Background

Enhancing the competitiveness of Kenya’s economy is crucial in meeting the objectives of the economic recovery strategy. It is not possible for the private sector (which is earmarked as the engine of economic growth) to grow when the environment for doing business is not competitive. Competitiveness enables the private sector to fully exploit the external and internal opportunities for doing business. The government’s commitment to economic recovery as spelt out in the ERS is a good indication of its readiness to put in place policies and institutional structures that will enable Kenya gain a competitive advantage.

Competitiveness is about being able to compete technologically, offer competitive prices and have the capacity to meet market demand. It means that government policies must be geared towards enhancing productivity of the economy, reducing cost of doing business and supporting entrepreneurship, innovativeness and R&D. This will enhance business confidence, boost investment and revamp economic growth.

A favorable investment climate boosts competitiveness. For example, macroeconomic stability, strong institutional framework and adequate infrastructure serve to reduce costs and minimize boosting business confidence and easing market penetration. Therefore, the role of the government in enhancing competitiveness is very crucial as its policies and regulatory framework impact on the investment climate.

It is with this knowledge the the National Economic & Social Council (NESC) commissioned KIPPRA to undertake a research on Kenya’s Competitiveness in the region and how this can be promoted. The Paper was presented to the Full NESC council meeting held on 26th February 2005 The policy brief looked at competitiveness of Kenya’s economy vis-à-vis its competitors, and made recommendations to make Kenya a globally competitive economy.

(i) . The Report showed that Kenya has been losing global competitiveness to South Africa, Egypt and Mauritius by a wide margin, in a large number of areas. These include: quality of public institutions, technology, corruption, growth, macro-economic environment, manufacturing value added, business competitiveness, legal structure and property rights, access to funding, wage competitiveness, security and cost of doing business. View Presentation (PPT)

(ii) There was consensus that a good macro-economic environment is a necessary but not sufficient condition for economic recovery in Kenya. Issues raised in this paper were considered especially important. Some members saw the findings as a vindication of a more proactive role of the government in promoting growth. The danger of Kenya becoming low productivity high wage economy was attributed to poor technical training, and the mismatch of jobs with skills. There are no Industry links with Universities or Entrepreneurial Business Training Schools. Concerns over the big spread in Kenyan bank loans; other attributed this to structural factors in Kenya’s financial sector, notably high ratio of current accounts to total deposits, and scarcity of long-term financial credit. There are overdue reforms in the financial sector to bring in long-term instruments to meet that demand, and thus ease the pressure on short-term bank credit.

(iii) Recommendations from the Policy Brief

a) Strengthen management of monetary policy by putting in place a Monetary Policy Advisory Committee, in line with the Central Bank of Kenya (Amendment) Act 2004.

b) Complete the financial sector development strategy.

c) Implement the new strategy on technical skills training in consultation with the private sector. Revive village polytechnics.

d) Accelerate implementation of governance reforms, and especially the war against corruption.

e) Improve the security conditions in the country as a matter of priority.

f) Implement civil service reforms; reduce wage bill share of public spending.

g) Evaluate efficiency of the Investment Code in reduction of the period it takes to set-up business in Kenya; and lower the cost of doing business in Kenya.

h) Invest more in research and development especially in universities, and national research centers.

i) Government should approve and implement the strategy paper on promoting SMEs

j) Government should accelerate infrastructure rehabilitation and development.

k) Develop a framework on Private-Public Partnerships.