise too much to voters. The result was an overstretched fiscal regime, with unsustainable budget deficits and a ballooning public sector. In terms of quality of public policy, we are not that far from Ghana. Donor partners are still neck deep in many important aspects of the management of our economy – within the Treasury and as part of external advisers to the government. Our new status as a middle-income country demands that we wean ourselves of this dependence and begin to reorganise our political economy in a way that is responsive to wananchi and not external advisers and development partners.

In order to do this, we shall need to clean house quite a bit. First off, we need to make sure that government policy is driven by sound research and technocratic input, and not the whims of venal politicians. We also need independence and competence within key economic institutions. For instance, we know that our Central Bank is not above reproach, and has, in the recent past, struggled to clear its name from corruption allegations as well to stabilise the Shilling. In addition, Prof Njuguna Ndung’u and his men appear clueless in terms of possible ways of nudging entities in the financial sector to allocate capital in a manner that will generate jobs more rapidly. If we are to truly realise the benefits of being a middle-income country, we must not allow these kinds of failures to continue.

And what exactly are these benefits? Well for starters, being designated a middle-income country comes with a psychological boost for investors. The fact that we grew faster last year than we thought – and higher than the African average – means that Kenya is, indeed, an attractive investment destination. We should therefore continue to aggressively sell brand Kenya regionally and globally.

The other benefit is that our new status will allow the government to borrow money internationally more cheaply or easily. Heavy government borrowing is a key driver of ineffective capital allocation here at home. As such, if Treasury can get debt from elsewhere, it may spur the local capital markets into action, and result in even faster growth in job-creating sectors. However, as alluded to above, such a prospect is dependent on what regulators do to incentivise the right kinds of investment choices by owners of capital.

It is important to note that taking advantage of our middle-income status will not happen by default. It will also not happen if our leaders do not fold their sleeves and get to work. Here, I am talking about the ministries of Trade and Industry, Agriculture and Finance.

These are the ministries that have the potential to lift millions of our youth and unemployed out of poverty. Yet they continue to be eclipsed by the political ministries of devolution and security. It is very instructive that all the funds and resources designed to generate entrepreneurship and growth are being channelled through a political ministry – devolution – as opposed to one of the economic ministries. Our priority is politics and domination, not growth and open access for all.

The rebasing of the Kenyan economy, in and of itself, will not add any sufurias in Wanjiku’s kitchen. But it has the potential to provide the government with greater external borrowing capacity and improve our investment climate image. We should take advantage of these opportunities to better the living conditions of our people, and do so in an equitable manner.