Dealing with unemployment – A sectoral approach

Introduction

A new year has started (Happy New Year!), and if it wasn’t clear before it certainly is now: President Ruto has taken over a Kenya beset by numerous economic woes. Our national debt stands at about KES 8.5 trillion. Recently it emerged that debt service will cost Kenya an eye-watering KES 1 trillion annually, and that in 4 years’ time it will cost us KES 2 trillion each year (the Kenya Revenue Authority collected KES 2.031 trillion in the 2022 financial year). Large parts of Kenya have been recently beset by drought and famine, so that over 4 million people are at risk of starvation. Ageing mothers in Tigania have been crushing ballast in quarries for four years, and we have seen people scramble for relief food in Kiambu, of all places. Prices of both fuel and electricity are at around the highest they’ve been for decades. All these are difficult problems, worthy of the unstinting attention of any self-respecting administration. However, it is this author’s view that the single most important economic problem facing Kenya today is none of these things. That unwanted title belongs to the problem of unemployment.

It is not this author’s wish to trivialise the foregoing problems. Our debt can and should be audited, renegotiated and/or restructured. Radically, a managed default can be arranged, à la Ecuador. Drought, usually, is a cyclical issue: in the interim relief food should be availed to those who are starving; longer-term, tree-planting and other climate management actions should be taken to mitigate the effects of climate change. High electricity and fuel prices are at least partly as a result of Russia’s special military operation in Ukraine and hence are not unique – if we were a globally competitive economy, we would remain globally competitive in the face of global shocks despite contraction in global demand. Ministries and agencies exist for dealing with these matters. The Public Debt Management Office, headed by a Director-General, exists to manage our public debt. There exists a National Drought Management Authority. However, even though our unemployment is a structural problem, not a cyclical one, there is – by way of comparison – no Ministry for Employment. Such a ministry is not necessarily required, but it does show that despite the significance of our unemployment problem it too often does not receive the attention it so desperately and so urgently deserves.

The enormity and characteristics of the unemployment problem in Kenya

In November 2022, the Business Daily reported that only 9% of Kenyans have permanent, full time jobs. Per our own census in 2019, our youth unemployment rate is a staggering 38%. A further exploration of the youth-related aspects of the problem would not be amiss: according to the most recent national census, carried out in 2019, our median age is 19.2 years. Indeed, about 80% of our population is under 35 years of age. This means that – on top of those 35 and under who are of a working age and do not have steady employment, about 25 million people are aged 19 years and below and will each be needing jobs at a rate of at least a million jobs per year. Mass unemployment among our youth is a ticking time-bomb and constitutes the genesis of numerous social ills, including crime and substance abuse. Nor is this all.

It is also the case that the unemployed are in a pyramid; in absolute terms there are more unemployed semi-skilled and unskilled workers than there are unemployed tertiary- and university-educated workers. Several indicators corroborate this. One is the proliferation of boda-boda riders; a C&G report claimed that there are 1.2 million of them in Kenya.  A second is the masses of our young girls making their way to Saudi Arabia for employment as house-helps. To see these young girls marching single file behind a buibui-clad agent at Jomo Kenyatta International Airport on their way out of the country is to know and feel viscerally that our country is failing its young people. Some of our girls are marching quite literally to their deaths; at least 89 Kenyans, most of whom were domestic workers, died in Saudi Arabia between 2020 and 2021. A third data point is the amount of private debt in the country; Fuliza alone lent KES 288B in the first six months of 2022. This is not to say, however, that the skilled have jobs: such is the extent of our unemployment pandemic that we are now hearing of graduate touts. The broader point, however, is that semi-skilled and unskilled comprise the bulk of our unemployed.

The phases of economic development

Economic development can be considered as being two-phased. In the first phase of development, all of a nation’s factors of production – land, labour, and capital – are put to work. (Note: it is important to include in the definition of “land” the entirety of a nation’s natural resources.) The second phase consists of increasing the productivity of the factors of production that are already in use – typically by producing higher-value goods and services. Now, it is not necessary that this two-phased approach be followed to the letter. Countries can shorten the transition to the second phase by directing significant domestic resources (government as well as private-sector lending) and foreign resources (foreign direct investment) in the direction of manufacturing and other economic activity. However, it is important to keep this broad view of a two-phased approach in mind as we move along. It is also worth mentioning that this two-phased approach is the approach that nations such as Japan, Taiwan and to a lesser extent Korea used – beginning first with labour-intensive agriculture before transitioning into more value-added production.

As regards putting our land to work, this author has written elsewhere regarding land redistribution and the taxation of land resources to ensure that our land is put to optimum use. In dealing with the problem of unemployment, we are bringing our labour into use; our unemployment can (rather callously) be construed as an excess of labour.

How not to deal with unemployment

The first notion we must discard is that government should play the role of employer. It is certainly not the government’s role to end unemployment by employing people itself. In the first place, this is a fiscal impossibility. Kenya’s Tax:GDP ratio in 2020 was 15.3%; it should be clear that government cannot employ everyone on less than 15% of the national output (especially given all the other things that our taxes must do).

A second notion we should discard is that we should upskill more of our people, so that they can find jobs. Such policies have been espoused even by such eminent persons as US Senator Bernie Sanders, a candidate for the Democratic Presidential nomination in 2016 and 2020. Now a good number of Mr Sanders’ policy approaches make a lot of sense. However – in this author’s humble opinion – upskilling everyone is not one of them, at least as a solution to reducing unemployment. Upskilling more of our people would merely invert the pyramid, so that more skilled people are unemployed. In other words, the problem is not a supply problem; it’s a demand problem. (We should educate our people, because they should have a good education.)

Government’s role therefore, is not to employ the unemployed, nor is it to educate them merely as a means to solving the unemployment problem. Government’s role is to create as enabling an environment as possible to enable

a) small and medium-sized enterprises, and

b) foreign firms

to hire our people. SMEs are a major engine of employment (e.g. in Germany). What we must do is set our people to work producing as quickly as possible. Nature itself does not allow us to consume before we produce: we sow in order to reap. We plant in order to harvest. And we must work – now, productively – in order to eat.

Dealing with unemployment – a sectoral approach

Since the bulk of our unemployed are semi- / unskilled, the policies to be enacted should be able to absorb the productive capacities of more semi-skilled and unskilled citizens. Subsequently, as the composition of those who are unemployed changes (with increased education, for example) the targeted industries can change.

To this end, I think the government can target two main industry areas.

The first is labour-intensive agriculture. Somewhat counter-intuitively, it has been shown labour-intensive agriculture produces more output per unit of land than mechanised agriculture. If one wants more production, labour-intensive production is the way to go; if one merely wants more profits, then mechanised agriculture makes sense. Labour-intensive agriculture was the source of the economic take-offs of Japan and Taiwan, for example. The production of milk and vegetables for export, etc would be a good place to start. How can government enable this kind of agriculture? As earlier stated, land reform would be a very good (but very difficult) place to start. More do-able would be credible groundwater collection and other irrigation schemes across the country (the excellent work of Bishop Titus Masika should be the reference point here). The development of the right export markets is another crucial area for government to be involved in. This author once witnessed Ecuadorian bananas being eaten in Iraq and wondered why it was not Kenyan bananas being eaten there.

The second industry area is tourism. To begin with, we are deeply blessed as a nation with the natural resources to make tourism a success, and it is a competitive advantage we have over other nations. We have mountains, rivers (whitewater rafting, bungee jumping), lakes, beaches (it would help if fewer of these were private), oceans, deserts (see what Dubai has done with its deserts), historical / palaeontological sites, and wildlife. The variety of safaris Kenya has to offer is practically without peer. The reason tourism should be a targeted sector is that it has a serious multiplier effect on the labour required, particularly in the skilled to semi-skilled range. A highly active tourism sector would require drivers for airport transfers, more drivers for ground transfers and wildlife safaris, waitresses and waiters, chefs, laundrymen and laundrywomen, electricians, plumbers, tour guides, farmers to supply the food being eaten in the hotels and so on and so forth. It is a great pity that Egypt, with the pyramids, the Nile and a coastline, received 13 million tourists in 2019 – pre-pandemic, but after the Arab Spring. South Africa received 14.7 million tourists the same year, while Kenya received a paltry 2 million tourists.

How may tourism be supported? The government can support tourism by building the right infrastructure in the right places (such as roads to and within the parks), adopting and maintaining a neutral foreign policy stance, cultivating high-end tourist markets (including using well-targeted marketing campaigns – for some reason the !ncredible !ndia campaign comes to mind), among other interventions.

The reader may note that the author has not advocated a manufacturing-based approach. The reason for this is that at Kenya’s present stage, we need to be looking at which sectors create the most amount of jobs, for the semiskilled and the unskilled, in the shortest amount of time, and for the least amount of investment. There are several reasons for this. First, our fiscal position is terrible. In addition, upskilling will take time. The manufacturing sector’s jobs-per-shilling-of-investment rate is much lower than that of the agricultural sector. It is also likely to be lower than that of the tourism sector (because of the ancillary jobs tourism generates). Manufacturing will grow organically almost as soon as production begins to increase – out of the need to mechanise production, out of the need to add value to agricultural output, out of the need for vertical integration, etc. Further, the existing manufacturing sector can and should be supported in the immediate term. However, it too would benefit from having more people with disposable wealth.

Conclusion

The days when our forebears could land decent jobs fresh out of high school, and when employers were queueing up for university graduates, have long since receded into a dusty and distant past. The dismal present reality is that it is decades since the Kenyan worker was sought-after. We can – eventually – bring those days back again. It is this author’s opinion that for immediate impact, we should start by supporting agriculture and tourism, and take it from there.