December 2021 | Edition No. 24 COVID-19 Pandemic Economic Economic COVID-19 Pandemic Recovery Recovery Job creation Job creation MSMEs MSMEs GDP GDP Growth Growth Services Sector Services Sector Better Jobs Better Jobs Higher-Skilled Higher-Skilled Workers Workers Entrepreneurial Entrepreneurial Ecosystem Ecosystem From Recovery to Better Jobs Policy Options during the COVID-19 Pandemic From Recovery to Better Jobs © 2021. World Bank Group This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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TABLE OF CONTENTS ABBREVIATIONS............................................................................................................................................................................................................................................................... i ACKNOWLEDGEMENTS.............................................................................................................................................................................................................................................. ii EXECUTIVE SUMMARY................................................................................................................................................................................................................................................ v THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments.................................................................................................................................................................................. 2 1.1. Unequal vaccine access is leading to a divergent global economic recovery, with a weak and fragile recovery underway in the region due to slow progress in vaccination ................................................................................................................................................................. 2 1.2. Kenya’s economy has continued to recover ............................................................................................................................................................................... 3 1.3. Strong external demand also supported Kenya’s recovery in 2021.............................................................................................................................. 6 1.4. Poverty has declined as people have returned to work, but children’s education was severely set back, and households remain vulnerable ....................................................................................................................................................................................................................................... 8 1.5. Monetary policy remains accommodative to support the ongoing recovery amid a recent supply-driven rise in inflation .. 9 1.6. Government continues to support the economic recovery and management of the pandemic........................................................... 10 2 Outlook and Risks................................................................................................................................................................................................................ 12 2.1. Kenya’s economic recovery is expected to continue............................................................................................................................................................. 12 2.2. Downside risks to the anticipated recovery remain elevated.......................................................................................................................................... 16 SPECIAL FOCUS 3. Creating more and better jobs through service sector-led economic transformation.............................................................................. 18 3.1. Kenya faces a key challenge to accelerate job creation....................................................................................................................................................... 18 3.2. A majority of firms in Kenya are small, are based in Nairobi, and are in the services sector.......................................................................... 19 3.3. Job creation has been strongest in the services sector ...................................................................................................................................................... 22 3.4. Kenya has seen growth in employment and in exports in the global innovator services sub-sectors.................................................. 23 3.5. COVID-19 impacts: a huge hit to firms and jobs, including in services...................................................................................................................... 25 3.6. To recover fully from the pandemic, bolster job creation and scale-up among firms, the entrepreneurial ecosystem needs to be strengthened....................................................................................................................................................................................................................... 27 3.7. Accelerating private sector job creation for a resilient recovery..................................................................................................................................... 30 REFERENCES ....................................................................................................................................................................................................................................................................... 33 ANNEX TABLES.................................................................................................................................................................................................................................................................. 35 LIST OF TABLES Table 1: Services sectors’ contributions to real GDP growth ........................................................................................................................................................ 4 Table 2: Changes in macroeconomic indicators when scaled by rebased GDP............................................................................................................... 6 Table 3: Balance of payments .......................................................................................................................................................................................................................... 7 Table 4: The banking system is sound, with credit quality being the main constraint................................................................................................. 10 Table 5: Fiscal operations..................................................................................................................................................................................................................................... 12 Table 6: Baseline economic outlook............................................................................................................................................................................................................. 13 Table 7: Trade firms are dominant among micro and small firms, with medium-sized firms being more diverse across sub sectors 22 LIST OF FIGURES Figure 1: There is a stark global vaccination divide….................................................................................................................................................................................2 Figure 2: …contributing to Sub-Saharan Africa facing a slower recovery.....................................................................................................................................2 Figure 3: Kenya has experienced four distinct COVID-19 waves since the onset of the pandemic...............................................................................3 Figure 4: Output recovered fully in 2021.............................................................................................................................................................................................................4 Figure 5: Services led the recovery in 2021.......................................................................................................................................................................................................4 Figure 6: Business activity has showed sequential, albeit modest, expansion since May 2021.................................................................................... 5 Figure 7: Tourist arrivals to Kenya are recovering but remain well below pre-COVID levels........................................................................................... 5 Figure 8: Annual change in real GDP ................................................................................................................................................................................................................. 6 Figure 9: Change in share of nominal GDP (2019) in the revised estimates.............................................................................................................................. 6 Figure 10: Merchandise exports and imports have rebounded ......................................................................................................................................................... 7 Figure 11: The current account deficit was financed largely through borrowing.................................................................................................................... 7 Figure 12: COVID-19 impact on national poverty......................................................................................................................................................................................... 8 Figure 13: COVID-19 impact on rural/urban poverty.................................................................................................................................................................................. 8 Figure 14: Headline inflation has risen during the course of 2021 but remains within the CBK band…................................................................... 9 Figure 15: …and core inflation has remained moderate ........................................................................................................................................................................ 9 Figure 16: Private sector credit growth remains modest.......................................................................................................................................................................... 10 Figure 17: Revenue collection increased in the first quarter of FY2021/22................................................................................................................................... 11 Figure 18: Kenya’s debt burden has increased................................................................................................................................................................................................ 11 Figure 19: Kenya’s growth rate is projected to recover, but uncertainties remain elevated .............................................................................................. 15 Figure 20: The baseline assumes medium term fiscal consolidation................................................................................................................................................ 15 Figure 21: Small firms dominate the formal sector… ................................................................................................................................................................................ 19 Figure 22: …with 71 percent of formal firms in Kenya having less than 10 employees....................................................................................................... 19 Figure 23: Micro firms dominate MSMEs, but employ only a third of workers…...................................................................................................................... 20 Figure 24: …except in the agriculture and “other services” sectors................................................................................................................................................... 20 Figure 25: Most firms are in the services sectors............................................................................................................................................................................................ 20 Figure 26: Over half of MSMEs have been operating for 5 years or less.......................................................................................................................................... 22 Figure 27: Firm creation is high in Kenya for its income level................................................................................................................................................................ 22 Figure 28: The number of formal firms has grown predominately in the services sectors…........................................................................................... 23 Figure 29: …as have jobs ............................................................................................................................................................................................................................................ 23 Figure 30: The service sector consists of different sub-sectors with different skill requirements and potential for international trade ............ 24 Figure 31: Employment has grown in the high-skilled services sub-sectors between 2016 and 2019…................................................................. 24 Figure 32: …although low-skilled services sub-sectors still dominate employment in 2019 ......................................................................................... 24 Figure 33: Service sector employment is still dominated by the low-skilled domestic sub-sector…......................................................................... 25 Figure 34: …although in Kenya global innovator services have an increasing share of service exports................................................................... 25 Figure 35: The probability of a firm re-opening has increased in recent months…............................................................................................................... 26 Figure 36: …however, sales remain below pre-pandemic levels across all firm sizes............................................................................................................ 26 Figure 37: …and across sectors................................................................................................................................................................................................................................ 26 Figure 38: In 2021, firms have started to become more optimistic about future sales......................................................................................................... 26 Figure 39: Job losses occurred across all service sub-sectors, especially the more skilled.................................................................................................. 27 Figure 40: ..increasing the share of lower-skilled services sub-sectors .......................................................................................................................................... 27 Figure 41: The likelihood of falling into arrears has decreased since the start of the pandemic…............................................................................... 27 Figure 42: …with an increasing availability of cash in 2021................................................................................................................................................................... 27 Figure 43: Entrepreneurial Ecosystem Framework........................................................................................................................................................................................ 28 Figure 44: A smaller fraction of people access the internet in Kenya compared to peers …........................................................................................... 29 Figure 45: …and the share of graduates in science and engineering could also improve................................................................................................ 29 Figure 46: The size of Kenya’s domestic market is far smaller than other MICs…..................................................................................................................... 29 Figure 47: …although Kenya displays good management quality for its income level....................................................................................................... 29 Figure 48: Kenya’s technological capabilities outperform the SSA average…............................................................................................................................ 30 Figure 49: …and few researchers are involved in business enterprises ......................................................................................................................................... 30 Figure 50: Kenya has a high average lending interest rate… .............................................................................................................................................................. 30 Figure 51: …and firms face significant regulatory burdens................................................................................................................................................................... 30 Figure 52: The 3Ts can enable economic transformation through services................................................................................................................................. 32 LIST OF BOXES Box 1: Kenya’s revised and rebased national accounts statistics................................................................................................................................................. 5 Box 2: Firm level data in Kenya......................................................................................................................................................................................................................... 21 Box 3: COVID-19 Firm Survey Methodology............................................................................................................................................................................................ 26 ABBREVIATIONS ASAL Arid and Semi-Arid Lands CBK Central Bank of Kenya DSSI Debt Service Suspension Initiative EFF Extended Fund Facility ECF Extended Credit Facility EMDEs Emerging market and developing economies FAO Food and Agriculture Organization FCDC Frontier Counties Development Council FY Financial year FSI Financial soundness indicators FDI Foreign direct investment GDP Gross Domestic Product GEP Global Economic Prospects H1 First half H2 Second half ICT Information and communications technology IMF International Monetary Fund IDA International Development Association JET Jobs and Economic Transformation KEU Kenya Economic Update KES Kenyan shilling KNBS Kenya National Bureau of Statistics LMIC Lower-middle income country MICs Middle income countries MSMEs Micro, small and medium enterprises NPLs Non-performing loans PAYE Pay-as-you-earn PMI Purchasing Managers’ Index Q2 Second quarter Q3 Third quarter ROE Return on equity ROA Return on assets SACCOs Savings and Credit Cooperatives SSA Sub-Saharan Africa US United States US$ United States dollar VAT Value-added tax y/y Year-on-year December 2021 | Edition No. 24 i ACKNOWLEDGEMENTS T he Kenya Economic Update (KEU) is a World Bank report series produced twice a year that assesses recent economic and social developments and prospects in Kenya, and places these in a longer-term and global context. Through special topics, the KEU also examines selected policy issues and medium-term development challenges in Kenya. It is intended for a wide audience, including policymakers, business leaders, financial market participants, and the community of analysts and professionals engaged in Kenya’s changing economy. The production of the KEU is led by the Macroeconomics, Trade and Investment (MTI) Global Practice team for Kenya. Part 1 (Recent Economic Developments and Outlook) was produced by Tasneem Alam Ghauri, Celina Mutie, Alex Sienaert and Angélique Umutesi (all MTI). Part 2 (Special Topic on labor demand) was produced by Ramya Sundaram (HAES2), Alastair Haynes (EAEPV), and Koen Maaskant (HAES1) with inputs from Marcio Cruz (ETIFE) and Zenaida Hernandez Uriz (EAEF2). The special topic includes analysis and materials from the forthcoming report “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Business in the Aftermath of the Pandemic.” It also uses the framework outlined in the report “At Your Service? The promise of Services-Led Development.” Anne Khatimba provided logistical support, Keziah Muthembwa and Vera Rosauer managed communication and dissemination, and Robert Waiharo designed the report. The report benefited from peer reviews by Victoria Strokova (Senior Economist, HHCDR) and Pui Shen Yoong (Economist, ELCMU). The report was prepared under the overall guidance of Vivek Suri (Practice Manager, EAEM1), Paolo Belli (Practice Manager, HAES2), Pierella Paci (Practice Manager, EAEPV), Philip Schuler (Lead Economist, EA1M1), Allen Dennis (Program Leader, EAEDR), Asad Alam (Regional Director, EAEDR), Keith Hansen (Country Director, AECE2) and Camille Lampart Nuamah (Manager, Operations, AECE2). The report benefited from valuable regular discussions with officials at the National Treasury, Central Bank of Kenya, and the Kenya National Bureau of Statistics. The team also thanks Tobias Rasmussen (Resident Representative for Kenya), Mary Goodman (Mission Chief for Kenya) and the full International Monetary Fund staff team for Kenya for their excellent ongoing collaboration. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this report please email asienaert@worldbank.org. For information about the World Bank and its activities in Kenya, please visit: https://www.worldbank.org/en/country/kenya ii December 2021 | Edition No. 24 EXECUTIVE SUMMARY The Kenyan economy has shown resilience to the critical to support the recovery, reduce debt distress risks, COVID-19 shock, with output in 2021 rising above and rebuild space for social and development spending. pre-pandemic levels. After contracting by 0.3 percent in 2020, real gross domestic product (GDP) increased Moving into 2022 and beyond, Kenya’s economic by 5.3 percent year-on-year (y/y) in the first half (H1) of performance is expected to be robust. Real GDP growth 2021, supported by rebounds in industry and, especially, of 4.9 percent per year on average is projected over services. Agricultural output, however, has fallen (by 0.5 2022–23, similar to the pre-pandemic pace (5.0 percent percent y/y in H1 2021) following a particularly strong average annual growth, 2010-19). This outlook takes performance in 2020, due partly to below-average rains. into account that some sub-sectors have bounced back On the demand side, the recovery has been supported strongly (e.g., education), but others only partially and by a revival in private consumption, against a backdrop face a much more protracted recovery (e.g., international of improving employment conditions and household tourism). The anticipated further recovery of hotels and incomes. High frequency data point to industrial and restaurants, trade, transport, and other services, depends services activity continuing to expand in the second half on substantial vaccination progress to help minimise new (H2) of 2021, although at a somewhat more moderate wave of infections and reduce the need for associated pace than earlier in the recovery. Real GDP is expected to containment measures. The baseline projections also have grown by 5.0 percent in 2021 as a whole. assume normal rains, yielding sufficiently good agricultural harvests to drive food processing (manufacturing), sustain The Central Bank of Kenya (CBK) has maintained an the growth of exports, help reduce inflationary pressures, accommodative monetary policy stance to support the and to support households’ consumption. economic recovery. While core inflation has remained moderate, headline inflation has risen in 2021, mainly The future course of the pandemic continues to pose reflecting a combination of higher international oil prices, the main downside risk to the economic outlook. Surges domestic tax measures with once-off price effects, and in hospitalization and deaths from COVID-19, including temporary supply disruptions affecting some food items, due to new and more transmissible variants such as the including due to dry weather conditions. Consistent recently identified Omicron variant of global concern, and with the still moderate rate of core inflation and muted a slower than anticipated pace of vaccination, could set demand pressures, the CBK has held the policy rate at back the economic recovery. Increased fiscal pressures 7.0 percent and maintained the lower cash reserve ratio due to a renewed intensification of the pandemic could (since 2020). weigh on investment and exacerbate debt vulnerabilities. A second key domestic risk factor stems from the drought Public revenues have rebounded and the challenging conditions which are affecting parts of the country and task of rebuilding fiscal buffers, whilst continuing to already causing severe hardship. Should the drought navigate the pandemic under high uncertainty, has intensify or spread, this would weigh on the near-term begun. For the first quarter of the current fiscal year economic outlook. Weaker global growth, higher than (FY2021/22), revenue collection increased to 3.8 percent anticipated energy prices, and tighter external financing of annual GDP, an improvement of 0.5 percentage points conditions are the primary external risks. compared to the same period a year earlier, with value added tax (VAT) and personal income tax growing the most, As Kenya pursues an inclusive and resilient economic supported by the economic recovery. The government recovery, accelerating job creation will be critical. The has projected a fiscal deficit of 8.2 percent of GDP for special topic of the previous Kenya Economic Update the current fiscal year, to support economic recovery (KEU23) showed how critical the country’s jobs and and management of the pandemic. The continued economic transformation (JET) agenda is, including to implementation of the budgeted medium-term fiscal achieve a resilient recovery from the COVID-19 crisis, and consolidation, calibrated to economic developments, is as the largest ever cohorts of young job seekers enter the December 2021 | Edition No. 24 iii Executive Summary labor market. Continued investment in human capital and employment has grown between 2015/16 and 2019 in social protection is at the center of enabling Kenya’s fast- subsectors which are reliant on higher-skilled workers, growing workforce to participate in and drive JET. This special notably finance and insurance, education, and health. In topic complements the previous labor market analysis, contrast, the low-skilled tradable sector’s share of service turning the spotlight on firm dynamics and job creation. employment remained constant, and the low-skilled domestic share declined. These declines are from very Most of Kenya’s firms are informal, small, based in high levels, with the low-skilled domestic services still Nairobi, and in the services sector, where job creation accounting for over half of all service sector employment, has been concentrated. There are over 138,000 formal and the low-skilled tradable sub-sectors for one-quarter, establishments in Kenya, and 7.4 milion micro, small in 2019. However, the overall trend of increasing demand and medium enterprises (MSMEs). Among formal firms, for skills is clear. only three percent have 50 or more employees, and only one percent of firms have 150 or more employees. The The COVID-19 pandemic created enormous challenges majority of MSMEs (94 percent) are unlicensed micro firms, for the private sector, including in the most-high with fewer than five employees. Nairobi hosts 36 percent growth areas. Employment was hit hard, in particular in of formal firms, and 14 percent of MSMEs. The services the very sectors that showed the fastest growth prior to sector dominates the firm landscape: some 84 percent of the pandemic. For example, the skill-intensive services formal firms and 83 percent of MSMEs are in the services sector shed almost half of all jobs between 2019 and 2020, sector. Job creation was concentrated in the services with even larger losses in the education sector due to the sector prior to the onset of the pandemic. With services closure of schools. The signs of recovery are positive, with driving job creation, Kenya exhibits a new pattern of most firms having reopened by April 2021, but sales and economic transformation that is emerging in Africa and jobs have not fully returned to pre-pandemic levels. While which may differ significantly from the manufacturing- Kenya’s private sector has been resilient, the scale of the led transformation of East Asia and many high-income shock has been enormous. The large losses in human economies. capital will also have long-term effects on the labor market. This, coupled with the mounting structural challenge of Skill-intensive services sub-sectors have experienced creating opportunities especially for the growing youth rapid job growth, though low-skilled services still population, elevates the need to gear policies around dominate employment. The share of service sector accelerating high quality job creation. Activity in the services sector has rebounded, supported by an exceptionally large increase in education output Photo: © Sarah Farhat | World Bank iv December 2021 | Edition No. 24 Executive Summary Despite high levels of firm creation, firms in Kenya to finance and the regulatory framework compared to appear less able to scale up. Entrepreneurship outcomes other economies. in Kenya have been weak due to shortcomings in the entrepreneurial ecosystem – which consists of supply The JET policy agenda should address key challenges factors such as physical capital and infrastructure; inhibiting the growth of firms and jobs and focus on demand factors such as the size of the internal market; improving the entrepreneurial ecosystem. Creating and accumulation and allocation barriers, such as access conditions to support the growth of firms and jobs in the to finance. On supply factors, Kenya has fewer people services sector (among other sectors) and exploiting its accessing the internet compared to peers and a smaller linkages with the rest of the economy involves the 3Ts: (i) share of graduates in science and engineering. There is trade: lowering barriers to trade – particularly in services; also a striking gap between Kenya and the leading peers (ii) technology: expanding access to digital technologies, on knowledge capital, i.e., the supply of researchers and updating the regulatory framework to address new and the quality of top universities. On demand factors, features of data and digital business models; and (iii) Kenyan entrepreneurs face an internal market that training: improving training and skills development is smaller than other MICs. Kenya does have good among the current and future workforce to enable better management quality, although it lags in technological adoption of technology, as well as better socioemotional capabilities. In terms of accumulation and allocation and interpersonal skills that are especially important in barriers, businesses in Kenya face challenges in access some services. Expanding access to digital technologies and updating the regulatory framework to address new features of data and digital business models is one way to enable economic transformation through services Photo: © Festo Lang | World Bank December 2021 | Edition No. 24 v SNAPSHOT: WHERE IS KENYA IN THE COVID-19 ECONOMIC RECOVERY? As of mid-2021, total output had recovered to above the …but with large dispersion across sectors pre-pandemic high point (indexed: 1Q20=100)… Real value added in 2Q21 vs 2Q19*, % di erence Real GDP (seasonally adjusted) Highest pre-COVID quarterly GDP Pre-COVID linear trend (2017-19) Accommodation & food 108 Taxes Prof/admin/support services 106 Other services Transport & storage 104 Utilities 102 Agriculture etc. Manufacturing 100 Wholesale & retail trade Real estate etc. 98 Finance Construction 96 Public admin. 94 Health Mining & quarrying 92 ICT Education Aug-18 Aug-19 Aug-20 Dec-18 Dec-19 Dec-20 Feb-19 Feb-20 Feb-21 Jun-18 Oct-18 Apr-19 Jun-19 Oct-19 Apr-20 Jun-20 Oct-20 Apr-21 Jun-21 -60 -40 -20 0 20 40 Percent Source: World Bank calculations based on KNBS data Source: World Bank calculations based on KNBS data Notes: *Last fully comparable quarter before the pandemic Mobility levels are above the pre-pandemic baseline in retail & …and high frequency economic activity indicators such as recreation, and workplace, locations… cement and electricity unit consumption are also up Retail & recreation Residential Workplace 200 60 Cement 180 40 160 Index Dec19=100 20 140 0 Electricity 120 -20 -40 100 -60 80 May -21 May -20 May -19 Sep -21 Sep -20 Sep -19 Mar -21 Mar -20 Mar -19 Jul-21 Jul-20 Jan-21 Jul-19 Jan-20 Jan-19 Nov-20 Nov-19 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Source: Google Mobility data via OurWorldInData.org Source: World Bank calculations based on KNBS data Notes: Baseline is median value for the 5 weeks from January 3 to February 6, 2020; units are visitors except for residential (duration) Non-fuel imports, and exports, have recovered to match or Remittances continue to grow; visitor arrivals are increasing exceed pre-pandemic levels but still at only ½ their pre-pandemic level 115 140 Remittances 110 Exports of goods & services 120 105 Non-fuel imports 100 100 Index Dec19=100 Index Dec19=100 95 80 Visitor arrivals 90 60 85 40 80 75 20 70 0 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Source: World Bank calculations based on CBK data Source: World Bank calculations based on KNBS data Notes: Based on 3-month moving averages of USD values vi December 2021 | Edition No. 24 The State of Kenya’s Economy Photo: © Diana Ngila | World Bank The State of Kenya’s Economy 1. Recent Economic Developments 1.1. Unequal vaccine access is leading to a in the medium-term still remain well below the level that divergent global economic recovery, with was projected prior to the pandemic, resulting in a larger a weak and fragile recovery underway setback to improvements in incomes and living standards. in the region due to slow progress in vaccination1 Global trade has rebounded strongly, despite supply The global economy is recovering, but with divergence bottlenecks, whilst tourism is recovering only slowly. across countries. Global growth is projected at a strong The recovery in global activity has been accompanied 5.6 percent in 2021 and 4.3 percent in 2022.2 This recovery, by a sustained increase in global trade, with the volume however, masks substantial differences across regions and of global goods trade well above its pre-pandemic levels, countries, resulting from large disparities in vaccine access despite supply bottlenecks and strains in global value and capacity to provide monetary and fiscal policy support. chains, resulting in supplier delivery times falling to a record Almost 70 percent of the population in high-income low. Growth in goods trade volumes moderated in Q2–Q3 countries are fully vaccinated as of December 6, 2021, 2021, as uneven reopening across regions, coupled with compared with about only three percent of the population congestion at ports and a shortage of trucking, worsened in low-income countries. A larger share of the population supply bottlenecks. Meanwhile, global tourism has been in high income countries have received booster shots than recovering only slowly and is expected to be muted for have been vaccinated in low-income countries (Figure 1). some time owing to lingering mobility restrictions and Moreover, emerging market and developing economies widespread reluctance to travel until virus transmission (EMDEs), many faced with tighter financing conditions and declines durably. a greater risk of inflation expectations drifting upward, are withdrawing policy support more quickly, despite larger Inflation has accelerated sharply across many countries, shortfalls in output relative to the pre-pandemic trend. leading several central banks to begin tightening These inequalities in vaccine access and policy support monetary policy. Consumer price inflation has increased have dampened the pace of recovery in many EMDEs, rapidly in many countries due to a combination of supply notably in sub-Saharan Africa (SSA, Figure 2), and will disruptions alongside the release of pent-up demand likely inflict long-lasting, and even permanent, output and the rebound in commodity prices. Global financing losses. While output for the advanced economy group is conditions have tightened somewhat for EMDEs owing to expected to cross its pre-pandemic trend path in 2022 and the US dollar strengthening and many EMDEs starting to exceed it thereafter, EMDE output (excluding China) will withdraw monetary policy accommodation. Figure 1: There is a stark global vaccination divide…(population Figure 2: …contributing to Sub-Saharan Africa facing a slower fully vaccinated against COVID-19) recovery (average real GDP growth, 2021–22) High income Upper middle income excl China 8 Lower middle income Low income High income boosters 7 70 6 60 Percent of population 50 5 Percent 40 4 30 3 20 2 10 1 - 0 Jul/21 Jan/21 Feb/21 Mar/21 Apr/21 May/21 Jun/21 Aug/21 Sep/21 Oct/21 Nov/21 Dec/21 China World High income Kenya Low income SSA countries countries Source: Our World in Data, data as of December 6, 2021 Source: World Bank: GEP (June 2021), Africa’s Pulse (October 2021) 1 This section draws from the World Bank’s “Global Economic Prospects”, June 2021, “Africa’s Pulse”, October 2021, and the IMF’s “World Economic Outlook”, October 2021. 2 World Bank, “Global Economic Prospects”, June 2021. 2 December 2021 | Edition No. 24 The State of Kenya’s Economy The economic recovery in sub-Saharan Africa (SSA) whilst avoiding the more economically disruptive remains generally weak as low rates of vaccination measures that it was forced to take in 2020, such as travel continue to weigh on activity and confidence. The region’s restrictions, the shutdown of institutions, and lockdowns. output is expected to expand by 3.3 percent in 2021, Consequently, the impact on economic activities appears up one percentage point relative to the previous (April) to have been relatively modest, supporting continued forecast, reflecting relaxation of stringent social distancing economic recovery and growth through Q3 2021. With measures, elevated commodity prices benefiting net confirmed cases subsequently falling to the lowest levels commodity exporters, and strengthening global trade. since the start of the pandemic, the government ended Nevertheless, the ongoing recovery in the region is still the nightly curfew on October 20, 2021. The vaccine weak and hampered by low vaccination rates and the rollout, which had a slow start due to supply constraints, limited policy space to continue to support households has picked up as new shipments of vaccines have arrived, and firms. The rollout of the vaccine in Africa lags the rest particularly since September. As of December 5, 2021, of the world considerably; with only about 8 percent of the Kenya had received a total of 16,201,670 vaccines, with population fully inoculated as of December 6, the region 7,583,134 administered. Vaccine acceptance is reportedly will miss the WHO/UN target of vaccinating 40 percent of high.4 However, there is still a long way to go towards the population of all countries by end-2021 and will remain the government’s target of fully inoculating the adult vulnerable to COVID-19, weighing on activity, confidence population of about 30 million by the end of 2022; as of and the economic recovery. Achieving vaccination targets December 6, 2021, about 10 percent of adults (2.9 million is made more challenging by the wide heterogeneity in people) had been fully vaccinated while another 16 vaccine hesitancy in the region.3 percent (4.9 million people) had received their first dose. 1.2. Kenya’s economy has continued to Kenya’s economy has shown resilience and output recover has grown to above pre-COVID levels, powered by a Economic activity in Kenya has continued to adapt to strong rebound in services sectors (Figure 5). Following the pandemic and associated restrictions. Kenya faced its a pandemic-induced contraction of 0.3 percent in 2020, fourth wave of recorded infections during July–September real output has recovered and surpassed pre-COVID levels, 2021 (Figure 3). Through the end of the third quarter of as GDP accelerated to 5.3 percent year-on-year (y/y) in 2021, the government maintained containment measures, H1 2021, using the newly rebased and revised national including a nightly curfew and a range of health protocols, accounts (see Box 1). However, it still remains below levels Figure 3: Kenya has experienced four distinct COVID-19 waves since expected for the year under pre-COVID trend projections the onset of the pandemic (see Snapshot on page vi). Partly reflecting a base effect, New cases Total deaths (RHS) this growth was supported by a particularly large rebound Total as of December 6, 2021 1600 Cases 255,469, Deaths 5,335 6000 in the services sector, as well as the expansion of industrial Number of Cases (7-day rolling average) 1400 output (Figure 4). Agriculture growth, however, has Number of Deaths (cumulative) 5000 1200 subsided following a particularly strong performance in 4000 1000 2020, as below-average rains in 2021 resulted in significant 800 3000 reduction in cereals and tea production. On the demand 600 2000 side, the recovery has been led by a revival in private 400 1000 consumption, reflected by improved employment 200 conditions, and also helped by resilient international 0 0 remittances. Investment is also expected to recover in 2021 0 0 0 0 20 21 1 1 1 1 1 -2 -2 -2 2 -2 -2 l-2 2 2 p- v- n- p- v- ar ay l ar ay Ju Ju No No Ja Se Se M M M M on the back of improved business confidence.5 Source: Our World in Data 3 According to the Afrobarometer survey conducted between late 2020 and mid 2021 in 13 SSA countries, more than half of the respondents were willing to get a vaccine in Mauritius, Zambia, Benin and Sudan; vaccine hesitancy was alarmingly high in Senegal and the Gambia; and only 43 percent of the respondents in South Africa reported they were likely to get the vaccine. 4 World Bank COVID-19 Rapid Response Phone Survey results conducted during April-June 2021 indicate that about 82 percent of Kenyans are willing to take a free vaccine (source: World Bank, “Socioeconomic impacts of COVID-19 in Kenya”, June 2021). 5 The CBK’s latest ‘Market Perception Survey’ and “CEOs Survey” conducted in November 2021 show continued increase in businesses’ optimism in Kenya’s economic prospects. December 2021 | Edition No. 24 3 The State of Kenya’s Economy Figure 4: Output recovered fully in 2021 Figure 5: Services led the recovery in 2021 (Real output, quarterly, billion 2016 KES) (Contribution to real GDP growth, percent y/y) Agriculture Industry Services Taxes Agriculture Industry Services Taxes GDP 2,400 6 2,000 5 4 1,600 3 1,200 Billion KES 2 800 1 400 0 0 -1 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 -2 2019 2020 2021 2017 H1 2018 H1 2019 H1 2020 H1 2021 H1 Source: KNBS Source: KNBS and World Bank Computation Activity in the services sector has rebounded, supported down in March 2020.6 While activity in accommodation by an exceptionally large increase in education output. and food services remains below pre-pandemic levels, Services sector value-added rose by 9.2 percent y/y in the subsector has shown signs of a continued, albeit H1 2021 compared to a contraction of 1.5 percent in H1 slower, revival. A Central Bank of Kenya (CBK) survey of 2021. All services subsectors, except accommodation and hotels conducted in mid-November 2021 shows that all food services, reverted to making a positive contribution the sampled hotels are now open, with employment in to economic growth in H1 2021, signaling growing the sector increasing to about 78 percent from the low normalization of economic activities in the sector (Table of 37 percent in May 2020, and average bed occupancy 1). Education subsector value-added surged to well above rising to over 50 percent from its low of 10 percent in May pre-pandemic levels, recording an exceptionally large 2020 (although it still remains below pre-COVID-19 levels). increase of 34.6 percent y/y in H1 2021, contributing over Tourist arrivals to Kenya increased to over 78,000 in August a quarter to GDP growth. This oversized contribution by 2021, the highest level since the start of the pandemic, education value-added to GDP growth partly reflects a though still only about half the level in August 2019. large base effect, as all educational institutions were shut Table 1: Services sectors’ contributions to real GDP growth (percentage points) Share of GDP 2019 2020 2020H1 2021H1 (percent) Services 53.0 3.5 -1.2 -0.8 4.9 Wholesale and retail trade 8.3 0.4 0.0 0.0 0.7 Accomodation and food services 0.9 0.2 -0.6 -0.4 -0.2 Transport and storage 10.2 0.6 -0.8 -0.8 0.3 Information and communication 2.7 0.2 0.1 0.1 0.6 Finance and insurance 7.8 0.5 0.4 0.4 0.7 Public administration 5.4 0.5 0.3 0.2 0.7 Professional, admin and support services 3.0 0.2 -0.5 -0.4 0.0 Real estate 9.3 0.6 0.4 0.5 0.5 Education 4.5 0.2 -0.5 -0.5 1.4 Health 2.1 0.1 0.1 0.2 0.2 Other services 2.4 0.1 -0.3 -0.3 0.0 FISIM -3.4 -0.3 0.1 0.0 0.1 Source: KNBS 6 Additionally, for most countries, frequent changes to in-person attendance and a partial shift to virtual learning during COVID-19 waves has made the measurement of education value added challenging and prone to revisions. Tebrake, et al., (2020) provides a brief account of the challenges posed by COVID-19 to estimating public education value-added. 4 December 2021 | Edition No. 24 The State of Kenya’s Economy The industrial sector has recorded a broad-based affordable housing program. High frequency data reveal recovery. Value-added in the manufacturing and utilities industrial activity sustaining the momentum in H2 2021. (electricity, gas and water supply) sub-sectors reversed The Purchasing Managers’ Index (PMI) shows generally contractions in H1 2020 to expand by 5.4 percent y/y and steady expansion in business activity, despite the fourth 3.5 percent y/y in H1 2021. Activity in the construction COVID-19 wave during Q3 2021 (Figure 6). Production in subsector remained buoyant, increasing by 7.2 percent construction-related industry (cement and galvanized steel y/y in H1 20201, supported by the ongoing infrastructure sheets) has also been strong through H2 2021, pointing to projects (such as Nairobi Expressway and the Lamu continued robust construction activity. transport corridor) and the implementation of the Figure 6: Business activity has showed sequential, albeit modest, Figure 7: Tourist arrivals to Kenya are recovering but remain well expansion since May 2021 (PMI) below pre-COVID levels PMI Index 180 70 160 Number of tourist arrivals in thousands 140 60 120 > 50 indicates an 100 50 80 < 50 indicates contraction 60 40 40 20 30 0 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Source: CFC Stanbic Bank Source: KNBS Box 1: Kenya’s revised and rebased national accounts statistics Kenya’s economic pie is a bit larger, but has not been growing as fast, and diversification away from agriculture and towards services has progressed more than previously estimated. In September 2021, the Kenya National Bureau of Statistics (KNBS) published rebased and revised national accounts estimates, updating the base year for its estimates to 2016 (from 2009). GDP rebasing involves updating the national accounts statistics by replacing old base-year volume and price measures with a more recent base year or process structure. It yields a more accurate snapshot of the economy by incorporating structural changes in production and relative prices, as well as shifts in consumption patterns, utilization, and the acquisition of capital goods. It also incorporates product changes or new economic activities caused by technological developments and innovations. Periodically rebasing GDP is international best-practice and supports informed and evidence-based decision-making. The GDP rebasing revealed that Kenya’s economy is bigger than previously estimated. Nominal GDP in 2019 is now estimated at US$100.5 billion, up from US$95.5 billion before rebasing, with revised GDP per capita standing at US$2,113 (up from US$2,008) in 2019. Unlike the previous rebasing in 2014, which produced a large, 25 percent increase in the size of the economy and moved Kenya to the lower-middle income category, the recent exercise has resulted in a modest 5.3 percent increase in the overall size of the economy compared with previous estimates. This maintains Kenya’s classification as a lower-middle income country, with no change in the size ranking of Kenya vis-à-vis regional economies. The rebasing reveals that historical GDP growth rates are lower than previously estimated (Figure 8). The rebased GDP series shows that over the last decade real GDP expanded by an annual average of 5.0 percent, 0.8 percentage points lower than the previous estimate. This is significant new information, since it affects calculations around the economy’s potential growth rate in the future. From the policy perspective, it implies that more concerted efforts will be required to lift growth to well above the rate of population growth (about 2.3 percent) and achieve sustained development gains (e.g., 5 percent annual average output growth or higher). December 2021 | Edition No. 24 5 The State of Kenya’s Economy Box 1: Kenya’s revised and rebased national accounts statistics (contd) Table 2: Changes in macroeconomic indicators when Figure 8: Annual change in real GDP (%) scaled by rebased GDP (2019[1], percent of GDP) Base year Base year Base year 2009 Base year 2016 Macroeconomic indicator Average 2009 base Average 2016 base 2009 2016 9 Government revenue 17.4 16.7 Tax revenue 15.1 14.4 8 Government expenditure 25.7 24.5 7 Fiscal deficit 7.6 7.3 Gross public debt 62.4 59.6 6 Net public debt 57.0 54.4 5 Current account deficit 5.8 5.5 Imports 18.5 17.6 4 Exports 6.1 5.8 Private sector credit 24.9 23.6 3 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: WB calculations based on KNBS data [1] Fiscal year 2018/19 for budget and debt indicators Source: KNBS The rebasing of Kenya’s GDP affects a number of macroeconomic indicators (Table 2). For example, rebasing reduced the estimate of gross public debt as a share of GDP in 2018/19 to 59.6 percent from 62.4 percent. However, this does not reduce Kenya’s debt burden or provide more scope for debt accumulation, as it is accompanied by a downward adjustment in revenue generation as a share of GDP (to 16.7 percent of GDP from 17.4 percent). There is also a modest reduction in trade flows and private sector credit penetration relative to GDP expenditures. These ratio changes are relatively small, but do reinforce the importance of policies to mobilize more revenues, harness international trade for growth, and address impediments to productive credit growth. The rebasing exercise significantly altered historical Figure 9: Change in share of nominal GDP (2019) in the sectoral output estimates, with agriculture accounting for revised estimates a significantly smaller share, and services a larger share, of Transport & storage Real estate, renting, business services output (Figure 9). On the supply side, the biggest change Public administration Information & communication comes from a correction in agricultural price indices, resulting Professional, scienti c & technical activities Other services in estimated agricultural sector output being significantly lower Wholesale & retail trade Construction than before. As a result, the share of agricultural output falls Accommodation & food services Health to 21.2 percent of nominal GDP in 2019, compared with 34.1 Financial & insurance activities Manufacturing industries percent previously. Agriculture clearly remains the cornerstone Activities of households as employers Administrative & support service activities of the economy (including being the basis for the majority of Arts, entertainment & recreation Mining & quarrying livelihoods and generating critical foreign currency earnings), Education Taxes on products but its relative contribution is less outsized than it appeared FISIM Electricity, gas & water supply before and more in line with the average for lower middle- Agriculture, livestock, forestry & sheries -15 -10 -5 0 5 income economies globally (15 percent in 2019). Conversely, Percent the relative importance of other sectors is now estimated to Source: World Bank calculations based on KNBS data be larger, notably transport and storage, real estate, public administration, and ICT. On the expenditure side, private consumption has accounted for a smaller share of total expenditures (76.4 percent of GDP in 2019 vs. 81.6 percent previously), whilst the share of total investment has been 1.7 percentage points higher (at 19.1 percent) than earlier estimates. 1.3. Strong external demand also supported y/y in the first nine months of 2021, led by large increases in Kenya’s recovery in 2021 horticultural goods and manufactures (Figure 10). Despite Kenya’s exports have rebounded in 2021, supported some improvement, however, tourism and transport by the global recovery, but tourism is recovering more services exports remain weak, as mobility restrictions and slowly. Reflecting a strong recovery in demand from Kenya’s ongoing pandemic-related travel uncertainties continue trading partners, merchandise exports rose by 8.2 percent to weigh on cross-border tourist activity (Figure 7). 6 December 2021 | Edition No. 24 The State of Kenya’s Economy Figure 10: Merchandise exports and imports have rebounded Figure 11: The current account deficit was financed largely through (y/y growth in 3-month moving average) borrowing Trade de cit (RHS) Imports Exports Capital account balance Net foreign direct investment 40 1,100 Net portfolio investment Net other investment Net errors and omissions Current account balance Change in 3-month moving average, % y/y 10 1,000 20 900 8 Million US$ 6 Share of GDP 0 800 700 4 -20 600 2 -40 500 0 May-19 May-20 May-21 Nov-19 Nov-20 Feb-19 Feb-20 Feb-21 Aug-19 Aug-20 Aug-21 -2 2017 2018 2019 2020 2021f Source: Central Bank of Kenya Source: World Bank calculations based on CBK data The current account deficit has widened in 2021, as the deficit in the trade of goods and services stood at 9.8 the acceleration of imports has outpaced exports. percent of GDP in the first nine months of 2021 (larger Merchandise imports increased by 12.9 percent y/y in the than 8.7 percent in 2020), elevating the current account 12-months to September 2021 compared to a contraction deficit to 5.6 percent of GDP in the year to September 2021, of 6.9 percent y/y over the same horizon last year, exceeding from 4.9 percent in 2020. Remittances to Kenya remained export growth, due to rising global commodity (especially robust, however, providing a large source of inflows in the energy) prices, and greater demand for intermediate goods current account (Table 3). North America has been the on the back of the domestic economic recovery. As a result, largest source of increased remittances. Table 3: Balance of Payments (Percent of GDP) 2019 2020 2021 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 Current account -5.0 -4.9 -5.2 -5.5 -5.4 -5.1 -5.0 -4.8 -4.9 -5.3 -5.7 Trade balance -8.7 -8.6 -8.7 -8.8 -9.1 -8.6 -8.6 -8.3 -8.7 -9.0 -9.8 Exports 12.4 12.1 12.0 11.3 11.1 10.6 10.3 10.1 9.7 9.8 10.1 o/w horticulture 1.1 1.1 1.0 1.0 0.9 0.9 0.9 1.0 1.0 1.1 1.1 o/w tea 1.4 1.3 1.2 1.1 1.1 1.2 1.3 1.3 1.2 1.1 1.1 o/w travel services 1.0 1.0 1.0 1.1 0.8 0.1 0.6 0.6 0.6 0.5 0.7 Imports 17.1 16.8 16.8 16.3 16.3 15.5 15.4 14.9 14.9 15.3 16.1 o/w industrial machinery 3.5 3.6 3.6 3.5 4.7 4.5 4.5 4.1 4.0 4.0 4.1 o/w petroleum products 3.5 3.6 3.5 3.3 3.3 2.7 2.5 2.2 2.1 2.5 2.8 Income balance 3.7 3.7 3.5 3.3 3.6 3.5 3.5 3.6 3.7 3.8 4.2 o/w diaspora remittances 2.9 2.9 2.9 2.8 2.8 2.8 3.1 3.2 3.3 3.3 3.4 Capital account 0.2 0.2 0.2 0.2 0.2 0.1 0.2 0.1 0.2 0.4 0.4 Financial account -4.1 -6.9 -7.0 -6.1 -5.4 -4.6 -3.9 -3.0 -3.6 -5.2 -6.0 Direct investment (net) -1.5 -1.5 -1.2 -1.1 -0.8 -0.7 -0.6 -0.5 -0.5 0.0 0.1 Portfolio investment (net) 1.4 -1.0 -1.2 -1.3 -1.1 1.2 1.3 1.3 1.0 -0.2 -0.2 Other investment (net) -4.0 -4.4 -4.6 -3.7 -3.5 -5.1 -4.6 -3.8 -4.1 -5.0 -5.8 Net errors and omissions -0.2 -1.7 -0.9 0.2 0.1 0.9 0.4 0.9 -0.1 -0.3 0.7 Overall balance 0.8 -0.6 -1.1 -1.0 -0.3 -0.5 0.6 0.8 1.2 -0.1 -1.4 Change in reserve assets -0.8 0.6 1.1 1.0 0.3 0.5 -0.6 -0.8 -0.9 0.2 1.5 Source: Central Bank of Kenya December 2021 | Edition No. 24 7 The State of Kenya’s Economy Kenya’s external financing needs have been met by a individuals were working multiple types of jobs (wage, mix of official and private borrowing. Increased official household enterprise, or agriculture); job stability, as borrowing and the temporary bilateral debt service measured by having a permanent contract, declined; hours suspension under the G20 Debt Service Suspension and wages for wage employees decreased; and the growth Initiative (DSSI) have helped to compensate for weak in wage employment for women was reliant on sectors that inflows from other external financing sources. The increased are particularly vulnerable to future containment measures. borrowing has included inflows from the IMF ECF/EFF arrangement which began in April 2021, and World Bank Poverty has declined through 2021, but remained above development policy financing (June 2021). In addition, pre-pandemic levels, with rural areas experiencing a Kenya received SDR 520.2 million in the IMF’s August 2021 slower decline. The poverty rate surged in Q2 2020 as the general SDR allocation. Foreign exchange reserves stood pandemic plunged the economy into a recession.7 With a at USD 8,737 million (5.3 months of import cover) as at strong economic recovery ongoing, poverty subsequently December 2, 2021. Consistent with the global weakness in decreased by roughly one-fifth in the first half of 2021, foreign direct investment (FDI) during the pandemic, FDI though it remained above pre-pandemic levels (Figure 12). to Kenya fell sharply in the year through September 2021. While poverty dropped in both rural and urban areas, the Net portfolio investment, however, registered modest net progress has been slower in rural areas. This likely reflects inflows, equivalent to 0.2 percent of GDP in 2021. the adverse impact of severe dry weather conditions in 2021 on rural livelihoods. More people experienced 1.4. Poverty has declined as people have food insecurity in the first half of 2021 amid renewed returned to work, but children’s education was severely set back, and containment measures, but food insecurity remained households remain vulnerable below levels earlier in the pandemic. While the labor market has staged a recovery from the severe hit to jobs and earnings in 2020, job quality Although most schools reopened in 2021, the pandemic and insecurity remain concerns. During the first half likely caused a long-term setback to human capital of 2021, unemployment and inactivity continued to accumulation. The setbacks to education activities decline, and employment surpassed its pre-pandemic throughout 2020 may lead to learning losses in both level. Around three-quarters of the growth in wage the short and long run, impairing future human capital employment between mid-2020 and mid-2021 came from accumulation. Underprivileged children are expected to six sectors (utilities and construction, agriculture, transport have experienced particularly large learning losses during and storage, wholesale and retail trade, manufacturing, and school closures, as they were significantly less likely to have accommodation and food services). However, the employment access to remote education. Moreover, the rise in teen recovery showed signs of vulnerability. A growing share of pregnancies (which by one estimate rose by 40 percent Figure 12: COVID-19 impact on national poverty Figure 13: COVID-19 impact on rural/urban poverty 55 Rural Urban 55 50 50 Percent of population Percent of population 45 45 40 40 35 35 30 30 25 25 20 20 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Source: Rapid Response Phone Surveys Source: Rapid Response Phone Surveys 7 The World Bank conducted a series of rapid response phone surveys (RRPS) over the period March 2020 and June 2021 to assess the socioeconomic impact of COVID-19 in Kenya. Poverty rates used in this section refer to short-duration estimates over each of these survey periods. The measurement involved adjusting household consumption based on changes through four channels– wage income; household enterprise income; agricultural income; and remittances– computed from RRPS responses. The poverty rate is then estimated for the months covered for each wave of the RRPS. 8 December 2021 | Edition No. 24 The State of Kenya’s Economy during the lockdown)8 and school closures will have had The CBK has maintained an accommodative monetary further detrimental effects on the health and education of policy stance by keeping the key policy rate unchanged young girls (98 percent of pregnant girls are not in school). to support the economic recovery. The CBK kept the Education activities resumed at the start of 2021, which policy rate unchanged at 7.0 percent at the most recent resulted in most students having renewed access to their Monetary Policy Committee meeting on November 29, teachers and engaging in learning activities. However, 2021. The committee noted that inflation expectations among younger children (3–6 years old), 15 percent did not remain well anchored within the target range and assessed re-enroll in early January 2021, with cited reasons including the current monetary policy stance as appropriate. In fear of COVID-19, and a lack of money. One-fifth of young addition, the CBK has maintained the lower cash reserve children who were out of school experienced some sign ratio (since 2020) to support domestic liquidity. Along with of behavioral change compared to five percent of young the National Treasury’s Credit Guarantee Scheme, these children in school. measures will continue to support private sector lending and the ongoing economic recovery in the context of core 1.5. Monetary policy remains accommodative inflation remaining moderate and inflationary expectations to support the ongoing recovery amid a appearing well-anchored. recent supply-driven rise in inflation While headline inflation has risen in 2021, core inflation Credit to the private sector trended higher in the has remained largely steady. Headline inflation increased year to September 2021 as demand recovered amid to a four-year high of 6.9 percent y/y in September 2021, accommodative monetary conditions. Total credit to before easing to 5.8 percent y/y in November 2021 the private sector was up by 7.8 percent y/y in October (Figure 14). The increase mainly reflects a combination of 2021 (Figure 16), supported by accommodative monetary rising international commodity (especially energy) prices conditions, and reflecting increases to a wide range of due to the strong global recovery coupled with supply borrowers. However, private sector credit growth remains bottlenecks, and domestic tax measures enacted in very low in real terms, and well short of the sizable annual Finance Act 2021 with once-off price effects. Inflationary increases in credit stock prior to the statutory interest rate pressures strengthened in Q3 2021 due to higher global cap that was in place from 2016–19. Private sector credit energy prices following disruptions in coal and natural growth has been constrained by asset quality pressures, gas production, and a consequent increase in agricultural which have been exacerbated by the pandemic, and likely input costs. Domestically, dry weather conditions have by the elevated level of uncertainty regarding the economic contributed to temporary supply disruptions in a few recovery in Kenya and globally. The government’s high food items, like tomatoes and onions, adding to food financing requirement has also provided a large supply of inflation. Core inflation, which removes volatile food and interest-earning securities, which has further dampened energy prices to provide a measure of underlying inflation banks’ incentives to take private credit risk. pressure, has remained moderate, decelerating to 2.0 percent y/y in November 2021 (Figure 15). Figure 14: Headline inflation has risen during the course of 2021 Figure 15: …and core inflation has remained moderate but remains within the CBK band… Headline in ation Core in ation Food In ation Energy In ation Core In ation 10.0 8 7 Upper bound 7.5 6 Percent 5 Percent 5.0 4 3 Lower bound 2.5 2 1 0.0 0 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Source: Kenya National Bureau of Statistics Source: Kenya National Bureau of Statistics 8 Beutel, Allie. “Rise of Teen Pregnancies During Kenya’s Lockdown,” n.d. https://borgenproject.org/rise-of-teen-pregnancy-during-kenyas-lockdown/ December 2021 | Edition No. 24 9 The State of Kenya’s Economy Figure 16: Private sector credit growth remains modest the pandemic period has been a surge in cell-phone based banking: the number of bank transactions on mobile 12 phones has increased from 56 percent of all transactions before the pandemic to 85 percent currently. 10 1.6. Government continues to support the y - o - y percent 8 economic recovery and management of the pandemic 6 Government revenues have been steadily recovering. 4 The economic slowdown and tax relief measures that were implemented in the first half of FY2020/219 led to 2 a large decline in revenue. However, reflecting recovery Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 in business activities, the government unwound most Source: Central Bank of Kenya of this temporary tax relief in January 2021 (except relief The banking sector remains stable and resilient, with for taxpayers in the lowest personal income tax bracket). strong liquidity and capital adequacy ratios. The capital As a result, revenue is recovering. For the first quarter of adequacy and the liquidity ratios of the banking sector the current fiscal year (FY2021/22), revenue collection stood at 18.9 and 56.8 percent, respectively, in June 2021, increased to 3.8 percent of annual GDP, an improvement well above the statutory requirements (Table 4). Bank of 0.5 percentage points compared to the same period a profitability improved in the year to June 2021, with the year earlier, with value added tax (VAT) and pay-as-you- return on asset and return on equity increasing to 3.4 earn (PAYE) growing the most (Figure 17). The renewed percent and 23.3 percent. Gross non-performing loans buoyancy of revenues has benefited from the tax (NPLs) have gradually declined to 13.9 percent in August measures in the Finance Act 2021, which increased the tax 2021 after peaking at 14.6 percent in March 2021, consistent base. These include excise duty on additional products, with improving economic conditions. Kenya’s advanced the expansion of the digital services tax to social media state of digitalization prior to the pandemic placed the platforms, increased withholding tax in the mining sector, financial sector on relatively solid ground to adjust easily increased excise duty rates on telephone and internet data when the lockdown made in-person banking transactions services, and the reintroduction of excise duty on betting. more difficult. As a result, a notable development during Table 4: The banking system is sound, with credit quality being the main constraint (Percent of annual GDP) Statutory Jun-19 Sept-19 Dec-19 Mar-20 Jun-20 Sept-20 Dec-20 Mar-21 Jun-21 Requirement Capital Adequacy Total capital/RWA (CAR) ≥ 15 18.8 18.5 18.5 18.2 19.2 18.8 18.9 18.8 18.9 Asset Quality Gross NPLs to Gross Loans ≤5 12.0 12.5 13.1 13.6 14.1 14.6 14.0 14.6 14.0 NPLs Net of Specific ≤ 25 16.1 16.7 16.9 15.9 15.3 15.8 15.1 15.8 15.1 Provisions to Total Capital Profitability ROA (after-tax) ≥2 2.5 2.3 2.2 1.8 1.6 3.3 3.4 3.3 3.4 ROE (after-tax) ≥ 20 21.2 20.4 15.6 15.1 13.8 22.2 23.3 22.2 23.3 Liquidity Liquid assets/total assets ≥ 30 39.3 39.8 41.9 41.5 42.5 43.0 41.0 43.0 41.0 Liabilities ≥ 50 49.7 51.4 52.8 53.2 54.6 56.3 56.8 56.3 56.8 Source: Central Bank of Kenya 9 The Government of Kenya’s fiscal year runs from July to June. 10 December 2021 | Edition No. 24 The State of Kenya’s Economy Figure 17: Revenue collection increased in the first quarter of Figure 18: Kenya’s debt burden has increased FY2021/22 Tax revenue Income tax (other) PAYE Domestic Bilateral Multilateral Commercial banks Gross debt % GDP Import duty Excise duty VAT 68.2 80 70 100 63.0 56.5 59.6 80 70 54.5 60 60 50 40 yoy percent, 3mma 50 Percent of GDP USD billion 20 0 40 30 -20 30 -40 20 10 -60 -80 10 -100 0 -10 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Source: The National Treasury Source: The National Treasury Ongoing efforts to reduce tax expenditures are remained broadly unchanged as a share of GDP, consistent supporting domestic revenue mobilization. The with the government’s economic stimulus program and government has continued to implement measures to economic recovery strategy which has been allocated KES reduce tax exemptions and the number of zero-rated 46.2 billion or 0.4 percent of GDP in the FY2021/22 budget. goods, which were put in place before the pandemic in order to begin the needed fiscal consolidation. With Despite the revenue recovery, the pandemic has these measures, tax expenditures have declined from an exacerbated fiscal and debt vulnerabilities. The fiscal estimated 5.2 percent of GDP in 2017 to 3.0 percent of GDP deficit widened from 7.5 percent in FY 2019/20 to 8.2 in 2020, with VAT contributing to over 90 percent of the percent of GDP in FY2020/21 and the debt to GDP ratio decline.10 Sustained harmonization of exemptions would rose from 63.0 percent in FY 2019/20 to 68.2 percent in bridge the tax gaps in VAT and income tax, which account FY2020/21 (Table 5, Figure 18). In terms of composition, for more than three quarters of Kenya’s tax revenues. just over half of Kenya’s total public debt stock was external (52.1 percent in FY2020/21). Domestic debt Expenditure remains broadly steady in FY2021/22 in servicing is more than double that of external debt due to support of the economic recovery and management higher domestic interest rates, although the latter, while of the pandemic. During FY2020/21, both recurrent and cheaper, is subject to exchange rate risk.11 Government’s development expenditure decreased relative to nominal domestic debt refinancing risk has declined, as measured output, reflecting expenditure prioritization and cost- by the average time to maturity increasing from 6.3 years cutting measures, including reduced transfers to parastatals, in FY 2018/19 to 8.6 years in FY 2020/21. The government’s that were initiated before the pandemic to implement recent emphasis on lengthening the domestic debt term fiscal consolidation. However, the government increased structure and maximizing the use of concessional external spending on health, social protection, and economic financing (as opposed to more costly commercial debt) stimulus measures to help manage the pandemic. First has helped to reduce the risks and costs inherent in the quarter data for FY2021/22 show that expenditure public debt portfolio. 10 National Treasury. 2021. “Tax Expenditure Report”. 11 National Treasury. 2021. “Annual Public Debt Report” FY2020/21. December 2021 | Edition No. 24 11 The State of Kenya’s Economy Table 5: Fiscal operations 2019/20–2021/22 (Percent of annual GDP) 2019/20 2020/21 2021/22 Q1 2020/21 Q1 2021/22 Actual Preliminary Estimate Preliminary Preliminary Total revenue and grants 16.5 16.1 16.8 3.4 3.9 Revenue  16.4 15.8 16.3 3.3 3.8 Tax revenue 13.0 12.6 13.3 2.7 3.2 Income tax 6.7 6.1 6.5 1.3 1.6 VAT 3.6 3.6 3.8 0.7 1.0 Import duty 0.9 1.0 0.9 0.2 0.2 Excise duty 1.8 1.9 2.1 0.4 0.5 Other revenues 1.8 1.2 3.1 0.6 0.8 Grants 0.2 0.3 0.5 0.0 0.1 Expenditure and net lending 24.2 24.3 25.0 4.5 5.0 Recurrent 15.5 15.9 16.4 3.2 3.6 Interest payments 4.2 4.4 4.8 1.0 1.0 Domestic 4.1 4.4 3.8 0.7 0.8 Foreign interest due 3.0 3.4 1.0 0.3 0.2 Wages 1.1 0.9 4.2 1.0 1.0 Pensions 0.8 1.0 1.1 0.2 0.2 Other 5.9 5.8 6.3 0.9 1.3 Development 5.6 4.9 5.3 1.1 0.9 Transfer to counties 3.1 3.5 3.2 0.3 0.5 Deficit including grants -7.5 -8.2 -8.2 -1.1 -0.8 Primary balance -3.3 -3.9 -3.4 -0.1 0.2 Financing (net) 7.4 8.4 8.2 1.1 0.9 Foreign financing 3.2 2.9 3.3 -0.2 -0.2 Domestic financing 4.2 5.5 4.9 1.3 1.1 GDP in billion 10,620.8 11,304.1 12,628.1 Source: National Treasury; World Bank 2. Outlook and Risks 2.1. Kenya’s economic recovery is especially since September, the Kenyan government has expected to continue recently extended vaccine eligibility to include those Achieving adequate vaccine coverage is critical to aged 15–18. Still, Kenya, like most countries in the region, contain the spread of COVID-19 and allow for the full will miss the target of vaccinating 40 percent of the reopening of the economy. The government plans to population by end-2021. inoculate all 30 million people aged 18 and above against COVD-19 by end-2022. Despite low COVID-19 vaccine The economy is expected to continue its recovery hesitancy, the vaccination program in Kenya has lagged, trajectory in the near term (Table 6). GDP is projected due initially to considerable challenges in procuring and to grow by 4.9 percent per year on average in 2022–23, deploying vaccines. With improved availability of vaccines, supported by the ongoing vaccination drive, private 12 December 2021 | Edition No. 24 The State of Kenya’s Economy Table 6: Baseline economic outlook 2018 2019 2020 2021e 2022f 2023f   Annual percentage change Real GDP growth, at constant market prices 5.6 5.0 -0.3 5.0 4.7 5.1 Private Consumption 4.7 4.9 -2.7 5.2 5.0 5.8 Government Consumption  7.0 7.0 4.3 3.5 3.0 2.5 Gross Fixed Capital Investment  -0.4 3.8 3.4 4.0 3.6 5.3 Exports, Goods and Services 6.8 -3.2 -8.2 8.0 5.0 6.5 Imports, Goods and Services 1.4 1.8 -8.5 5.0 4.0 7.0 Real GDP growth, at constant factor prices 5.5 5.2 0.3 5.0 4.7 5.1 Agriculture  5.7 2.6 4.8 -0.1 4.0 3.0 Industry  3.8 3.4 4.0 5.2 3.6 4.3 Services  6.0 6.7 -2.2 6.7 5.2 6.0 Inflation (consumer price index) 4.7 5.2 5.3 6.0 5.0 5.0 Percent of GDP Current account balance -5.4 -5.3 -4.6 -5.3 -5.4 -5.5 Foreign direct investment, net 1.6 0.9 0.5 0.5 0.7 1.4 Fiscal balance/   1 -7.0 -7.3 -7.5 -8.2 -7.4 -5.7 Public debt/   1 56.5 59.6 63.0 68.2 69.8 68.6 Primary balance/ 1 -3.4 -3.4 -3.4 -3.8 -2.9 -0.9 Source: National Treasury; World Bank Notes: e=estimate, f=forecast, /1 2018 = FY2017/18 consumption aided by household income and job expected to weigh on food security and rural livelihoods, the growth, and fiscal consolidation that will free resources baseline projections assume normal rains in the medium- for private sector credit and growth. Strengthening term (2022–24), yielding sufficiently robust agricultural external demand is expected to support agriculture, harvests to drive food processing (manufacturing), sustain and the recovery in industry and services is expected to the growth of exports, help reduce inflationary pressures, continue, though services are expected to recover more and to support households’ consumption. Furthermore, gradually, with some sub-sectors having bounced back the outlook assumes rainfall sufficient to sustain growth (e.g., education) but others only partially and facing a more in the supply of both water and electricity (as hydropower protracted recovery (e.g., tourism). The baseline growth accounts for over ¼ of power generation). projection is 0.4 percentage points lower than that in the last KEU, due mainly to the revised and rebased historical From an expenditure perspective, private consumption GDP estimates which indicate a bigger economy with is expected to support aggregate demand. Private a moderately lower trend growth rate than previously consumption growth is projected to return to its pre- estimated (see Box 1). COVID-19 trend, supported by the ongoing labor market recovery, improved consumer confidence, and resilient Growth is expected to be broad-based, predicated remittances. In contrast, the growth of government on the continued adaptation of economic activities consumption and investment is expected to remain to the pandemic, vaccine rollout, and sufficient rains. subdued, as a result of the needed fiscal consolidation The anticipated recovery of hotels and restaurants, trade, efforts. General elections are scheduled to be held in transport, and other services is dependent on substantial August 2022, likely creating temporary headwinds for vaccination progress to prevent the need for stringent investment, based on the historical precedent suggesting containment measures to contain any new waves of that some private investment activity is usually paused infections. While the dry weather conditions in 2021 are ahead of elections. December 2021 | Edition No. 24 13 The State of Kenya’s Economy Strong external demand for Kenya’s exports and diaspora the return to pre-pandemic VAT and corporate income remittances also support the positive medium-term tax rates, rationalization of exemptions and zero-rated outlook. The recovery of global activity is projected to drive goods, introduction of a digital tax, and strengthened the demand for Kenya’s exports (tea and horticulture) and tax administration aimed at expanding the tax base and to sustain inflows of diaspora remittances. The removal of improving compliance, are expected to enhance revenue stringent lockdown measures will support gradual growth from 15.3 percent of GDP in FY2022/23 to 16.1 percent in international transport. However, the growth of tourism of GDP in FY2023/24. On the expenditure side, measures is expected to remain only moderate, as some international including tight recurrent spending control, and public travel restrictions and hesitancy could remain. The rise investment management improvements including the in oil prices is expected to contribute to a pick-up in the systematic implementation of project monitoring and import bill, contributing to the current account deficit in evaluation, will progressively lower expenditure as a share the forecast horizon. of GDP to 22.7 percent by FY2023/24.12 Public debt is projected to decline to 66.7 percent of GDP in FY2023/24. Fiscal consolidation and measures to reduce debt The government’s commitment to reduce external vulnerabilities should support investor confidence and debt vulnerabilities in the medium term is supported by private sector credit growth. The government’s medium- measures including prioritizing borrowing on concessional term fiscal framework targets that the fiscal deficit terms, improving debt management (including debt narrows to 4.4 percent of GDP by FY2023/24 (Figure 20), transparency and reporting), and deepening the domestic as non-priority expenditures are contained, and revenues debt capital market. Less public domestic borrowing will increase on the back of the economic recovery, and both also increase the room for lending to the private sector. policy and administrative measures. On the revenue side, Photo: © Erick Kaglan | World Bank 12 The National Treasury. 2021. ”Draft 2022 Budget Policy Statement”. 14 December 2021 | Edition No. 24 The State of Kenya’s Economy Figure 19: Kenya’s growth rate is projected to recover, but Figure 20: The baseline assumes medium term fiscal consolidation uncertainties remain elevated GDP growth baseline scenario December 2021 0 6 -2 4 Percent of GDP -4 -4.4 Percent 2 -6 -6.0 -8 -7.5 0 -8.2 -8.2 2018 2019 2020 2021 2022 2023 -10 -2 2019/20 2020/21 2021/22f 2022/23f 2023/24f Source: National Treasury; World Bank Source: National Treasury; World Bank Monetary policy is expected to remain oriented towards restructuring of loans (which ended on March 2, 2021), supporting the recovery. As is appropriate given the and free mobile money transfers for amounts less than improvement in economic conditions, the CBK has already KES 1,000 to encourage the use of mobile money (which long-since unwound some emergency financial regulatory expired on December 31, 2020). However, the low policy measures, including the six-month suspension on the rate in real terms (made feasible by moderate and well- requirement to list negative credit information with the anchored inflation expectations), reduced cash reserve Credit Reference Bureau (which expired on September ratio, and the government’s credit guarantee scheme, will 30, 2020), emergency measures on the extension and continue to support businesses and the economic recovery. Achieving adequate vaccine coverage is critical to contain the spread of COVID-19 and allow for the full reopening of the economy December 2021 | Edition No. 24 15 The State of Kenya’s Economy 2.2. Downside risks to the anticipated people. The Food and Agriculture Organization (FAO) recovery remain elevated estimates the number of severely food insecure people in The future course of the pandemic continues to Kenya at 2.4 million currently, a number which will increase constitute the main downside risk to the economic should the dry conditions persist.13 If the outcome of the outlook. Surges in COVID-19 related hospitalizations and October – December “short rains” is also disappointing (as deaths, including due to new and more transmissible appears likely) the human, social and economic costs of variants such as the recently identified Omicron variant the drought will continue to mount. of global concern, and a slower than anticipated pace of vaccination, could force the reinstatement of strict A slackening in global growth, higher than anticipated containment measures, setting back the economic energy prices, and tighter external financing conditions recovery. Increased fiscal pressures due to a renewed are the primary external risks. A setback to the global intensification of the pandemic in Kenya could crowd out economic recovery (notably due to a re-intensification of private investment and exacerbate debt vulnerabilities. the pandemic) could adversely impact Kenya’s exports, tourism, FDI inflows, and diaspora remittances. Should Intensifying drought conditions are severely affecting global food and energy prices continue to trend up, parts of the country and should this continue poses a there is a risk that this could filter into general inflation major downside risk to the economic outlook. The Arid expectations and narrow policy space. Kenya is integrated and Semi-Arid Lands (ASAL) part of Kenya is experiencing with global capital markets, and tighter global financial a severe drought, prompting the government to declare conditions associated with the policy normalization a national disaster in September, and scaling up its process in high income economies (especially the US) emergency response, including budgeting an additional could also prompt a quicker withdrawal of domestic KES 20 billion in drought-related spending. The United monetary policy accommodation, creating more Nations launched a flash appeal in October for emergency headwinds for the recovery. humanitarian aid to help the 1.3 million worst-affected 13 Food and Agriculture Organization, ‘Focus on East Africa’, November 2021. 16 December 2021 | Edition No. 24 Special Focus SPECIAL FOCUS Photo: © Jonathan Ernst | World Bank December 2021 | Edition No. 24 17 Special Focus 3. Creating more and better jobs through service sector-led economic transformation 3.1. Kenya faces a key challenge to accelerate To recover fully from the pandemic and to create more job creation jobs over the longer-term, there is a need to orient Kenya’s economy is not on track currently to produce policies consistently towards supporting a thriving a sufficient number of jobs to benefit from its private sector. This special focus section of this edition demographic dividend. As described in the previous of the KEU provides an update on the demand for labor edition of the KEU14, Kenya’s population is young and in Kenya. Over the medium-to-long-term encouraging growing, and the working age population (18-64) will competition and lowering barriers to firm creation and increase by 1 million individuals annually between 2020 growth, especially in sectors that have high job-creation and 2029. It will be important to ensure that there is potential, is key. Cross-cutting reforms such as enabling opportunity for this large number of young people to a stable business environment and improving access access better jobs. While Kenya experienced a period of to both physical and digital infrastructure can benefit all major economic transformation between 2006 and 2016, firms, across all sectors. Likewise, ensuring macroeconomic with a large share of employment transitioning out of stability, reducing the fiscal imbalance, and further agriculture into industry and services, this has since slowed strengthening debt management can free up more credit down, even prior to the onset of the pandemic. Movement for the private sector and support private investment, of employment from agriculture to other sectors stalled which in turn can increase productive job creation.15 between 2016 and 2019, labor force participation (LFP) decreased, unemployment increased, and employment Improving conditions to support firms’ entry, ability shifted from wage employment into self-employment. to scale up, and innovate is important to support the These changes affected the most vulnerable groups – creation of better jobs at a large scale. Many studies those living in NEDI counties; females; those with lower (Grover, Medvedev, Olafsen, 2019; Haltiwanger et. al., 2013, levels of education – by more than other segments of 2017) suggest that a small share of young firms which the population. Workers entering the labor force were are able to grow quickly create the majority of jobs over absorbed by low-productivity agriculture or service time. When such firms reach a critical mass, and are able sector jobs. to access larger markets, use technology, innovate, and expand exports, this results in increased productivity The COVID-19 pandemic had a very large impact on the and the creation of better-quality-jobs. In addition, if labor market; some of the scarring will have longer term these firms operate in sectors with significant spillovers implications. Workers lost jobs and moved into agriculture to other sectors, this leads to even greater job creation to survive. The services sectors, and urban areas were worst momentum, particularly across the skill spectrum, and affected. The share of employment in services declined by supports all segments of the population in attaining a 7 percentage points, reversing almost all the gains since higher standard of living. A reasonable number of formal 2005. Agriculture absorbed 1.6 million additional workers, firms enter the Kenya economy annually, but these increasing its share of employment from 47 percent to 54 businesses exhibit low dynamism in terms of both scaling percent in one year. Unemployment increased in urban up and technological upgrading.16 areas, while employment increased in rural areas. The share of workers in wage-employment decreased even further Economic transformation in Kenya is increasingly service- to 34 percent, only 2 percentage points above the share sector-led. In today’s industrialized countries, and in many in 2005/06. In addition to contemporary effects, human East Asian economies, labor intensive manufacturing was capital losses during the pandemic can have significant the pathway to the creation of a large number of better- inter-generational consequences, including through the quality and more-productive jobs. The manufacturing-led productivity of future generations. development model was able to quickly move lower-skilled 14 World Bank, 2021. “Kenya Economic Update: Rising Above the Waves”. 15 International Development Association, 2019. “Special Theme: Jobs and Economic Transformation”. 16 World Bank, 2021. “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”. 18 December 2021 | Edition No. 24 Special Focus labor from farms into factories, at scale, thereby leading to 3.2. A majority of firms in Kenya are small, rapid reduction in poverty and a growing middle-class. are based in Nairobi, and are in the However, new patterns of economic transformation are services sector emerging in most developing countries today. Structural A snapshot of Kenya’s private sector shows that most firms are transformation has taken the form of a shift from informal, small, mostly based in Nairobi, and in the services agriculture straight to services. Economic transformation sector. There are over 138,000 formal establishments in Kenya, in Kenya seems to also be following this pattern. There is and 7.4 million MSMEs. Among formal firms, only 3 percent also growing complementarity between manufacturing have 50+ employees, and only 1 percent of firms have 150+ and services. For example, a cell phone is a good, but it employees. The majority of MSMEs (94 percent) are unlicensed is tied to the use of telecommunications services, which micro firms, with fewer than 5 employees. Nairobi hosts 36 allow the user to install apps with purchased content that percent of formal firms, and 14 percent of MSMEs. The services can give rise to additional transactions such as audiovisual sector dominates the firm landscape: some 84 percent of services (streaming movies or music), publishing (e-books), formal firms and 83 percent of MSMEs are in the services sector. or computer services (video games).17 Policies that support growth in services can potentially help increase output The majority of firms in Kenya are small, whilst larger and productivity both in services and in manufacturing. firms account for a majority of jobs. Of the 138,190 formal establishments identified in Kenya, just under two-thirds This special focus section presents: (a) the characteristics have six or fewer employees (Figure 21).18 Only three of formal establishments and MSMEs in Kenya – MSMEs percent of firms have 50 or more employees, and firms make up 99 percent of all firms; (b) which types of firms and with 150 or more employees represent only one percent which sectors have seen increases in employment prior to of firms. This is similar to most other low and low middle- COVID-19; (c) the impact of COVID-19 on firms and jobs; income countries (Figure 22).19 Globally, average firm size (d) some measures to support MSMEs to grow and create increases with per capita income, with poorer countries more jobs; and (e) provides high-level recommendations having a lower average firm size and richer countries for creating better jobs for Kenya. skewed toward larger firms (Bento and Restuccia 2016). This remains the case for Kenya, including among MSMEs20. Figure 21: Small firms dominate the formal sector… Figure 22: …with 71 percent of formal firms in Kenya having less (firms categorized by number of employees, percent of total) than 10 employees 50 Small (<10 employees) Medium (10-100 employees) Large (>100 employees) 45 100 40 80 30 26 Percent 60 21 Percent 20 98 97 90 40 71 10 58 55 5 20 2 1 0 0-3 4-6 7-9 10-49 50-149 150 + 0 Number of employees Uganda Bangladesh Zambia Kenya Vietnam South Africa Source: Census of Establishments, 2017 Source: Census of Establishments, 2017 and Merotto et al (2018) 17 World Bank, 2021. “At Your Service? The Promise of Services-Led Development.” 18 Employees are the sum of all the different types of employees in the enterprise, including working-owners. 19 Micro firms comprise 50 to 95 percent of all firms in the 16 countries analyzed in Merotto, Weber, and Aterido, 2018. “Pathways to Better Jobs in IDA Countries”. The 16 countries discussed in the labor demand section of this report are Afghanistan, Bangladesh, Burkina Faso, Cabo Verde, Côte d’Ivoire, Kosovo, Moldova, Mozambique, Paraguay, Peru, Sierra Leone, South Africa, Tajikistan, Uganda, Vietnam, and Zambia. 20 Box 2 clarifies the various data sources used in this report, and the differences between formal establishments and MSMEs (which includes both formal and informal firms). December 2021 | Edition No. 24 19 Special Focus Micro-sized firms account for over 94 percent of all MSMEs Figure 23: Micro firms dominate MSMEs, but employ only a third of workers… (Figure 23). Further, a small number of firms account for a Micro (1-4 workers) Small (5-19 workers) Medium (20-99 workers) large number of jobs. Among MSMEs, firms with 5 to 99 Distribution of employees and rms employees represent only five percent of all firms, but 100 account for 67 percent of employment among MSMEs 80 (Figure 24).21 The primary sector (agriculture/mining), and some tertiary sector activities (the “other services” sector) 60 Percent are exceptions, having a share of employment in micro- 40 sized firms above 50 percent (Figure 24). 20 Both formal establishments and MSMEs are spatially concentrated, with few firms in NEDI counties. The 0 Employees Firms majority of formal establishments are located within Source: MSME survey, 2016 Nairobi, and this is particularly true of larger firms. About 40 percent of firms with over 150 employees and 32 percent sample (Figure 25). The finance sector has the highest of firms with between 50 and 149 employees are in Nairobi. percentage of formal firms (57 percent registered with Moreover, Nairobi also accounts for just under two-thirds of registrar of companies), the highest percentage of firms all formal firms with between 4 and 6 employees.22 Some 14 keeping records (82 percent), and the highest percentage percent of MSMEs are in Nairobi. There are agglomerations of firms with college educated owners (51 percent). In of firms in areas outside Nairobi – for instance in counties contrast and perhaps unsurprisingly, agribusiness has the such as Kakamega, Kajiado, Kiambu, Kisii, Machakos, Meru, lowest presence of registered firms (17 percent), lowest and Nakuru. At the same time, counties with high rates of level of ICT usage (50 percent), lowest number of firms poverty, such as Wajir, Samburu, Marsabit, Garissa, have a keeping records (35 percent) and after light manufacturing very small number of MSMEs. sector, has the lowest number of college educated business owners (16 percent).23 Most manufacturing There is significant heterogeneity in terms of average firms do not seem to reach scale and become large firm characteristics across sectors. Establishments are formal enterprises in Kenya. Among medium sized firms, predominantly in the services sector, comprising of the education, health and social security subsector is the 84 percent of formal firms and 83 percent of MSMEs. largest after trade, accounting for 22 percent of medium- Wholesale and retail trade are the most popular activities sized enterprises (Table 7). Most of these are pre-primary or of MSMEs representing more than fifty percent of the primary education enterprises. Figure 24: …except in the agriculture and “other services” sectors Figure 25: Most firms are in the services sectors Firms Employees Formal Firms MSMEs All Professional, admin, service Agriculture Utilities, construction, mining Transportation, storage Education, health, social security Other services ICT, nance, real estate Trade Transportation, storage Manufacturing Accomodation, food Agriculture ICT, nance, real estate Other services Utilities; construction, mining Accomodation, food Professional, admin, service Manufacturing Education, health, social security Trade 0 20 40 60 80 100 0 20 40 60 80 Percent Percent Source: MSME survey, 2016 Source: MSME Survey, 2016 and Census of Establishments, 2017 Note: Formal firms refer to the CoE data, while the MSMEs refer to the MSME survey data. Further details regarding these two surveys is included in Box 2 21 The total number of employees in an MSME is calculated by summing all the different employee types, including working owners. Some 67 percent of MSMEs have a single person working. Such single worker-owner enterprises are significantly different when compared to larger firms; and policy implications in terms of supporting such MSMEs in growing and thriving are also different. The forthcoming Job Diagnostic Lite report will include separate analysis of single owner/worker establishments and corresponding implications for policy. 22 KNBS, 2017. “Report on the 2017 Kenya Census of Establishments”. 23 World Bank, 2021. “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”. 20 December 2021 | Edition No. 24 Special Focus Box 2: Firm level data in Kenya There is no single dataset that covers formal and informal firms of all sizes in Kenya There is overlap of firms sampled across the various surveys used in this report, but the MSME survey sample includes a much larger universe of firms compared to the other surveys CoE Survey MSME Survey Enterprise Survey Formality Formal Formal & Informal Formal Size All 1-99 employees 5+ employees Sectors All Excludes primary activities All manufacturing sectors (Group D), with the exception of agri- the construction sector (Group F), business the wholesale and retail trade sector (Group G), the hotel and restaurants sector (Group H), and transport, storage, and communications sectors (Group I) Public/Private All - but National and All Private only County Government departments excluded The report relies on different firm-level data sources to CoE Survey analyse labor demand in Kenya. The three Surveys used in the Formal establishments with less than Formal establishments in the analysis in this special focus topic are: The MSME survey, the 100 employees non-agriculture economy Census of Establishments, and Enterprise Surveys. with 5 or more employees Formal firms only Excludes national and county governments departments The MSME Survey: This survey was implemented by KNBS in Formal establishments in the non-agriculture 2015/16 and covers both registered and unregistered firms economy with 5 to 99 employees with between 1 and 99 employees. The survey design used 1 to 99 employees only Formal and informal business registers – from the database of the Single Business Excludes primary activities except for agri-business Formal firms in the non- agricultural economy 5 or more employees Permits (SBP) maintained by the 47 county governments. This was supplemented by a household survey to capture mobile MSME Survey Enterprise survey businesses and those operated from within households. The survey covers non-primary product activities with the exception of agri-business which is included. The total number of MSMEs was estimated to be 7.4 million, 5.85 million of which are unlicenced and 1.56 million licenced enterprises. CoE survey: The 2017 Census of Establishments (CoE) survey was also implemented by the KNBS and covered all formal business establishments in Kenya. An establishment is defined as an economic unit that produces and/or sells goods or services and operates from a single physical location. If a business/enterprise/firm has several locations, each is termed as a separate establishment. Such establishments need to be identified as formal at the federal level, which restricts the universe of firms, with only a total of 138,190 formal establishments identified and interviewed. Note that this universe is much smaller when compared to the MSME survey, even if only the licensed MSMEs (1.56 million) are taken into account. Enterprise Surveys: The World Bank Enterprise Surveys from 2013 and 2018 cover formal firms with five or more employees in the non- agricultural private economy. This consists of the following groups from the group classification of ISIC Revision 3.1: all manufacturing sectors (Group D), the construction sector (Group F), the wholesale and retail trade sector (Group G), the hotel and restaurants sector (Group H), and transport, storage, and communications sectors (Group I). The definition excludes financial intermediation (Group J), real estate and renting activities (Group K), except sub-sector 72 (i.e., Computer and related activities), which was added, and all public or utilities sectors. The 2013 sample is stratified across five regions: Central, Nyanza, Mombasa, Nairobi, and Nakuru, while the 2018 sample is stratified across Mombasa, Kilifi, Machakos, Kirinyaga, Kiambu, Trans Nzoia, Uasin Gishu, Nakuru, Kisumu, and Nairobi. December 2021 | Edition No. 24 21 Special Focus Table 7: Trade firms are dominant among micro and small firms, with medium-sized firms being more diverse across sub sectors Micro (1-4 Small (5-19 Medium (20- All employees) employees) 99 employees) Trade 62 63 49 26 Manufacturing 12 12 13 10 Accommodation, food 9 9 13 16 Other services 7 7 5 3 Agriculture 3 3 1 1 Transportation, storage 3 3 2 5 ICT, finance, real estate 2 2 4 8 Education, health, social security 1 1 9 22 Utilities, construction, mining 1 1 2 5 Professional, admin, service 1 0 3 5 Source: MSME Survey, 2016 3.3. Job creation has been strongest in the or younger is 53 percent (Figure 26), and Kenya displays services sector high firm creation relative to its level of development. The Kenya has a relatively high entry rate of new firms compared registration of new businesses is equal to 1.5 per 1,000 to other countries with similar levels of per capita income. working-aged individuals, a level similar to the average rate However, there seems to be significant constraints in terms of in the region. However, compared to global peers, Kenya’s scaling up. Further, job creation has been much stronger in the firm creation is significantly higher and approximates peers services sector compared to the industrial sector in the years with higher levels of GDP per capita (Figure 27). There is prior to the onset of the COVID-19 pandemic. also a high rate of exit of firms. For instance, the number of new businesses registered in 2017 and 2018 is equivalent to Young and small firms are the primary source of job around 30 percent of the total stock of businesses reported growth, and Kenya compares relatively well in terms in the CoE in 2017. Similarly, 30 percent of all micro-sized of new business formation. Globally, there is evidence MSMEs are only 1-2 years old. High entry and exit of firms that firms’ age, rather than size, matters for job growth, can suggest a dynamic economy if the firms that survive in the US, India and Mexico.24 In Kenya, among MSMEs, are more productive and grow. the share of employment in firms that are five years Figure 26: Over half of MSMEs have been operating for 5 years Figure 27: Firm creation is high in Kenya for its income level or less Share of rms Share of employment 100 90 South Africa Vietnam 80 New registered businesses per 1,000 Ghana 10 Kenya 70 working-aged (log scale) Rwanda Cumulative Share 60 Malaysia 50 1 Colombia 40 Cambodia Sri Lanka Senegal 30 Philippines 0.1 20 10 Bangladesh 0 0.01 0 1 2 3 4 5 6 7 8 9 10 1,000 4,000 16,000 64,000 Firm Age GDP per capita (log scale) Source: MSME survey, 2016 Source: World Bank Group Entrepreneurship Survey and World Development Indicators. Note: The countries used in the analysis as global peers for comparison include: Sri Lanka; Malaysia; Philippines; Bangladesh; Vietnam; Cambodia; Senegal; Colombia; and Rwanda.25 24 See, for example, Haltiwanger et al (2013), Hseih and Klenow (2014), and Merotto et al (2018) (who find that employment growth slows with firms’ age in based on panel data for Moldova, Côte d’Ivoire, Vietnam, South Africa, and Kosovo). 25 The selection of countries considered several factors, including the economic diversity of the economies, both in terms of size of the country and per capita income, as well as qualitative information in consultation with local experts. 22 December 2021 | Edition No. 24 Special Focus In the formal private sector, job creation has been accommodation and food services; and wholesale trade); and greatest in the services sectors. Between 2013 and 2018, the low-skilled domestic services (arts, entertainment, and the number of firms and the number of private sector jobs recreation; retail trade; and personal services). in retail and “other services” grew rapidly (Figure 28 and Figure 29).26 For instance, the number of formal firms in The good news for Kenya: prior to the pandemic, Kenya saw the retail sector increased five-fold – from around 700 in strong growth in employment and especially exports within 2013 to 3,500 in 2018. This outpaced the growth of firms the global innovator services sub-sectors albeit from a small in the manufacturing sector, the number of which roughly base. Employment also grew strongly, in skill-intensive social doubled over this period, from 336 to 714. The only sub- sub-sectors of education and health. sector where the number of firms did not increase over this period was the food and beverages sub-sector; however, Could Kenya also benefit from economic transformation the existing firms in this sector grew in size, resulting in an through the services sector-led transformation? increase in the number of jobs. The “other services” sector Historically, manufacturing has played a key role in the early saw the largest increase in jobs as well, increasing by over stages of structural transformation, absorbing workers 250 percent between 2013 and 2018. from agriculture into more productive jobs.27 However, the landscape for manufacturing led growth has changed, 3.4. Kenya has seen growth in employment including due to China’s scale of production and the and in exports in the global innovator greater levels of industrial automation in high-income services sub-sectors countries.28 African countries across all levels of income With services driving job creation, Kenya exemplifies a new are less industrialized than their Asian counterparts. In pattern of economic transformation which may differ Kenya, workers leaving agriculture have been absorbed significantly from the manufacturing-led transformation of largely by services. many existing high income economies. The growth in digital technology could enable some service sub-sectors in sharing Skill-intensive and tradable services may be able to features with the manufacturing sector that enable scale, play a larger role in economic transformation than innovation, and spillovers that are important for long-term previously expected. The long-term development and development and job creation. The services sector can be job creation potential of any sub-sector depends on its divided into four groups of sub-sectors based on their ability to capacity to achieve scale, foster innovation, and generate enable scale, innovation, and spillovers – the global innovator positive spillovers for the wider economy. These features services (ICT, finance, and professional activities), the low- are commonly associated with export-led manufacturing. skilled-intensive social services (education and health); the However, the growth in digital technology could enable low-skilled tradable services (transportation and storage; some service sub-sectors to also develop these features. Figure 28: The number of formal firms has grown Figure 29: …as have jobs predominately in the services sectors… 2013 2018 2013 2018 4,000 200,000 160,000 3,000 120,000 Firms Number of jobs 2,000 80,000 1,000 40,000 0 0 s s, g s s, g en nd rv er en nd rv er ism pl u l, ism ra nd pl u l, ra nd tic al rin tic al rin s d ce ica ac r s d ce ica ail ac r il se Oth se Oth uf he ice uf he as tic ice rm e a as tic s rm e a s ta ts ve a ts tu ve a tu ge ge t ur ur an a m an rma em Re an Ot Re be ood an Ot be ood ga xtil ga xtil To To ar he a h Te Te ph C F ph C F m m m Source: Kenya Enterprise Surveys 2013 and 2018 Notes: The sectors refer to the following ISIC Rev 3.1 codes: Food and Beverages (ISIC code 15); Textile and Garments (ISIC codes 17 and 18); Chemical, Pharmaceutical, and Plastics (ISIC codes 24 and 25); Other manufacturing (ISIC codes 16, 19–23, 26–37); Retail (ISIC code 52); Tourism (ISIC code 55); and Other services (ISIC codes 45, 50, 51, 60–64, 72). 26 The enterprise survey sample only covers firms with 5 or more employees in the non-agricultural sector. 27 Kriticos, S. and Henderson, V. 2019. “The prospects for manufacturing-led growth in Africa’s cities.” IGC Growth Brief Series 020. London: International Growth Centre. 28 World Bank, 2021. “At Your Service? The Promise of Services-Led Development”. December 2021 | Edition No. 24 23 Special Focus For instance, information and communications technology Figure 30: The service sector consists of different sub- sectors with different skill requirements and potential for (ICT) has made services more storable, codifiable, and international trade transferable, and therefore more scalable. ICT services have Traded internationally also increased linkages to other sectors. The services sector can be divided into four groups of sub-sectors, with different Low-skilled tradable Global innovator services services features (Figure 30).29 Global innovator services (finance; ICT, Transport and storage Accommodation and food Finance ICT and professional, scientific and technical activities) display Wholesale trade Professional, scienti c and technical services the maximum scope for scale, innovation, and spillovers, Less More but are also skill-intensive. Low-skilled tradable services skill-intensive skill-intensive Low-skilled domestic (transportation and storage; accommodation and food; services Retail trade Skill-intensive social services and wholesale trade) are internationally traded and also Administrative and support Arts, entertainment and Education Health recreation create jobs for unskilled labor. Skill-intensive social services Other social, community and personal services (education and health) are less traded internationally and tend to employ relatively few low-skilled workers. Finally, Traded domestically the low-skilled domestic services (retail trade; administrative and support; arts, entertainment, and recreation; and other In contrast, the low-skilled tradable sector’s share of service social, community and personal services) provide little by employment remained constant, and the low-skilled way of productivity-enhancing potential through scale, domestic share declined. These declines are still from very innovation, and linkage, but employ relatively high shares high levels, with the low-skilled domestic services still of low-skilled workers. accounting for over half of all service sector employment, and the low-skilled tradable sub-sectors for one-quarter, in Low skilled services currently dominate employment in 2019 (Figure 32). In comparison to its regional peers, Kenya Kenya, but there has been rapid job growth in the skill- has the lowest share of service employment in the low- intensive services sub-sectors. The share of service sector skilled domestic sub-sectors (Figure 33). employment has grown between 2015/16 and 2019 in both the global innovator and skill-intensive social sub- Kenya’s fintech success story highlights how global sectors, both of which are reliant on higher-skilled workers innovator services can be a source of job creation, (Figure 31). Global innovator growth was driven entirely reduce poverty and benefit the broader economy. The by the finance and insurance sub-sectors. Skill-intensive introduction of M-PESA is estimated to have lifted an social subsector growth was driven by the education and approximate 2 percent of Kenyans out of poverty, primarily health sub-sectors, which accounted for a larger share of by inducing women to enter into business or retail trade.30 services employment in 2019 (Table B2 in annex tables). As such, M-PESA highlights how growth in this sector Figure 31: Employment has grown in the high-skilled services Figure 32: …although low-skilled services sub-sectors still sub-sectors between 2016 and 2019… dominate employment in 2019 25 23.3 60 52.0 Share of services employment (percent) 20 50 15 40 Percent change 10.0 30 10 22.2 20 16.4 5 2.4 10 0 5.1 -0.4 0 -5 Global Skill-intensive Low-skilled Low-skilled Global Skill-intensive Low -skilled Low -skilled innovator social tradable domestic innovator social tradable domestic Source: World Bank calculation based on KIHBS 2015/16 and KCHS 2019 Source: World Bank calculation based on KIHBS 2015/16 and KCHS 2019 29 This classification is taken from the recent World Bank publication, World Bank, 2021. “At Your Service? The Promise of Services-Led Development”. 30 Suri, T. and Jack, W., 2016. “The Long-run Poverty and Gender Impacts of Mobile Money.” 24 December 2021 | Edition No. 24 Special Focus Figure 33: Service sector employment is still dominated by the Figure 34: …although in Kenya global innovator services have low-skilled domestic sub-sector… an increasing share of service exports Global innovator Low-skilled tradable Global innovator services Low-skilled tradable Other services sectors Low-skilled domestic Skill-intensive social 100 100 Share of services sector employment (percent) 90 80 Percent of services exports 80 70 60 50 60 40 30 40 20 10 20 0 2005 2017 2005 2017 2005 2017 2005 2017 2005 2017 2005 2017 2005 2017 2005 2017 0 Kenya Ethiopia Rwanda Tanzania Uganda Ghana Zambia Kenya Ethiopia Rwanda Tanzania Uganda Angola Ghana Zambia Source: World Bank, 2021. “At Your Service? The Promise of Services-Led Development.” Source: World Bank, 2021. “At Your Service? The Promise of Services-Led Development.” can help create jobs across the whole skills spectrum. By services exports and was only surpassed by transportation reaching different areas through its agent model, financial and storage exports (38 percent). In comparison to its inclusion has significantly increased with at least 83 percent peers, only Ghana outperforms Kenya in terms of the share of the population having access to basic financial services of services exports from the global innovator sub-sectors at a minimum.31 in 2019.32 Kenya’s marked progress on skill-intensive job creation is 3.5. COVID-19 impacts: a huge hit to firms and jobs, including in services promising for growth prospects; it would be important to ensure that growth is also inclusive. The growth in skill- Employment was hit hard, in particular in the very sectors intensive sub-sectors is promising for longer-term job and that grew prior to the pandemic – the number of individuals income growth in Kenya. However, these jobs still account employed in the global innovator services declined by one- for only a small fraction of total jobs, and employment in quarter and the skill-intensive services lost almost half of all these sub-sectors is concentrated among the highly skilled. jobs between 2019 and 2020, with larger losses in the education It would be important to ensure that jobs are created for sector due to the closure of schools. The signs of recovery are all skill levels, including lower down the skills spectrum, to positive, with most firms having reopened by April 2021 but ensure that growth is inclusive. For example, tourism brings sales and jobs have not fully returned to pre-pandemic levels. significant benefits for employment and wages in Mexico (Faber and Gaubert 2019). With appropriate investment in The COVID-19 pandemic created enormous challenges physical infrastructure, better roads, and so on, the tourism for the private sector. Firms have faced lower demand for sector has great potential to further benefit the Kenyan goods and services as a result of reduced consumption. economy, and continue creating jobs for low-skilled labor. Mobility restrictions have impacted both trade of Supporting the expansion of other sectors with similar goods and movement of people, both domestically potential can help ensure that growth is inclusive and jobs and internationally. Furthermore, due to disruption to are created across the skills spectrum. supply chains, firms’ access to intermediate goods and labor has been limited. Access to cash and credit has also Kenya has seen strong growth in the share of services decreased and general uncertainty has limited investment exports in the global innovator sub-sectors. In addition to and innovation projects.33 As a result, a few months into growth in employment, Kenya has also seen strong growth the pandemic, a quarter of firms closed. There has been in exports in the global innovator sub-sectors. The share gradual improvement as economic activity resumed, of global innovator sub-sectors exports increased from 12 with the probability of firms being open reaching over 90 percent of services exports in 2005 to 32 percent in 2017 percent in the most recent period for which we have data (Figure 34). This was largely driven by growth in finance (March to May 2021, Figure 35). and insurance exports, which accounted for 18 percent of 31 Chitavi, M., Cohen, L., and Hagist, S. C. N., 2021. “Kenya Is Becoming a Global Hub of FinTech Innovation.” 32 World Bank, 2021. “At Your Service? The Promise of Services-Led Development”. 33 World Bank, 2020. “Quantifying the initial impact of COVID-19 shock on businesses in Kenya”. December 2021 | Edition No. 24 25 Special Focus Box 3: COVID-19 Firm Survey Methodology The Kenya COVID-19 Business Pulse Survey (COVID-19 BPS) is based on a nationally representative sample. The sample consists of 2,070 formal firms randomly selected from the universe of firms available in the 2017 Census of Establishments from the KNBS. The sample was stratified by firm size groups and sector of activities. The analysis regrouped the size and sectors of activities for the sake of comparability across over 50 countries. The response rate was 37 percent, including all firms that the survey team attempted to reach. Wave 1 of the survey was conducted between June 10 and August 30, 2020; wave 2 between September and October 2020; and wave 3 between March and May 2021. The team used computer-assisted telephone interviewing through Survey CTO platform. To produce nationally representative results, the results presented in this report are calculated using sampling weights. Firms’ sales, initially hit hard, have gradually improved, Services employment was hit particularly hard by the although as of mid-2021 they still remain below pre- COVID-19 pandemic. With the restriction on movement pandemic levels. Early in the pandemic, large firms and of both people and goods, sectors that rely on exports agricultural firms were less affected by a decline in sales, were most affected. The number of individuals employed although both still experienced an average decline of just in the global innovator sub-sectors declined by one- under 50 percent. By the second quarter of 2021, sales had quarter between 2019 and 2020 (Figure 39). The scale of partly recovered, although still some 20 percent below pre- losses is similar across the ICT, finance and insurance, and pandemic levels (Figure 36 and Figure 37). Furthermore, professional, scientific, and technical services sub-sectors. firms have gradually become more optimistic about Closure of schools affected the skill-intensive sub-sectors, future sales across the pandemic, expecting positive with larger losses in the education sector. The lower skilled sales growth over the next six months from the date of sectors also experienced job losses of varying degree, interview (Figure 38). except for the transportation sub-sector (Table B1 in annex Figure 35: The probability of a firm re-opening has increased Figure 36: …however, sales remain below pre-pandemic levels in recent months… across all firm sizes... 100 Wave 1 Wave 2 Wave 3 93 Micro Small Medium Large Probability of being open (percent) 81 (0-4) (5-19) (20-99) (100+) 80 76 0 60 -20 Change in sales (percent) -23 -29 -26 -28 -31 40 -40 -44 -43 -43 -45 20 -60 -62 -60 -63 0 Wave 1 Wave 2 Wave 3 -80 Source: Kenya COVID-19 BPS Source: Kenya COVID-19 BPS Figure 38: In 2021, firms have started to become more optimis- Figure 37: …and across sectors tic about future sales Wave 1 Wave 2 Wave 3 30 Expectation about changes in sales (percent) Agriculture Manufacturing Retail Other services 0 20 11 10 Change in sales (percent) -20 -20 -25 -30 -28 -29 0 -40 -36 -36 -10 -9 -47 -47 -60 -56 -54 -20 -65 -23 -30 -80 Wave 1 Wave 2 Wave 3 Source: Kenya COVID-19 BPS Source: Kenya COVID-19 BPS 26 December 2021 | Edition No. 24 Special Focus Figure 39: Job losses occurred across all service sub-sectors, Figure 40: ...increasing the share of lower-skilled services especially the more skilled... sub-sectors 10 60 52.5 Share of services employment (percent) 0.2 50 0 40 Percent change -10 -12.5 30 25.6 -20 -23.2 20 -30 11.7 10 4.5 -40 -37.9 0 Global Skill-intensive Low-skilled Low-skilled Global innovator Skill-intensive Low-skilled Low-skilled innovator social tradable domestic social tradable domestic Source: World Bank calculation based on KCHS 2019 & 2020 Source: World Bank calculation based on KCHS 2019 & 2020 tables). As the economy recovers from the pandemic 3.6. To recover fully from the pandemic, shock, it will be important to get back on track with bolster job creation and scale-up among the longer-term economic transformation, as many of firms, the entrepreneurial ecosystem needs to be strengthened the high skilled services sub-sector firms have been the Most establishments in Kenya are MSMEs. Despite high worst affected by the pandemic, leaving employment levels of firm creation, the private sector underperforms in levels lower in these sub-sectors in 2020 compared to Kenya compared to its regional and global peers, in terms of 2015/16 (Table B2 in annex tables). the ability of firms to scale up. To improve entrepreneurship outcomes, Kenya will need to invest in improving the The financial health of firms has gradually improved ecosystem – which consists of supply factors such as physical since the onset of the pandemic. The probability of a capital and infrastructure; demand factors such as the size of firm falling into arrears has fallen from just under three- the internal market; and accumulation/allocation barriers, quarters in mid-2020 to just under one-third in the second such as access to finance. On supply factors, Kenya has quarter of 2021 (Figure 41). Furthermore, firms have greater fewer people accessing the internet compared to peers and availability of cash compared to early in the pandemic. In a smaller share of graduates in science and engineering. mid-2020, the average duration a firm could operate with There is also a striking gap between Kenya and the leading available cash was just under 7 weeks.34 However by early peers on knowledge capital, i.e., the supply of researchers and in 2021, the average duration had increased to 22 weeks the quality of top universities. On demand factors, Kenyan (Figure 42). entrepreneurs face an internal market that is smaller than Figure 41: The likelihood of falling into arrears has decreased Figure 42: …with an increasing availability of cash in 2021 since the start of the pandemic… Mean Median 80 30 28 71 Probability of falling in arrears (percent) 25 60 22 50 20 16 Weeks 40 31 10 20 0 Weeks to continue Weeks to continue 0 operating with cash available operating with cash Wave 1 Wave 2 Wave 3 available + external nance Source: Kenya COVID-19 BPS Source: Kenya COVID-19 BPS 34 World Bank, 2021. “Socioeconomic Impacts of COVID-19 in Kenya On Firms.” December 2021 | Edition No. 24 27 Special Focus other MICs. Kenya does have good management quality, accumulation of human capital and adoption and diffusion although it lags behind in technological capabilities. In terms of innovation (Jiménez, Matus, and Martínez, 2014). of accumulation/allocation barriers, businesses in Kenya face Improvement in internet coverage is fundamental for challenges in access to finance and the regulatory framework Kenya to develop a sound entrepreneurial ecosystem and compared to other economies. compete globally. The quality of local human capital directly impacts on entrepreneurship through the availability of The large number of MSMEs in Kenya need an high-quality entrepreneurs – and their teams and support entrepreneurial ecosystem that enable them to establish organizations– who can manage the many challenges themselves, grow and innovate. There are about 7.5 of a growth focused business. Moreover, science and million MSMEs in Kenya, compared to about 140,000 engineering graduates, if supported by complementary formal establishments. Kenya’s long-term development policies, are especially pivotal for empowering the depends on today’s MSMEs becoming more professional, manufacturing and technology sectors. However, there more productive, and much bigger (i.e., their ability to is still much room for Kenya to catch up with the top scale up). An enabling entrepreneurial ecosystem helps performers, such as the Philippines and Vietnam, whose entrepreneurs access physical capital, human capital, and shares of science and engineering graduates in tertiary knowledge in input markets; combine these resources in graduates is almost double that of Kenya. On knowledge the production process; and sell the final good or service capital, there is also a striking gap between Kenya and the in output markets (Figure 43).35 This production process leading peers regarding the supply of researchers and top takes place in an ecosystem— the county in the context of universities’ quality (World Bank 2021). Kenya—characterized by the quality of entrepreneurship inputs, infrastructure, regulatory environment, and On demand factors, Kenyan entrepreneurs face an entrepreneurship outcomes.36 The section below briefly internal market that is smaller than other middle-income examines each of the three pillars of the ecosystem and countries (MICs). Kenya does have good management Kenya’s relative performance. quality, although it lags behind in technological capabilities and few researchers are part of business enterprises. The On supply factors, Kenya has fewer people accessing internal Kenya market is larger than the SSA average, but the internet compared to peers and a smaller share of it is much smaller than other MICs (Figure 46). Currently, graduates in science and engineering. Kenya’s low internet Kenyan firms need to export in order to extend the usage imposes an immense challenge on the digitalization market they serve to reach scale. The adoption of good process, which has become ever more urgent given the managerial practices is positively associated with business COVID-19 pandemic and expected post-pandemic digital performance.37 The World Management Survey shows that reformation (Figure 44). It can also severely impede the despite better performance compared to peers, Kenya still has room to improve (Figure 47).38 In terms of technological Figure 43: Entrepreneurial Ecosystem Framework capabilities, Kenyan firms outperform the SSA average Entrepreneurship output (Figure 48). Finally, with regards to entrepreneurial skills, Kenya has a relatively small number of researchers involved New rms Firm growth Innovation (entry) (scale up) (upgrade) in business enterprises (Figure 49). Entrepreneurship ecosytem pillars Supply factors Accumulation/ Demand In terms of accumulation/allocation barriers, businesses (inputs) allocation barriers rms in Kenya face more challenges in access to finance Physical capital and infrastructure Access to nance Access to market and the regulatory framework compared to other economies. Kenya performs well in terms of social Human capital Regulations Firm capabilities capital and cultural barriers. The availability of credit is a Social capital Entrepreneurial Knowledge capital and culture characteristic crucial element in promoting and developing MSMEs. Just under one in five firms cite access to finance as a major Source: World Bank (2020) 35 An entrepreneurial ecosystem is a set of complementary factors, such as knowledge and resources, available through institutions and individuals within a specific geographical location to support the development of new and economically impactful businesses. Much of this section of the report is summarized from “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”, World Bank 2020. 36 Cruz, Torres, and Trang, 2020. 37 Bloom and Van Reenen, 2002. “Patents, Real Options and Firm Performance”. 38 The sample is restricted to businesses in manufacturing with 50+ employees. 28 December 2021 | Edition No. 24 Special Focus Figure 44: A smaller fraction of people access the internet in Figure 45: …and the share of graduates in science and Kenya compared to peers … engineering could also improve 90 35 Fraction of population using the internet 81 32 Graduates in science and engineering 80 30 29 70 70 64 60 25 23 24 60 56 19 20 50 46 20 16 17 40 15 40 34 14 15 30 11 22 10 20 18 19 15 10 5 0 0 Bangladesh Kenya SSA Rwanda Sri Lanka Cambodia Senegal South Africa Philippines Colombia Vietnam Malaysia Bangladesh Rwanda Cambodia SSA Kenya South Africa Sri Lanka Vietnam Colombia Philippines Malaysia Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic. World Bank, 2021. the Aftermath of the Pandemic. World Bank, 2021. challenge in 2018.39 Commercial lending rates in Kenya are There are already significant resources available through much higher, at around 13 percent, compared to most of public programs and intermediary organizations that its peers (Figure 50). Furthermore, business regulations play support entrepreneurship and MSMEs, and more effort an important role in promoting MSME development at all is needed in ensuring businesses can access information stages of the business life cycle. The regulatory burden for about such support. A mapping of 33 public programs Kenyan firms is also much higher with senior management reveals that access to finance, human capital development, of businesses in Kenya spending significantly more time management training, and support to infrastructure are the in dealing with regulations than in other peer countries main services provided, while issues such as entrepreneurial – highlighting the complexity and inefficiency of the mindset, knowledge and R&D, or regulatory environment business environment in Kenya (Figure 51). Finally, Kenya are covered to a lesser extent by these public programs.41 is doing well compared to its peers in barriers associated In addition, a large share of funds are allocated to programs with social capital and culture, with the fraction of Kenyan in Nairobi (i.e., 36 percent of budget). In order to ensure firms with women managers above the regional average. that businesses most in need can also benefit from such In addition, Kenya has the highest social capital index score programs, it will be important to improve transparency and among its regional and global peers.40 access to information about such support programs. Figure 46: The size of Kenya’s domestic market is far smaller Figure 47: …although Kenya displays good management than other MICs… quality for its income level42 1,200 3.4 1000 956 3.2 Index of Managerial Capabilities 1,000 Domestic market scale 758 791 3.0 800 708 749 600 2.8 Vietnam Kenya 400 2.6 293 177 2.4 Colombia 200 118 60 70 27 2.2 0 Ghana Rwanda Senegal Cambodia SSA Kenya Sri Lanka Vietnam Colombia Bangladesh South Africa Philippines Malaysia 2.0 1,000 4,000 16,000 64,000 GDP per capita (log scale) Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic. World Bank, 2021. the Aftermath of the Pandemic. World Bank, 2021. 39 World Bank Enterprise Survey, 2018. 40 Cultural attitudes towards entrepreneurship can help or hinder the preparedness of potential entrepreneurs to choose entrepreneurship (over other paths) and create and implement a new business idea. A positive attitude in the society towards entrepreneurship as a career choice and the existence of networks and role-models encourages entrepreneurial activities. 41 “World Bank, 2020. “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”. 42 Sample is restricted to businesses in manufacturing with 50+ employees. December 2021 | Edition No. 24 29 Special Focus Figure 48: Kenya’s technological capabilities outperform the Figure 49: …and few researchers are involved in business SSA average… enterprises 70 internationally recognized quality certi cation 35 63 Research talent in business enterprises 30 30 60 25 50 Share of formal rms with 22 20 20 40 17 15 16 15 12 30 22 23 24 10 10 8 9 20 18 8 11 5 10 7 2 4 0 0 0 Sri Lanka Rwanda Senegal Malaysia Cambodia SSA Vietnam Bangladesh Kenya Philippines Colombia Senegal Colombia Cambodia SSA Kenya South Africa Malaysia Sri Lanka Vietnam Philippines Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic. World Bank, 2021. the Aftermath of the Pandemic. World Bank, 2021. In addition to public programs, there are several 3.7. Accelerating private sector job creation intermediary organizations supporting MSMEs for a resilient recovery entrepreneurship ecosystem in Kenya. The services The main challenges facing Kenya as it aims to recover offered by these organizations in many cases are meant from the pandemic and accelerate job creation are three- to complement those offered by public programs fold: (1) creating conditions that support firms in entering requiring large coordination efforts.43 Most typical the market, in scaling up, and in innovating through the intermediary organizations in the sample are financial creation of strong entrepreneurial ecosystems; (2) reversing institutions, incubators, and accelerators. This is followed the losses in jobs during the pandemic in sectors such as by international organizations, industry associations, and global innovator services and skill-intensive social services research institutions. The main type of services provided by to help increase the availability of better-quality jobs over these institutions are related to finance, managerial training, the long-term; and (3) raising demand for jobs in labor and collaboration and networking. While public programs intensive, lower skill sectors, including through linkages to in Kenya are more likely to target manufacturing firms, the the more skill-intensive sub-sectors. Intermediary Organizations are more sector agnostic. Figure 50: Kenya has a high average lending interest rate… Figure 51: …and firms face significant regulatory burdens 18 17 25 Senior management time dealing 16 14 20 19.5 Lending Interest Rate (%) 13 with regulations (%) 12 11 12 16.4 10 15 10 10 8 7 8 10 8.6 6 5 5 7.0 4 5.4 5 3.3 2 3.0 3.0 3.1 1.7 1.7 0 0 South Africa Bangladesh Philippines Colombia Sri Lanka Malaysia Vietnam Senegal Rwanda Kenya Vietnam Sri Lanka Rwanda Senegal Malaysia Bangladesh Philippines SSA Kenya Cambodia Colombia Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in Source: MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic. World Bank, 2021. the Aftermath of the Pandemic. World Bank, 2021. 43 World Bank, 2020. “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”. 30 December 2021 | Edition No. 24 Special Focus Creating conditions that support firms in entering the needs of businesses in the different local ecosystems, market, in scaling up, and in innovating through the while collaboration within and across counties should creation of strong entrepreneurial ecosystems be encouraged, such as in obtaining licenses. (4) Improve firm capabilities and entrepreneurial (1) Support access to finance: It is important to prevent skills. This can help contribute to improved business the insolvency of viable firms due to temporary performance and greater job creation. The adoption of illiquidity as a result of COVID-19. Addressing liquidity good management practices can help with business constraints caused by COVID-19 on lenders like SACCOS performance and the variation in managerial quality and microfinance institutions can help them, in turn, can explain the majority of differences in productivity resume lending to MSMEs. In the slightly longer term, across firms.45 Furthermore, while there appears to the further development and promotion of sustainable be a high appetite for entrepreneurial risk, many de-risking instruments (such as the Credit Guarantee entrepreneurs are relatively low-skilled and are in self- Scheme by National Treasury) could be useful to employment due to necessity rather than choice.46 encourage financial institutions to lend to MSMEs. (5) Provide business development services such as (2) Reduce barriers to technology adoption. Most general business training, specific technical training, managers cite lack of demand, uncertainty, a lack of and management advice. Evidence on business finance, and a lack of capabilities as the main relevant training focusing on improving business practices for barriers to the adoption of technology. Improving SMEs across countries suggests an average impact of access to finance among firms with the intention 10 percent on profits.47 Experiments with micro and of technological upgrading could help to increase small firms in Kenya suggest that interventions aiming technological adoption. Furthermore, assistance should to improve business practices through mentorship can be provided to ensure firms have the knowledge on lead to an increase in profits of 20 percent on average.48 how to acquire new technology, and training can be Ongoing interventions already aimed at supporting provided on how to properly use it. Digital technology SMEs, such as the Kenya Industry and Entrepreneurship extension programs that facilitate the adoption of digital Project, can be accelerated and scaled up. Digital technologies, particularly those applied towards general solutions can be leveraged, through online tools for business functions, such as business administration, delivering support for managerial capabilities at a lower production planning, ecommerce, digital payment, and cost. Many of these interventions can be facilitated by quality control can provide such assistance. further coordination across several business supporting (3) Support development of entrepreneurial systems programs already in place in Kenya, including those in lagging regions. Reducing the gap in terms supported by development partners and other of infrastructure across regions is an important intermediary organizations. step towards providing more opportunities to entrepreneurial ecosystems outside Nairobi. Access to Creating conditions that support the continued digital infrastructure, in particular, varies widely across development of the services sector the country. Policies at the sub-national level should be tailored to the specific demands of local ecosystems. The emerging trends in the growth of specific service Existing support for firms tends to be focused on sub-sectors merit undertaking in-depth sub-sector Nairobi, Kiambu, and Mombasa. For instance, less than specific diagnostics to understand the main strengths and five percent of businesses in the Frontier Counties challenges faced by each sub-sector to design policies Development Council (FCDC) have received non- specific to the Kenya context. The 3Ts framework – trade, financial support, compared to over 15 percent of technology, and training – suggests the types of policies businesses in Nairobi and Mombasa.44 The demand that can continue enabling economic transformation for different types of policies varies across counties. through services: 49 Therefore, policies should be tailored to the specific 44 The FCDC consists of 7 counties: Garissa, Wajir, Mandera, Isiolo, Marsabit, Tana River and Lamu. 45 Bloom and Van Reenen, 2002. “Patents, Real Options and Firm Performance”. 46 World Bank, 2021. “MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”. 47 McKenzie, D. 2020. Small Business Training to Improve Management Practices in Developing Countries. Policy Research Working Paper, 9408. World Bank. 48 Brooks, Wyatt, Kevin Donovan, and Terence R. Johnson. 2018. “Mentors or Teachers? Microenterprise Training in Kenya.” American Economic Journal: Applied Economics; Beaman, Lori, Jeremy Magruder and Jonathan Robinson (2014) “Minding small change among small firms in Kenya”, Journal of Development Economics 108: 69-86 49 These recommendations are adapted from World Bank, 2021. “At Your Service? The Promise of Services-Led Development.” December 2021 | Edition No. 24 31 Special Focus Trade: Reducing barriers to international trade in services Figure 52: The 3Ts can enable economic transformation through services involves supporting movement of people – for instance, a worker enters the consumer’s country to deliver the service. Enacting the right set of regulations on the flow of people matters. A regulatory environment that enables the trusted flow of data is also critical for digital delivery of services that do not depend on proximity between the provider and recipient. Physical infrastructure such as ports, roads and the broadband internet networks is important in enabling the movement of goods as well as enabling services trade. Trade in global innovator services remains lower than potential as professional, scientific, and technical services are among the most protected – reflecting in part national licensing requirements and lack of recognition of other countries’ accreditation. An provision through technological upgrading can further example of how trade in professional services can expand support entrepreneurs by reducing the time they spend in is the Kenya Advocates Act which currently allows lawyers interactions with government. from Uganda and Tanzania to practice in Kenya. There are ongoing discussions on amendments to this act that will Training: Digital technologies also place the improvement also allow lawyers from Rwanda and Burundi to practice of workforce skills at the forefront. This does not mean that in Kenya. Continuing the development of these types of everyone needs to acquire high end technical skills. Basic agreements within the Eastern Africa Community can ICT skills, such as how to use email and word processing help expand the market for global innovator services. software, can increase productivity. Acquiring such skills Regulations also affect trade in services domestically – quickly relies in turn on foundational cognitive skills, communications and railway networks may be regulated such as literacy and numeracy. Even though access to as natural monopolies. Health and education sectors may education has increased in Kenya among the younger see a sizeable public provision of services, and may thereby cohorts, workers often lack basic skills such as reading be heavily regulated, impeding expansion of private or writing, and computer skills. Employers identify the provision in these sectors. inability to handle computers for work related tasks as one of the most significant skills gaps among white- Technology: Digital technologies are positively related collar workers.52 Beyond digital literacy, socioemotional to productivity gains, across the entire range of services and interpersonal skills play an especially important role sub-sectors. They also enable firms in reaching wider in some service sub-sectors. markets. Expanding access to the internet – and particularly to broadband internet – is crucial.50 Access alone is not Ensuring that sufficient, good quality, and comprehensive sufficient – firm capabilities need to be improved within data are available at the firm-level to support evidence- the entrepreneurial ecosystem to support the adoption of based policy making. The existing firm-level data used technology. The share of firms that have a website or use in this report is relatively dated, having been collected email to communicate with suppliers or customers is below between 3 and 5 years ago. In order to provide timely 20 percent in most low- and middle-income countries. policy recommendations covering firms and the business An example of how digitization can improve government environment, it is important that frequent firm-level data services in Kenya relates to the cadaster – digitization of collection is undertaken. Furthermore, the firm-level Kenya’s cadaster can help improve transparency and speed data collection needs to be sufficiently comprehensive, of property transfer.51 Another example is to improve the use covering firms of different sizes, sectors and formality. of technology at the National Social Security Fund in order Finally, the associated micro-data should be made publicly to improve the speed and accuracy with which pensioners available in a timely manner. are paid upon retirement. Improving government service 50 Hjort and Poulsen (2019) show that the arrival of internet cables in Africa predominantly benefitted services firms. 51 World Bank, 2019. “Kenya Country Private Sector Diagnostic” 52 World Bank, 2021. “Kenya Economic Update, 23rd edition: Rising Above the Waves” 32 December 2021 | Edition No. 24 REFERENCES Apedo-Amah, M. C.; Avdiu, B.; Cirera, X.; Cruz, M.; Davies, E.; Grover, A.; Iacovone, L.; Kilinc, U.; Medvedev, D.; Maduko, F. O.; Poupakis, S.; Torres, J.; and Tran, T. T. 2020. “Unmasking the Impact of COVID-19 on Businesses: Firm Level Evidence from Across the World”. Policy Research Working Paper; No. 9434. Washington, DC: World Bank. Arnold, J.M, Javorcik, B., Lipscomb, M., and Mattoo, A. 2016. “Services Reform and Manufacturing Performance: Evidence from India”. The Economic Journal, Volume 126, Issue 590 p. 1-39. Bento, P., and Restuccia, D. 2016. “Misallocation, Establishment Size, and Productivity”. NBER Working Paper Series, Working Paper 22809. Beutel, Allie. 2020. “Rise of Teen Pregnancies During Kenya’s Lockdown”., n.d. https://borgenproject.org/rise-of- teen-pregnancy-during-kenyas-lockdown/ Bloom, N., and Van Reenen, J. 2002. “Patents, Real Options and Firm Performance”. The Economic Journal, Volume 112, Issue 478 p. C97-C116. Bussolo, M., María, E. D., Vito, P., and Ramya, S. 2018. Toward a New Social Contract: Taking On Distributional Tensions in Europe and Central Asia. Europe and Central Asia Studies. Washington, DC: World Bank. Chitavi, M., Cohen, L., and Hagist, S. C. N. 2021. “Kenya Is Becoming a Global Hub of FinTech Innovation”. https:// hbr.org/2021/02/kenya-is-becoming-a-global-hub-of-fintech-innovation Cirera, X., and Maloney, W.F. 2017. The Innovation Paradox: Developing-Country Capabilities and the Unrealized Promise of Technological Catch-Up. Washington, DC: World Bank. Enterprise Surveys www.enterprisesurveys.org, The World Bank. Faber, B., and Gaubert, C. 2019. “Tourism and Economic Development: Evidence from Mexico's Coastline”. American Economic Review Vol. 109, NO. 6, pp. 2245-93. Food and Agriculture Organization. 2021. “Focus on East Africa, November 2021”. Grover, A. G., Medvedev, D., and Olafsen, E. 2019. “High-Growth Firms: Facts, Fiction, and Policy Options for Emerging Economies.” Washington, DC: World Bank. Hai-Anh, H. D., and Peter L. 2021. “India: Inequality Trends and Dynamics: The Bird’s-Eye and the Granular Perspectives In: Inequality in the Developing World”. Edited by Carlos Gradín, Murray Leibbrandt, and Finn Tarp, Oxford University Press. United Nations University World Institute for Development Economics Research (UNU-WIDER). Haltiwanger, J. C., Jarmin, R. S., and Miranda, J. 2013. “Who Creates Jobs? Small Versus Large Versus Young”. Review of Economics and Statistics 95 (2), 347-361. Haltiwanger, J. C., Jarmin, R. S., Miranda, J., and Decker, R. A. 2017. “Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown”. American Economic Review 107 (5), 322-26. Hjort, J., and Poulsen, J. 2019. “The Arrival of Fast Internet and Employment in Africa”. American Economic Review Vol. 109, NO. 3, pp. 1032-79. Hseih, C. T., and Klenow, P. K. 2014. “The Life Cycle of Plants in India and Mexico”. International Development Association (IDA). 2019. “Special Theme: Jobs and Economic Transformation”. International Monetary Fund. 2021. “World Economic Outlook, October 2021”. Kenya National Bureau of Statistics (KNBS). 2017. “Report on the 2017 Kenya Census of Establishments”. Kenya National Bureau of Statistics. 2021. “Economic Survey 2021”. Kriticos, S. and Henderson, V. 2019. “The prospects for manufacturing-led growth in Africa’s cities.” IGC Growth Brief Series 020. London: International Growth Centre. December 2021 | Edition No. 24 33 References Merotto, D., Weber, M., and Aterido, R. 2018. “Pathways to Better Jobs in IDA Countries: Findings from Jobs Diagnostics. Jobs Series; No. 14. World Bank, Washington, DC”. Nayyar, G.; Hallward-Driemeier, M.; Davies, E. 2021. “At Your Service? The Promise of Services-Led Development”. Washington, DC: World Bank. © World Bank. Suri, T. and Jack, W., 2016. “The Long-run Poverty and Gender Impacts of Mobile Money.” Science; Vol 354, Issue 6317. Tebrake, J.; Wild, R.; Silungwe, A.; Legoff, G. 2020. “Estimating the Volume of Government Education Services during COVID-19". Washington, DC: IMF. The National Treasury. 2021. “Annual Public Debt Report FY2020/21”. The National Treasury. 2021. “Draft 2022 Budget Policy Statement”. The National Treasury. 2021. “Tax Expenditure Report”. World Bank. 2019. “Kenya Country Private Sector Diagnostic. Creating Markets in Kenya: Unleashing Private Sector Dynamism to Achieve Full Potential”. World Bank. 2020. MSMEs and entrepreneurship ecosystems in Kenya: Strengthening Businesses in the Aftermath of the Pandemic”. World Bank. 2021. “Global Economic Prospects, June 2021”. World Bank. 2021. “Kenya Economic Update, June 2021: Rising Above the Waves”. World Bank, Washington, DC. © World Bank. World Bank. 2021. “Socioeconomic Impacts of COVID-19 in Kenya on Firms: Rapid Response Phone Survey, Round 1”. World Bank, Washington, DC. © World Bank. Zeufack, Albert G.; Calderon, Cesar; Kubota, Megumi; Korman, Vijdan; Cantu Canales, Catalina; Kabundi, Alain Ntumba. 2021. “Africa's Pulse, No. 24, October 2021: An Analysis of Issues Shaping Africa’s Economic Future”. Washington, DC: World Bank. ANNEX TABLES Table A1: Selected economic indicators, 2018-2023 2018 2019 2020 2021 2022 2023 Act. Act. Act. Act. Est. Proj. Output and prices (Annual percentage change, unless otherwise indicated) Real GDP 5.6 5.0 -0.3 5.0 4.7 5.1 Agriculture 5.7 2.6 4.8 -0.1 4.0 3.0 Industry 3.8 3.4 4.0 5.2 3.6 4.3 Services 6.0 6.7 -2.2 6.7 5.2 6.0 Private consumption 4.7 4.9 -2.7 5.2 5.0 5.8 Government consumption 7.0 7.0 4.3 3.5 3.0 2.5 Gross fixed capital investment -0.4 3.8 3.4 4.0 3.6 5.3 Exports, goods and services 6.8 -3.2 -8.2 8.0 5.0 6.5 Imports, good and services 1.4 1.8 -8.5 5.0 4.0 7.0 GDP deflator 4.2 4.6 5.2 4.6 2.8 5.2 CPI (period average) 4.7 5.2 5.3 6.0 5.0 5.0 Money and credit (Annual percentage change, unless otherwise indicated) Broad money (M3) 9.8 5.6 13.2 .. .. .. Credit to non-government sector 4.8 7.1 8.3 .. .. .. Policy rate (CBR) 9.0 8.9 7.2 .. .. .. NPLs (percent of total loans) 10.0 12.0 14.1 .. .. .. Central government (fiscal year i.e 2018 = 2018/19) (Percent of GDP, unless otherwise indicated) Total revenue & grants 17.7 16.5 16.1 16.7 17.5 18.4 Tax revenues 14.4 13.0 12.6 13.3 14.4 15.0 Non-tax revenues 2.1 1.5 2.0 2.1 1.9 1.9 Grants 0.2 0.2 0.3 0.4 0.3 0.3 Expenditure 25.0 24.2 24.3 25.0 23.6 22.7 Current 15.7 15.5 15.9 16.4 15.5 15.1 Capital 5.6 5.6 4.9 5.3 5.1 5.0 Primary balance -3.4 -3.4 -3.8 -3.4 -1.1 0.2 Overall balance including grants -7.3 -7.5 -8.2 -8.2 -6.0 -4.4 Financing 7.4 7.4 8.4 8.2 6.0 4.4 Net domestic borrowing 3.1 4.2 5.5 4.9 3.4 3.1 Foreign financing 4.3 3.2 2.9 3.3 2.6 1.2 Public debt stock (fiscal year i.e 2016 = 2016/17) (Percent of GDP, unless otherwise indicated) Public gross nominal debt 59.6 63.0 68.2 68.1 67.5 64.9 External debt 31.0 33.1 35.4 33.9 33.2 31.0 Domestic debt 28.6 29.9 32.7 34.2 34.3 33.9 Memo: GDP at current market prices(KES billion) 9,746 10,621 11,304 12,628 14,002 15,605 Source: World Bank, based on data from Kenya National Bureau of Statistics, National Treasury and Central Bank of Kenya 36 December 2021 | Edition No. 24 Table A2: GDP growth rates for Kenya and EAC (2015-2020) 2015 2016 2017 2018 2019 2020e Kenya 5.0 4.2 3.8 5.6 5.0 -0.3 Uganda 5.2 4.8 3.8 6.2 6.8 2.9 Tanzania 6.2 6.9 6.8 5.4 5.8 2.0 Rwanda 8.9 6.0 4.0 8.6 9.5 -3.4 Burundi -3.9 -0.6 0.5 1.6 1.8 0.3 EAC 4.3 4.2 3.8 5.5 5.8 0.3 Source: World Bank Note: “e” denotes an estimate EAC Average excludes South Sudan Table A3: Kenya annual GDP (2010-2020) GDP, GDP, 2016 GDP/capita, Years GDP growth current prices constant prices current prices KSh Millions KSh Millions US$ Percent 2010 3,598,000 5,794,000 952 8.1 2011 4,163,000 6,090,000 972 5.1 2012 4,767,000 6,368,000 1,137 4.6 2013 5,311,000 6,610,000 1,210 3.8 2014 6,004,000 6,942,000 1,316 5.0 2015 6,884,318 7,287,024 1,337 5.0 2016 7,594,064 7,594,064 1,411 4.2 2017 8,483,396 7,883,816 1,572 3.8 2018 9,340,307 8,327,604 1,708 5.6 2019 10,255,654 8,742,413 1,817 5.0 2020 10,752,992 8,714,771 1,838 -0.3 Source: Kenya National Bureau of Statistics and World Development Indicators December 2021 | Edition No. 24 37 38 Table A4: Contribution by Broad sub-sectors (percentage points) Industry by sub sector contribution Service by sub sector contribution Agriculture Year Quarterly contribution Industries Accommo- Information Services Mining and Electricity and Transport and Financial and to GDP Manufacturing Construction dation and Real estate and communi- Education Other quarrying water supply storage insurance restaurant cation Q1 0.8 0.0 0.6 0.1 0.2 0.9 0.0 0.5 0.4 0.2 0.1 0.9 1.0 3.1 Q2 1.0 -0.2 0.6 0.1 0.4 0.9 0.0 0.5 0.4 0.2 0.1 0.9 0.7 2.8 2015 Q3 0.8 -0.3 0.7 0.1 0.5 0.9 0.1 0.5 0.5 0.4 0.1 0.8 0.9 3.2 Q4 1.1 -0.5 0.3 0.0 0.5 0.4 0.1 0.8 0.6 0.3 0.0 0.9 0.7 3.5 December 2021 | Edition No. 24 Q1 0.3 -0.2 0.3 0.1 0.3 0.6 0.1 0.8 0.8 0.2 0.1 0.2 0.6 2.8 Q2 0.4 -0.1 0.3 0.1 0.2 0.4 0.0 0.7 0.9 0.2 0.1 0.1 0.9 2.8 2016 Q3 0.2 -0.1 0.0 0.1 0.3 0.3 0.1 0.9 0.9 0.3 0.1 0.4 1.1 3.8 Q4 0.2 0.0 0.1 0.1 0.4 0.6 0.1 0.8 0.9 0.3 0.1 0.4 1.1 3.6 Q1 0.0 0.0 0.3 0.1 0.5 0.9 0.0 0.8 0.7 0.2 0.3 0.2 1.1 3.4 Q2 -0.5 0.1 0.0 0.1 0.2 0.4 0.1 0.5 0.6 0.2 0.3 0.4 1.1 3.3 2017 Q3 -0.1 0.0 -0.1 0.1 0.3 0.3 0.1 -0.2 0.6 0.2 0.4 0.3 1.2 2.6 Q4 -0.4 0.0 0.1 0.1 0.3 0.4 0.2 0.3 0.6 0.2 0.4 0.3 1.0 3.0 Q1 0.9 0.0 0.5 0.1 0.3 1.0 0.2 0.4 0.6 0.2 0.4 0.2 0.9 2.8 Q2 1.1 0.0 0.3 0.1 0.4 0.7 0.1 0.7 0.6 0.2 0.3 0.1 1.2 3.2 2018 Q3 1.1 -0.1 0.2 0.1 0.4 0.6 0.1 0.6 0.6 0.2 0.3 0.1 1.3 3.1 Q4 1.3 -0.1 0.3 0.1 0.2 0.5 0.2 0.8 0.7 0.3 0.3 0.5 1.4 4.1 Q1 1.0 0.0 0.2 0.1 0.2 0.5 0.2 0.7 0.7 0.3 0.2 0.4 1.0 3.4 Q2 0.7 0.1 0.4 0.0 0.3 0.7 0.1 0.9 0.7 0.2 0.2 0.6 1.4 4.0 2019 Q3 0.1 0.0 0.2 0.0 0.3 0.6 0.1 0.5 0.7 0.2 0.3 0.7 1.2 3.7 Q4 0.2 0.1 0.1 0.0 0.3 0.5 0.2 0.5 0.6 0.2 0.3 0.4 0.9 3.1 Q1 0.9 0.1 0.2 0.0 0.5 0.8 -0.1 0.2 0.5 0.2 0.1 0.5 0.8 2.3 Q2 1.0 0.0 -0.4 -0.1 0.4 0.0 -0.6 -1.7 0.4 0.1 -1.0 0.3 -1.3 -3.8 2020 Q3 0.7 0.1 -0.1 0.0 0.7 0.6 -0.7 -1.1 0.4 0.1 -0.8 0.2 -0.8 -2.7 Q4 1.0 0.1 0.3 0.1 0.9 1.4 -0.8 -0.6 0.3 0.2 -0.3 0.6 0.1 -0.5 Q1 0.0 0.2 0.1 0.0 0.4 0.8 -0.5 -0.9 0.4 0.5 0.5 0.7 0.5 1.2 2021 Q2 -0.2 0.2 0.8 0.1 0.4 1.5 0.0 1.5 0.5 0.7 2.5 0.8 2.7 8.8 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Other = Wholesale and retail trade + Public admistration + Proffessional, admistration and support services + Education + Health +Other services + FISIM Table A5: National Fiscal position Actual (percent of GDP) 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21* 2021/22** Revenue and Grants 17.7 17.6 17.8 18.2 17.4 17.7 16.5 16.1 16.7 Total Revenue 17.2 17.2 17.4 17.8 17.1 17.5 16.4 15.8 16.3 Tax revenue 16.2 16.0 14.8 15.1 14.1 14.4 13.0 12.6 13.3 Income tax 7.9 7.9 7.8 7.7 7.2 7.0 6.7 6.1 6.5 VAT 4.1 4.0 4.0 4.2 4.0 4.2 3.6 3.6 3.8 Import Duty 1.2 1.1 1.1 1.1 1.1 1.1 0.9 1.0 0.9 Excise Duty 1.8 1.8 1.9 2.0 1.9 2.0 1.8 1.9 2.1 Other Revenues 1.2 1.1 1.1 1.1 1.2 1.0 1.8 1.2 1.0 Railway Levy 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Appropriation in Aid 1.0 1.2 1.4 1.7 1.8 2.1 1.5 2.0 2.1 Grants 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.3 0.4 Expenditure and Net Lending 23.0 25.4 25.0 26.1 24.1 25.0 24.2 24.3 25.0 Recurrent 13.9 13.9 14.3 14.4 15.1 15.7 15.5 15.9 16.4 Wages and salaries 5.0 4.6 4.3 4.2 4.4 4.3 4.2 4.4 4.2 Interest Payments 2.4 2.7 3.0 3.4 3.6 3.9 4.1 4.4 4.8 Other recurrent 6.6 6.6 7.1 6.9 7.1 7.6 7.1 7.2 7.4 Development and net lending 5.6 7.9 6.7 7.9 5.3 5.6 5.6 4.9 5.3 County allocation 3.4 3.6 3.8 3.8 3.7 3.7 3.1 3.5 3.2 Parliamentary Service 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 Judicial Service 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 Equalization of Funds 0.0 0.0 0.1 0.1 0.1 0.0 0.1 Fiscal balance Deficit including grants (cash basis) -5.4 -7.3 -6.6 -8.2 -7.0 -7.3 -7.5 -8.2 -8.2 Financing 5.4 7.3 6.6 8.6 7.1 7.4 7.4 8.4 8.2 Foreign Financing 1.9 3.4 3.7 4.8 4.0 4.3 3.2 2.9 3.3 Domestic Financing 3.6 3.9 2.8 3.9 3.1 3.1 4.2 5.5 4.9 Total Public Debt (gross) 42.8 44.1 50.0 54.5 56.5 59.6 63.0 68.2 68.1 External Debt 20.1 22.1 24.9 28.4 28.7 31.0 33.1 35.4 33.9 Domestic Debt 22.7 22.0 25.1 26.1 27.8 28.6 29.9 32.7 34.2 Memo: December 2021 | Edition No. 24 GDP (Fiscal year current market prices, Ksh bn) 5,074 5,832 7,225 8,081 8,922 9,746 10,621 11,304 12,628 Source: 2022 Draft Budget Policy Statement (BPS) and Quarterly Budgetary Economic Review (first quarter, Financial Year 2021/2021), National Treasury 39 Note: *indicate Preliminary results; ** projection 40 Table A6: 12-months cumulative balance of payments BPM6 Concept (US$ million) 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sept-2021 A. Current Account, n.i.e. (4,391) (5,427) (6,442) (4,303) (3,387) (5,685) (5,048) (5,541) (4619) (5993) Merchandise A/C (9,314) (10,220) (10,775) (8,388) (7,666) (10,186) (10,201) (10,679) (8430) (10459) Goods: exports f.o.b. 6,213 5,870 6,155 5,970 5,745 5,801 6,088 5,872 6,062 6,503 Goods: imports f.o.b. 15,527 16,089 16,929 14,358 13,411 15,987 16,289 16,551 14,492 16,962 Oil 4,081 3,838 4,026 2,500 2,087 2,728 3,386 3,310 2,185 2,971 December 2021 | Edition No. 24 Services 2,429 2,318 1,676 1,317 1,432 1,556 1,596 1,767 355 92 Services: credit 4,990 5,130 5,023 4,636 4,164 4,648 5,477 5,621 3,732 4,158 Services: debit 2,561 2,813 3,347 3,319 2,732 3,092 3,881 3,854 3,377 4,066 Income 2,494 2,475 2,657 2,769 2,847 2,945 3,557 3,371 3,456 4,375 B. Capital Account, n.i.e. 235 158 275 262 206 184 263 208 131 438 C. Financial Account, n.i.e. (5,565) (5,204) (7,398) (3,914) (4,424) (5,563) (6,547) (6,233) (2,950) (6,295) Direct investment: net (1,142) (920) (746) (382) (523) (1,010) (1,463) (1,132) (499) 55 Portfolio investment: net (218) (273) (3,716) 156 350 789 (627) (1,312) 1,279 (229) Financial derivatives: net - - - - 5 4 11 (5) Other investment: net (4,205) (4,011) (2,936) (3,688) (4,255) (5,342) (4,457) (3,789) (3,730) -6122 D. Net Errors and Omissions (186) 434 221 (128) (1,112) (166) (720) 154 38 697 E. Overall Balance (1,223) (369) (1,453) 255 (131) 108 (1,030) (1,059) 1,427 -1497 F. Reserves and Related Items 1,223 369 1,453 (255) 131 (108) 1,030 1,059 (1,426.8) 1,496.8 Reserve assets 1,455 859 1,333 (361) 40 (228) 885 905 (818.5) 1,607.6 Credit and loans from the IMF 193 177 (119) (107) (91) (120) (145) (154) 608.3 587.9 Exceptional financing 38 312 - - - - - - - - Gross Reserves (USD Million) 7,160 8,483 9,738 9,794 9,588 9,646 11,516 12,851 12,992 13,762 Official 5,702 6,560 7,895 7,534 7,573 7,332 8,231 9,116 8,297 9,152 Commercial Banks 1,458 1,923 1,843 2,259 2,015 2,314 3,286 3,735 4,695 4,610 Imports cover (36 months import) 4.3 4.5 5.1 4.8 5.0 5 5 6 5 6 Memo: Annual GDP at Current prices (USD Million) 56,394 61,667 68,287 70,120 74,815 82,036 92,203 100,556 100,996 105,267 Source: Central Bank of Kenya Table A7: Inflation Year Month Overall Inflation Food Inflation Energy Inflation Core Inflation January 4.8 4.7 6.1 4.0 February 4.5 3.8 6.2 4.2 March 4.2 2.2 8.2 4.1 April 3.7 0.3 10.2 4.1 May 4.0 0.3 11.4 3.9 June 4.3 0.9 11.9 4.0 2018 July 4.4 0.5 12.4 4.1 August 4.0 1.2 14.2 4.3 September 5.7 0.5 17.4 4.5 October 5.5 0.5 16.5 4.7 November 5.6 1.7 14.3 4.4 December 5.7 2.5 13.8 4.0 January 4.7 1.6 12.1 3.4 February 4.1 1.1 11.4 3.1 March 4.4 2.8 8.8 3.1 April 6.6 8.2 7.5 3.1 May 5.5 6.3 6.7 3.0 June 5.7 7.0 6.3 2.9 2019 July 6.3 8.5 6.2 2.7 August 5.0 7.1 4.0 2.3 September 3.8 6.3 1.3 2.1 October 5.0 8.7 1.5 1.9 November 5.6 9.6 2.3 1.9 December 5.8 10.0 2.5 1.8 January 5.8 14.9 4.7 2.2 February 6.4 9.6 5.5 2.3 March 5.5 11.9 4.5 1.9 April 5.6 11.6 4.9 2.0 May 5.3 10.6 5.0 1.8 2020 June 4.6 8.2 5.4 1.6 July 4.4 6.6 6.1 2.0 August 4.4 5.4 7.6 2.1 September 4.2 5.2 7.6 1.9 October 4.8 5.8 8.2 2.5 December 5.6 7.2 8.1 2.9 January 5.7 7.4 8.7 2.7 February 5.8 6.9 10.1 2.7 March 5.9 6.7 11.1 2.7 April 5.8 6.4 10.5 2.7 May 5.9 7.0 10.0 2.8 2021 June 6.3 8.5 9.5 2.8 July 6.4 8.8 8.2 3.0 August 6.6 10.7 6.5 2.7 September 6.9 10.6 7.6 2.9 October 6.5 10.6 7.0 2.4 November 5.8 9.9 7.2 2.0 Source: World Bank, based on data from Kenya National Bureau of Statistics December 2021 | Edition No. 24 41 Table A8: Credit to Private Sector Growth (%) Total Private Building and Transport and Finance and Mining and Private house- Consumer Business Other Year Month sector annual Agriculture Manufacturing Trade Real estate construction communication insurance quarrying holds durables services activities growth rates 42 January 1.9 -7.6 12.0 5.1 5.4 -10.9 -1.3 8.2 -6.7 -1.4 1.4 0.0 -10.6 February 2.2 -12.9 13.1 6.8 4.8 -13.9 4.9 8.4 -6.7 -2.7 2.3 -0.3 -2.2 March 2.1 -6.2 11.2 5.4 12.6 -18.4 11.6 4.5 -2.7 -0.7 4.7 -0.5 -6.3 April 2.9 -4.4 10.1 5.0 14.3 -17.8 10.1 3.6 -4.4 2.6 5.0 2.8 -2.2 May 3.9 -3.3 12.1 6.8 9.2 -14.9 2.6 3.7 -3.5 3.8 5.5 11.0 -7.5 June 4.3 -4.7 12.2 8.5 13.3 -12.7 3.8 3.8 -9.1 2.9 7.8 6.7 -7.9 2018 July 4.3 -6.5 11.5 6.5 13.5 -10.7 8.5 4.3 0.2 2.9 9.1 3.3 -5.8 August 4.3 -4.3 13.2 6.9 14.7 -11.0 3.5 0.9 -9.1 2.7 11.5 6.5 -4.6 September 3.8 -6.0 11.9 3.2 11.1 -9.1 6.6 1.7 -15.5 5.1 7.8 4.3 2.7 October 4.4 -5.6 14.8 4.0 7.1 -7.7 9.1 1.2 -11.6 5.1 7.6 12.1 -12.4 December 2021 | Edition No. 24 November 3.0 -0.1 10.6 3.2 8.9 -10.7 5.3 -1.1 -10.6 5.4 8.9 9.5 -23.4 December 2.4 -2.0 6.5 2.9 1.8 -9.4 17.5 -0.5 -10.7 6.8 11.0 8.0 -34.8 January 3.0 -0.2 6.5 6.6 1.4 -6.5 15.4 -2.6 -14.5 5.6 15.4 0.0 -27.2 February 3.4 -2.6 7.7 6.4 2.6 -0.7 13.1 -2.9 -13.4 6.6 16.1 0.3 -33.1 March 4.3 0.2 7.2 8.7 -7.0 5.7 10.2 -0.1 -11.4 8.0 13.9 -0.4 -31.7 April 4.9 2.5 7.9 8.4 -6.5 6.4 13.3 -0.7 -12.5 7.9 16.4 1.1 -29.6 May 4.4 2.7 6.5 7.6 -4.1 6.2 6.7 -0.5 -7.9 7.8 18.0 -1.2 -32.0 June 5.2 3.9 11.4 5.5 -6.3 5.8 4.7 1.0 -4.3 7.6 21.3 -3.2 -22.6 2019 July 6.1 7.6 10.3 8.0 -5.4 6.4 5.3 0.5 -13.5 7.1 23.6 1.6 -17.2 August 6.3 6.6 7.5 8.4 -6.0 5.8 8.2 2.4 -10.8 8.6 23.0 -0.1 -14.4 September 7.0 5.5 7.5 7.6 -5.3 5.0 14.5 2.2 -5.1 8.8 28.4 3.2 -13.6 October 6.6 -5.2 6.4 10.2 -5.5 4.8 15.1 0.4 0.1 5.3 28.6 -0.4 12.7 November 7.3 -6.1 7.5 8.8 -6.1 9.8 15.8 1.9 -3.2 6.1 25.9 -0.3 30.9 December 7.1 -2.4 9.2 8.9 1.6 8.1 0.4 1.5 -5.8 5.6 26.0 2.4 16.0 January 7.3 -4.8 12.7 6.0 4.0 9.9 -1.1 3.5 -9.4 5.6 21.4 1.5 24.4 February 7.7 0.2 10.4 9.5 -0.5 7.4 1.9 3.4 -14.6 5.9 20.6 2.4 33.4 March 8.9 1.4 15.3 9.4 9.5 7.1 6.6 2.2 3.9 3.4 24.1 3.3 36.8 April 9.0 2.8 20.1 10.3 7.7 9.1 3.1 4.8 11.0 2.2 19.6 1.2 14.3 May 8.2 2.6 18.2 8.0 5.7 5.7 8.4 4.4 5.8 3.2 16.7 2.7 16.9 June 7.7 2.2 11.1 9.4 4.6 14.9 3.2 4.9 10.0 3.6 15.2 5.3 -3.7 2020 July 7.9 1.1 10.0 9.1 5.5 20.7 3.5 5.0 11.3 5.4 13.8 3.2 -6.7 August 8.3 0.9 13.1 8.1 5.2 19.0 4.6 6.8 12.0 5.1 13.7 3.4 -7.6 September 7.6 1.7 12.6 6.6 4.1 20.6 -3.3 6.6 8.2 3.5 15.6 4.1 -5.8 October 7.7 17.0 7.8 2.5 8.2 21.1 -2.2 7.6 -14.2 7.3 15.7 5.9 -10.4 November 8.3 19.3 10.0 4.0 7.4 17.5 0.2 9.1 -15.4 6.2 18.8 2.7 -14.5 December 8.3 15.3 12.0 3.8 3.4 13.6 7.1 8.7 -12.9 4.3 18.1 4.0 14.0 January 9.3 15.6 12.6 5.5 2.5 14.4 14.0 8.8 -6.1 4.7 18.7 6.5 5.8 February 9.6 13.4 15.8 3.9 5.2 19.0 9.0 8.8 21.6 4.2 20.3 5.0 3.8 March 7.7 12.3 10.7 2.1 2.9 17.4 7.5 7.7 -3.6 2.9 17.6 5.7 5.2 April 6.7 10.0 4.0 0.9 3.4 13.3 7.6 5.8 -8.8 4.5 19.3 7.2 24.3 2021 May 7.1 4.3 1.5 3.8 4.5 16.3 6.7 5.7 -18.1 3.1 22.0 6.9 39.8 June 7.7 3.7 8.1 1.9 2.0 11.8 11.5 4.0 -13.0 3.2 23.4 5.2 65.2 July 6.1 2.8 9.4 1.3 0.4 0.2 8.9 3.2 -22.1 2.4 21.7 4.9 58.0 August 7.0 1.4 9.3 2.7 1.7 11.8 7.7 2.8 -23.1 2.0 20.1 5.8 56.0 September 7.7 3.3 9.8 4.7 0.5 10.9 11.7 2.9 -8.4 2.6 17.6 7.6 59.5 Source: Central Bank of Kenya Table A9: Mobile payments Number of Number of Value of Year Month Number of Agents customers transactions transactions (Millions) (Millions) (Billions) January 188,029 37.8 136.7 323.0 February 192,117 38.4 132.3 300.9 March 196,002 39.3 147.5 337.1 April 201,795 40.3 142.1 313.0 May 202,387 41.7 141.0 329.0 June 197,286 42.6 137.4 317.7 2018 July 200,227 42.6 143.1 332.4 August 202,627 43.6 149.5 348.9 September 203,359 44.3 146.0 327.7 October 211,961 45.4 155.2 343.2 November 206,312 46.2 153.2 343.9 December 205,745 47.7 155.8 367.8 January 201,336 40.3 154.2 368.0 February 212,252 50.0 144.5 328.2 March 226,957 50.4 161.4 368.4 April 230,220 52.0 155.8 360.2 May 224,825 52.2 153.3 364.3 June 222,484 46.8 149.7 346.8 2019 July 222,087 53.9 153.0 366.4 August 222,479 54.8 151.8 368.5 September 224959 55.7 151.2 365.9 October 223176 56.3 156.1 366.9 November 222211 58.0 153.1 359.3 December 224108 58.4 155.0 382.9 January 231292 59.2 150.2 371.9 February 235543 58.7 148.5 350.5 March 240261 58.7 150.7 364.5 April 242275 59.4 125.0 308.0 May 243118 60.2 135.9 357.4 June 237637 61.7 143.1 392.2 2020 July 234747 62.1 157.8 451.0 August 252703 62.8 163.2 473.5 September 263200 64.0 163.3 483.2 October 273531 65.3 174.1 528.9 November 275960 65.8 170.0 526.8 December 282929 66.0 181.4 605.7 January 287410 66.6 173.9 590.4 February 294111 67.2 164.2 568.0 March 293403 65.9 182.3 537.8 April 294706 67.1 173.4 502.2 May 298883 67.8 180.8 536.7 2021 June 301457 67.78 175.83 532.63 July 303718 68.54 184 587.98 August 304822 68.09 184.51 586.52 September 305831 67.7 180.85 585.38 October 295105 66.88 190.06 618.14 Source: Central Bank of Kenya December 2021 | Edition No. 24 43 Table A10: Exchange rate Year Month USD UK Pound Euro January 102.9 141.9 125.4 February 101.4 141.7 125.3 March 101.2 141.2 124.7 April 100.6 141.9 123.7 May 100.7 135.7 119.0 June 101.0 134.2 118.0 2018 July 100.7 132.6 117.5 August 100.6 129.7 116.2 September 100.8 131.7 117.7 October 101.1 131.6 116.2 November 102.4 132.1 116.4 December 102.3 129.7 116.4 January 101.6 130.8 116.0 February 100.2 130.3 113.8 March 100.4 132.3 113.5 April 101.1 131.8 113.6 May 101.2 130.1 113.2 June 101.7 128.8 114.7 2019 July 103.2 128.8 115.8 August 103.3 125.6 115.0 September 103.8 128.2 114.4 October 103.7 133.7 114.4 November 102.4 132.0 113.2 December 101.0 132.9 112.7 January 101.1 132.1 112.3 February 100.8 130.8 109.9 March 103.7 128.5 114.7 April 106.4 131.9 115.6 May 106.7 131.3 116.1 June 106.4 133.4 119.8 2020 July 107.3 135.3 122.5 August 108.1 141.9 127.8 September 108.4 140.9 128.0 October 108.6 140.9 127.9 November 109.2 144.1 129.1 December 110.6 148.4 134.3 January 109.8 149.7 133.8 February 109.7 151.8 132.6 March 109.7 152.2 130.9 April 107.9 149.3 129.1 May 107.4 151.1 130.4 2021 June 107.8 151.4 130.1 July 108.1 149.4 127.9 August 109.2 150.9 128.6 September 110.1 151.5 129.8 October 110.9 151.6 128.6 November 111.9 151.0 127.9 Source: Central Bank of Kenya 44 December 2021 | Edition No. 24 Table A11: Nairobi Securities Exchange (NSE 20 Share Index, Jan 1966=100, End - month) Year Month NSE 20 Share Index January 3,737 February 3,751 March 3,845 April 3,705 May 3,353 June 3,286 2018 July 3,297 August 3,203 September 2,876 October 2,810 November 2,797 December 2,834 January 2,958 February 2,894 March 2,846 April 2,797 May 2,677 June 2,633 2019 July 2,628 August 2,468 September 2,432 October 2,643 November 2,619 December 2,654 January 2,600 February 2,338 March 1,966 April 1,958 May 1,938 June 1,942 2020 July 1,804 August 1,795 September 1,852 October 1,784 November 1,760 December 1,868 January 1,882 February 1,916 March 1,846 April 1,867 May 1,872 2021 June 1,928 July 1,974 August 2,021 September 2,031 October 1,961 Source: Central Bank of Kenya December 2021 | Edition No. 24 45 Table A12: Central Bank Rate and Treasury Bills Year Month Central Bank Rate 91-Treasury Bill 182-Treasury Bill 364-Treasury Bill January 10.0 8.0 10.6 11.2 February 10.0 8.0 10.4 11.2 March 9.5 8.0 10.4 11.1 April 9.5 8.0 10.3 11.1 May 9.5 8.0 10.3 11.1 June 9.5 7.8 9.9 10.8 2018 July 9.0 7.7 9.3 10.3 August 9.0 7.6 9.0 10.0 September 9.0 7.6 8.8 9.8 October 9.0 7.6 8.5 9.6 November 9.0 7.4 8.3 9.5 December 9.0 7.3 8.4 9.7 January 9.0 7.6 8.9 10.0 February 9.0 7.0 8.6 9.6 March 9.0 7.1 8.3 9.4 April 9.0 7.4 8.1 9.4 May 9.0 7.2 7.9 9.3 June 9.0 6.9 7.6 9.2 2019 July 9.0 6.6 7.4 8.8 August 9.0 6.4 7.1 9.2 September 9.0 6.4 7.1 9.6 October 9.0 6.4 7.2 9.8 November 8.5 6.6 7.6 9.8 December 8.5 7.2 8.2 9.8 January 8.3 7.2 8.2 9.8 February 8.3 7.3 8.2 9.9 March 7.3 7.3 8.1 9.2 April 7.0 7.2 8.1 9.1 May 7.0 7.3 8.2 9.2 June 7.0 7.1 7.9 8.9 2020 July 7.0 6.2 6.7 7.6 August 7.0 6.2 6.6 7.5 September 7.0 6.3 6.7 7.6 October 7.0 6.5 6.9 7.8 November 7.0 6.7 7.1 8.0 December 7.0 6.9 7.4 8.3 January 7.0 6.9 7.5 8.4 February 7.0 6.9 7.6 8.8 March 7.0 7.0 7.8 9.1 April 7.0 7.1 7.9 9.4 May 7.0 7.1 8.0 9.3 2021 June 7.0 7.0 7.6 8.4 July 7.0 6.6 7.1 7.5 August 7.0 6.6 7.1 7.4 September 7.0 6.8 7.3 7.8 October 7.0 7.0 7.4 8.1 November 7.0 7.1 7.7 8.7 Source: Central Bank of Kenya 46 December 2021 | Edition No. 24 Table A13: Interest rates Short-term Long-term Year Month Overall 91-Treasury Central Average Interest Interbank Savings weighted Bill Bank Rate deposit rate Rate Spread lending rate January 6.2 8.0 10.0 8.3 7.0 13.7 5.4 February 5.1 8.0 10.0 8.3 7.0 13.7 5.4 March 4.9 8.0 9.5 8.2 6.8 13.5 5.3 April 5.4 8.0 9.5 8.2 6.7 13.2 5.1 May 4.9 8.0 9.5 8.1 6.6 13.2 5.2 June 5.0 7.8 9.5 8.0 6.6 13.2 5.2 2018 July 4.8 7.7 9.0 8.0 6.5 13.1 5.1 August 6.6 7.6 9.0 7.8 6.5 12.8 5.0 September 4.5 7.6 9.0 7.8 6.3 12.7 4.9 October 3.5 7.6 9.0 7.6 5.7 12.6 5.0 November 4.1 7.4 9.0 7.4 5.4 12.6 5.1 December 8.0 7.3 9.0 7.4 5.1 12.5 5.1 January 3.3 7.6 9.0 7.3 5.1 12.5 5.2 February 2.5 7.0 9.0 7.3 5.2 12.5 5.2 March 3.7 7.1 9.0 7.2 5.1 12.5 5.3 April 4.2 7.4 9.0 7.2 4.7 12.5 5.3 May 5.6 7.2 9.0 7.2 4.7 12.5 5.3 June 3.0 6.9 9.0 7.2 4.8 12.5 5.3 2019 July 2.3 6.6 9.0 7.0 4.8 12.4 5.4 August 3.7 6.4 9.0 6.9 4.5 12.5 5.6 September 6.9 6.4 9.0 7.0 4.6 12.5 5.5 October 6.9 6.4 9.0 7.0 4.4 12.4 5.5 November 4.2 6.6 8.5 6.6 4.5 12.4 5.8 December 6.0 7.2 8.5 7.1 4.0 12.2 5.1 January 4.4 7.2 8.3 7.1 4.3 12.3 5.2 February 4.3 7.3 8.3 7.1 4.2 12.2 5.1 March 4.4 7.3 7.3 7.1 4.2 12.1 5.0 April 5.1 7.2 7.0 7.0 4.2 11.9 4.9 May 3.9 7.3 7.0 7.0 4.2 11.9 5.0 June 3.3 7.1 7.0 6.9 4.2 11.9 5.0 2020 July 2.1 6.2 7.0 6.8 4.1 11.9 5.2 August 2.6 6.2 7.0 6.6 4.1 12.0 5.3 September 2.9 6.3 7.0 6.4 3.8 11.8 5.3 October 2.7 6.5 7.0 6.3 3.4 12.0 5.7 November 3.3 6.7 7.0 6.3 3.4 12.0 5.7 December 5.3 6.9 7.0 6.3 2.7 12.0 5.7 January 5.1 6.9 7.0 6.3 2.7 12.0 5.7 February 4.5 6.9 7.0 6.5 3.4 12.0 5.6 March 5.2 7.0 7.0 6.5 3.5 12.0 5.6 April 5.1 7.1 7.0 6.3 2.7 12.1 5.8 May 4.6 7.1 7.0 6.3 2.5 12.1 5.8 2021 June 4.6 7.0 7.0 6.4 2.5 12.0 5.6 July 4.2 6.6 7.0 6.3 2.5 12.1 5.8 August 3.1 6.6 7.0 6.3 2.6 12.1 5.8 September 4.7 6.8 7.0 6.3 2.6 12.1 5.8 October 5.3 7.0 7.0 November 5.0 7.1 7.0 Source: Central Bank of Kenya December 2021 | Edition No. 24 47 Table A14: Money aggregate (Growth rate y-o-y) Year Growth rates (yoy) Money supply, M1 Money supply, M2 Money supply, M3 January 7.2 8.9 8.8 February 7.6 9.0 7.9 March 3.5 6.2 5.9 April 3.2 6.0 5.5 May 3.1 6.5 7.5 June 2.5 8.1 10.4 2018 July 3.9 8.4 10.1 August 3.0 7.2 9.1 September 0.6 6.2 8.5 October 3.8 7.6 9.1 November 2.4 6.5 8.4 December 6.6 8.0 10.1 January 7.4 8.4 10.5 February 5.6 7.3 10.3 March 11.7 10.8 12.5 April 6.8 8.7 10.7 May 6.7 8.3 8.7 June 10.5 9.8 9.2 2019 July 5.3 6.9 7.0 August 6.0 6.1 6.3 September 5.8 6.7 6.5 October 3.0 6.3 7.5 November 3.6 5.6 5.9 December 3.2 5.4 5.6 January 4.1 5.7 5.5 February 7.3 8.1 7.9 March 4.9 6.4 7.2 April 6.2 7.5 8.6 May 7.2 8.5 9.9 June 5.8 9.6 9.1 2020 July 11.4 11.9 11.3 August 12.1 11.1 10.8 September 14.1 11.0 10.7 October 17.8 11.5 11.5 November 20.5 13.6 14.2 December 12.8 11.9 13.2 January 12.6 11.0 13.2 February 10.6 9.9 12.4 March 7.6 7.7 10.1 April 7.7 7.9 9.3 May 7.8 6.9 7.6 2021 June 5.1 4.6 6.4 July 6.3 5.6 6.9 August 10.0 8.8 10.0 September 6.3 7.2 8.7 October 4.9 6.6 7.3 Source: Central Bank of Kenya and World Bank 48 December 2021 | Edition No. 24 Table A15: Coffee production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 5,112 527 2,509 1,286 February 5,832 577 2,834 1,612 March 4,913 478 3,936 2,237 April 4,194 305 4,550 2,822 May 4,620 217 5,573 3,209 June - - 4,649 2,664 2018 July 1,221 357 4,683 2,457 August 2,235 337 2,973 1,547 September 2,299 289 2,520 1,141 October 2,493 321 3,521 1,467 November 2,334 368 4,619 1,730 December 1,577 404 2,312 921 January 4,167 453 3,469 1,499 February 5,724 449 4,567 1,903 March 4,057 298 4,351 2,256 April 5,307 203 4,552 2,501 May 4,084 201 5,490 2,700 June 2,021 192 4,549 1,964 2019 July 672 197 5,115 1,713 August 1,647 217 3,932 1,462 September 1,522 233 3,145 1,113 October 2,541 260 3,986 1,390 November 1,117 332 3,664 1,176 December 771 435 1,906 634 January 3,049 439 2,639 985 February 4,410 427 3,169 1,687 March 4,845 422 4,604 2,410 April 2,242 295 4,396 2,590 May 1,125 276 4,313 2,279 June - - 5,414 2,956 2020 July 1,310 358 3,546 1,799 August 1,209 525 3,182 1,484 September 1,913 484 3,391 1,607 October 1,329 527 2,732 1,322 November 1,318 568 3,594 1,837 December 1,667 660 2,405 1,285 January 3,824 697 2,129 1,342 February 5,325 664 3,481 2,161 March 4,318 544 6,065 4,557 April 2,196 436 3,337 2,307 2021 May - - 4,430 3,010 June 502 593 3,437 2,272 July 1,278 674 2,696 1,764 August 1,479 684 2,504 1,658 September 1,889 664 2,480 1,735 Source: Kenya National Bureau of Statistics December 2021 | Edition No. 24 49 Table A16: Tea production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 40,834 304 48,447 14,964 February 27,939 302 47,357 14,657 March 30,987 284 34,488 10,471 April 44,580 268 33,565 9,830 May 43,356 263 42,533 11,703 June 43,299 257 45,182 12,463 2018 July 35,278 251 45,242 12,226 August 37,433 241 38,023 9,919 September 42,531 243 40,268 10,479 October 49,284 244 43,894 11,327 November 45,649 242 44,108 11,015 December 51,830 236 38,681 9,781 January 48,386 234 48,623 11,831 February 31,445 216 41,027 9,638 March 26,462 214 42,457 9,910 April 26,131 228 36,884 8,631 May 37,759 242 36,994 9,293 June 42,425 219 29,355 7,154 2019 July 31,458 205 33,657 7,788 August 37,200 218 41,276 9,458 September 35,533 229 36,325 8,463 October 46,305 242 45,374 11,065 November 45,087 235 43,650 10,735 December 50,660 225 39,312 9,484 January 53,636 232 48,770 11,452 February 49,201 214 47,570 11,022 March 55,733 207 51,441 11,665 April 49,656 225 57,722 13,193 May 47,004 210 48,594 11,289 June 46,378 198 46,399 10,293 2020 July 36,554 194 46,851 10,014 August 38,525 217 47,035 10,269 September 43,413 220 44,725 10,200 October 48,275 215 43,656 9,937 November 47,680 218 46,353 10,611 December 54,412 215 46,167 10,301 January 48,896 223 48,812 11,379 February 43,399 230 50,390 11,726 March 48,693 219 53,432 12,673 April 44,299 207 51,899 11,576 2021 May 45,322 205 50,042 11,071 June 43,469 196 43,993 9,548 July 34,732 189 43,844 9,204 August 33,635 230 44,421 9,874 September 36,308 8,566 Source: Kenya National Bureau of Statistics 50 December 2021 | Edition No. 24 Table A17: Local Electricity Generation by Source Hydro KWh Geo-thermal Thermal KWh Wind KWh Total KWh Year Month Million KWh Million Million Million Million January 223 430 242 3 900 February 193 387 249 7 837 March 248 448 202 4 903 April 317 428 139 3 887 May 386 447 83 2 918 June 401 430 82 1 914 2018 July 420 438 87 2 947 August 417 427 117 3 964 September 392 440 85 7 925 October 365 432 87 77 962 November 340 398 80 133 957 December 283 423 92 133 939 January 279 417 114 148 966 February 254 374 99 146 880 March 283 445 99 144 979 April 192 398 181 142 921 May 243 427 110 164 952 June 272 413 146 92 932 2019 July 269 440 133 125 975 August 251 425 132 151 968 September 234 454 105 153 953 October 268 494 70 137 977 November 299 482 62 114 965 December 361 464 62 46 940 January 358 477 55 90 986 February 342 431 54 100 934 March 359 460 56 86 969 April 298 412 36 88 841 May 319 392 56 106 881 June 334 421 62 88 913 2020 July 358 433 61 110 969 August 358 424 71 119 977 September 356 381 89 140 973 October 373 440 80 122 1023 November 385 397 60 148 997 December 400 393 77 135 1012 January 330 465 75 138 1015 February 281 422 106 110 926 March 305 461 63 200 1037 April 308 425 60 165 964 2021 May 369 385 116 130 1008 June 318 409 84 185 1003 July 286 463 123 153 1037 August 274 453 109 190 1043 September 262 440 107 187 1014 Source: Kenya National Bureau of Statistics December 2021 | Edition No. 24 51 Table A18: Soft drinks, Sugar, Galvanized sheets and Cement production Soft drinks litres Galvanized sheets Year Month Sugar MT Cement MT (thousands) MT January 52,062 62,819 23,919 494,709 February 49,685 53,833 21,890 490,020 March 52,580 49,148 22,048 476,730 April 45,690 36,682 21,434 474,740 May 41,482 28,933 22,271 452,034 June 44,827 28,320 21,434 454,322 2018 July 43,725 30,105 23,252 465,575 August 48,795 35,646 22,630 473,861 September 45,956 37,652 23,509 460,546 October 46,546 45,324 23,906 470,524 November 50,201 38,768 22,877 460,967 December 54,021 38,268 21,266 461,922 January 53,585 53,060 20,124 485,178 February 55,218 46,139 22,749 470,146 March 61,413 45,463 26,313 507,037 April 58,230 35,312 23,214 501,921 May 53,086 36,307 22,501 486,301 June 46,074 28,545 24,667 477,432 2019 July 47,149 25,097 23,260 527,115 August 49,248 32,835 21,918 512,470 September 53,234 33,356 22,641 519,370 October 47,586 35,259 22,619 504,615 November 50,715 30,898 21,871 479,085 December 55,398 38,325 22,547 496,517 January 52,654 53,155 23,397 530,404 February 49,406 51,083 21,989 548,818 March 49,494 52,699 18,527 559,424 April 46,015 45,468 12,469 509,197 May 34,129 46,350 18,042 511,961 June 44,829 49,681 23,730 594,421 2020 July 44,394 53,131 24,493 666,341 August 39,290 53,532 23,226 712,701 September 52,436 54,873 20,801 707,033 October 47,215 54,830 22,868 731,253 November 42,916 50,227 23,268 668,507 December 64,707 38,834 20,854 666,855 January 52,537 58,044 17,788 652,883 February 44,421 61,508 19,716 612,980 March 53,498 66,494 20,676 721,444 April 51,749 58,404 21,056 695,953 2021 May 51,201 57,796 22,017 717,669 June 58,968 21,505 698,424 July 876,998 August 896,825 September 894,361 Source: Kenya National Bureau of Statistics 52 December 2021 | Edition No. 24 Table A19: Tourism arrivals Year Month JKIA MIA TOTAL January 105,262 14,533 119,795 February 98,532 12,792 111,324 March 100,441 11,024 111,465 April 94,236 5,205 99,441 May 93,730 4,735 98,465 June 114,097 5,157 119,254 2018 July 141,763 9,025 150,788 August 145,231 9,589 154,820 September 114,539 9,916 124,455 October 115,597 9,343 124,940 November 103,229 8,391 111,620 December 115,856 18,403 134,259 January 113,362 15,727 129,089 February 107,058 12,864 119,922 March 106,001 9,732 115,733 April 104,418 5,096 109,514 May 98,788 3,689 102,477 June 126,822 2,454 129,276 2019 July 150,286 8,663 158,949 August 150,723 11,000 161,723 September 124,001 9,208 133,209 October 115,828 10,940 126,768 November 111,548 12,339 123,887 December 121,912 12,391 134,303 January 114,873 12,214 127,087 February 108,578 11,092 119,670 March 43,346 3,950 47,296 April 12 - 12 May 1,229 - 1,229 June 534 2 536 2020 July 617 1 618 August 13,371 548 13,919 September 19,403 761 20,164 October 28,451 1,184 29,635 November 30,719 1,156 31,875 December 44,279 3,127 47,406 January 43,234 3,045 46,279 February 32,047 3,005 35,052 March 37,214 3,194 40,408 April 27,850 3,037 30,887 May 32,153 1,735 33,888 2021 June 46,494 2,038 48,532 July 64,493 4,532 69,025 August 72,291 6,257 78,548 September 66,667 3,633 70,300 October 67,608 5,201 72,809 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) December 2021 | Edition No. 24 53 Table B1: Higher skilled services sectors have increased their share of service sector employment 2015/16 2019 2019 000's % 000's % % Agriculture All 7,999 46.5 8,429 47.4 5.4 Mining 156 0.9 100 0.6 -36.1 Manufacturing 870 5.1 848 4.8 -2.5 Industry Utilities & construction 1,012 5.9 910 5.1 -10.1 All 2,038 11.8 1,858 10.5 -8.8 ICT 98 0.6 83 0.5 -15.6 Global Finance & insurance 65 0.4 176 1.0 169.7 Innovator Professional, scientific, and technical services 180 1.0 118 0.7 -34.2 All 343 2.0 377 2.1 10 Wholesale trade 350 2.0 374 2.1 7.0 Low-Skilled Transportation 775 4.5 865 4.9 11.6 Tradable Accommodation & food 495 2.9 419 2.4 -15.4 All 1,620 9.4 1,658 9.3 2.4 Retail Trade 2,371 13.8 2,336 13.1 -1.5 Administrative and support 439 2.5 428 2.4 -2.5 Low-Skilled Arts, entertainment, and recreation 50 0.3 43 0.2 -14.5 Domestic Other services 1,044 6.1 1,080 6.1 3.5 All 3,904 22.7 3,886 21.9 -0.4 Skill- Education 784 4.6 953 5.4 21.5 Intensive Health 210 1.2 273 1.5 30.4 Social All 994 5.8 1,226 6.9 23.3 Real estate 32 0.2 49 0.3 50.2 Other Public administration & defence 191 1.1 272 1.5 42.6 Services All 223 1.3 321 1.8 43.7 Not Stated All 85 0.5 12 0.1 54 December 2021 | Edition No. 24 Table B2: Job losses occurred across all service sub-sectors, especially the more skilled Change Change 2015/16 2019 2020 (16 to ('19 to ‘19) '20) 000's % 000's % 000's % % % Agriculture All 7,999 46.5 8,429* 47.4 10,049* 53.8 5.4 19.2 Mining 156 0.9 100* 0.6 127 0.7 -36.1 27.5 Manufacturing 870 5.1 848 4.8 922 4.9 -2.5 8.7 Industry Utilities and construction 1,012 5.9 910 5.1 1,039 5.6 -10.1 14.2 All 2,038 11.8 1,858 10.5 2,088 11.2 -8.8 12.4 ICT 98 0.6 83 0.5 60 0.3 -15.6 -27.2 Finance & insurance 65 0.4 176* 1.0 133 0.7 169.7 -24.4 Global Innovator Professional, scientific, and 180 1.0 118 0.7 96 0.5 -34.2 -18.5 technical services All 343 2.0 377 2.1 290 1.6 10.0 -23.2 Wholesale trade 350 2.0 374 2.1 339 1.8 7.0 -9.6 Low-Skilled Transportation 775 4.5 865 4.9 926 5.0 11.6 7.0 Tradable Accommodation and food 495 2.9 419 2.4 397 2.1 -15.4 -5.2 All 1,620 9.4 1,658 9.3 1,661 8.9 2.4 0.2 Retail Trade 2,371 13.8 2,336 13.1 2,208 11.8 -1.5 -5.5 Administrative and support 439 2.5 428 2.4 243* 1.3 -2.5 -43.2 Low-Skilled Arts, entertainment, and 50 0.3 43 0.2 39 0.2 -14.5 -8.3 Domestic recreation Other services 1,044 6.1 1,080 6.1 910* 4.9 3.5 -15.7 All 3,904 22.7 3,886 21.9 3,401 18.2 -0.4 -12.5 Skill- Education 784 4.6 953* 5.4 577* 3.1 21.5 -39.4 Intensive Health 210 1.2 273 1.5 183* 1.0 30.4 -32.9 Social All 994 5.8 1,226 6.9 761 4.1 23.3 -37.9 Real estate 32 0.2 49 0.3 64 0.3 50.2 30.8 Other Public administration and 191 1.1 272* 1.5 306 1.6 42.6 12.6 Services defence All 223 1.3 321 1.8 370 2.0 43.7 15.4 Not Stated All 85 0.5 12 0.1 70 0.4 Source: Authors’ calculation based on the KIHBS 2015/16, KCHS 2019 and 2020. Note: * indicates a significant change from the previous survey estimate, determined by non-overlapping 95% confidence intervals December 2021 | Edition No. 24 55 World Bank Group Delta Center Join the conversation: Menengai Road, Upper Hill Facebook and Twitter P. O. Box 30577 – 00100 @Worldbankkenya Nairobi, Kenya #KenyaEconomicUpdate Telephone: +254 20 2936000 Fax: +254 20 2936382 http://www.worldbank.org/en/country/kenya Produced by Macroeconomics, Trade and Investment; Poverty and Equity; and Social Protecion & Jobs Global Practices