Expect no change in the quality of life, analysts say ahead of rebasing

Children wait for food at a slum in Nyeri. Economists say that the living standards of Kenyans including poverty levels and life expectancy indices will remain unchanged after the rebasing of the GDP on September 30, 2014. PHOTO | FILE |

What you need to know:

  • Kenya to become a middle income economy on Tuesday
  • Senior government officials will release new figures showing that Kenya’s economy is bigger than earlier estimated by one fifth.
  • Using the same calculations, it means that the size of Kenya’s economy was Sh4.5 trillion ($50 billion) in 2013 and not Sh3.9 trillion ($44.1 billion).
  • Mr Kwame Owino, the chief executive officer of the Institute of Economic Affairs, clarifies that rebasing is not an expansion of the economy.

At an event to be held in Nairobi on Tuesday, Kenya will officially join the middle income status.

On that day, senior government officials will release new figures showing that Kenya’s economy is bigger than earlier estimated by one fifth.

But economic experts say the money in your pocket will not increase by the projected 20 per cent.

Poverty levels will remain at 45.9 per cent, as estimated by the World Bank, and life expectancy will remain at 61 years.

That’s not all. Kenyans will continue battling huge traffic jams, high levels of insecurity, corruption as well as a weakening shilling, among other issues.

What is more, after Tuesday, one in every three Kenyan households will still have someone who sometimes “goes to sleep hungry” because they cannot afford a meal (as reported by an Ipsos Synovate poll a fortnight ago).

The rebase will, however, put Kenya’s Gross Domestic Product (GDP) for 2009 at about Sh3.3 trillion ($37 billion) rather than the previous estimate of Sh2.8 trillion ($31 billion).

Using the same calculations, it means that the size of Kenya’s economy was Sh4.5 trillion ($50 billion) in 2013 and not Sh3.9 trillion ($44.1 billion).

The prospectus for the Eurobond said: “The Kenya National Bureau of Statistics’ initial estimates for the revised GDP estimate for 2009 is 486.6bn shillings ($5.54bn), higher than previous estimates. (A 20.6 per cent increase from the GDP previously reported.”

Financial expert Steve Biko Wafula says Kenya is a middle income country but with a poor population.

“We have attained growth in terms of consumption but not production or development. Our economy is based on 90 per cent consumption and 10 per cent production, which is unhealthy,” Mr Wafula, the chief analyst and legal researcher at Hidalgo Investment Group, says.

On Saturday, Vision 2030 acting director-general Prof Gituro Wainaina exuded confidence that, with time, there will be positive change in the standards of living, notably in education and health care, more jobs, better agriculture, providing affordable food prices, improved manufacturing and more diversified exports.

“We are encouraged that Vision 2030 has managed to create the fundamentals necessary to stabilise the economy for a middle income state in a structured way,” he said.

Mr Kwame Owino, the chief executive officer of the Institute of Economic Affairs, clarifies that rebasing is not an expansion of the economy.

“Kenya will change the methodology of calculating the GDP by capturing parts of the economy that existed but were not incorporated,” he explained.

Jackie Mueni, a waitress, says she has been excited by news of the rebase, but added; “I have no clue what it means so I’m waiting to see how it’ll affect my life.”

But Mr Owino has bad news for Ms Mueni and other Kenyans expecting an instant turnaround.

“We are basically sharpening ways of calculating the economy and the fact that it will be 20 per cent larger doesn’t mean your money will increase by 20 per cent,” said Mr Owino.

Mr Wafula said the move is simply aimed at capturing new means of income that have always been left out. “Things like mobile money transfer, equity deals, real estate and discovery of resources like oil and their effect on the economy have largely been left out.”

BIGGER ECONOMY, NO CHANGES

For economist X.N. Iraki, the rebase simply means a bigger economy with no changes.

“It is like disclosing you have money under your mattress. That does not make you richer,” says Mr Iraki, a lecturer at the University of Nairobi.

Mr Iraki expects sectors such as finance, telecommunication, transport, horticulture, education and oil exploration to be formally roped into the calculating of the country’s wealth.

This year, Nigeria became Africa’s largest economy after a similar exercise showed its GDP was 89 per cent larger than previously thought. The size of Guinea-Bissau’s economy “doubled” after a rebase while Ghana increased the size of its GDP by 60 per cent in 2010.

For Kenya, the event on Tuesday will be a culmination of a process that was initiated by the National Accounts Statistics in 2010 and supported by the International Monetary Fund.

Kenya has not rebased its economy since 2001 to factor in some of the new sectors that have been contributing to economic growth.

Even then, the base year will change from 2001 to 2009 and not 2014, according to a dispatch from the Kenya National Bureau of Statistics on Thursday.

MIDDLE INCOME CATEGORY

This will elevate the country into the middle income category for the first time.

However, Kenya will not have attained the Vision 2030, contrary to popular belief. The new calculations will increase the country’s per capita income to Sh105,975 ($1,190), up from the current Sh87,936 ($988).

According to the World Bank classification, on Tuesday Kenya will move from the low income category (countries with a per capita income of Sh92,115  – $1,035 or less) to the lower middle income with a per capita income of between Sh92,204 ($1,036) and Sh363,565 ($4,085).

And therein lies the catch. Kenya’s Vision 2030 seeks to maintain a sustained annual economic growth of at least 12 per cent starting 2012, which would enable the country achieve a per capita income of not less than Sh363,654 ($4,086).

Prof Wainaina agrees that a lot remains to be done. “This leaves us with the challenge of tripling our income per head by a further $3,000 (Sh258,000) in the next 16 years, which is not an unrealistic target,” he said.