President Barack Obama’s trip to Kenya was themed around the broader concepts of development and wealth creation.
Notably, the Global Entrepreneurship Summit focused on entrepreneurs as wealth creators. In the sidelines, there were deals on mega projects. In all, issues touching on economic growth and development were tackled.
This offers a chance to analyse our current model of economic development.
The unprecedented infrastructural expansion in Kenya in the last 10 years has triggered a rather muted debate over its impact on the welfare of ordinary Kenyans. Unfortunately, the debate has tended to split economic growth and development.
There is no doubt that infrastructure is a necessary condition to realise economic objectives.
However, roads, railways, airports should not be confused with factors of production like skills, technology, natural resources and the overall policy environment.
Generally, infrastructure is good for long-term growth. But the types of mega and flagship projects we are currently rolling out favour big businesses. This model assumes that some benefits will trickle down to the small businesses and eventually improve the livelihoods.
It is the top-down approach to development.
The problem is that there is no concrete proof that mega type projects improve people’s livelihoods. Yet we pump billions of shillings in them, assuming a linear relation between the two.
Importantly, roads, railways, airports do not create markets, train producers, or help add value.
There are, however, interventions that could stimulate development that directly impact on lives – access to education, health, human rights, freedoms and other non-monetary indicators of wellbeing.
Mr Obama pointed out the need to address inequality in Kenya. Before we look at such strategies, let’s look at the relationship between infrastructure and economic growth.
Driving along Thika Road and the northern by-pass, one notes the rapid expansion of businesses and estates. Most of the businesses are service enterprises. Few if any are manufacturing businesses.
The proliferation of housing estates and secondary level businesses and consequent spikes on land prices happen naturally. It is called ribbon development.
The question is why our manufacturing is not growing. Statics shows Uganda, with roughly a third of Kenya’s GDP and even worse infrastructure is leading in attracting FDI? What are we missing?
Research shows that infrastructural expansion especially on the scales of mega projects does not necessarily attract meaningful industrial investment, much less stimulating sustainable qualitative change in the lives.
In his study, ‘Public Sector Capital and the Productivity Puzzle’, Holtz-Eakin surprisingly found no role for public sector capital in impacting on private sector productivity in the US.
The study published in the Review of Economics and Statistics journal in 1995, showed that while incomes among retail and services providers along interstate highways in the US improved, this can’t be said to be the same for bigger manufacturing industries.
This is already happening along Thika road, where many people have turned underpasses, junctions, roundabouts into green groceries. Evidently, there is increased hustlers’ economy.
However, serious investors especially in manufacturing are not just influenced by a new road but consider many other factors like taxation, security, profitability, and availability of inputs.
The people who make decisions on which road, railway, or airport is to be build often confuse infrastructure stock with direct poverty eradication. If we are to lift people from poverty, we need specific strategies to go with current infrastructural development.
Strategies include industrial intervention, regional centres and bedroom communities, amenity-based interventions, clusters etc. These have the potential to create and perpetuate wealth.
Of course like anything, the main impediment in pro-poor strategies else in Kenya is in one word: corruption.