Driving Investment in Productive Assets to Boost Jobs and Economic Growth: The Kenyan Government

Kenya, the leading economy in East Africa, has experienced varying economic growth rates over the years, with the real GDP growth accelerating to 5.6% in 2023, up from 4.9% in 2022. 

This growth was largely driven by the recovery of the agricultural sector and the services sector, particularly tourism and financial services. 

Despite these positive indicators, the Kenyan economy faces significant challenges. High unemployment rates, particularly among youth, remain a pressing concern. 

Investing in productive assets, such as small and medium enterprises (SMEs), technology, and infrastructure, can lead to job creation, increased productivity, and economic resilience. 

The Kenyan government has recognized the importance of fostering an environment conducive to investment, particularly in sectors that can drive economic growth and create quality jobs. 

However, to achieve this, a concerted effort is required to change the mindset of potential investors and to provide the necessary support systems that facilitate investment.

The Role of Government in Fostering Investment

The government plays a critical role in shaping the investment landscape through policy formulation, infrastructure development, and the provision of incentives. 

By creating a favorable regulatory environment, enhancing access to finance, and promoting financial literacy, the government can empower citizens to make informed investment decisions. 

Furthermore, targeted interventions that address specific barriers to investment can help shift the focus from passive to productive assets, ultimately leading to greater economic growth and job creation.

Having a Robust Policy Formulation and Regulatory Framework

The foundation of any successful investment strategy lies in a robust policy framework. 

The Kenyan government has made significant strides in this area by developing comprehensive investment policies aimed at attracting both domestic and foreign investments. 

The Kenya Investment Policy (KIP) 2019 outlines the government's commitment to creating an enabling environment for investors. 

It emphasizes the importance of transparency, consistency, and predictability in the application of investment policies, which are crucial for building investor confidence.

The Kenyan Investment Promotion Act of 2004 established the legal framework for investment promotion, leading to the creation of the National Investment Council (NIC). 

Although the NIC has yet to be fully operationalized, its intended role is to advise the government on strategies to enhance investment and economic growth while fostering cooperation between public and private sectors. 

This kind of inter-ministerial coordination is essential for addressing the complexities of investment and ensuring that policies align with the broader economic goals of the country.

Focusing on Infrastructural Development

Infrastructure is a critical component of investment attractiveness. The Kenyan government has prioritized infrastructure development as part of its broader economic strategy. 

Major projects, such as the expansion of the Port of Mombasa, improvements in road and rail networks, and the development of Special Economic Zones (SEZs), are designed to facilitate trade and enhance connectivity. 

These investments not only improve logistics for businesses but also create jobs during the construction phase and beyond.

The government’s commitment to enhancing digital infrastructure is also noteworthy. The Digital Economy Blueprint aims to leverage technology to improve service delivery and streamline business processes. 

This includes initiatives to digitize business licensing and regulatory processes, making it easier for investors to navigate the bureaucratic landscape. 

By embracing technology, the government can reduce transaction costs and improve the overall investment climate.

Encouraging Public-Private Partnerships (PPPs)

Encouraging public-private partnerships (PPPs) in Kenya can significantly enhance investment in productive assets by leveraging private sector expertise and resources. 

The Kenyan government should actively seek collaborations with private companies to develop infrastructure, technology, and services that support investment. 

Here are some notable examples of successful PPPs in Kenya:

• Mombasa-Nairobi Standard Gauge Railway (SGR)

The Mombasa-Nairobi Standard Gauge Railway is one of Kenya's flagship PPP projects. Built by the China Road and Bridge Corporation, this railway line was financed through a loan from the China Exim Bank. 

The project has significantly improved transportation efficiency between the two major cities, reducing travel time and costs for both passengers and cargo. 

The SGR is a prime example of how PPPs can facilitate large-scale infrastructure development, enhancing trade and economic growth.

• Jomo Kenyatta International Airport (JKIA) Cargo Terminal

The construction of the JKIA Cargo Terminal was another successful PPP initiative. 

This facility was developed under a Build-Operate-Transfer (BOT) arrangement, where a private entity financed, built, and operated the terminal for a specified period before transferring ownership back to the government. 

This partnership has improved cargo handling capacity and efficiency at Kenya’s main airport, supporting the growth of the logistics and trade sectors.

• Kenya Power Projects

Kenya Power has engaged in several PPPs to expand its electricity generation capacity. 

Notable projects include the Olkaria Geothermal Power Plant and the Rabai Independent Power Project. 

These partnerships have attracted private investment in renewable energy, supporting Kenya's goal of increasing access to electricity and promoting sustainable energy sources.

Enhancing Ease of Access to Finance

Access to finance remains a significant barrier for many potential investors in Kenya. 

The government has recognized this challenge and has implemented various measures to improve financial inclusion. 

Initiatives such as the Kenya Industrial Transformation Programme (KITP) aim to enhance access to credit for small and medium enterprises (SMEs), which are vital for job creation and economic growth.

The establishment of microfinance institutions and the promotion of mobile banking solutions have also played a crucial role in increasing access to finance. 

These financial innovations have enabled individuals and small businesses to secure funding for investment, thereby fostering entrepreneurship and economic activity. 

Additionally, the government has been working to strengthen the legal and regulatory framework surrounding financial services to ensure that investors can operate in a secure and supportive environment.

Creating a Favorable Tax Environment for Kenyans

Creating a favorable tax environment is essential for encouraging investment in Kenya, particularly in sectors that can drive economic growth, such as technology, agriculture, and manufacturing. 

A well-structured tax regime can incentivize individuals and businesses to invest their savings into productive ventures rather than opting for passive assets like land. 

Below are several key aspects of how the government can achieve this:

• Tax Breaks for Targeted Sectors

The government should consider offering tax breaks specifically tailored to sectors that are critical for economic development.

Providing tax incentives for companies that invest in research and development (R&D) can stimulate innovation. 

R&D tax credits can be particularly beneficial for technology firms that are developing new software, applications, or hardware. 

Additionally, providing R&D tax credits for agricultural innovations such as drought-resistant crops or sustainable farming practices can enhance productivity and food security.

This approach can attract both local and foreign investment into the manufacturing sector, helping to create jobs and reduce reliance on imports.

• Reducing Capital Gains Tax

Reducing capital gains tax can encourage individuals to invest in productive assets. 

A lower capital gains tax rate would make it more appealing for investors to sell assets and reinvest the proceeds into businesses or other productive ventures. 

This could lead to a more dynamic investment climate where capital is continually cycled back into the economy, fostering growth and job creation.

• Tax Credits for Small and Medium-Sized Enterprises (SMEs)

SMEs are crucial for economic development and job creation in Kenya. The government should provide tax credits specifically for investments made in SMEs. 

These credits could be linked to job creation or revenue growth, incentivizing larger companies to invest in smaller enterprises or encouraging entrepreneurs to start new businesses. 

By supporting SMEs through tax incentives, the government can enhance their capacity to contribute to the economy.

• Simplifying Tax Compliance

A complex tax system can deter investment. The government should aim to simplify tax compliance procedures to make it easier for individuals and businesses to understand their tax obligations. 

Streamlining tax registration processes and reducing bureaucratic hurdles can encourage more people to invest. 

Additionally, providing clear guidelines on tax incentives and how to qualify for them can enhance participation in investment programs.

Implementing Digital Platforms for Investment

Developing digital platforms that facilitate investment can significantly enhance accessibility and streamline the investment process for individuals and businesses. 

The Kenyan government should prioritize investment in technology to create a centralized digital platform where citizens can easily access information about investment opportunities, apply for necessary licenses, and connect with potential investors.

• The eCtizen Platform

The eCitizen platform is a significant digital initiative by the Kenyan government aimed at streamlining access to various government services, including investment opportunities. 

While primarily focused on service delivery, eCitizen also facilitates business registration and licensing, making it easier for entrepreneurs to start and manage their businesses.

Through eCitizen, users can access information about investment opportunities, apply for necessary licenses, and complete other regulatory requirements online. 

The platform is designed to be user-friendly, allowing citizens to navigate easily and access the services they need without having to visit government offices physically.

By investing in digital platforms, the government can capitalize on this trend, making it easier for citizens to manage their investments and engage with the financial markets.

Promotion of Financial Literacy

Promoting financial literacy is essential for empowering citizens to make informed investment decisions. 

The Kenyan government, in collaboration with various stakeholders, has initiated programs aimed at enhancing financial literacy among the population. 

• The Chora Plan

The Chora Plan is an initiative led by the Kenya Bankers Association (KBA) aimed at promoting financial literacy among individuals and businesses. 

The program focuses on educating participants about essential financial concepts such as budgeting, saving, investment, and debt management. 

By collaborating with stakeholders from the financial services sector, consumer organizations, and organizations for Persons with Disabilities (PWDs), the Chora Plan seeks to enhance public understanding of financial services and empower citizens to make informed financial decisions.

ALigning with the Big 4 Agenda: The Affordable Housing Project

The Kenyan government's affordable housing project is a key initiative aimed at addressing the country's housing deficit and creating jobs. 

The Affordable Housing Programme (AHP) was launched in 2017 as one of the key pillars of the government's "Big Four Agenda". 

The initiative targeted delivering 500,000 affordable homes for Kenyans across all 47 counties by 2022, though it fell short of this goal.

Here's how ithe affrodable housing project fits into the broader context of economic growth and employment creation;

• Job Creation Potential and Economic Growth

The affordable housing project has the potential to create significant employment opportunities in the construction sector and related industries. 

By stimulating investment in housing development, the government aims to generate at least 500,000 new jobs annually.

Providing children with a more equitable path forward by keeping them housed in mixed-income communities can stimulate economic growth and cultivate healthier societies.

• Addressing the Housing Deficit

With a growing urban population and limited affordable housing options, the housing deficit in Kenya is a major challenge. 

The AHP seeks to bridge this gap by providing decent and affordable housing for low and middle-income earners.

• Increased Property Values and Tax Revenue

Affordable housing can lead to increased property values for nearby homes and businesses, translating into increased property tax revenue for the local government. 

Developers can also receive federal tax credits and deductions for investing in affordable housing projects.

• Integrating Rental Housing

To further address the housing shortage, the government is focusing on integrating rental housing into the affordable housing framework. 

This strategic move aims to rectify the existing mismatch between housing demand and supply.

• Collaboration with Private Sector

The government is leveraging public-private partnerships (PPPs) to support the large-scale supply of affordable homes. 

By making serviced land available to private developers and providing infrastructure, the government aims to attract private sector participation.

By addressing the housing deficit, creating jobs, reducing poverty, and boosting local economies, the Affordable Housing Programme has the potential to deliver significant long-term benefits for Kenya's economic growth and development.

Final Thoughts

The government is implementing multifaceted initiatives to foster investment in productive assets, aiming to stimulate economic growth, create jobs, and enhance financial inclusion. 

Key strategies include establishing a favorable tax environment, developing digital platforms for easier access to investment opportunities, and fostering public-private partnership. 

The Affordable Housing Programme exemplifies the government's commitment to addressing economic challenges while promoting targeted sectors such as technology and agriculture.

Collectively, these efforts are crucial for transforming Kenya's economic landscape, unlocking citizens' potential, and driving long-term growth and prosperity.