An announcement by Kenya’s Central Bank indicating 5.8 percent economic growth in 2006 was dismissed by critics both in the media and government opposition as political propaganda. Under former President Daniel Arap Moi’s government in the late 1990s, Kenya’s economic growth fluctuated from negative values to 2.3 percent. In spite of the upturn in economic growth, other indicators were not as promising. The number of people unable to afford 2,250 calories per day hit a staggering 14.4 million out of a population of 32 million, representing an increase in poverty levels from 47 to 53 percent in rural areas and 29 to 49 percent in urban areas.

Despite signs of increased poverty levels, Kenyans sent a strong signal to the government that they would like to own and take over state-owned corporations. This was manifested by the overwhelming response received when Kenya Generating Electricity Company (KENGEN) offered shares to the public and shares were over-subscribed by 233 percent. Scan Group, a privately owned company that floated shares to the public, was also over-subscribed by 521 percent. The Nairobi Stock Exchange has witnessed a beehive of activity in recent months with many ordinary Kenyans moving to invest in shares.

The Kenyan middle class constitutes the majority of those investing in ordinary shares in the Nairobi Stock Market. The middle class population, coupled with remittances from Kenyans in Diaspora of an estimated US$700 million, has played a crucial role in the growth of the economy. Another crucial factor has been the entry of China and India as major players in the global economy. It is estimated that Africa as a whole has witnessed a five percent increase in economic activity due to China and India’s quest for raw materials in Africa.

However, ending the dependence of economic growth on the export of raw materials poses one of the greatest challenges for the continent. Africans have no reason to settle for raw material, export-driven economies after three centuries of being in contact with wealthier civilizations. To continue this type of relationship with developed countries will limit the ability of local entrepreneurs to diversify their local industrial base and to offer products in the global market. The Kenyans’ quest to own shares in businesses run by the government is a sure indicator that given a chance, Africans are eager to invest in value-added industry. Kenyan government policy makers ought to give their citizens a chance to stem the tide of raw material exports to emerging and developed economies by facilitating an environment that rewards business initiatives. Instead of engaging in agricultural, mining, and service-oriented industries, African governments should facilitate the ownership of such industries by their citizens through offering shares in already existing enterprises and opening their markets to new competitors.

Addressing Poverty

In order to fight poverty, Africans must not wait for others to generate wealth for them. Each aspect of government failure in service delivery has the potential to be turned into a business opportunity. For instance, in areas that receive sufficient rainfall, individuals can invest as little as US$300 to protect springs and ensure clean provision of water. Clean water provision will not only keep populations from incurring expenses caused by water-borne diseases, but will also provide jobs for rural people in water services. A similar approach can be used in the fight against diseases such as malaria. Individuals can invest close to US$800 to purchase World Health Organization-certified pumps for indoor spraying, certified chemical sachets, protective gear and spray against mosquitoes, generating incomes of an estimated US$5 per sprayed house.

Tackling the poverty scenario effectively requires transforming the 70 percent subsistence-farmer population into one with a more substantial middle and upper class. The subsistence farmers, or small holder farmers, ought to move away from the traditional eight hour, hoe-in-hand farming techniques that yield scant output in order to sustain both their livelihood and economic growth. The fact that the number of Kenyans living in hunger has risen from 16,000 in 1975 to 3.5 million in 2006 is in large part a result of farmers not employing modern farming methods such as the use of fertilizers, pesticides, improved seed and mechanization. It is estimated that rural populations use on average only 11 kilograms of fertilizer per hectare compared to the 100 kilograms used by wealthy nations. This difference is indicative of the potential for increasing yields, which can help solve hunger problems in Africa.

Rural populations can become part of the middle or upper class if business initiatives focus on targeting markets at the bottom of the economic pyramid. For instance, seed companies and other farm input companies ought to consider repackaging their products in order to accommodate the low-budget consumers in rural areas. To improve the cash flow in rural areas, professionals should consider adding value to the “merry-go-round” loan system popular among small holder farmers. Current “merry-go-round” systems utilize networks of friends or relatives to loan money on predictable terms. Coordination of “merry-go-round” loans offers an opportunity for the creation of a rural banking system, which will facilitate agribusiness creation.

The Kenyan government should invest heavily in reforming agricultural policy to make it easier for Kenyans to start agribusinesses. Increased agriculture-related businesses will not only improve food security but also advance the quest for value addition on surpluses. Kenyan populations must move away from European markets toward a focus on African markets. Both European and Asian countries (China and India) are concerned with importing raw materials from Africa, but Africans must strive to withdraw from a raw material, export driven economy by removing the punitive policies and taxes that prohibit entry into business.

If African countries were to lower trade barriers, harmonize their trade licensing procedures, reduce time taken on border checks, and improve efficiency in their judiciary, Kenyan businesspeople would seek to supply the African market. Similarly, businesspeople in other African countries can replicate this strategy, thus creating a larger African business class.

Expanding the business class is crucial for the alleviation of poverty in Africa. The Kenyan scenario demonstrates the need to liberalize capital markets in order to enable the entry of a second stock exchange that will target mostly medium-level businesses. A stock market for medium-level businesses will enable investment by shareholders while providing the opportunity for such businesses to graduate to the main stock market once their capital base expands. For instance, creating a parallel stock market that does not require businesses to have net assets of more than an estimated US$290,000 would lead to a sharp increase in medium-level businesses floating shares in such a stock market. Shareholders will then be able to help finance ventures that will assist the growth of the value added industrial base. A liberalized capital market will force the banking industry to start financing native businesses.