Deep structural problems are the key impediment to growth. Kenya’s export performance remains weak, due to a number of factors, including inefficiencies at the port of Mombasa, an inadequate and expensive supply of energy, underdeveloped transport networks, limited reform of business regulations, and a lack of decisive action to curb corruption. These factors make Kenya too expensive for international investors, especially in manufacturing, despite lower labor costs than in emerging Asia.
While Kenya is globally competitive in a number of sectors—especially tea, tourism and horticulture—it has not sufficiently ventured into new products, such as textiles and chemicals (where some potential exists). In addition, there are fundamental structural transformations underway as Kenyan society shifts from being predominantly rural to increasingly urban, and the management of cities as the traditional growth poles takes center stage.
Kenya’s single most serious challenge is widely perceived to be governance. Kenya scores well on measures of economic governance, such as microeconomic and budgetary management, voice, transparency, public administration, regulatory quality, and revenue mobilization. But, the country scores poorly on measures of political governance such as the rule of law and control of corruption.
In May 2012, the World Bank Board of Executive Directors discussed the Country Partnership Strategy (CPS) Progress Report to support Kenya through June 2013. The report builds on the CPS, which the Board endorsed in April 2010 to make a catalytic contribution to Kenya's continuing transformation to a middle-income country. Over the CPS period, the World Bank Group aims to contribute to achieving more inclusive growth by supporting activities aiming to (i) unleash Kenya's growth potential; (ii) reduce inequality and social exclusion; and (iii) address resource constraints and environmental challenges.
Kenya is not an aid-dependent country. Only about 10 percent of the budget consists of donor funding, but that aid is largely concentrated in the government’s development budget, so it can have an outsized impact. In light of that fact, IDA is striving to use its knowledge and limited financing to leverage government and other donor spending.
Kenya has maintained a competitive exchange rate, largely contained inflation, and managed its debt responsibly, despite a challenging external environment. IDA’s policy dialogue and technical assistance aim to ensure that fiscal and monetary management remain appropriate, and the financial sector is well managed.
IDA is supporting the government’s plan to enhance trade and transport at the port of Mombasa, inland border posts, and along the road and rail corridor that links Mombasa to Uganda and beyond (East Africa’s most important transportation corridor). Average time to travel between Mombasa and the Ugandan border has improved. While in 2004 it took 14.5 hours to travel the 750 km of roads between Mombasa and Timboroa on the trade critical “northern corridor” (which which links the port of Mombasa to Kenya's neighbors) seven years later it took only 9 hours to travel on the same road. For buses, the travel time on the same stretch was reduced from 18 to 11 hours. IDA is also supporting Kenya and its neighbors to fast-track customs transit cargo clearance across the common borders with Uganda and Tanzania.
IDA is also supporting the government’s efforts to expand electricity generation and associated transmission and distribution. Between 2009 and 2011, the number of electricity connections increased by an additional 350,000 households (at 5 people per household) and 1,200 km of transmission and distribution lines have been constructed or rehabilitated under the IDA-financed project. An innovative combination of IDA, International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency (MIGA) credits and guarantees is supporting thermal, geothermal and wind generation that will expand the electricity generation capacity by up to 600 megawatt. IDA also supports the shift of generation capacity over time from drought-sensitive hydropower and fuel price-sensitive thermal options to greener sustainable technologies such as geothermal and wind: IDA was the catalytic donor in a $1.3 billion project that will bring 280 MW of geothermal power and associated infrastructure on line over the next four years or so.
IDA is also helping the government to raise and improve water supply and sanitation levels. Between 2007 and 2011, access to improved water sources of people living in the IDA-financed project areas improved from 27 percent to 50 percent and access to improved sewerage services from 10 to 20 percent. IDA is supporting government efforts to increase water storage and supply, in response to Kenya's vulnerability to drought. The program includes forest and water resource management upstream as well as water storage and production downstream.
IDA helped Kenya launch its Open Data portal in July 2011 and has also contributed to Kenya’s Information and Communications Technologies innovation. IDA support for new apps and also for telecommunications sector reforms has expanded internet connectivity and enabled new ICT platforms, such as mobile money.
IDA also supports elements of the government’s climate-change response strategy, which includes both adaptation and mitigation measures. In addition to helping to improve forest and water management, IDA is helping to diversify the sources of energy away from thermal to renewables and to improve readiness and response in cases of climate-induced emergencies.
For example, in response to the 2011 drought, resources were programmed from the IDA Crisis Response Window focused on agriculture, health, water resources, social protection, energy and disaster risk reduction.
In the health sector, IDA supports vertical interventions to fight malaria and to prevent HIV infection. Anti-malarial bed-net distribution is probably the single largest contributor to the sharp fall in child and infant mortality between 2003 and 2008/09 from 115 to 74 and from 77 to 52 per 1,000 live births, respectively. Through a Sector-Wide Approach, IDA supports a large government program together with other donors. During fiscal year 2010-11, over 25.3 million individuals, half of whom were women, directly benefited from activities under this program. About one million children were fully immunized in their first year.
IDA also supports the integration of gender concerns in design, implementation, and monitoring and evaluation across its portfolio of projects. This support ranges from specific investments in the agriculture sector aiming to strengthen women's economic empowerment and participation in decision-making processes to inputs to the agricultural sector gender policy. In addition, IDA supports gender integration in the water sector in Kenya through capacity-building, gender-disaggregated data collection, development of a toolkit on gender mainstreaming in urban utilities, and policy dialogue.
As of August 2012, the IDA lending portfolio in Kenya consists of 23 national and seven regional projects, totaling about US$4.1 billion in commitments. In line with the World Bank’s Strategy for Africa, the portfolio focuses on competitiveness and employment as well as vulnerability and resilience, with governance playing a cross cutting foundational role. With new commitments averaging US$540 million per year, the portfolio grew by US$1.1 billion over fiscal years 2010-11, with large new investments in the energy, roads, and urban sectors. FY12 commitments totaled US$753.4 million.
While IDA lending is important, the enhanced use of knowledge is increasingly integrated into and complementary of the IDA financing program. Given that Kenya aims to reach middle-income country status by 2030 and that it is less and less an aid dependent country, IDA’s enhanced focus on being a knowledge provider rather than a traditional project financier will increasingly take center-stage. IDA currently produces highly successful bi-annual Kenya Economic Updates, which have helped to frame important parts of the economic reform agenda in Kenya. In addition, IDA produces flagship sectoral work (most recently, in water, devolution, education and social protection).
In a rapidly evolving global environment, IDA’s relevance to Kenya will increasingly depend on its ability to mobilize global knowledge and to connect it to local networks. Sustained efforts to provide neutral and disinterested advocacy in Kenya's best interests have enabled IDA more recently to emerge as a trusted, committed and pragmatic partner. IDA does not confine itself to being an “expert”, but operates in partnership with the many Kenyan researchers and agencies that are bringing global practices to bear. Partnerships with the private sector provide ways of using cutting-edge global technology for development purposes. For example, IDA partnered with the mobile-phone industry and benefitted from Kenya’s high mobile phone density (every adult Kenyan is projected to own a mobile phone in 2012); exploiting opportunities to target cash transfers and collect just-in-time data on local conditions.
The Bank has established strong partnerships with Kenya’s development partners and it plays a key role in government-development partner coordination. The Donor Coordination Group, jointly chaired by IDA and a bilateral ambassador, meets monthly to discuss political and economic developments and to reach consensus for addressing them. In addition to these high-level fora, about a dozen sector groups coordinate development partner support in specific areas behind the government's program. In addition, every six months, Ambassadors and heads of development agencies meet with Cabinet officials (led by the Prime Minister and the Minister of Finance) to discuss development priorities in the Development Partnership Forum, a structure that IDA initiated in 2009.
Kenya has an active and vibrant civil society organization (CSO) sector. The most active organizations are focused on governance, human rights and impunity, democracy, media, land issues, public sector performance, human development, HIV/AIDS, women rights and the environment. IDA regularly and extensively engages CSO leaders in dialogue and consultations.
Toward the Future
IDA will continue to support Kenya’s transformation to a middle-income country and help the country to reach the tipping point. For this to take place, IDA will continue to support making the structural changes that will help Kenya to grow and support improvements in service delivery to help the country to reach the Millennium Development Goals (MDGs). The focus of the investment lending portfolio will be on infrastructure, transport, energy (moving toward more diversified generation) and water. IDA will also continue to provide the right kind of knowledge that will help policy makers to make the decisions that will move the country forward.