A comprehensive new report from the World Bank is urging Kenya to take advantage of the momentum of its rapidly growing services sector to accelerate economic development and provide more opportunities for citizens across the income spectrum.
The Kenya Country Economic Memorandum, released on Tuesday, found that services accounted for nearly 75% of the country’s GDP growth from 2015-2021 and showed resilience during the COVID-19 pandemic.
The report provides a detailed analysis of the evolving role of services in Kenya’s economy and outlines a framework with concrete policy recommendations along five key dimensions — shift, link, boost, trade and secure — that aim to leverage services to drive more inclusive growth.
“There is a major opportunity to lift productivity through accelerated structural transformation: shifting resources, including labor, from agriculture into manufacturing and services, into higher value-added activities within sectors,” the over 200-page report stated. “How to pick up the pace of Kenya’s ongoing but still incomplete economic transformation is therefore a key question for policy makers seeking to increase growth and jobs.”
The World Bank advised Kenya to focus policies on further developing high-productivity services like information and communications technology, professional services and finance. Although these “global innovator services” account for a relatively small number of jobs directly, the report found they drove almost one-fifth of total output growth from 2015-2019.
“Global innovator services, although still accounting for only a relatively small number of jobs directly, drove almost one-fifth of total output growth (2015-2019), and there is some evidence of important spillovers whereby global innovator services contribute to labor income growth in other parts of the economy indirectly,” the report said.
The World Bank recommended skills development, infrastructure investment and ecosystem support to grow these services, which it said are critical for structural transformation even if they do not directly employ many citizens currently.
Additionally, the report called for facilitating greater use of services as inputs across agriculture, manufacturing and other services to strengthen economic linkages and increase growth.
“Understanding and identifying measures to strengthen the linkages across services and activities in other sectors (agriculture and manufacturing) can help to lift the overall performance of, and job opportunities provided by, Kenya’s economy,” it stated.
According to the findings, many Kenyans are relying on low-paid, informal work in domestic services subsectors like retail trade and personal services. The report advised skills training and policies to support higher productivity service jobs to improve livelihoods for these workers.
“Making the services sector work better for low-earners, many of them employed in this sector, and poor and vulnerable households, is key to improving livelihoods,” it said.
Other recommendations include encouraging technology adoption and competition by providing policy certainty, addressing information gaps and reducing regulatory barriers for firms. The report also called for boosting services trade and investment by improving the investment climate, reducing trade restrictions and implementing regional commitments.
The World Bank report mapped out detailed steps Kenya can take to leverage services for development goals. But it noted realization of the full potential requires concerted effort across government in close collaboration with the private sector and other stakeholders.
