Kenya: Globalizing with Flowers

Although Kenya has attracted some foreign dollars through tourism and export-based flower and tea industries, a majority of Kenyans remain mired in poverty. Jean-Pierre Lehmann, founding director of the Evian group, argues here that although its future could be bright, Kenya has not yet exploited its substantial political and economic assets in a way that will allow it to fully tap into international markets. Kenya has had serious problems over the years - the 1980s collapse of its commodity-based economy left the country deep in debt, and persistent corruption and neglect of basic infrastructure and services have stalled economic development. Still, writes Lehmann, the country has “key assets that should enable it to participate in a global economy.” These include a successful education system, tourist-ready natural beauty, and a tolerant society largely free of the ethnic violence that plagues other countries in the region. There is also enormous potential for the development of small businesses if bureaucratic hurdles are removed, adds the author. An optimistic population and a new reform-minded government, Lehmann concludes, make the country a perfect investment opportunity for foreigners looking to break into Africa's growing market. - YaleGlobal

Kenya: Globalizing with Flowers

The country still has long way to go to integrate more profitably with the world
Jean-Pierre Lehmann
Friday, April 9, 2004
Saying it with flowers: A flower seller in Kenya, which supplies a bulk of the flowers imported by Europe. The country needs to move beyond flower export to lift itself out of poverty.

NAIROBI: How many people know that there is a high probability that in Europe most flowers given to loved ones on St Valentine's Day come from Kenya? Since the country's independence in 1963, and especially in recent years, horticulture has emerged as one of Kenya's great economic success stories. Flowers picked in the morning reach the markets in Amsterdam by evening. Horticulture is the country's fastest growing sector and is ranked third (after tourism and tea) as a foreign exchange earner. At a time when most foreign investors are wary of committing money in Kenya, horticulture is one of the few industries that continue to attract foreign investment. However, horticulture does not need to be the only shining star of Kenya's global economic success. The country's political and economic openness places it in a good position to benefit from globalization.

An international public opinion survey by the Pew Research Center placed Kenya as one of the most open countries in Africa. 67 percent of Kenyan respondents stated that people are better off in a free market economy. Interestingly, however, the majority of Kenyans do not believe globalization has improved their lives. The apparent contradiction is best explained by the need for democratic and transparent government. An open global market economy will provide benefits, Kenyans believe, only when government is effective and efficient.

Kenya's desire for democracy and transparent governance - and its openness to free trade - should be understood in the context of its recent past. Last year it celebrated the fortieth anniversary of its independence. In its early years Kenya was quite a success story, praised as a model African market economy, especially in contrast to its neighbour, Tanzania, which had embarked on a quasi-Maoist form of communal development. However, the death of Kenya's first president, Jomo Kenyatta, in 1978, destabilized politics and contributed to Kenya's rapid decline. Kenya's average GDP per capita fell from $500 to about $300. The UN's 2003 Human Development Index ranks Kenya 146th out of 175 countries.

Kenya's low level of human development is partly due to economic circumstances. As with many sub-Saharan African countries, Kenya's commodity-based economy - and its export earnings - was hard-hit when commodity prices collapsed in the late 1970s and 80s. The collapse caused the country's debt service to more than double, from 16 percent in 1980 to 34 percent in 1990.

But the country has also suffered abysmal national governance. As a result of almost 25 years of corruption and neglect of basic services and infrastructure, Kenya is in dire straits. The World Economic Forum's 2001 Africa Competitiveness Report ranked Kenya 22nd among 24 countries, surpassing only Zimbabwe and Madagascar. The 2003 Index of Economic Freedom gives Kenya a poor mark as “mostly unfree”. The most telling indicator, perhaps, is Transparency International's “corruption perception index”, in which Kenya ranks 122nd amongst 133 countries.

A new government, elected in 2002, promises to pull Kenya out of poverty and restore its people's faith in democracy. Reforms are being implemented and progress does seem possible, but at the most fundamental levels, the fledgling government faces great challenges. 56 percent of the population lives in extreme poverty. An estimated 15 percent are infected with HIV/AIDS, and life expectancy has fallen to 45 years. Despite the grim statistics, however, there is an unmistakable air of optimism in Kenya, which was well reflected in the Pew survey cited above.

Kenya has certain key assets that enable it to participate in the global economy. First, it is a breathtakingly beautiful country, endowed with a fantastic climate. Though tourism declined because of terrorist attacks in 1998 and 2002, the sector is expected to revive soon.

Second, Kenya boasts a stable society devoid of the sectarian and ethnic violence and conflict that characterizes most sub-Saharan African nations. Geographic borders of nations in sub-Saharan Africa reflect a colonial legacy rather than the ethnic, religious, and linguistic landscape of the region's inhabitants. This has led to wars, massacres, and other inter-ethnic hostilities in many African countries. In Kenya's region of Africa, Somalia, Sudan, Ethiopia, Uganda, Rwanda, Congo and Mozambique have all suffered from internal strife. Kenya, in spite of a population composed of over forty different tribes and a large Christian majority and a strong Muslim minority (10%), has had neither conflicts nor secessionist movements.

Third, Kenya is an exceptionally tolerant society. As in many other countries of East Africa, Kenya has a successful merchant Indian minority. Unlike the violent discrimination against the Indian minority that characterized Idi Amin's brutal regime in Uganda, Indians in Kenya comprise an economically prosperous community. This is also true of the local European (mainly British) population.

Fourth, Kenya's integration within the global economy is also facilitated by a well functioning and successful education system. Male literacy is 90%, a high for any nation, especially one as poor as Kenya. Although female literacy is at 80% - a gender disparity that needs to be addressed - it compares favourably to most developing countries.

More recently, Kenya has seen the development of a garment industry and the creation of export processing zones, spearheaded by the Clinton administration's African Growth and Opportunity Act (AGOA). As mentioned, horticultural is very successful, as is tea, in spite of the competition from Vietnam. Other sectors, notably sugar and coffee, have suffered from mismanagement and excessive government intervention. Kenya is a major “exporter” of nurses, doctors, and teachers, who are an important source of remittances. At the macro level, Kenya has been able to limit inflation to an average annual rate of 2.5% in the last decade.

There is enormous potential for development of the local economy, especially through the creation of small and medium sized enterprises, provided bureaucratic hurdles are removed. According to the World Bank Doing Business 2004 Report, a Kenyan entrepreneur seeking to open a business will need to go on average through 11 different procedures, which will take about 61 days and at a cost that corresponds to 54% of Gross National Income per capita. This is slightly lower than the African average, but in stark contrast with a rapid developing country like Thailand, where the corresponding figures are 9 procedures, 42 days and 10% Gross National Income. Rural-based businesses, in particular, could have positive spillover effects for the entire country by stemming the flow of people to urban centres, where conditions, including security, are not particularly good. There are also positive developments at the regional level. In early March, the leaders of Kenya, Tanzania, and Uganda met to agree to form a customs union in the East African Community.

Kenya's growth potential cannot be ignored by foreign investors. Opportunity for high returns aside, enlightened self-interest should encourage western investors. Rich country markets are not only mature, but also their populations are declining. Between now and 2050, the total population of the European continent will decrease by about 100 million; Africa's population over the same period will double from its current 800 million to a projected 1.7 billion. The rich countries may be where current profits are, but growth and future profits will depend on reaching out to the growing markets of Africa, Asia, and Latin America. This will help Kenya move beyond supplying flowers to the West - and make globalisation a win-win proposition.

Jean-Pierre Lehmann is Professor of International Political Economy at IMD, in Lausanne, Switzerland, and Founding Director of The Evian Group.

© 2004 Yale Center for the Study of Globalization