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“Seven” is the world’s defining number: what does it mean for Kenya?

Wolfgang Fengler's picture

As a fan of numerology, let me focus on a special number that captures a global trend: call it the lucky number seven. Since the end of last year, we are seven billion people in the world. We produce a total GDP of US$70 trillion (which means that globally per-capita income is US$10,000 on average) and the average life expectancy worldwide is--you guessed it--70 years.

Let’s extend the seven thread: if the world economy grew at seven percent per year, it would double within a decade (because ten years of seven percent growth don’t amount to 70, but 99 percent, due to the compounding effect). Now with population growth at one percent (thankfully not seven), average per capita incomes would increase from US$10,000 to about 18,000. That is quite a jump, and a level of prosperity that few of our parents and grand-parents would never have imagined.

Sadly though, averages will continue to mask wide disparities, both between countries and within societies.

Developing countries generally catch up faster in life expectancy compared to income. For example, Chinese newborns can expect to live for 73 years, which is above the world average and six years below what their OECD counterparts can expect to enjoy.

Yet China’s income per capita, despite stellar growth, is at US$5,400 – just above half the global average. Some of this is natural: you may be immensely rich, but in the end, the laws of nature will still apply. A rich person may earn ten times as much as his or her compatriots, but will certainly not live ten times longer.

Many African countries, including Kenya, are only just beginning to catch-up on both fronts. Kenya’s official per capita income is US$810 (US$2.20 per day). This is one-twelfth of the world average! It is also about half of Sub-Saharan Africa’s average, even though Kenya remains the economic leader in East Africa. Life expectancy is now at 57 years, 13 years below the world average, but above the average for Sub-Saharan Africa (see table).

Kenya and the rest of Africa are now catching up after two painful decades, when it went backwards and citizens died at a younger age than before.

Table - Kenya and the World

Source: World Bank estimates

Let’s look deeper at Kenya’s economic position relative to the World and Africa (my next article will focus on life expectancy). How fast would Kenya need to grow, and for how long, in order to reach the current world average of US$ 10,000? 

If the Vision 2030 target of 10 percent growth (which roughly translates into an annual per-capita increase of 7.5 percent) were realized, Kenya would need to grow at this rate for some 32 years, in order to reach the current world average of US$10,000 per capita.

Today, Africa’s average per capita-income is US$1,600 which is above the World Bank’s definition for a Middle Income country, and a reflection of Africa’s growth momentum of the last decade. The beginning and expansion of oil production in several countries has helped lift national wealth in resource-rich nations, even though too often, it remains concentrated in the hands of a few.

Once a broad-based growth momentum is underway, catch-up can happen fast. It took India 33 years to go from US$100 to 500, but then only five to go from US$500 to US$1,000 (with a bit of help from the Rupee's appreciating exchange rate). Now, India is well underway to reach US$2,000 by 2020, barring any sharp growth interruption.

Africa has now appeared on the world economic map. A decade ago The Economist dubbed it the “lost continent”. Recently, at the “High-Growth Summit” in London, the same journal and many global businesses portrayed the same continent as the new frontier of emerging markets.

The massive Kenyan-German Business Forum conveyed the same sentiment in Nairobi this week. The most optimistic views about future global economic trends predict that international trade, industrialization and urbanization in emerging markets will lead to a period of high and sustained economic growth.

Should such a “growth super-cycle” (the term coined by Standard Chartered in a recent special report) materialize, Kenya is in a perfect position to benefit. Kenya has three distinct advantages over most other African countries, especially for businesses which want to use it as a gateway into the continent: An educated workforce, a great location at the heart of East Africa and with a coast close to emerging Asia, and a hub in Nairobi with good education and health facilities, as well as improving transport connections to all of Africa. These conditions have helped Kenya to benefit from Africa’s growth momentum, with moderate growth of some 5 percent over the last years.

Now would be the right time to change gear and aim for higher growth. Then, Kenya would be not just be riding the economic wave, but leading it.

Comments

Submitted by Artur Żak on
It’s not easy to maintain the 7,5% every year but not impossible. Could you provide me with the short information what’s (will be) the municipal activity impact on the GDP growth and how looks the municipal activity trend. Best regards

Submitted by Carol Tom on
I like and agree with the article. In addition, improved security and better climate for investment will continue to greatly enhance Kenyas growth economically.

Submitted by Dickens on
While it is true that a great opportunity exist for Kenya, security issue would be a threat to this new-found potential. Situated at the heart of the horn of Africa with turmoils from most neighbors, and the terrorist network of Al-shabab just next door in Somalia, Kenya must, among other parameters, do much more than it does on Security.

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