Question

You have been hired by the Ministry of Finance and Development in Kenya/Somalia as a researcher to help the minister understand why Kenya/Somalia is still ‘underdeveloped’ according to global economic development indexes. You are charged with providing a research brief to explain: economic development as a development ranking and reasons why Kenya/Somalia falls in this category despite 57 years of independence. Support every argument you make with relevant scholarship and theories. In addition to theoretical justifications also provide case studies to explain your arguments

Answer 1

Economic development

Economic development is a broader concept than economic growth. Development reflects social and economic progress and requires economic growth. Growth is a vital and necessary condition for development, but it is not a sufficient condition as it cannot guarantee development.

The Human Development Index (HDI)

The HDI was introduced in 1990 as part of the United Nations Development Programme (UNDP) to provide a means of measuring economic development in three broad areas – per capita income, heath and education. The HDI tracks changes in the level of development of countries over time.

Each year, the UNDP produces a delevelopment report , which provides an update of changes during the year, along with a report on a special theme, such as global warming and development, and migration and development.

The introduction of the index was an explicit acceptance that development is a considerably broader concept than growth, and should include a range of social and economic factors.

The HDI has two main features:

A scale from 0 (no development) to 1 (complete development).

An index, which is based on three equally weighted components:

Longevity, measured by life expectancy at birth

Knowledge,  measured by adult literacy and number of years children are enrolled at school

Standard of living,  measured by real GDP per purchasing power parity .

GDP per capita

GDP per capita is the commonest indicator of material standards of living, and hence is included in the index of development. GDP per capita It is found by measuring Gross Domestic Product in a year, and dividing it by the population.

Evaluation of the HDI

Despite the widespread use of the HDI there are a number of criticisms that can be made, including:

1. Kenya is till underdeveloped because -
2. The HDI index is for a single country, and as such does not distinguish between different rates of development within a country, such as between urban and traditional rural communities.
3. Critics argue that the equal weighting between the three main components is rather arbitrary.
4. Development is largely about freedom, but the index does not directly measures this. For example, access to the internet might be regarded by many as a freedom which improves the quality of people's lives.
5. As with the narrow measure of living standards, GDP per capita, there is no indication of the distribution of income.
6. In addition, the HDI excludes many aspects of economic and social life that could be regarded as contributing to or constraining development, such as crime, corruption, poverty, deprivation, and negative externalities.
7. GDP is calculated in terms of purchasing power parity, and the value can change.
8. Kenya is a lower-middle income economy. Although Kenya's economy is the largest and most developed in eastern and central Africa, 36.1% (2015/2016) of its population lives below the international poverty line.This severe poverty is mainly caused by economic inequality, government corruption and health problems. In turn, poverty also worsens these factors. Fortunately, Kenya's government has made many efforts to address the issue of poverty, and it has received significant help from international institutions as well. The incident rate of poverty has streadily decreased, as shown by a recent MPI index.However, the end to poverty in Kenya still needs long-term efforts.

9. Dynamic poverty in Kenya

   In the 1990s, the reduction by about 5% in GDP growth rate indicated that Kenya's economic become stagnant and even shrunk.The teetering economy made the poverty issue much more severe, reflected by a 12% ascending poverty incidence rate from 2000 to 2003.In order to address the issue, the government introduced some policies, such as National Poverty Eradication Plan and Poverty Reduction Strategy. However, due to ineffective implementation, it failed to alleviate poverty radically.

   After the new government taking office in 2003, there were early signs of economic recovery in Kenya. The annual GDP growth rate continued to increase during the period from 2003 to 2007. Owing to the success of the Economic Recovery Strategy developed by the new government, children had access to free primary education.To some extent, improved education level and an economic boom have eased the poverty in Kenya.

10. Kenya has kept the leading economic position in the East African region with the gross domestic product at 74.84 billion US dollars in 2017. The Kenyan economy mainly relies on agriculture, livestock keeping and tourism.

    Although only less than 20% of the land is suitable for cultivation, the agriculture industry still takes the dominant position in Kenya's economy. More than 75 percent of the population in Kenya makes a living from agriculture. However, an extensively distributed arid desert, unpredictable weather changes and backward technology makes the agricultural sector quite erratic. In Kenya, 80% of the territory is classified into arid and semi-arid lands, where there is highly variable rainfall and frequent droughts.More than a quarter of the population and half of livestock live in these areas. In times of serious drought, the government has to spend on average 50 dollars per family in relief supplies.

    There was a severe drought in Kenya that began in October 2016, due to low rainfall and extremely high temperatures. In April 2017, the drought escalated and was declared a national emergency by the Kenyan government.The drought gave rise to a slump in production of the staple crop (maize) and more than 2 million people were in need of food aid.

    Droughts reduce crop and livestock production, cause great financial losses in agriculture and increase unemployment rates. Besides, decline in food production forces the government to provide food assistance, incurring extra expenditures in the national budget. All these situations trigger more severe poverty issues in Kenya.

11. Kenya is ranked 23rd among 47 countries in the Sub-Saharan Africa region, and its overall score is approximately equal to the regional average and well below the world average.

    The Kenyan economy has been mostly unfree for more than two decades. GDP growth over the past five years, however, has been robust, led by expanded consumer demand.

    Historically, economic freedom in Kenya has been hampered by weak rule of law (especially government integrity) and less-than-stellar performance in investment freedom and financial freedom. Although the government seeks to alleviate structural obstacles to more rapid economic growth and to prioritize trade liberalization, policymaking and implementation remain vulnerable to such risks as drought, insecurity, corruption, and political squabbling.

12. Kenya continues to try to improve its business environment but still lags in some areas. The government is the largest formal-sector employer. The nonsalary cost of employing a worker is low. Labor inspectors are routinely bribed not to report illegal child labor. The government continues to regulate prices through subsidies (for example, for electricity and maize); agricultural marketing boards; and state-owned enterprises.

13. The total value of exports and imports of goods and services equals 36.2 percent of GDP. The average applied tariff rate is 12.3 percent, and 53 nontariff measures are in force. The poor investment regime lacks efficiency and transparency, discouraging investment activity. The financial sector remains vulnerable to government intervention. The state owns or holds shares in financial institutions and influences the allocation of credit.

Thus these are the reasons why Kenya is still underdeveloped.