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Business Daily (Nairobi)

Kenya: Time to Build an All-Inclusive Society

M. J. Gitau

27 March 2008

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In the 1970s and 1980s, the problem of duality dominated economic and development policy, and it was only in the 1990s that liberalisation and problems of globalisation pushed these issues aside.

Duality, simply put, is the existence of a modern, more developed sector alongside a subsistence backward one. This not only applied to the economy in general, but in other sectors such as agriculture, labour markets and financial.

Then, it was held that there existed a symbiotic - others asserted beneficial - relationship between the modern and subsistence sectors. The former would provide markets and demand for labour supplied by the latter.

Today, however, we still grapple with the issue of duality, albeit in different forms and character. While duality then meant division (more developed and less developed) today the emergence of technology and information as key drivers of development have produced a different form of development challenge altogether.

In Kenya today, the stark reality of the current situation has hit home, mainly because of the nature and character of the post-election violence that rocked the country soon after declaration of disputed presidential results.

It is still amazing that over 80 per cent of the poor people in Kenya still live in rural areas, according to the Kenya Integrated Household Budget Survey, a government welfare mapping study launched last year.

In view of the post-election crisis, however, the issue of balancing regional development and fostering inclusive growth is perhaps one of the key challenges of economic and industrial policy. The economy cannot be properly balanced when eight in 10 poor Kenyans live in rural areas, or school enrolment in one area is a quarter of the rates in another. These are the part products of what I have elsewhere termed "urban-led recovery process".

In other words, a situation where access to basic social economic services varies a great deal, both among regions and even individuals. Granted, not all regions can be equal, as a good portion of regional, or even inter-personal, inequality is produced as a result of a region's endowment and natural conditions.

However, the role of public policy in general, and economic policy in particular, is to mediate and even out these nominal disparities in order to build what some authors have termed an inclusive society.

We can always fall back on experiences and research. It has been observed that regional inequity in societies that are more ethnically polarised can lead to tension and conflict.

We have seen a resemblance of this in the last few weeks. Also, it has been observed that poor societies that experience rapid growth (as Kenya did) are bound to produce some level of short-term inequality as a necessary consequence.

This is because in these cases growth emanates from a few leading sectors before it becomes broad-based and self-sustaining. Even some countries in the West have had to produce inequalities of one form or another in times of economic booms; the case of the Bill Clinton years in the United States being a good example.

But amidst all this, what options are open for a country like Kenya, especially seen in the context of trying to address the root causes of the post-election violence, and trying to operate within the limits of our economic and political realities? At the national level, the country must pursue growth that is high and sustainable.

But this is just part of the solution; the other part is actually the harder, as the experience of the last five years have shown that hitting seven per cent growth is not the preserve of Asian tigers.

Growth must be based on two primary pillars: the country's political process and deliberate social and industrial policy aimed at moving the entire country forward, if not equally, then equitably.

Ensuring a stable and acceptable political system on which production and exchange can take place freely and fairly has been a long experiment, and is certainly complex. Suffice it to say that while the last five years demonstrated that fairly sound economics can co-exist with fairly chaotic political processes, it gets to a point where both need each other. Kenya is at that point right now: a sound political settlement will determine Kenya's long-term growth path.

This broad point notwithstanding, there are policies that can be pursued at sector level that can be used to ameliorate human suffering and development. Firstly, the constituency development fund (CDF) experience shows that to a good measure, regions can be the unit of planning and proper use of tax payer money.

If taken to its full course, the future of CDF lies in seeing it as some sort of fiscal decentralisation mechanism that specific regions use to undertake projects that are unique to that region and too small for the central government.

However, all this depends on what political system and form of governance is in place. Secondly, experiences from CDF also speak to the point that most of Kenya's development challenges are actually not financial, but managerial. We have had numerous cases of regions or constituencies where resources were either squandered, returned to the national office, or never disbursed at all, because committees were not set up properly, because of corruption, or simply because of the lack of bank accounts! Money isn't always the answer to all economic problems.

But even before we discuss money, the question of access is key: access to social services like education and health. This is what gives an economy its basic foundation. Also key to the question of access is the whole issue of infrastructure, for this is the system that opens up a region to access either capital and labour that it lacks, or markets that it needs.

Last year's budget had a huge sum for infrastructure spending (over 100 billion shillings) earmarked for roads, telecommunications and railways. The country desperately needs this. The post-election crisis alone has shown how the economy is so vulnerable to outages in communication, whether in terms of telephony, roads, railway or ports. Building a balanced economy requires an integrated economy.

The whole issue of how regions are inter-linked and how the entire nation is wired together shall be central going forward. Needless to say, this will require colossal sums of money.

This, however, is just one part of the solution. Infrastructure and interconnectedness presupposes that there are people or regions that are willing to buy and sell so that infrastructure becomes a conduit across which this exchange is done. Infrastructural development therefore must be done in the context of the country's overall growth process.

This, however, can be a chicken and egg problem: some regions first need the roads, so that they can grow and prosper. Here, is where some form of State action or publicly funded projects must come in to open up hitherto closed regions.

In summary: the role of industrial and economic policy in mediating and evening out differences in regional endowments is essential for long-term growth. Because of the aftermath of the post-election crisis, regional issues must now take cognisance of the much poisoned and ethnically-charged environment in which exchanges are taking place. Kenya must now build a bipartisan national agreement toward the need for fundamental reforms, in both politics and policy.

This could just be the perfect moment to re-organize the way politics is conducted, and how the economy is organised so that we can build a more developed, equitable and all-inclusive society.

(*) Mr Gitau, an economist, works with the Society for International Development. He also sits on the General Assembly of ActionAid International, Kenya.

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