Recession and population surge strains Kenya's capitalist base

Kenya was once touted as Africa's showcase of capitalism, but it seems to have fallen on hard times. Despite a bout of sound fiscal management, long-term prospects for the economy are no longer lustrous. The country is still considered a haven by expatriate businessmen; but the reasons for enjoying its sunny climate and laid-back life style are fading.

Soon after Kenya won its independence in 1963, a mix of African civil servants, British ``settlers,'' and Indian entrepreneurs turned their talents to creating a sound industrial base for the fledgling republic. Within a decade, manufacturing -- composed almost entirely of import substitutes -- accounted for 15 percent of national output. With few natural resources to draw on, Kenyans laid the foundations for their economy on the expectation of export to neighboring countries.

Their initial flush of success attracted foreign investors from the United States, Europe, Japan, and India.

Kenya's progress and stability seem all the more remarkable when measured against a regional yardstick. Socialist Tanzania is bankrupt. Uganda has been brought to a standstill by a series of blood-stained regimes punctuated by military coups. Marxist Ethiopia has been beset by famine and a quarter-century-old guerrilla war in the north.

Sudan is also fighting an internal rebellion while it struggles to put together its first civilian government in nearly two decades. By contrast, Kenya has had only one brief coup attempt (in 1982), and it has stuck tenaciously to its capitalist creed.

Even so, its gross domestic product, which grew at about 6.6 percent a year during the 1970s, slowed to 4 percent and less as the country slipped into recession in the '80s. To make matters worse, agricultural output between 1972 and 1980 rose only 2.5 percent a year -- well below the country's annual population increase of 4 percent.

For the first time, its fertile highlands did not provide enough corn to feed the country's rapidly growing population. The shortage was the result of poor planning and wildly seesawing prices. When prices dropped, farmers simply refrained from planting, forcing Kenya to buy grain from South Africa, its political enemy.

The lesson has been learned, and Kenya now offers farmers fiscal incentives that have enabled it to recover from the 1984 drought that cast a shadow of famine across the continent. This year it will be a net exporter of corn; it has also been able to build up strategic reserves that are a safeguard against the next drought.

Nevertheless, poor farming practices do not augur well for the government target of self-sufficiency in food. Land ownership is central to every Kenyan male's ambition; as a result, plots of land are constantly subdivided into ever smaller plots as they are passed down from father to sons.

Competition for land tenure is fierce, since only one-fifth of Kenya is considered arable. But inefficient extension services and fertilizer distribution mean that yields from the overworked soil are declining.

Another reason that Kenya may eventually find it difficult to feed its people is that there will be too many of them. If the population growth continues at its present rate -- the highest in the world -- the number of Kenyans will double to 40 million in 18 years.

Concerned Western donors, whose annual aid to Kenya of about $400 million helps to subsidize the economy, have teamed up with government officials and civic leaders to raise public awareness about the population explosion. But old habits die hard, and the birth control campaign -- viewed with suspicion here -- will do little to stem the tide over the next two decades.

With no state social security to provide for retired workers, Kenyans still put their faith in large families to provide for them in their old age. A recent survey showed that the average mother here wants six children.

The government is all too aware of the potential time bomb presented by the surging population. ``We have a very serious problem on our hands,'' said Finance Minister George Saitoti in a recent Monitor interview.

Kenyan planners charged with the long-term task of keeping the economy on track say the creation of small market towns will provide the necessary engine of growth. These new urban centers will stem the migration to the cities of Nairobi and Mombasa and stimulate small-scale industry, they say.

Some independent economists are skeptical as to how successful this formula can be. They cite a weighty government paper presented to the Kenyan Parliament in March. The paper -- a blueprint for future development -- concedes that Kenya can no longer afford to spend as much on education and health. It urges Kenyans to carry out ``harambee'' -- self-help -- fund-raisers to improve their declining living standards.

A key theme in the document is how to absorb today's youngsters into an underutilized labor force. Half the population is under 15. Kenya's labor pool is about 7 million people; it is expected to double before the century is out. Only 1 million people draw wages, and no more than 20,000 new jobs are created each year.

The government would like to see industry grow to employ the masses. But output among manufacturers is stagnant. The poor economic state of neighboring countries has ended dreams of regional export. Most factories are underused, since consumer spending power in Kenya fluctuates erratically from year to year.

There has been no significant foreign investment since General Motors put up a vehicle assembly plant here in 1977. Industrial capital formation has remained virtually unchanged ever since.

Discouraged by restrictive price controls and government refusals to allow expansions to be financed by local banks, some multinationals are beginning to divest. Several, including Firestone, have negotiated generous terms for themselves by selling out to local businessmen.

This year business is destined to pick up as Kenya cashes in on the coffee boom. Low world oil prices have also helped. Still, the spending spree does not mask the long-term obstacles that lie ahead for economic growth.

The greatest hope for Kenya's survival is its citizens' robust capitalist instinct. Last month Barclays Bank gave the man in the street a chance to dabble in the money markets when it floated 5 million new shares. Application forms were sold out the first day and the issue was oversubscribed more than six times.