Kenya’s economic recovery: lessons from post-World War 2 Japan

The next government has its work cut out for them with an acute need for economic recovery. Kenyan SMEs and private sector in general have experienced unprecedented systemic shocks from 2017 all the way until 2022 ranging from election and its repeat in 2017-2018, drought, pending bills, lack of credit instigated by government of Kenya  internal borrowing combined with interest rate cap, sub optimal investment into productive economy with erroneous focus on infrastructure, high levels of corruption, COVID 19 and sub optimal economic stimuli programs and 2022 electioneering among many others.

Despite lofty promises made by political players reality is bound to hit once they get into office and realise, they may have over promised and underestimated the magnitude of the economic challenge.

Kenya finds itself in a similar position as Japan after world war with a battered economy and the need to institute economic recovery. Japan went through what some experts term as economic miracle between the period of 1945 to 1956 where the country’s per capita GDP rose at an average of 7.1% surpassing pre-war economic growth.

Japan instituted a myriad of strategies such as : accelerated  reallocation of resources, especially labor, from the relatively low-productivity agricultural sector to the non-agricultural sector, which enjoyed higher productivity and per capita income overall, reallocation of capital through  indirect financing based on bank savings and postal savings which provided the financial foundation for rapid economic growth by facilitating the absorption of savings and the efficient allocation of capital among others.

Kenya’s economic situation is very similar to Japan’s post WW2 economy in terms of growth potential derived from two basic factors: technology gap between Kenya and global north and an agricultural sector with low productivity.

In response to these two factors, Japan adopted systemic institutional and legislative changes that  helped the economy tap into these potential and spur rapid socio economic development

Holding all factors constant and taking cognisant that Kenya’s economic challenge is far more complex, the country must focus on two economic sectors that have the potential for the highest return on investment: technology and agriculture

Focus on technology must be on progressive legislative infrastructure that supports start-up led innovation across all 47 counties first linking innovation to local value chains in manufacturing and agriculture and secondly linkage to global value chain. A good example is what if VISA partnered with a local innovation hub to run their hub in Kenya to develop fintech products?

Kenya’s agricultural sector plays a critical role in socio economic development contributing roughly over 40 percent to GDP aggregately directly and indirectly. The sector growth is largely driven by cash crops of tea, coffee and horticulture with food crops taking the back burner. The sector just like post-war Japan suffers from low productivity combined with little to no value addition. Focus must therefore be on increasing productivity of food crops, value addition of cash crops and new market development based on Kenya’s comparative advantage