Since 2005, services exports in Kenya have accounted for over 50% of the increase in total exports, and are poised to overtake goods exports, says a new World Bank report launched today. Trade, transport, ICT and financial services lead the pack.

The Kenya Country Economic Memorandum: From Economic Growth to Jobs and Shared Prosperity (CEM) reviews the country’s growth: past, present and future.

Kenya’s growth model has been well-regarded for a number of reasons. Unlike most of its African peers, the country embraced the role of the private sector from the start. One major accomplishment and often under-appreciated aspect of the country’s growth story is that Kenya has lived within its means. The country has never sought or received debt relief, but has opted for better economic policy – raising revenues, liberalizing trade and the forex market.

However, there are distinct features of Kenya’s growth model that upset its growth story. Firstly, agriculture’s share in GDP declined from 26.5% in 2006 to 22.0% in 2014 while manufacturing stagnated at 11.8% of GDP on average during the same period. Secondly, growth has not been inclusive: poverty, unemployment, and informality remain prevalent.

“Reviving agriculture remains Kenya’s main pathway to poverty reduction. On jobs, improving the business environment, the education system, and reforming dated labor laws will help. On informality, the real gains come from increasing productivity in the Jua Kali sector,” says Diarietou Gaye, World Bank Country Director for Kenya.

Thirdly, economic growth has been uneven and volatility is high. Domestic shocks have had bigger and longer-lasting effects than external shocks. Hence, reducing volatility becomes primarily a question of domestic policies.

“To accelerate short-term growth, the current savings rate needs to be doubled, primarily by mobilizing domestic savings. The report also identifies three long-term growth drivers: Innovation, Oil, and Urbanization. But, underpinning these recommendations is one overarching theme; that of functioning institutions,” says Apurva Sanghi, World Bank Lead Economist and Program Leader for Kenya.

The Country Economic Memorandum is a strategic World Bank product that analyzes key aspects of the country’s economic development with the main aim of providing an integrated and long term perspective of the country’s development priorities. This particular edition of the CEM has benefitted from extensive review from various stakeholders, including the government, academia and private sector. 

Kenya’s Growth Story: Past, Present and Future

The 2016 Kenya Country Economic Memorandum (CEM) takes a bird’s-eye view of Kenya’s economy, zooms in on some of the key bottlenecks, and proposes some “how-to” ideas.

Between 2006 and 2013, 72% of the increase in gross domestic product (GDP) came from services, the report notes. Expansion in services such as financial intermediation and mobile communications have also stimulated demand for other services, such as trade, according to the report.

The report also shows that agriculture, the mainstay of Kenya’s economy, and manufacturing have stagnated and  have not created enough jobs for Kenya’s growing working age population. Most of the jobs are created by the informal economy and are concentrated in low-productivity areas such as trade, hospitality, and jua kali, entrepreneurs who can be hired to do just about any task.

“Improving the ease of doing business is vital for job creation and higher productivity. However, there is still a need for creating job opportunities for the rural poor, for poverty reduction and achieving shared prosperity,” said Apurva Sanghi, World Bank lead economist and program leader for Kenya. “Reviving agriculture, in particular, remains the pathway for poverty reduction.”

According to the report, accelerating growth to meet Kenya’s development goals requires technological advances and innovation that raise firms’ productivity; only a few Kenyan firms have come up with products that are actually new to the domestic market It will also require macroeconomic stability, the report says, which would  boost investment and savings. As the government strives to build Kenya’s energy and transport infrastructure, the report recommends improvements in the public investment management process and better execution.

The report also highlights the opportunities from the recent discovery of oil, which opens a possibility for raising Kenya’s growth. If used prudently, the report notes that it can contribute to achieving the country’s Vision 2030 goals, and with appropriate management of resource revenues, it can generate resources that could be used to raise public investment, human capital, and productivity in the non-resource sectors of the economy.

The Country Economic Memorandum is a strategic World Bank product that analyzes key aspects of the country’s economic development, with the main aim of providing an integrated and long-term perspective of the country’s development priorities. This particular edition of the Kenya CEM has benefitted from extensive review from various stakeholders, including the government, academia and private sector.