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September 24, 2018

We Must Boost Productivity To Transform Our Economy

The country has spent the last decade or so putting in place the basics: infrastructure, finance, telecommunications and so on. Suffice to say, we are yet to start dealing with the real issues which would include plenty food for all, affordable housing for majority of the population and comprehensive health care.

Even so, there is one issue that should be addressed if the country is to hope for transformation, and that's productivity. What is each man producing towards the common wealth of this country and at what level?

This past week, the five BRICS countries – Brazil, Russia, India, China and South Africa – announced the formation of a development bank citing frustration with the slow pace of reforms at the Bretton Woods institutions.

BRICS are the so-called largest emerging economies. China has an economy of $9 trillion, Brazil at $2.2 trillion, Russia at $2 trillion and India at $1.8 trillion and they are also in the world's top 10 largest economies at numbers two, seven, eight and 10 respectively.

Theoretically, Nigeria, not South Africa, should be on that list. This is because after recently recalculating its GDP, Nigeria saw its economy swell 89 per cent to $500 billion, making it the largest in Africa. It is growing at seven per cent on average every year.

South Africa's economy, at $350 billion, is hardly growing. It however remains a long way ahead of Kenya’s.

With Nigeria-style rebasing of our economy planned for later this year, it is expected to shift in size from about $44 billion (Sh3.86 trillion) in 2013 to $50 billion (Sh4.39 trillion).

This takes me back to the issue of productivity.

Nigeria, with 170 million people, is four times bigger than Kenya and it produces oil. But how does that account for their economy being 10 times the size of Kenya’s?

The issue has to do with productivity levels in this country. What we are producing per person is not sufficient to compete with what people in other countries are producing.

This is an issue that confronted President Theodore Roosevelt of the US in the early 1900s. It was noted at the time that a lot of human resource was going to waste or being misapplied.

Such concerns led to the rise of management theories on how to better utilise human resource so that production could increase. An example is Frederick Taylor who suggested the scientific theory of management where each man would be trained to produce the highest grade of work possible.

In Kenya, it is not that people do not apply themselves, but that the output is too little per man by modern standards – not optimal.

People who walk from Kibera to Industrial Area daily, or those who report to construction sites, do back-breaking work. Often though, the amount they produce means they get a mere pittance for all the effort.

This issue has been tackled variously through mechanisation, technology and training. In some cases it is entrenched interests that prevent this adoption.

Take tea farming for example: tea growing companies have sought to introduce mechanised harvesting to increase productivity by the hour but trade unions have blocked the move.

This only stops the inevitable. Clearly, any expected growth from farming, Kenya’s largest economic sector, will require radical transformation and mostly mechanisation and application of technology.

The Galana irrigation scheme for example, where about one million acres of land will be irrigated, stands to be the government’s biggest project in the near term if it succeeds. Potentially, it will accelerate the nation’s farming output and possibly result in food sufficiency for once.

Even as we talk of industrialising by the year 2030, we should not forget that before the industrial revolution in the West, there was an Agrarian revolution that first of all increase in farm output dramatically. No nation can industrialise on an empty stomach.

Another sector to focus on is financial services. Nigeria has big banks, some of which are listed on the London Stock Exchange. This is as a result of former Governor Charles Soludo’s consolidation policy that forced the country’s numerous banks to merge and create big stable banks.

A similar initiative here in Kenya was a joke with capital requirements being set at Sh1 billion compared to the on average Sh13 billion minimum capital requirement per bank in Nigeria.

These banks are now traversing the continent using their heft to undertake big financial deals that many Kenyan banks cannot undertake. And they have to do it with less destructive competition in their backyards given they don’t have Kenya’s 43 banks fighting for the same market. That is not productivity.

Toyota Tshusho has announced an academy where it will train mechanics and operation of heavy earth movers etc. This is a good step. The government itself needs to step in and partner with such companies and offer large scale training targeting sectors where skilled labour is badly needed.

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