Poverty a big hurdle in achieving Vision 2030

Reducing poverty will be the greatest challenge for the government as it pursues Vision 2030, economists warn.

According to official figures, 46 per cent of Kenyans are classified as poor, meaning they live on less than a dollar (Sh77.30) a day.

Vision 2030 is the country’s development blueprint that covers the 2008-2030 period and is aimed at transforming Kenya into a newly industrialising “middle-income country providing a high quality life to all its citizens by the year 2030”.

Any long-term government plan must address income inequality, which is the result of accumulated years of living in poverty.

“The challenge now is how to address income inequality,” a leading investment banker said.

Better income

One of the causes of this inequality is lack of education.

“The reason someone is poor today perhaps is because he never had access to basic and advanced education that would have enabled him gain skills that would have helped him get a job with a better income,” the banker said.

Poverty reduction and reduced income disparities could be achieved by cutting inequality in access to public services and income opportunities across gender, social status and regions.

Vision 2030’s specific goal should be to reduce the national rate of poverty from the current 46 per cent to a range of between 30 and 35 per cent by 2012.

In pursuing the objectives laid out in this blueprint, the government will have to surmount various macroeconomic challenges.

Simple role

The first involves ensuring financial stability. “Make sure inflation is as low as possible so that households will not find it difficult to survive,” said a local stockbroker.

“The income a breadwinner brings home should be enough to afford meals, buy clothes and anything they require.”

Interest rates should also remain low because credit is a fundamental component of an economy.

“Low interest rates mean affordable credit so that when a household needs something, it will access it much easier because inflation is not eating into their income, and secondly, they have access to cheap and affordable credit,” the stockbroker said.

Exchange rate

A stable exchange rate would also be advantageous because Kenya has a lot of goods coming from outside, including oil. With a stable exchange rate, the cost of imports would be constant.

Several economists say that to a certain extent, the government has managed to keep interest rates fairly low.

Short-term interest rates are in the range of 7 per cent for 91-day Treasury bills and 8 per cent for 182-day Treasury bills.

Overall inflation

Inflation is measured in two ways: overall, which includes all components of consumer goods and services, and underlying, which excludes food and energy (fuel and electricity).

Underlying inflation excludes these two for one reason. Food and energy are thought to be outside the control of monetary authority, in this case the Central Bank because its mandate is to ensure low inflation, or what they call technically, price stability.

“If you look at underlying inflation, it has been below 10 per cent,” the stockbroker said. “And although CBK targets 5 per cent or less, it now stands at 8 per cent, which is not very high.”

For this reason, Vision 2030 places the highest premium on a stable macroeconomic environment and expects it to continue in the future as a matter of policy.

This is the only way in which confidence among investors and ordinary Kenyans can be maintained. A stable economic environment also works in favour of the poor who stand to lose the most in periods when high inflation eats into their purchasing power.

Major challenge

Whereas Kenya was able to scale up economic growth to 6.1 per cent per annum in 2006, it is recognised that further scaling up to 10 per cent per annum will be a major challenge.

Only a small number of countries, other than those endowed with substantial natural resources, have been able to scale up growth to 10 per cent and to sustain it for a long period.