How the UK Can Support Kenya’s Economic Take-Off

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LONDON, 15 September 2015 / PRN Africa /
Remarks by Mark Lowcock, Permanent Secretary, Department for International Development (DFID)

Distinguished guests, thank you for the opportunity to talk here today.

It’s great to see so many old friends and DFID partners. I have been coming to Kenya for more than 30 years, lived here in Nairobi in the late 90s up to 2001 and have been a regular visitor ever since.

The nicest job I’ve ever had I was as the Head of the DFID office for East Africa, here in Nairobi. My wife and I had our family here – our children could all wear “Made in Africa” labels, because they had their formative years here. I’ve travelled to more than 80 countries in a career in development, but there is none for which I have greater fondness than Kenya.

I am very grateful to TMEA for hosting us tonight. We are very proud of the parenting role we have played for TMEA. We have helped raise a US$ 700m fund for TMEA, about 80% from DFID. It will help increase access to markets for Kenya’s businesses, increase trade and reduce transport costs and time. TMEA’s support for the modernisation of the ports, including Mombasa, and one-stop border posts including at Taveta, Busia, Malaba and elsewhere in East Africa is helping transform trade.

We have already seen a halving – to 6 days – in the time it takes to move goods from Mombasa to Kampala. And a container now moves through the Port of Mombasa in less than 4 days, rather than the 15 or even 24 days it took three years ago. By the end of next year, the programme will have helped increase Kenya’s exports by at least 10%, which is worth $800 million a year.

So TMEA is doing a great job – and there’s a lot more to do.

And these are the themes of my remarks tonight – how far Africa, and Kenya, can and should go, and the underpinning contribution of the UK’s development assistance to that ‘Africa rising’ story. As President Kenyatta has said, “Today Kenya stands on the cusp of great prosperity”. So my question is how can Britain, through our development programme, help achieve that.

Let me warn you though before you get too comfortable in your seats, that I will be asking for your help tonight. I want to hear what you think about the prospects for Kenya, and where you think the UK is best placed to support.

The new Government which took office in the UK in May has reconfirmed Britain’s commitment to development. We will spend 0.7% of our national income on official development assistance every year. That currently amounts to 12 billion pounds a year: $18 billion.

Britain is growing and our economic prospects are good. So the development budget will grow significantly over the next 5 years.

So get your remarks and comments ready. This is an opportunity to influence policy.

Taking risks – our shared history
I think that one of the things so uniquely indicative of a past and future Kenya is probably what most people in this room are holding in their hand or which is in their pocket or handbag. It’s also one which DFID is proud to be associated with. And in many ways it signifies the kind of support we want to provide going forward. Can you guess what it is?

Let me give you a few clues. About 15 years ago a company came to us with an innovative idea which they claimed would help many poor Kenyans. However its business model just wouldn’t be viable without subsidy they told us. We were convinced. We took a risk because we could see the potential, and contributed 125 million Shillings. The company did the same. The company was Vodafone, and the idea was MPesa. And the rest…. as they say…. is history.

Fast forward to today. MPesa has enabled so many Kenyans to be included in the financial services revolution. Today more than three quarters of Kenyans – including in the most remote and disadvantaged regions – have direct access to financial services. And this has become a global revolution. DFID supports a similar transformation in many countries across Africa and South Asia. And we even have an Mpesa like product, PingIt, licensed in the UK now!

For me, MPesa was a perfect alignment of four elements. An innovative idea. A supportive regulatory context. The Government and the Central Bank of Kenya deserve a lot more credit for MPesa than they sometimes get. DFID financed technical assistance helped put in place the legal and regulatory framework, and we were deeply impressed by the creative and far sighted approach the Central Bank took. Third, the energy, drive and creativity of Kenyans. And fourth, I am proud of the smart aid we provided.

We have found many more similar sweet spots for smart use of aid since. But none with such impact as the faithful friend in your pocket.

Looking back
I am a super-optimist for development, especially in this region. But I think I am a rational optimist. (I think I’m right, in other words). Let me just explain why.

The human species has existed for around 150,000 years. For almost all of that period – more than 99.9% of it – the defining life experiences for the great majority of the species across the globe as a whole have been quite unattractive: hunger, disease, violence and insecurity.

And then, all of a sudden, like a flash of light and warmth across the dark abyss, the standard life experience in the last 50 years – and especially the last 25 years – has been spectacularly transformed. Now it is not the case that most people are hungry, ill and insecure most of the time. Now that is the exception – albeit one that still afflicts far too many people, including here in Kenya. Most people live longer, eat more, see their children survive infancy, and get an education. This year will probably see the moment when most adults on the planet can use a smart phone, bringing within their reach more information than was available in any library in the world 20 years ago.

No-one forecast this amazing story 25 years ago. The tumultuous years from 1989-91 saw the end of the cold war, the collapse of communism and the dissolution of the Soviet empire, as well as the first Gulf war, another oil shock, and the onset of famine in Somalia with failed US and UN interventions to tackle it. The pundits warning of dangers and risks ahead seemed to get a lot more air time than those seeing opportunities. This was early in my working career in development, and my recollection of the period is that we all seemed to be oppressed by problems ahead rather than seized of the opportunity that, with hindsight, was opening up.

Kenya is sharing in this global progress.

Kenya’s growth, now over 5%, has over the past five years beaten the average for sub-Saharan Africa. Bloomberg recently ranked Kenya as the third fastest growing economy in the developing world. And the Barclays Africa Trade Index, which came out a fortnight ago, ranked Kenya third in Africa and declared it the regional powerhouse and the gateway to East Africa and beyond.

Foreign Direct Investment (FDI) flows to Africa are growing, reaching over $40 billion in 2011. Diaspora investment in business opportunities has also increased. Kenya’s FDI announcements in 2013 were $3.6 billion, according to fDi.

And there is growing optimism that the benefits of this growth can filter down to Africans at all levels. Already we can see that more children are in education, maternal mortality rates are down and fewer people are dying of malaria and AIDS. The overall message is Africa is on the move and Kenya is on the move too.

Looking forward
So the Kenya of 2020 can be quite different to today. The Government here has made ambitious commitments. By 2020, there will be access to electricity for all Kenyans. The Standard Gauge Railway. The wind farm in Marsabit. Konza City, Kenya’s equivalent to Silicone Valley. The pipeline to transport oil down to a port in Lamu. Indeed the oil will be close to production in Turkana. And Kenya will continue with its love affair of mobile technology, with all the benefits which that brings.

Of course, as you all know better than me, there are a myriad of barriers to achieving all this. Corruption, tribal based politics, bureaucracy, growing security worries, significant youth unemployment and disillusionment. These are all standing in the way of the vision.

But given the progress made globally over the last 25 years, against expectations as I have said, optimism is more in order than pessimism.

That’s why increasingly the UK’s development assistance is focused on driving sustainable, inclusive economic growth, alongside our work with the government on basic services.

Smart, forward-thinking businesses are already looking at Africa and seeing the major markets and sources of supply of the future.

But ….

I don’t need to tell this audience that driving growth and jobs in Africa also depends on a favourable business climate, trade and logistics, and hub locations that business can actually operate from.

The proposition
How can we help? The UK is already one of the key bilateral donors to Kenya. Taking everything together, British taxpayers are providing more 250 million pounds – $400 million – a year in aid to Kenya. The local programme, managed by Lisa, Adrian and their colleagues here in Nairobi has doubled since 2010 to 140m pounds – over $200m – this year.

We will continue to support – as we have for decades – progress on health, education, social protection and other basic social services. But we want to do more to help with jobs, growth and growing the private sector.

We do a lot already.

We are supporting a Kenyan company – MKOPA – which uses mobile phones and very small solar panels to increase rural access to electricity. Their pay-as-you-go model means that poorer families can afford modern solar technology to charge a phone, and light their homes. Cheaper and without the health and other problems of kerosene or other fossil fuels. Nearly 250,000 households are already benefiting after two years.

And our investment business, CDC, for which we have just announced new capital of 735 million pounds, and which already invests in more than 100 business in Kenya will do more. As with Brookside Dairy which – with CDC/DFID support – has new production processing capacity and a supply chain of over 130,000 smallholders – and is now partnered by Danone in an effort to go Africa wide.

So, now to my proposition. How we see DFID – UKAid – getting behind Kenyan growth so that it is inclusive: * firstly, we are, and want to continue to, help to improve the business environment * second, we want to give businesses of all sizes an economic boost and share the risks of investment * we want to invest in skills and training to improve the strength of local workforces. * we are, and want to continue to, support devolution and better governance, without which none of this would work. * And we are supporting poor people in the arid and semi-arid lands to graduate from extreme poverty and get the services they need. We want to increasingly help the Government to take responsibility for service delivery there.

Ultimately we want Kenya to put us out of a job as a development partner. Not yet. But ultimately that must be the closing chapter in this story in which ‘everyone lives happily ever after’.

Let me describe some of our proposition in more detail. I will major on the ‘economic development, private sector, and jobs’ elements, simply because I know that will be of most interest to this audience.

Business enabling environment
We have reduced the time it takes to register businesses and improve tax systems, and some of this has now been reflected in the World Economic Forum’s Global Competitiveness index – which shows a marked improvement for Kenya. We want to continue to drive down and drive out all of these inefficiencies in the system.

We want to provide support for extractives so that it is well planned, transparent, and benefits communities.

And we see a strong case to support the economic development of secondary cities in Kenya – I’m sure none of us want to sit in Nairobi-style traffic jams. Urbanisation needs to be planned, growth oriented, and climate smart. We want to help.

One of the deepest and most difficult barriers to overcome for businesses operating in developing markets is the lack of access to finance. We are proud of the work we did a decade ago with Equity Bank, helping them on their journey to become one of the world’s genuinely great institutions offering bottom of the pyramid customers financial services.

And more recently, our support for the Financial Sector Deepening Trust has helped CBA develop MShwari. To date MShawari has lent 24 billion shillings in small business loans, and has turned CBA into the biggest bank in East Africa by loan volumes, almost overnight.

Ensuring quality jobs, equality and livelihoods
The final area of economic development I want to mention today is our work investing in skills and training.

If we want to drive sustainable growth across Africa and in Kenya then it is essential that this growth benefits everyone. 10 million young Africans are entering the job market each year. 800,000 of them in Kenya.

They need employable skills if they are to succeed, and that starts with early education. That’s why our development finance institution, CDC, is supporting Bridge International Academies which is delivering affordable, quality primary and pre-primary education for children from low-income families in Kenya.

Founded in 2008, Bridge has over 400 schools with 90,000 students in Kenya and directly employs more than 3,000 people. CDC’s investment is supporting the company to expand from its Kenya HQ to more countries in Africa, and to create almost 10,000 new jobs.

Not only that but our youth work – the Kuza programme – which I’m looking forward to seeing in Mombasa tomorrow is showing promise of new jobs and better skills. We want to scale that up.

And we are also partnering with major food and clothing retailers to improve working conditions and job opportunities for poor workers and smallholder farmers, as well as supporting the long-term resilience of global supply chains.

It’s smart for businesses expanding within or into Kenya to lead by example when it comes to workers’ wellbeing, corporate governance and local jobs. And with Fairtrade and other global alliances we are contributing to that.

It is these businesses that will build successful long-term partnerships in growing markets and not those that are thinking only of short-term gains.

But finally, Kenya needs to make better use of its women and girls. They are a hugely undervalued and under used resource for economic development. When Kenyan girls under go FGM, marry as children, drop out of school, and take on their family responsibilities at such a young age, their potential is wasted. We need to unlock that not only because it’s the right thing to do. It’s the smart thing to do.

Ambition
We consider that our main job now that Kenya is an MIC is to bolster its economic growth, move on from our basic services and social payments support, and work to a common vision where responsibility passes to a new generation of Kenyans by 2020.

And we need to have the multilaterals – like the IFC, World Bank, and African Development Bank – take on a bigger share of the effort moving Kenya from a low MIC to a middle and upper tier MIC. Particularly in areas that have quite robust local economies and with policy makers at the centre of Government. We’d like your thoughts on this and on the areas of support we have outlined.

Conclusion
If the current momentum continues, more than half of sub-Saharan African countries will be middle income by 2025.

Kenya has already squeezed into this group, reached just this year. The challenge is to keep that momentum going and I believe everyone here has something to contribute, whether it’s commercial sense, local knowledge, a bright business idea or investment in Kenya.

As I’ve set out today, DFID is keen to have ever closer engagement.

Many thanks for listening.

SOURCE UK Department for International Development

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