## 1. Push for Industrialization

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### Introduction
- Industrialization and export-oriented manufacturing are central to Kenya’s development plan.
- Paper scope and comparisons:
  - Examines non-price (structural) competitiveness, focusing on the period since 2010.
  - Kenya compared to EAC and SSA peers and to Bangladesh, Georgia, and Vietnam.
- Key diagnostic findings:
  - Kenya’s export performance over the last decade—particularly manufactured exports to the EAC and SSA—has lagged peers.
  - Exports remain concentrated in products characterized by low market growth and exposed to competition from low-cost producers.
- Policy levers identified: openness to competition; improved access to finance (credit and FDI); policies encouraging new dynamic firms and an even playing field.

### Review of Kenya’s trading environment and industrial policy
- Legal and regulatory reforms enacted:
  - Companies Act; Insolvency Act; Special Economic Zones Act; Business Registration Service Act; Companies & Insolvency Legislation (Consequential Amendments) Act.
  - Ease of Doing Business program measures: simplified company registration; linking stamp duty collection with Kenya Revenue Authority systems; simplified land registration; reduced time to connect electricity; one-stop shop via Kenya Investment Authority.
- Trade-specific initiatives and frameworks:
  - Vision 2030 (launched in 2008) and the Big Four Agenda (manufacturing and job creation among pillars).
  - Kenya Industrial Transformation Program (KITP), 2015: 10-year blueprint with region-specific clusters, industrial development fund, industrial parks, support to agro-processing, textile, and mining sectors.
  - Creation of Special Economic Zones (SEZs) and Export Processing Zones (EPZs); SEZs Act, 2015 established Special Economic Zones Authority and creation of eight SEZs.
  - Ratified AfCFTA in 2018; tripartite free trade agreement among COMESA, EAC, and SADC.
- Export and FDI performance (pre-pandemic through 2019):
  - Exports of goods and services to GDP declined from almost 20 percent in 2011 to about 11 percent in 2019.
  - Kenya attracted on average 1.3 percent of GDP in FDI in 2010−19, compared with around 3 percent of GDP for some non-resource-intensive peers (e.g., Ethiopia and Rwanda).
  - Kenya’s FDI position relative to the EAC doubled during 2009-2014, increasing Kenya’s relative weight from ¼ that of South Africa to a third.
  - EPZs: annual investment had grown to about KSh115 billion in 2020 and they employ over 50,000 people.
  - Kenya evolving as an exporter of capital and services (logistics, technology, digital services).

### Export performance and non-price competitiveness findings
- Overall export trends and outcomes:
  - Exports of goods and services to GDP: almost 20 percent in 2011 → about 11 percent in 2019.
  - Kenya’s world export share broadly unchanged at about 0.03 percent from 2008 to 2019.
  - Kenya’s share of goods and services exports from the EAC fell from almost 60 percent in 2000 to below 40 percent in 2019.
- Structural composition:
  - Exports concentrated in low technological intensity, low value-added, low market growth products; exposed to competition from low-cost producers.
  - Manufacturing contribution to GDP fell from 11.8 percent in 2011 to 7.6 percent in 2020.
  - Manufacturing’s share in total employment and earnings declined, though earnings picked up in the latest observation.
- Export composition shifts:
  - Services’ share in exports increased to about 45 percent (comparison across 2005 and 2017).
  - Manufacturing share fell to less than a third by 2017.
  - Kenya’s largest export product share is vegetables (45 percent in 2019).
  - Primary products remained dominant share for Kenya in both 2010 and 2019; little movement toward low-tech, medium-tech, or high-tech exports over the period.
- Export dynamism and networks:
  - Kenya has more trading relationships than SSA peers except South Africa.
  - During 2010–17, Kenya had the least number of new products while having the highest survival rate relative to the group—suggesting lack of export dynamism and possible entry barrier issues.
  - Kenya’s participation in global value chains increased between 2000 and 2010 but fell after 2010.
- Export sophistication:
  - EXPY and related analysis indicate exported products increasingly produced by countries at relatively lower income levels; little meaningful improvement in technological content between 2005 and 2018.
- Positive developments:
  - Improvements in Enabling Trade Index (ETI) and Global Competitiveness Index (GCI) scores reflect reforms improving infrastructure quality and availability and use of ICT to facilitate trade.
  - Kenya is closer to the frontier than EAC regional average on ETI pillars such as transport services, availability and use of ICT, border administration efficiency, and transport infrastructure.

### Enabling Trade Index, Global Competitiveness Index, and related metrics (selected exact figures)
- Enabling Trade Index (1–7): values shown in table in source (table not reproduced here).
- Tariff rate (%): Kenya - 18.
- Share of duty-free imports (%): Kenya - 33.
- Index of margin of preference in destination mkts (0–100): Kenya - 77.
- Cost to export: Documentary compliance (US$): Kenya - 7 (table entry).
- Cost of documentary compliance for exports fell by roughly 25 percent to US$142.5 in 2016 from US$190.5 in 2014 (border administration subindex context).
- Irregular payments in exports and imports*: Kenya - 56.
- Time predictability of import procedures*: Kenya - 165.
- Mobile phone subscriptions/100 pop.: Kenya - 104.
- Individuals using Internet (%): Kenya - 9.
- Active mobile broadband Internet subscriptions/100 pop.: Kenya - 58.
- Quality of port infrastructure*: Kenya - 27.
- Road Quality Index (1–7): Kenya - 73.
- GCI strengths: Kenya closer to the frontier than regional peers in infrastructure, innovation capacity, market size, financial system, and skills.

### Drivers and constraints behind loss of competitiveness
- Summary of benchmarking strengths (+) and weaknesses (−):
  - Strong (+): Strong starting-point (Higher Export Orientation); Diversified Exports; More Developed Trading Network; Export-Oriented Reforms and Trade Agreements; Shifting Export Composition towards Services.
  - Weak (−): Declining Export Market Share in SSA; Modest Growth in Share in Rest of the World; Declining Trade Openness; Low Export Sophistication; Weak Utilization of Factor Endowments; Falling Trade Complementarity in EAC; Specialization in More Slowly-Growing World Markets; Declining Participation in Global Value Chains.
- Potential structural drivers:
  - Lack of export sector dynamism: limited entry of new productive firms and insufficient exit of less productive ones; productivity growth driven by incumbent firms with little room for new entrants.
  - Barriers to firm entry and restrictiveness of product market regulations (PMR), including pervasiveness of SOEs, price controls, administrative burdens, and barriers in services sectors.
  - Corruption and governance vulnerabilities: Kenya’s CPI score 31 in 2020 (new high since 2012); 67 percent of people surveyed for the 2019 Global Corruption Barometer for Africa thought corruption increased in the previous year; roughly 40 percent of firms in World Bank Enterprise Surveys 2018 reported corruption was a major constraint.
  - Tax policy and informality: tax revenue declined from 16.8 percent of GDP to about 15 percent of GDP between FY2013/14 and FY2018/19; KNBS provisional estimate that 83.3 percent of employment in 2019 was in the informal sector.
  - Access to finance constraints: overall credit to private sector as share of GDP higher than peers but access remains a major challenge for informal firms; World Bank survey 2016: over 60 percent of informal enterprise respondents rated access to finance as the largest hindrance.
  - Tariff and non-tariff barriers: EAC tariff elimination achieved by 2010, but effective applied tariffs remain high in some SSA partners; remaining NTBs include quotas, surcharges, anti-dumping, labelling, packaging, sanitary standards, and public policy-related measures.
- OECD–WBG PMR indicators: some SSA countries (including Kenya) among most restrictive in sample for entry into network and services sectors; price controls evident among SSA peers; tariff barriers compare poorly in several peers.

### Policy implications and priorities
- Policy directions to improve non-price competitiveness:
  - Increase openness to competition and reduce barriers to firm entry (including revisiting SOE roles and pervasiveness).
  - Continued improvements in access to finance (credit and FDI); implement measures easing entry conditions for foreign investment and boost FDI into SEZs/EPZs.
  - Encourage new dynamic firms and create an even playing field among existing firms; reduce anticompetitive regulations.
  - Tackle corruption and strengthen governance and anti-corruption frameworks.
  - Address tax policy distortions (widespread VAT exemptions, corporate tax base erosion) while maintaining investment incentives.
  - Comprehensively tackle tariff and non-tariff barriers in the context of AfCFTA and develop regional value chains.
- Opportunities and implementation notes:
  - AfCFTA signed by Kenya in 2018; trading began on January 1, 2021, creating a single market of over 1.2 billion people; full benefits may take time.
  - Reforms already in place (legal, regulatory, SEZs/EPZs, trade agreements) provide a foundation but have not yet translated into sustained manufacturing-led export growth.
  - IMF-supported reforms that could help restore competitiveness: improving governance; strengthening anti-corruption framework; reducing fiscal risks associated with SOEs.

*Source: IMF Selected Issues Paper excerpt — “1. Push for Industrialization” (1kenea2021005).*

### 1. Push for Industrialization ___________________________________________________________ 4

### 1. Push for Industrialization

### Introduction
- Kenya’s reform agenda targeted improving the business and trade environment, yielding positive results in dimensions relevant for competitiveness.
- Industrialization and export-oriented manufacturing are central to Kenya’s development plan.
- Key diagnostic findings:
  - Kenya’s export performance over the last decade—particularly manufactured exports to the EAC and SSA—has lagged peers.
  - Kenya’s exports remain concentrated in products characterized by low market growth and exposed to competition from low-cost producers.
- Scope and comparisons:
  - The paper examines non-price (structural) competitiveness, focusing on the period since 2010.
  - Kenya is compared to EAC and SSA peers and to Bangladesh, Georgia, and Vietnam.
- Policy levers identified for improving non-price competitiveness include openness to competition, improved access to finance (credit and FDI), and policies that encourage new dynamic firms and an even playing field.

### Review of Kenya’s Trading Environment
- Legal and regulatory reforms enacted to improve business and trade:
  - Companies Act, Insolvency Act, Special Economic Zones Act, Business Registration Service Act, Companies & Insolvency Legislation (Consequential Amendments) Act.
  - Ease of Doing Business program and related measures (simplified company registration; linking stamp duty collection with Kenya Revenue Authority systems; simplified land registration; reduced time to connect electricity; one-stop shop via Kenya Investment Authority).
- Trade-specific measures and industrial policy:
  - Big Four Agenda pillars include manufacturing and job creation (alongside food security, affordable housing, universal health care).
  - Vision 2030 (launched in 2008) targets transforming Kenya into an industrialized middle-income country by 2030.
  - Kenya Industrial Transformation Program (KITP), 2015, focuses on reviving manufacturing and industrial exports via region-specific clusters and industrial parks.
  - Creation of Special Economic Zones (SEZs) and Export Processing Zones (EPZs) to promote export-oriented manufacturing.
  - Ratified AfCFTA in 2018 and the tripartite free trade agreement among COMESA, EAC, and SADC.
- Export and FDI performance (pre-pandemic through 2019):
  - Exports of goods and services to GDP declined from almost 20 percent in 2011 to about 11 percent in 2019.
  - Kenya attracted on average 1.3 percent of GDP in FDI in 2010−19, compared with around 3 percent of GDP for some non-resource-intensive peers (e.g., Ethiopia and Rwanda).
  - Kenya’s FDI position relative to the EAC doubled during 2009-2014, increasing Kenya’s relative weight from ¼ that of South Africa to a third.
  - Kenya is becoming an exporter of capital and services (e.g., logistics, technology, digital services).

### Push for Industrialization (Box 1) — Initiatives and Context
- Strategic frameworks:
  - Vision 2030 (2008) and the Big Four Agenda (launched in 2018) emphasize manufacturing and industrialization for employment creation and SDG realization.
- Manufacturing sector trends:
  - Manufacturing contribution to GDP fell from 11.8 percent in 2011 to 7.6 percent in 2020.
  - The sector’s share in total employment and earnings declined, though earnings picked up in the latest observation.
- Major initiatives:
  - National Industrialization Policy (2012): aimed for annual growth rate of 15 percent in the sector; addressed infrastructure, land availability, access to finance, capacity building, and low value addition.
  - Kenya Industrial Transformation Program (KITP), 2015: 10-year blueprint to revive manufacturing via region-specific clusters, industrial development fund, industrial parks, and support to agro-processing, textile, and mining sectors.
  - SEZs Act, 2015: established Special Economic Zones Authority and creation of eight SEZs with favorable tax and regulatory regimes and infrastructure.
  - EPZs established in the 1990s; annual investment in EPZs had grown to about KSh115 billion in 2020 and they employ over 50,000 people.
  - Ease of Doing Business reforms: simplifying company registration, linking stamp duty collection to KRA systems, simplifying land registration, reducing time to connect electricity, one-stop investor shop.

### Trade Agreements (Box 2) — Coverage and Implications
- Multilateral and regional arrangements:
  - WTO membership since January 1995.
  - EAC membership (established 2000); COMESA membership (founded December 1994).
  - Tripartite Free Trade Area (COMESA, EAC, SADC) launched mid-2015.
  - AfCFTA signed by Kenya in 2018; the free trade area created a single market of over 1.2 billion people; trading began on January 1, 2021.
- Preferential arrangements and bilateral links:
  - Long-standing trade relations with the European Union under Lomé/Cotonou frameworks; duty reductions and quota-free access for many Kenyan exports; ratified the Economic Partnership Agreement (EPA) with the EU and EAC.
  - Kenya–United Kingdom Economic Partnership Agreement ratified by both parties in early 2021 preserves duty-free and quota-free access for exports such as fresh vegetables and flowers.
    - The UK market accounts for 43 percent of total exports of vegetables from Kenya and at least 9 percent of cut flowers.
  - Under AGOA, Kenya qualifies (until 2025) for duty-free export of over 6,000 products to the U.S.; major qualifying products include textiles, apparel, handicrafts, coffee, and cut flowers.
  - Kenya has signed bilateral trade agreements with multiple countries (list provided in source).

### Export Performance and Non-Price Competitiveness Findings
- Overall export trends:
  - Export performance deteriorated between 2010 and the onset of the pandemic (analysis through 2019 to avoid pandemic distortions).
  - Exports of goods and services to GDP declined from almost 20 percent in 2011 to about 11 percent in 2019.
- Structural composition and competitiveness:
  - Kenya’s export composition is concentrated in products with relatively low technological intensity, low value-added, and low market growth, and exposed to increasing competition from low-cost producers.
  - Compared with peers, Kenya’s manufactured exports to EAC and SSA have lagged.
- Positive developments:
  - Improvements in Enabling Trade Index (ETI) and Global Competitiveness Index (GCI) scores reflect reforms improving infrastructure quality and availability and use of ICT to facilitate trade.
  - Kenya is evolving as an exporter of capital and services, with commercial banks and firms investing regionally.

### Policy Implications Highlighted
- To improve non-price competitiveness, policies should emphasize:
  - Openness to competition.
  - Continued improvements in access to finance (credit and FDI).
  - Policies that encourage new, dynamic firms and create an even playing field among existing ones.
- Reforms already in place (legal, regulatory, SEZs/EPZs, trade agreements) provide a foundation but have not yet translated into sustained manufacturing-led export growth.

*Source: IMF Selected Issues Paper excerpt — “1. Push for Industrialization”*

### 9.      The Global Enabling Trade Report (2016) indicated that Kenya improved its relative

### 9. The Global Enabling Trade Report (2016) indicated that Kenya improved its relative ranking based on the Enabling Trade Index

### Enabling Trade Index — main findings
- Kenya’s global ranking improved by 9 places since the previous report (2014).
- Kenya was closer to the frontier than the SSA regional average on each of the seven pillars, with particularly better scores on:
  - availability and quality of transport services (Pillar 5),
  - availability and use of ICT (Pillar 6),
  - efficiency and transparency of border administration (Pillar 3),
  - availability and quality of transport infrastructure (Pillar 4).
- Kenya’s ranking was driven by:
  - a marked improvement in the efficiency of border processes,
  - gains in infrastructure.

### Border administration — specific metrics and improvements
- On the border administration subindex, Kenya moved up 20 places.
- Cost of documentary compliance for exports fell by roughly 25 percent to US$142.5 in 2016 from US$190.5 in 2014.
- Despite cost reductions, the time required for both documentary and border compliance remained high.
- Irregular payments due to corruption remained a key concern for business executives.

### Infrastructure and transport recommendations
- Kenya performed well in availability of transport infrastructure and had a well-developed offer of transport and logistics services.
- The report recommended continued investment at the Port of Mombasa to facilitate both global and intra-regional trade, especially as Kenya’s exports enjoy preferential access in several key markets.

### Comparative strengths and weaknesses (regional and cross-country comparisons)
- East African region common strength relative to comparators (South Africa, Georgia, Vietnam): foreign market access (tariffs faced and index of margin of preference more favorable in Eastern Africa).
- East African region common weaknesses relative to comparators: domestic market access, availability and quality of transport infrastructure, and availability and use of ICTs (though Kenya’s score on this dimension indicates somewhat stronger relative performance than EAC peers).
- Compared to Georgia, Kenya lagged on:
  - share of duty-free imports,
  - irregular payments,
  - physical security.
- Georgia’s advantage noted: duty-free access to European Union markets since mid-2014 under the DCFTA and several FTAs with key regional trading partners.

### Enabling Trade Index indicators — selected exact figures (as presented)
- Enabling Trade Index (1–7): values shown in table for Kenya and comparators.
- Tariff rate (%): Kenya - 18 (comparators listed).
- Share of duty-free imports (%): Kenya - 33.
- Index of margin of preference in destination mkts (0–100): Kenya - 77.
- Cost to export: Documentary compliance (US$): Kenya - 7 (table entry).
- Irregular payments in exports and imports*: Kenya - 56.
- Time predictability of import procedures*: Kenya - 165 (table entry).
- Mobile phone subscriptions/100 pop.: Kenya - 104.
- Individuals using Internet (%): Kenya - 9.
- Active mobile broadband Internet subscriptions/100 pop.: Kenya - 58.
- Quality of port infrastructure*: Kenya - 27.
- Road Quality Index (1–7): Kenya - 73.
(Note: indicator table lists many additional comparative numeric entries across countries and indicators.)

### Global Competitiveness Index (GCI) — summary
- Kenya compared favorably with regional peers on several GCI sub-indicators that identify inputs to productivity.
- Kenya is closer to the frontier than its regional peers in:
  - infrastructure,
  - innovation capacity,
  - market size,
  - financial system,
  - skills.
- Kenya’s strong performance reflected recent business environment improvements, including:
  - significant simplification of processes to start a business,
  - better provision of electricity.

### Signs of eroding competitiveness — trade outcomes and market shares
- Kenya’s export share in the world market was broadly unchanged at about 0.03 percent from 2008 to 2019.
- By contrast:
  - Bangladesh and Georgia expanded their global market shares more rapidly (from less than 0.01 percent in 2008),
  - South Africa began at a higher level (0.53 percent) but has been losing global market share.
- Including services does not change the main takeaway: Kenya’s world market share is higher than those of individual EAC peers but has been relatively stagnant since 2008.
- Kenya’s goods exports to African destinations grew slowly—hardly changing in nominal terms over the past decade.
- Kenya has been losing its share of EAC’s global exports while its share of SSA’s international exports rose slightly:
  - Kenya’s share of goods and services exports from the EAC fell from almost 60 percent in 2000 to below 40 percent in 2019.
  - Uganda and Rwanda improved their respective shares over the same period.

### Sectoral patterns and structural concerns
- Kenya’s export weakness was broad based across sectors: average market shares for all major sectors were declining or relatively stagnant between 2005−10 and 2015−17.
- Within Kenya:
  - manufacturing lost the biggest export market share post-2015,
  - within agriculture, food export market share declined,
  - coffee and fruits and vegetables’ market shares barely moved,
  - tea and cut flowers registered relatively strong export market share growth (but are low value primary products).

### Trade openness and development relationship
- Trade openness (exports+imports as percent of GDP) relative to level of development has declined since 2005 for Kenya.
- Kenya is at a development level where one would expect an increase in trade openness, but observed trade openness declined across three time periods: 2005, 2010, and 2015, even as GDP per capita increased.
- Note: WITS database is not updated for Kenya’s recent GDP rebasing; findings are subject to confirmation.

*Source: World Economic Forum (WEF) Global Enabling Trade Report 2016; World Economic Forum (WEF) Global Competitiveness Report, 2019; IMF staff analysis and figures as presented in the source content.*

### 22.      Kenya’s export composition had tilted more towards services since 2005. Looking at

### 22.      Kenya’s export composition had tilted more towards services since 2005. Looking at

### Export composition and trends
- Services’ share in exports increased to about 45 percent (comparison across 2005 and 2017).
- Within services, a new sub-sector (insurance and finance) emerged.
- Manufacturing (chemicals, textiles, metals, machinery, vehicles, etc.) sub-sector composition did not change much, but the share of manufacturing fell to less than a third by 2017.
- Figure 8b (2000−19) shows the emergence of services as a key export since 2005; other main sector shares remained the same after 2005 except for some reduction in manufacturing within the last 5 years.
- Sources cited: The Growth Lab at Harvard University—The Atlas of Economic Complexity; WBG World Integrated Trade Solution (WITS).

### Export composition versus comparators
- Services are a big part of Kenya’s exports, as in Tanzania, Rwanda, Ethiopia, and Georgia (Figure 8c).
- Kenya has the largest share of agriculture raw materials in its exports relative to the comparators.
- Data reference: WITS. Latest available year: 2019, except Tanzania, Ethiopia, and Burundi (2018).

### Export diversification
- Kenya’s exports are more diversified than its peers, though export diversification trends are mixed (Figure 9).
- Kenya’s export diversification has somewhat weakened in recent years.
- Tanzania showed a consistent trend to higher export diversification over 2005−18.
- Madagascar, Georgia, and South Africa showed declines in diversification similar to—or more pronounced—than Kenya.
- Note on methodology: Herfindahl Hirschman product concentration indices are calculated for each product market separately; chart depicts the median of these indices.

### Export specialization (concentration) and revealed comparative advantage (RCA)
- Kenya’s largest export product share is vegetables (45 percent in 2019).
- The global market for vegetables was shrinking in 2018 (implying limited growth potential for this product category).
- Kenya’s RCA in vegetables has persisted over time (Figure 10b).
- The WITS vegetable classification covers all raw agricultural products (including coffee, tea, and flowers).
- Comparator countries (Uganda, Tanzania, Rwanda, Madagascar) also export vegetables but have large export shares in other products (fuels, minerals, metals, textiles, processed food) with growing global markets.
- Other countries with specialties in products with growing markets include Senegal (minerals and animals) and Georgia (minerals, metals, and food).
- RCA interpretation: RCA >1 implies the share of that product in a country’s exports is higher than the share of that product in the world average.

### Export sophistication (EXPY) and technological classification
- Kenya’s exported products are increasingly produced by countries at relatively lower income levels and have seen little meaningful improvement in technological content (Figure 11).
- EXPY methodology: per capita GDP weighted by the share of the country’s exports in total world exports of that product (Hausmann et al., 2007).
- Between 2005 and 2018, increasing competition in Kenya’s established export products from countries at relatively low levels of development appears to drive the decline in sophistication.
- Regions grow faster when they specialize in more sophisticated goods (example: Georgia and South Africa).
- Primary products remained the dominant share for Kenya in both 2010 and 2019.
- Little appreciable movement toward low-tech, medium-tech, or high-tech exports over the period.
- Technological classification follows Lall (2000): high tech, medium tech, low tech, primary products, resource-based products.

### Export product structure and factor endowments
- Kenya’s prominent export products do not fully utilize its factor endowments (Heckscher-Ohlin framework).
- Indicator compares country exports value, revealed factor intensities of those products, and its capital endowments.
- Example: black tea has a lower human capital intensity (and vegetables a higher one) than Kenya’s factor endowments; horticulture—cut and/or prepared flowers—aligns best with Kenya’s factor endowments.
- Kenya’s export product structure is vastly different from Tanzania’s: Kenya emphasizes agricultural products (black tea, flowers, vegetables, coffee); Tanzania emphasizes minerals and metals.
- Products shown with export value greater than US$10,000 in Figure 12.

### Trading network, product/market dynamism, and trade complementarity
- Kenya has more trading relationships than SSA peers, except for South Africa (Figure 13).
- Kenya and South Africa lost both markets and products between 2005 and 2017.
- During 2010–17, Kenya had the least number of new products while having the highest survival rate relative to the group—suggesting lack of export dynamism and possible entry barrier issues.
- Trade complementarity index between Kenya’s exports and other peer countries’ imports fell between 2005 and 2018 (Figure 14), suggesting limited gains from EAC integration due to export-import pattern mismatch.
- Tanzania’s and Uganda’s trade complementarities with each other, Kenya, and Ethiopia improved.

### Global value chains (GVCs) and foreign direct investment (FDI)
- Kenya’s participation in global value chains increased between 2000 and 2010 but then fell after 2010 (Figure 15).
- Most peers experienced similar declines except Tanzania and Vietnam, which deepened their GVC links.
- To increase exports and GVC participation, Kenya could seek to boost FDI, including in special economic and export processing zones by implementing the recently approved Kenya Investment Policy (which seeks to ease entry conditions for foreign investment).
- World Bank research: firms with international exposure tend to be larger, more productive, better managed; Kenya has relatively low participation in global value chains.
- GVC-related trade definition: goods crossing the border more than once.
- Figure 16 shows Foreign Direct Investment (Net Inflows) (sources: IMF IFS and BoP databases; World Bank IDS; World Bank and OECD GDP estimates).

### Summary findings of the benchmarking exercise
- Strong (+):
  - Strong Starting-point (Higher Export Orientation)
  - Diversified Exports
  - More Developed Trading Network (More Markets and More Products)
  - Export-Oriented Reforms and Trade Agreements
  - Shifting Export Composition towards Services
- Weak (-):
  - Declining Export Market Share in SSA, Modest Growth in Share in Rest of the World
  - Declining Trade Openness
  - Low Export Sophistication
  - Weak Utilization of Factor Endowments
  - Falling Trade Complementarity in EAC
  - Specialization in More Slowly-Growing World Markets
  - Declining Participation in Global Value Chains

### Potential drivers of loss of competitiveness
- Despite supportive trade-specific policies and starting from a relatively high regional position, Kenya’s regional market shares dropped (EAC) or remained roughly stable (SSA); growth in market share vis-à-vis the rest of the world was only marginally positive after 2010.
- Several export-related metrics plateaued or declined: trade openness, export composition, and export diversification.
- Structural (non-price) factors probed as associated with deterioration in competitiveness include:
  - Lack of export sector dynamism
  - Barriers to firm entry
  - Restrictiveness of product market regulations
  - Corruption
  - Tax and informality
  - Limited access to finance
  - Tariff and non-tariff barriers

### Lack of export sector dynamism and productive capacities
- Lack of dynamism—limited entry of new productive firms and insufficient exit of less productive ones—appears key to loss of competitiveness.
- World Bank (2020) using Cusolito and Maloney (2018) framework: Kenya’s productivity growth since the new millennium has come from incumbent firms with little room for new entrants, suggesting entry barrier challenges.
- Export growth driven primarily by existing products in existing markets with little new product or market discovery (Kenya Association of Manufacturers).
- Kenya could improve export performance by facilitating more dynamism in the export sector.
- Productive capacities index for Kenya increased over the last decade but growth has decelerated in recent years; peers (Ethiopia, Georgia, Rwanda, South Africa) continued to rise at a faster pace (Figure 17).
- Productive Capacities Index (PCI) components: natural capital, human capital, energy, transport, ICT, institutions, structural change, private sector. UNCTAD used 2015 as base year; Kenya’s data predate the 2021 rebasing exercise.

### Barriers to firm entry
- Regulatory barriers restricting private firm entry, particularly in export-oriented sectors, limit competition, reduce consumer welfare, stifle productivity, and undermine external competitiveness and economic growth.
- World Bank (2020) lists barriers to entry and direct competition from state-owned enterprises (SOEs) among constraints to higher aggregate output and productivity growth.
- Kenya’s SOE sector challenges: overlapping mandates, low profitability, weak governance, poor value for money.
- High prevalence of SOEs coupled with entry barriers could restrict healthy competition and lead to suboptimal trade, growth, and development outcomes.
- World Bank’s diagnostic prioritizes removal of regulatory hurdles to enhance competition and encourage productive private investment.
- Bourlès et al. (2010) found reducing anticompetitive regulations in OECD countries and better aligning them with best practices can increase productivity gains; estimated gains range in the Bourlès et al. study: 3−13 percent.
- IMF Regional Economic Outlook for sub-Saharan Africa (2019c) found that moving from the median value of the competition intensity index for SSA countries to the top quartile of the global distribution can boost the real per capita GDP growth rate by as much as 1 percentage point through improved export competitiveness, productivity growth, and investment.
- Notes on SOE definition: used broadly to cover all state corporations, including educational establishments, regulatory bodies, healthcare facilities, among others. The 2013 Report of The Presidential Taskforce on Parastatal Reforms underscored the need for government rationalization of SOEs. The Government of Kenya’s Blueprint for Governance Reform of State Corporations (developed with IMF TA in 2021) recognizes SOEs as main providers of key public services and that their operations impact competitiveness.

*International Monetary Fund — Kenya country report content (excerpts provided in the source PDF).*

### 39.      Frontier and emerging market economies (including EAC and SSA peers) have more

### 1kenea2021005 - 39.      Frontier and emerging market economies (including EAC and SSA peers) have more

### Product Market Regulation (PMR) and market entry
- Frontier and emerging market economies (including EAC and SSA peers) have more favorable PMR scores than Kenya.
- Comparison with Rwanda, Senegal, and South Africa suggests overly restrictive product market regulation could be investigated as a factor in weak export dynamism.
- OECD PMR indicators identify potentially relevant areas:
  - Scope of SOEs (pervasiveness of state ownership across 30 business sectors measured as the share of sectors in which the state controls at least one firm).
  - Price controls (extent and type of price controls in 8 sectors: air transport, road freight transport, retail distribution, telecommunication, electricity, gas, water, professional services).
  - Administrative burden for corporations.
  - Barriers in services sectors (entry barriers in professional services, freight transport services, and retail distribution).
  - Tariff barriers.
- According to OECD–WBG PMR indicators, some sub-Saharan African countries (Kenya, Senegal, South Africa) are among the most restrictive in the sample evaluated in terms of allowing entry into the network and services sectors.
- Price controls are evident among SSA peers.
- Three of the SSA peers (all except South Africa) compare poorly on tariff barriers.

### Corruption and governance
- Governance vulnerabilities and corruption risks affect private sector investment decisions in Kenya.
- GAN Integrity’s Kenya Corruption Report (last updated in August 2020) noted: “Kenya’s competitiveness is held back by high corruption levels that penetrate every sector of the economy.”
- Corruption perceptions index (CPI) dynamics:
  - Kenya’s CPI score deteriorated in 2014 and 2015 before improving again.
  - Kenya’s latest score is 31 in 2020 (a new high since 2012).
  - Relevant peer group averages in 2020 are 30 for the EAC and 32 for SSA.
  - The standard errors for these 2020 scores are: 1.49 for Kenya; 1.95 for the EAC, average (6 countries); and 2.14 for SSA, average (45 countries).
  - The average standard error for Kenya’s scores (2012–2020) is 2.23, ranging from 1.49 in 2020 to 3.02 in 2015.
- Perception and experience indicators:
  - 67 percent of people surveyed in Kenya for the 2019 Global Corruption Barometer for Africa thought that corruption increased in the previous year.
  - Within World Bank’s Enterprise Surveys 2018, roughly 40 percent of companies surveyed reported corruption was a major constraint to their operations.
- Notes: Non-IMF indicators provide qualitative information about corruption and do not represent the IMF’s assessment of the level of corruption in Kenya, the EAC, and SSA.

### Tax policy, revenue, and informality
- Tax revenue trends and structure:
  - IMF staff analysis indicates tax revenue in Kenya declined overall from 16.8 percent of GDP to about 15 percent of GDP between FY2013/14 and FY2018/19.
  - Decline attributed in part to widespread VAT exemptions and erosion of the corporate income tax base from tax depreciation and capital allowances.
  - IMF found Kenya’s tax revenues comparable overall to EAC and regional peers.
  - Compared to the EAC average, Kenya’s tax mobilization relied more on income taxes and less on indirect taxes.
- Kenya Association of Manufacturers cites perceived unfair and unpredictable taxation as a driver of lost competitiveness, citing examples:
  - Introduction of the value-added tax (VAT) on machinery.
  - Excise duty on inputs.
  - Changes in income tax policy (including investment deduction and earnings before interest, taxes, depreciation, and amortization).
  - Withdrawal of the electricity rebate program.
- Informality:
  - KNBS provisionally estimated that 83.3 percent of employment in 2019 was in the informal sector.
  - The estimate refers to the employment stock as of June 30, 2019 and excludes small scale farming and pastoralist activities.
  - World Bank (2016) survey: most informal firms prefer to remain informal citing cost of business registration (time, fees, paperwork), taxes, inspections after registration, bribes, and lack of perceived benefits from registering.

### Access to finance
- Overall private sector credit:
  - Overall level of credit to the private sector as a share of GDP is significantly higher in Kenya than peers, but access to finance remains a major challenge, especially for the informal sector.
- Constraints and factors:
  - Increases in domestic borrowing by government and delayed bill payments by county and national governments may complicate private sector access to finance.
  - Domestic credit as a share of GDP weakened after 2010 in both Kenya and Tanzania; domestic credit growth was more robust in Uganda.
  - World Bank survey of informal enterprises in Kenya (2016): over 60 percent of respondents classified access to finance as the largest hindrance.
  - Challenge is more acute for small firms; lack of proper records and lack of tangible collateral (land title deed or valuable assets) impede lending.
- Interest rate controls and policy response:
  - Interest rate controls capped lending rates at 400 basis points above the policy rate from September 2016 and were removed in November 2019.
  - The controls, while intended to reduce cost of credit, had unintended negative consequences especially for small borrowers and SMEs.
  - Government initiatives to improve access to finance include: repeal of interest rate controls; establishment of a credit guarantee scheme for SMEs; payment of pending bills owed to SMEs; introduction of an SME lending vehicle through STAWI.

### Tariff and non-tariff barriers
- Tariff liberalization and AfCFTA:
  - Kenya’s multilateral and bilateral trade agreements supported trade liberalization and led to decline in tariff barriers, including total elimination of tariffs in the EAC region.
  - Tariffs declined among EAC members since integration began in 2005 and were eliminated by 2010.
  - Effective tariff rates faced by Kenyan exporters to SSA countries are moderate, although effective applied tariffs remain high in some SSA trading partners.
  - Kenya’s obligations under the AfCFTA include tariff reductions, service sector reforms, investment, and worker mobility.
- Remaining barriers:
  - Some tariff and non-tariff barriers still impede trade, including quotas, surcharges, anti-dumping measures; labelling, packaging, sanitary standards monitored at the border; and public policy-related measures such as government procurement, investment restrictions, and extent of intellectual property rights protection.
  - Increase in regulatory action and non-tariff barriers, especially in developed countries, places burdens on Kenyan companies, particularly SMEs.
  - Second East African Community Development Strategy (2001−05) highlighted procedural obstacles in application of non-tariff measures leading to administrative and bureaucratic inefficiencies and increased cost of doing business in the region.
  - Discriminatory sourcing and trade monopolies identified as obstacles in Kenya (WTO, 2014).
- Policy implication:
  - Comprehensively tackling tariff and non-tariff barriers in the context of the AfCFTA, developing regional value chains, and implementing complementary reforms to boost investment and competitiveness could lift medium-term export growth.

### Key conclusions and policy priorities
- Kenya plans to deepen structural reforms to improve the business environment to boost investment and employment.
- Recent reforms include simplification of processes to start a business and increased provision of electricity, but effects take time to materialize.
- Evidence indicates Kenya has lost export competitiveness within the last decade signaled by reductions in market share (particularly in the EAC), including in agriculture and manufacturing.
- Benchmarking non-price competitiveness:
  - Kenya generally outperforms SSA peers in the ETI ranking and GCI sub-indexes (WEF).
  - Other competitiveness indicators have worsened: trade openness, export composition, export diversification.
- Likely contributing factors to loss of competitiveness (preliminary evidence):
  - Product market regulations and barriers to firm entry (particularly in sectors with high prevalence of SOEs).
  - Corruption.
  - Access to finance constraints.
  - Non-tariff barriers in trading partners.
- AfCFTA opportunity:
  - With AfCFTA implementation, Kenya can expand intra-regional trade in the wider SSA market of 54 of the 55 African Union countries and 1.2 billion people.
  - Trade under the agreement began at the beginning of 2021, but full benefits may take time.
- IMF-supported reform agenda that could help restore competitiveness:
  - Improving governance.
  - Strengthening the anti-corruption framework.
  - Reducing fiscal risks associated with SOEs.
  - These policy reforms could help restore competitiveness and deliver benefits for export-oriented companies in the future.

*Source: 1kenea2021005 (PDF chapter/section).*

### References

### References

### Key cited works (selection)
- Alper, C. E., Clements, B. J., Hobdari, N. A., and R. Moyà Porcel, 2019; “Do Interest Rate Controls Work? Evidence from Kenya”; IMF Working Paper No. 19/119; International Monetary Fund, Washington, D.C.
- Bahar, Dany, 2016; “Diversification or Specialization: What is the Path to Growth and Development”; Brookings Report; Friday, November 4, 2016.
- Balassa, Béla, 1965; “Trade Liberalization and Revealed Comparative Advantage”; The Manchester School; 33(2); pp. 99–123.
- Bourlès, R., Cette, G., López, J., Mairesse, J., and G. Nicoletti, 2010; “Do Product Market Regulations in Upstream Sectors Curb Productivity Growth? Panel Data Evidence for OECD Countries”; National Bureau of Economic Research; Cambridge, MA.
- Central Bank of Kenya (CBK)—Financial Sector Regulators, 2020; The Kenya Financial Stability Report (Issue No. 11, published by the CBK and Financial Sector Regulators in October 2020).
- Competition Authority of Kenya (CAK), 2015a; Unlocking Growth Potential in Kenya: Dismantling Regulatory Obstacles to Competition; Report prepared as part of the cooperation agreement between CAK and the International Finance Corporation (IFC), a member of the World Bank Group.
- Competition Authority of Kenya, 2015b; Assessment of Regulatory Impact on Competition: Guidance for Policy Makers; guideline developed as part of the cooperation agreement between the IFC and CAK.
- Cusolito, A. P., and W. F. Maloney, 2018; “Productivity Revisited: Shifting Paradigms in Analysis and Policy”; World Bank, Washington, D.C.
- Executive Office of the President of the Republic of Kenya, 2013; Report of The Presidential Taskforce on Parastatal Reforms; October; Nairobi, Kenya.
- Hausmann, R., Hwang J., and D. Rodrik, 2007; “What you Export Matters”; Journal of Economic Growth; 12 (1) (2007); pp. 1−25.
- Imbs, J. and R. Wacziarg, 2003; “Stages of Diversification”; American Economic Review 93; 1 (2003); pp. 63−86.
- International Monetary Fund (IMF), 2015; “Global Value Chains: Where Are You? The Missing Link in Sub-Saharan Africa’s Trade Integration”; Sub-Saharan Africa Regional Economic Outlook; April; Washington, D.C.
- IMF, 2017; “Restoring the Conditions for Strong and Sustainable Growth”; Sub-Saharan Africa Regional Economic Outlook, April. Washington, D.C.
- IMF, 2019a; “Is the African Continental Free Trade Area a Game Changer for the Continent?”; Sub-Saharan Africa Regional Economic Outlook; April; Washington, D.C.
- IMF, 2019b; “Recovery Amid Elevated Uncertainty: Background Paper–Online Annexes and Statistical Tables”; Sub-Saharan Africa Regional Economic Outlook; April; Washington, D.C.
- IMF, 2019c; “Competition, Competitiveness, and Growth in Sub-Saharan Africa”; Sub-Saharan Africa Regional Economic Outlook; October; Washington, D.C.
- IMF, 2021; Kenya: Governance of State Owned-Enterprises—Aide Memoire; July; Washington, D.C.
- Kenya Association of Manufacturers (KAM)—KPMG, 2020; Manufacturing Sector Resilience and Sustainability Strategy; Report jointly developed by KAM and KPMG; September; Nairobi, Kenya.
- Kenya Association of Manufacturers, 2021; Manufacturing Priority Agenda 2021; Nairobi, Kenya.
- Kenya National Bureau of Statistics; Economic Survey; various years.
- Lall, Sanjaya, 2000; “The Technological Structure and Performance of Developing Country Manufactured Exports, 1985–98”; Oxford Development Studies; 28(3); pp. 337–369.
- Rodriguez, F. and D. Rodrik, 2001; “Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence”; in B. Bernanke, K. Rogoff (Eds.); NBER Macroeconomic Annual; 15(1); pp. 261−325; MIT Press; Cambridge, MA.
- The Growth Lab at Harvard University, 2019; “Growth Projections and Complexity Rankings, V2”; https://doi.org/10.7910/dvn/xtaqmc.
- The Growth Lab at Harvard University; The Atlas of Economic Complexity; http://www.atlas.cid.harvard.edu.
- Transparency International, 2009; Global Corruption Report, 2009.
- Transparency International, 2019; Global Corruption Barometer—Africa; 10th Edition, 2019.
- Transparency International, 2020; Corruption Perceptions Index, 2020.
- United Nations Conference on Trade and Development, 2005; “Methodologies, Classifications, Quantification and Development Impacts of Non-Tariff Barriers. Trade and Development Board: Commission on Trade in Goods and Services, and Commodities”; TD/B/COM.1/EM.27/2; June 23, 2005; Geneva, Switzerland.
- Were, Anzetse, 2016; Manufacturing in Kenya: Features, Challenges, and Opportunities—A Scoping Exercise; commissioned by the Supporting Economic Transformation (SET) Program; Nairobi, Kenya.
- Were, Maureen, 2015; “Differential Effects of Trade on Economic Growth and Investment: A Cross-Country Empirical Investigation”; Journal of African Trade; Vol. 2 (2015); pages 71−85.
- World Bank, 2013; “Online Trade Outcomes Indicators – User’s Manual”; Version 1.0 (September); Washington, D.C.
- World Bank, 2016; Informal Enterprises in Kenya; Washington, D.C.
- World Bank, 2018; “Enterprise Surveys—Kenya: Country Profile”; Washington, D.C.
- World Bank, 2020; “Systematic Country Diagnostic—Kenya”; Washington, D.C.
- World Economic Forum, 2016; Global Enabling Trade Report.
- World Economic Forum; Global Competitiveness Report; various years.
- World Trade Organization, 2014; “Barriers to Trade: The Case of Kenya” (by Ng’ang’a, Tabitha Kiriti) in Connecting to Global Markets: Challenges and Opportunities; Geneva, Switzerland.

### Towards More Gender Equality in Kenya — Extracts from the following section

### Main analytical focus
- Paper analyzes Kenya’s multi-faceted profile of gender inequality and uses a general equilibrium model to quantify macroeconomic and socio-economic benefits of greater gender equality.
- The paper studies multiple gender gaps including in education, access to health services, employment, earnings, and financial inclusion.
- Novel policy simulations include policies that would reduce time spent by women fetching safe water.

### Key findings and statistics
- Kenya experienced robust GDP growth averaging 5.0 percent over 2010–19.
- Per capita income rose from US$1176 to US$2110 over the last decade referenced.
- The share of Kenyans with revenue below the international poverty line of US$1.9 a day decreased by 6.9 percentage points from 2005–06 to 2015–16, reaching 36.8 percent.
- National poverty (using the national poverty line) decreased from 46.8 percent in 2005-06 to 36.1 percent in 2015–16.
- Overall inequality declined from 0.45 to 0.39 during the referenced period; Gini coefficient estimated at 0.39 in 2015–16.
- Regional disparities: Northeastern counties recorded 70 percent incidence of poverty versus 16.7 percent in Nairobi.
- Kenya ranked 95 out of 156 countries on the 2021 Global Gender Gap (GGG) Index.
- On the UNDP’s 2019 Gender Inequality Index (GII), Kenya ranked 126 out of 162 with a score of 0.52.
- Male-to-female ratio averaged 1.03 during 2015–20.
- GNI per capita is estimated at $3,666 for women (2017 PPP $) versus $4,829 for men.
- Female literacy averaged 86.1 percent during 2006–16; male literacy reported 86.9 percent (2018 HDI report) and 88 percent (2021 WEF GGGR).
- Education enrollment ratios (female-to-male): 0.98 in pre-primary (average 2012−17; 1.0 for WEF GGGR), 1.0 in primary school (WEF GGGR), 0.90 in secondary school (2021 WEF GGGR), and 0.74 in tertiary school (2021 WEF GGGR).
- Average years of schooling: women 6.0 years (2020 HDI report), men 7.2 years.
- Female-to-male enrollment ratio in secondary school improved from 0.89 in 2005–06 to 0.94 in 2015–16.
- In 2015–16, 18 percent of women aged 15+ were illiterate versus 10 percent of men.
- As of 2015–19, 29.8 percent of women aged 25+ had some secondary education compared to 37.3 percent of men.
- Share of seats held by women in national parliament doubled since 2012 to 22 percent (Economic Survey 2021).
- As of 2020, 33.3 percent of ministerial positions were held by women.
- Laws provide women in formal employment with three months of maternity leave; casually employed women are not entitled to maternity leave.
- Prenatal care coverage: 93.7 percent of women have at least one visit before delivery.
- Births attended by skilled health personnel: 61.8 percent.
- Maternal mortality ratio: 342 per 100,000 live births (2020 HD report); SSA average cited as 549 per 100,000 live births.
- Prevalence of underage marriage: 23 percent of married women aged 20−24.
- Financial inclusion: 77.7 percent of women aged 15+ hold an account at a financial institution or with a mobile money-service provider (Global Findex database, 2017).
- Female-to-male account ownership ratio: 88 percent (i.e., fewer men than women have accounts? — presented as a female-to-male ratio is 88 percent in the source).
- Female unemployment: there are almost twice as many unemployed women as unemployed men — female-to-male unemployment ratio is 1.94.
- Female youth unemployment about 10 percent higher than that for men (2020 HD report).

### Policy-relevant observations and suggested policy directions (as described in the text)
- Policies aimed at reducing the educational gender gap and discrimination in the informal sector have the largest positive effects (based on general equilibrium model simulations).
- Policies helping to delay marriage and fertility decisions and improving family planning, including increasing access to affordable reproductive health care services, may encourage enrollment and retention until tertiary education.
- Measures that reduce time women spend fetching safe water are modeled as novel policy interventions with potential welfare impacts.
- Recent Central Bank of Kenya initiatives to reduce the cost of mobile money transactions during the COVID-19 crisis could further support mobile banking penetration for women.
- To improve education attainment, policies addressing pregnancy-driven dropout among girls and the cost of education (a primary driver for boys’ dropout) were highlighted.

*Source: References and "Towards More Gender Equality in Kenya" excerpt from the supplied IMF content unit.*

### 13.      Women’s heavier involvement in unpaid work, compared to men, also makes it

### 13.      Women’s heavier involvement in unpaid work, compared to men, also makes it 

### Labor market and unpaid work: key observations
- Women spend 2.5 more time collecting water or fuel and twice as much time on unpaid care work compared to men (Action Aid, 2013).
- The 2015−16 HH survey reports that water fetching is predominantly done by women and girls (84 percent).
- Women that fetch water spend on average 36 minutes per day on that activity; for women in the poorest 25 percent of households this increases to 45 minutes per day and for women in the richest 25 percent it decreases to 26 minutes per day. Men spend on average 20 minutes per day fetching water.
- Preliminary COVID-19 evidence points to predominantly negative effects on women, including higher time spent on unpaid work; survey Wave 2 (May 30-June 6, 2020) documents increased time spent by females across multiple unpaid activities (figures in source).

### Education and employment structure
- Less than a third of employment in non-agriculture sector is held by women (39.5 percent, 2018 HDI report).
- Most of the agricultural working force is female (56 percent), but only 39 percent are the primary decision maker in management of agricultural plots.
- Women are predominantly employed in agriculture and services, notably lower-skilled services: household work and human health and social work services.
- Male employment is predominant in the industrial sector.
- Female employment increased in the last decade, mostly associated with rising wage employment and employment in household enterprises (both farm and non-farm).

### Wage gap and earnings (2015/16 data)
- Despite legal provisions requiring equal pay, women earn on average 30 percent less than men (Text Table 1).
- Only about half of this gap is explained by workers’ characteristics; the other half is unexplained and usually linked to gender discrimination.
- 2017 WEF Global gender gap report reveals:
  - wage gap of 14 percent for a similar work in formal enterprises,
  - difference in earned income of 35 percent (PPP, US$).
- Using Kenya’s 2015 household survey:
  - wage gap in the formal sector: 13 percent,
  - wage gap in the informal sector: 38 percent.
- Non-farm female-run household enterprises have less profits (less than half profits) than male-run enterprises, are less likely to be in industry and formally registered.
- Text Table 1 — Male and Female Monthly Earnings (Current Ksh, 2015/16):
  - Mean: Male 18,276; Female 14,075; Ratio male-to-female 1.30
  - 10th percentile: Male 3,000; Female 2,000; Ratio 1.50
  - Median: Male 10,000; Female 6,500; Ratio 1.54
  - 90th percentile: Male 43,300; Female 35,000; Ratio 1.24

### Land and property ownership
- Only 12 percent of women report owning land, 27 ppt lower than men.
- Lower land ownership impairs women’s economic opportunities, especially in rural sectors.
- Switching from no inheritance rights to equal inheritance rights is associated with improvement in primary school completion rates for females and better prenatal care (Harari 2017).

### Model framework (Box 1): structure and sources of gender inequality
- Model features:
  - Households live for three periods; men always work (deciding labor supply in formal/informal sectors); women can work but family incurs a cost when the wife works (time in home production and social norms).
  - Children’s future productivity depends on human capital accumulation, government education expenditures, household income and child’s gender.
  - Firms produce formal goods using labor and capital; informal goods production is done by households using only labor.
  - Labor markets: men and women decide labor supply to formal and informal sectors; formal workers pay labor taxes mirroring Kenya’s tax system and 2015 household survey earnings.
  - Government provides education, buys formal goods, and taxes households (VAT, income tax); linear cost of providing additional year of education.
- Sources of gender inequality in the model:
  - disutility cost when the wife works;
  - differential government-provided education by gender and family income;
  - distinct returns to labor experience for men and women;
  - residual discrimination in formal and informal labor markets represented by a parameter in production functions.

### Simulation scenarios analyzed
- Scenario A: Close gender gaps in education — equalize number of years of education for boys and girls from the same income level (based on Kenya’s 2015 household budget survey). On average, working women receive 13 percent less time of schooling than men; for poorer women the gap is 28 percent.
- Scenario B: Reduce gender discrimination in the informal labor market to formal sector levels.
- Scenario C: Reduce women’s hours performing unpaid work (example simulated: providing safe piped water for all households to eliminate time spent fetching water).

### Simulation results — macroeconomic and distributional impacts
- Scenario A — No gender gaps in education for each income level:
  - GDP level would be 4.4 percent larger.
  - Women’s salaries: 8.2 percent higher in the steady state.
  - Female labor force participation would increase by 0.4 percent.
  - Gender pay gap would be 6 cents on the dollar lower.
  - Poverty (share living with less than US$1.90 a day) would decrease by 2.3 percentage points (from 37 percent).
  - Gini coefficient would drop by 1.6 points (from 40.8).
  - Government revenues would grow by 0.6 pp of GDP.
  - Gains in government budget (net of costs, in equilibrium): 0.58 percentage points of GDP.

- Scenario B — Reducing gender disparities in the informal sector:
  - Female labor force participation would increase by 6.6 percentage points.
  - GDP in the new steady state equilibrium would be 10.6 percent higher.
  - Women’s wages would rise by 23.5 percent.
  - Males’ wages would increase by 1.4 percent.
  - Overall gender pay gap in the entire economy would narrow by 16 cents on the dollar.
  - Gini coefficient would decrease by 1.2 points.
  - Ratio top-10 to bottom-10 households’ average income would narrow by 6.4 percent.
  - Ratio top-50 to bottom-50 households’ average income would narrow by 5.6 percent.
  - Gains in government budget (net of costs, in equilibrium): 0.38 percentage points of GDP.

- Scenario C — Safe water (reducing time fetching water):
  - GDP would increase by 2.7 percent.
  - Female wages would rise by 3.2 percent; male wages by 0.7 percent.
  - Gender pay gap would be reduced by almost 2 cents on the dollar.
  - Female labor force participation would equalize male’s and female’s labor force participation in the simulation.
  - Inequality: discrepancy between top 10 richest and bottom 10 percent dropping by 7.6 percent.
  - Poverty rate would decrease from 37 to 36 percent.
  - Government revenues would increase by 0.35 percentage points of GDP in the new equilibrium; net long-run cost of the measure would be 0.25 percent of GDP.

### Labor market implications (summary of impacts)
- Change in Female Labor Force Participation (percentage points added):
  - No gender gaps in education for each income level: 6.6
  - Reducing gender disparities in the informal sector: 6.6
  - Safe Water: 6.6
- Change in Female-to-Male Labor Earnings Ratio (percentage points added):
  - No gender gaps in education for each income level: 6.1
  - Reducing gender disparities in the informal sector: 15.9
  - Safe Water: 1.8
- Percentage change in average wages and household income (selected values):
  - %Δ in average female wage per hour: No gaps in education 8.2; Reducing informal discrimination 23.5; Safe Water 3.2
  - %Δ in average male wage per hour: No gaps in education (0.5); Reducing informal discrimination 1.4; Safe Water 0.7

### Policy efforts and recommendations
- Kenya has several policies to reduce gender gaps, but more efforts are needed, particularly given COVID-19’s potential to reverse gender equity gains.
- Suggested policy directions:
  - More fiscal policy tools and greater efficiency of gender-rebalancing public programs and policies.
  - Tighter enforcement of existing laws (including anti-discrimination laws).
  - Protect priority social spending and further support counties with highest gender inequality.
- Public spending context:
  - About 31.4 percent of public spending is devoted to education, health, and social protection; education accounts for 20.3 percent of expenditure.
  - Current health expenditure amounts to about 5.2 percent of GDP.
  - These sectors are decentralized at the county level; disparities across counties exist and targeted county support (Kilifi, Kakamega, Kitui, Kirinyaga, Kisumu, Turkana, Marsabit, Bomet, Meru, and Baringo referenced in county gender data) could be beneficial.

*Source: IMF — Kenya country chapter (extracted content).*

### 32.      Improving efficiency of public spending on education would be improve outcome for

### 32.      Improving efficiency of public spending on education would be improve outcome for girls.

### Public spending on education: allocation and distribution
- Kenya spends 4.8 percent of GDP on education (compared with 4.6 percent in Ethiopia and Tanzania and 2.4 percent in Uganda).
- Public spending on early childhood and primary education is overall progressive and higher than in peer countries, but becomes regressive at higher levels of education.
- Public primary school is fully subsidized, accounting for 42.2 percent of recurrent spending on education, and yields most benefits to the poorest 40 percent of the population:
  - 67.8 percent of benefits for early childhood education accrue to the poorest 40 percent.
  - 58.2 percent of benefits for primary education accrue to the poorest 40 percent.
- Post-primary education shares of recurrent spending:
  - Secondary: 32.2 percent of recurrent spending.
  - Tertiary: 14.28 percent of recurrent spending.
- Benefits of spending on public universities mostly accrue to richer families; improving targeting would increase the impact on women’s education.

### Cash transfers and social programs
- Kenya operates multiple cash transfer mechanisms including the Hunger Safety Net Program, Orphans and Vulnerable Children, Persons with Severe Disabilities, Urban Food Subsidy, and Bursary Fund Programs.
- Cash transfers are pro-poor and progressive and perform well compared to peer SSA countries, but are less progressive than education spending.
- Coverage of social programs is limited owing to resource constraints; the decline in inequality over the last decade was mostly attributable to economic growth rather than resource redistribution.
- Additional funding for social programs targeted at women, within available fiscal space, is needed to increase coverage and sustain recent reductions on gender inequality.

### Education policies to encourage enrollment and retention
- Emphasis on increasing school enrolment, notably in secondary school, and retention until tertiary level—particularly retention in secondary school:
  - Research estimated that girls in secondary school missed the equivalent of 31 weeks of 144 weeks of learning in Kenya.
- Suggested policies: merit-based scholarships; financial or in-kind support during upper-primary and secondary school years.
- Kenya’s National Schools Sanitary Towel Program (since 2011) provides free sanitary towels to schools to cater for girls who cannot afford the cost.
- Caution: policies encouraging enrollment to tertiary level could be regressive and increase overall inequality because girls from poor households have lower chances of reaching tertiary level; switching from mostly merit-based scholarships to a system that accounts for households’ income vulnerability would increase progressivity.

### Financial inclusion and women’s access to credit
- Government programs addressing women’s access to affordable credit:
  - Women’s Enterprise Fund disbursed KES 4.5 billion (US$ 50.6 million) in loans to women groups between 2014 and 2016.
  - Uwezo and Youth Enterprise Development Fund provide additional low interest rate loans for women entrepreneurs.
- The Public Procurement and Asset Disposal Act sets aside 30 percent of public procurement opportunities for women, youth and persons with disabilities; uptake has been slow due to implementation issues.
- Ongoing review of funds and development of a single Biashara fund offers an opportunity to address issues.
- Data from a soon to be launched baseline on Women’s Access to Agricultural Finance (KIPPRA, 2019) will provide additional insight.
- The private sector, the largest provider of credit, has been slower in providing products that target female-owned small and micro enterprises.

### Legal framework, biases, and enforcement
- Non-gender discrimination in hiring is prohibited by Article 27 of the Constitution; anti-union discrimination is prohibited under section 5 of the Labor Relations Act. Enforcement is uneven.
- Matrimonial Properties Act (2013) section 7 makes ownership dependent on contributions toward acquisition, discriminating against women who are more likely to make non-monetary contributions. A 2018 petition by FIDA challenging this provision was unsuccessful; other court rulings have contradicted this.
- Harmonization of laws and strict enforcement would secure efficiency of existing laws and regulations.
- Implementation gaps persist due to lack of regulations, limited capacity, awareness, and political will among duty bearers:
  - Regulations are pending to operationalize the 30-percent preference and reservations scheme of the PPDA.
  - Example: a Breastfeeding Clause in the Health Act 2015 requires lactation stations and breaks for nursing mothers, but application and enforcement are not widespread even in public institutions.
- Legal progress in women’s land rights:
  - Land Registration Act (2012) provides for joint ownership, joint spousal registration, and joint spousal consent to land disposal.
  - Land Act (2016) requires spousal consent for every land transaction.
  - Community Land Act (2016) affirms non-discrimination in rights of occupancy and access to benefits from community land.
  - Major gap: bridging the gap between formal and informal justice systems at local level; government engaged non-state actors to harmonize traditional and statutory systems (example: Mau Forest area requiring spousal consent for all land transactions).

### Digitalization, gender statistics, and budgeting
- Fast digitalization can improve public service delivery and targeting of social safety nets; Women Count program closing gender statistics data gaps.
- Improved data on mobile phone ownership trends by gender, region, and education status will help understand intersections with age and geography.
- Consistent application of Gender Responsive Budgeting (GRB) across public sector institutions can improve financing of programs that close gender gaps.
- Production of women poverty profiles and the Women’s Empowerment Index by KNBS will provide critical data to develop stronger programs.

### Macroeconomic modeling and estimated impacts
- A micro-founded general equilibrium model with heterogeneous agents (Malta, Martinez, and M. Tavares (2019)) estimates large gains from gender-responsive policies:
  - GDP in the new steady state could be 2.7–10.6 percent higher than initially, under scenarios reducing gender gaps.
  - In the scenario reducing informal-sector gender discrimination to its magnitude in the formal sector:
    - GDP would be 10.6 percent higher than initially in the new steady state.
    - Women’s wages would rise by 23.5 percent.
    - The overall gender pay gap would narrow by 16 cents on the dollar.
    - The Gini coefficient would decrease by 1.2 points.
  - Tax revenue collection would increase; female labor force participation and productivity would rise; poverty and inequality would fall.

### Key takeaways and policy recommendations
- Gender inequality in Kenya spans several socio-economic dimensions and significantly affects women’s economic and social opportunities:
  - Kenya fares relatively well in access to primary education and health services for women, but lags in female labor force participation and women’s employment.
  - Gaps exist in wages and earnings, access to financing, unpaid work burden, concentration in agriculture and lower-skilled services, lower financial inclusion and IT access, and land and property ownership.
  - Despite legal provisions requiring equal pay, there is a large wage gap between employed women and men—as high as 54 percent.
- Policy priorities and recommendations:
  - Step up policy efforts to reduce gender gaps and ensure COVID-19 does not erode recent gains.
  - Use more fiscal policy tools, increase efficiency and consistent application of gender-rebalancing public programs and policies, and tighten enforcement of existing laws.
  - Use new technologies to improve public service delivery and targeting of social safety nets to women.
  - Protect priority social spending and further support counties with the highest gender inequality.
  - Increase efficiency of public education programs to encourage girls’ enrollment and retention until tertiary level while designing merit-based policies to support vulnerable households to avoid increasing overall inequality.
  - Increase investments in basic services including proximity health services, childcare, and safe water.
  - Support further financial inclusion and women’s ability to save, including through mobile banking and informal schemes such as risk-sharing arrangements.
  - Tackle legal biases and ensure enforcement of existing laws, notably in the informal sector; revisit laws on property ownership, inheritance rights, and gender equality in pay.
  - Address the gap in implementation of existing policies and laws by building capacity and awareness and supporting wider adoption of good practices by private sector companies and public entities.

*Source: 1kenea2021005 - 32.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1kenea2021005.pdf_