Rebased GDP of Kenya – Hurrah Kenya achieves vision 2030 overnight

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  • 3 years ago
  • Posted: October 1, 2014 at 12:32 pm

Yesterday the Ministry of Planning and Devolution together with Kenya Bureau of Statistics gave the country the best news ever, we leaped from being a poor country to a lower middle income nation overnight. The only reason why in the previous night before the announcement we were still a poor nation is because we were using the wrong figures to look at our economic standing – those figures were corrected in a process called rebasing the GDP.

It is not a gimmick. Here is how it works.

Economic indices such as Consumer Price Index are calculated based on figures of a year past that has particular economic properties. As a general rule, economies ought to adjust their economic indices every five or so years particularly choosing years that ends with a zero a five e.g. 2005 or 2010. Then again, the year chosen as a base year should be that year when the economy was generally stable (without shocks and steep fluctuations). Economics Help has a simplified information for non economists like me.

Kenya’s books of accounts and economic statistical figures e.g. growth of GDP, CPI etc were  referenced with those of the year 2001 which is thirteen years ago. It was thus important to rebase the reference point to a nearer year which ought to be a year five years ago (following the five year rebasing rule) and at the same time a year that had one of the most stable performances. When Nigeria did their rebasing a few months ago, they chose 2010, but Kenya chose 2009 – I believe economic stability outweighed the need for the year to end in a zero or a five when arriving at the year.

After rebasing the economic indices which gave rise to new growth rates (for example economic growth rate for 2014 has become 5.7 percent down from 4.7 percent earlier thought), the statisticians and government accountants also took the opportunity to add the sectors that had not been properly accounted for to the books of accounts, including the technology sector, Housing,  (telecommunication, mobile money, etc) whose contributions were now added to the GDP, making the GDP have a higher figure of $55.2 billion up from the previous figure of $44.7 billion. These GDP figures makes Kenya’s per capita income rise from $999 to $1,246. A country with a capita income of between $1,045 and $4,125 is categorized by World Bank as a “lower middle income” country.

The possible consequences of the rebased GDP of Kenya

Rebasing the GDP of any country has potential consequences, both good and bad. The rebased GDP of Kenya gives the country one such immediate consequence in the form of marginally improved debt to GDP ratio. It is has been recommended by IMF that an upper limit of 40% is the sustainable debt to GDP ratio for developing countries and by October last year, Capital FM reported an infographic showing that the country’s debt to GDP ratio had passed 49 percent, 9 percentage points over and above the IMF’s recommended upper limit.

Assuming that the debt figure of 1.8945 trillion shillings that the country had at the time of Capital FM’s report has only been affected by the Euro bond making the country’s debt portfolio stand at 2.0665 trillion shillings, then the debt to GDP ratio now stands at 42% thanks to the rebased GDP of Kenya. Given that the country was comfortable with a debt to GDP ratio of close to 50%, the new ratio provides a rationale for the country to borrow a further 330 billion shillings, or  3.84 billion dollars, which is close to twice the amount raised by the Euro bond.

The second impact the rebased GDP of Kenya can have, due to the positive image a name tag like “lowr middle income country” has, in addition to the fact that Kenya is now placed in the top ten richest countries in Africa, surpassing even Ghana that is one of the power houses in West Africa, is to woo potential investors across the globe to come to Kenya. With an increased per capita income from $999 to $1245, the investors will see Kenya as a country with a population with increased disposal income to spend on goods and services they might want to bring here. These two level motivations implies we may start witnessing a rush of investors putting up startups and manufacturing facilities in the country – cost of production withstanding.

The negative consequence (which to me is a positive one) the rebased GDP of Kenya will have is that we won’t be eligible for concessional or low interest to interest free loans by the World Bank and IMF. This to me is the positive news as we actually do not need to borrow money to drive our economy. Kibaki tried to steer the economy to prosperity within the first years of his administration and was succeeding – until he allowed corruption to crop back to taint his efforts.

The negative consequence this rebasing has done is the belief that the country can now safely borrow up to four billion dollars more and get away with it. This belief will then mean corrupt businesses men/women and politicians will loot public resources at a rate never witnessed before. As one commenter in The Standard put it:

Infact i believe since jubillee came to power kenya has gone a notch down..From insecurity, massive corruption in govt, a political class that has no limits on raiding the treasury for their own greed, from tourism on the verge of collpase because of insecurity, from Kenyans going hungry because the govt decides to tax food inorder to fill the gap on the spiralling wage bill due to greed and corruption basically supporting the lifestyles of greedy politicians and govt officials on the backs of the poor

These GDP numbers are another way for politicians to ask for more salaries and goodies

Kenya is still the poor nation you new yesterday

Do not be amazed by these new GDP figures, even though the positive image the country will have MIGHT be of some consolation. Kenya is still a country with the widest income and resource sharing disparity. It is still home to the poorest people on earth with over 17 million living below poverty line, a country where electricity penetration in rural areas is hardly 12%, and a country where road infrastructure, though has been improving since 2002, is still largely wanting. Our commenter quoted above and goes by the handle it6 also said:

When electrity becomes easily accessible, cheap to 80% of Kenyans. When Kenyans can feel safe in their own country and homes even walking at night or doing business at night without fear, when food is readily accessible to millions of the poor without breaking their budget, when fiber optic is available in all schools, When govt can stop corruption and waste costing the country 500b a year, When majority of Kenyans can get access to quality affordable healthcare, when i can start a business without hustle or bribing, when i can trust a cop who will not ask for a bribe when i need help, when roads are built to standard and can travel anywhere in the country without it being called remote..

Then wake me up and forget these GDP numbers..

No, the rebased GDP of Kenya is not a hurray, and we are still millions of strides away from achieving vision 2030.

What is your opinion on the topic?
Odipo Riaga
Managing Editor at KachTech Analytics Ltd

Odipo Riaga is a Technology Blogger interested in emerging tech such as VR and AR, AI, Life Extension, Exponential Biotech, Immortality, Cyborgs and many others.

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