Kenya as a services hub The role of services in economic transformation Borko Handjiski Senior Economist, World Bank SET workshop 28 th April 2015

High contribution of services in Kenya is not atypical, but the weak growth in agriculture and manufacturing is

Kenya’s growth in agriculture and industry has falls behind fast-growing economies in Africa and worldwide High growth economies: China, Thailand, and Indonesia (during 1980s) SSA peers: Uganda, Tanzania, Burkina Faso, Ghana, and Senegal Rest of the world peers: Bangladesh, Cambodia, India, Vietnam, and Pakistan Annual average GDP growth ( )

Some parts of Kenya’s service economy have leapfrogged… Telecommunications and mobile penetration Mobile banking (M-Pesa) Foreign bank presence and local banks going regional Kenya Airways – a key player on the continent … but flattening of growth is not yet in sight

Aviation sector (and tourism) trails behind the most successful African countries

Mobile penetration is high, but can grow further, in particular mobile internet

Kenya’s banking sector is thriving, and there is further scope for growth

Productivity and output growth come from modern services… … but these sectors employ only few works and do not add many jobs

In Kenya, services pull the rest of the economy, and not vice versa In the fastest growing economies, services are pulled by industry (forward linkages), but in Kenya services are more of a ‘growth oasis’ Value-added, as % of total exports (in %)

Questions for policy makers… Can modern services alleviate poverty? Are horizontal or sectoral measures needed to accelerate growth? Is there potential to grow manufacturing which in turn would boost services as well?