HURDLES

Kenya stifling service sector job creation - study

The unemployment rate has been on the rise in the country, doubling to 10.4 per cent last year as coronavirus pushed more people from jobs.

In Summary
  • At the aggregate level across all IWOSS, labor-output productivity is twice that of manufacturing and 1.7 times that of other non-IWOSS.
  • The services sector contributes to 43.2 per cent of Kenya's GDP and employs 38.7 per cent of the workforce. 

     

People in search of jobs.
UNEMPLOYMENT People in search of jobs.
Image: REUTERS

Kenya must ease regulatory measures on starting a business, cross-border trade and getting a construction permit if it wants to promote job creation.

In a report dubbed 'Unlocking constraints to industries without smokestacks to catalyse job creation for youth in Kenya', Brookings Institute says the constraints hamper the country’s competitiveness, attracting investments, and creation of more jobs.

According to the report, while Kenya was ranked third in Africa in the 2020 World Bank Doing Business Report on account of ease of getting credit and to some extent getting connected to electricity, much more needs to be done.

"These constraints hamper the country’s ability to improve its competitiveness, attract investments, and create more jobs and improvements, and will require deeper and broader reforms,'' the report says. 

It explains that Kenya faces significant labour-market challenges in the form of unemployment, time-related underemployment, and inactivity—all of which are more severe for the youth and women.

With clear reforms and shifted attention to non-manufacturing industries, Brookings believes that Kenya and other service economies can drastically cut the high unemployment rate worsened by Covid-19. 

These promising non manufacturing industries, termed “industries without smokestacks” (IWOSS), demonstrate key features of manufacturing such as high productivity, agglomeration, and job opportunities.

The IWOSS sectors are diverse, cutting across financial services, horticulture, information and communication technology (ICT), tourism, transit trade, and wholesale trade.

To examine the potential of IWOSS to create jobs, Kenya Institute for Public Policy Research and Analysis (KIPPRA) chose three IWOSS with strong sectoral growth performance, contribution to GDP, and strong export performance—horticulture, ICT, and tourism.

It found that all three sectors demonstrate above-average output growth and projected that they can be significant sources of wage employment for youth up to the year 2030.

At the aggregate level across all IWOSS, labor-output productivity is twice that of manufacturing and 1.7 times that of other non-IWOSS.

Except for construction, the industrial sectors performed below average with respect to output growth over the two decades up to 2018.

While advocating for the paradigm shift, the Brookings report indicates that despite Kenya’s long prioritisation of industrialisation as an avenue for mass employment creation and economic growth, the manufacturing sector's contribution to GDP has declined from 11.3 per cent in 2010 to 7.5   in 2019.

The formal sector wage employment contribution of manufacturing has also remained stagnant, averaging 13 per cent over the last two decades.

It adds that although manufacturing is one of President Uhuru Kenyatta's Big 4 Agenda alongside affordable housing, universal health care and food security, the country will brew more jobs if it focuses on its service sector. 

According to government data, the services sector contributes to 43.2 per cent of Kenya's GDP and employs 38.7 per cent of the workforce. 

The unemployment rate has been on the rise in the country, doubling to 10.4 per cent last year as coronavirus pushed more people from jobs.

According to the quarter two Labour Force Report by the Kenya National Bureau of Statistics, the level of unemployment rose sharply amongst young people aged 20 to 29 years as employers rushed to cut operational costs.

Between 2009 and 2019, the country’s population grew by an average of 2.2 percent annually, but the labour force expanded by an even higher rate of 3.1   per annum over the same period, rising from 15.8 million people to 20.7 million people.