Migration to urban areas holds key to Kenya’s middle income status

Kenya is on the verge of a major demographic transition and rapid urbanisation.

According to a new report by the World Bank, this must be well managed for the country to attain middle income status within this decade. Today, three out of 10 Kenyans live in cities; this proportion is expected to reach 48 per cent by 2030, says the report titled Turning the Tide in Turbulent Times.

“There is a strong correlation between urbanisation and rise in gross domestic product, because economic activities in urban areas have a much higher yield than those in rural areas. No country has transitioned into middle income status by remaining predominantly rural,” says Johannes Zutt, World Bank country director.

This geographic transition is expected to be reinforced by a demographic transition, with the working age population — age 15 to 64 — growing much faster than the young and elderly population groups which depend on them.

About 55 per cent of Kenya’s total population today falls in the working-age bracket. As families become smaller, and life expectancy grows, this economically vital group — which drives the economy by working, saving and investing — will bulge by 18 million to reach 63 per cent by 2030.

“Cities are drivers of economic growth the world over — in Kenya, for example, Nairobi and Mombasa are home to only 10 per cent of the country’s population, but together they account for 40 per cent of wage earnings,” says Jane Kiringai, the World Bank’s senior economist for Kenya.

However, to reap the benefits of this urban transition, massive investment is needed to support the pressure of an increasing population, particularly in housing and infrastructure. This is imperative not only to create jobs, but also to avert the negative consequences of urbanisation such as increased congestion, unemployment and crime.

For instance, Kenya’s Vision 2030 states that to adequately provide shelter for the projected population of over 60 million by 2030, the country will need to have more than 12 million housing units, assuming that there will be five people per household.

The demand for new housing in urban areas currently stands at 150,000 units per year, which means that 410 houses need to be constructed every day.

However, only 30,000 to 50,000 are expected to be constructed this year, or a mere 80-130 units per day — even as the population grows by one million a year, or 2,730 more Kenyans born every day. This means that only 25 per cent of those born today will have access to quality housing in the next two decades as they reach adulthood and start family life.

On infrastructure, a recent report by Africa Country Infrastructure Diagnostics (AICD) shows that infrastructure constraints are responsible for an estimated 30 per cent of the productivity handicap faced by Kenyan firms — power is the biggest infrastructure constraint on Kenyan firms, with transport coming a close second.

The report’s simulations suggest that if Kenya’s infrastructure could be improved to the level of continent-leader Mauritius, annual per capita growth rates would be 3.3 per cent higher than they are currently.

The report stresses that addressing Kenya’s infrastructure deficit will require sustained expenditures of approximately $4 billion per year over the next decade. The country’s needs are among the highest in Africa, and relative to the size of Kenya’s economy, that spending would amount to a massive 21 per cent of GDP.

AICD reports that meeting growing demand for power and improving the reliability of power supply will require an estimated $1 billion per year to install almost 1,000 megawatts of new generation capacity and 270 megawatts of cross-border interconnectors. Almost $2 billion will be needed each year to meet water and sanitation needs in line with the Millennium Development Goals. Transport and ICT will require around half a billion dollars a year in each case.

Upgrading the port of Mombasa is an urgent concern, as port inefficiencies have created a huge bottleneck for trade.