Impacts of Implementing the Bottom-Up Economic Plan on Food Systems and Social Outcomes

IMPACTS OF IMPLEMENTING THE
BOTTOM-UP ECONOMIC PLAN ON FOOD
SYSTEMS AND SOCIAL OUTCOMES
5th December 2022

Highlights on Kenya Kwanza Manifesto and Key Macro
Economic Indicators

Background: The Economy
• Kenya’s macroeconomic environment remained robust as the economy expanded by 7.5% in
2021.
• In nominal terms, GDP increased from Ksh 8.5 trillion in 2017 to Ksh 12.1 trillion in 2021,
implying a steady performance for Kenya.
• The growth was supported by improved performance in key sectors of the economy e.g.,
Manufacturing (6.9%), Wholesale and Retail Trade (7.9%), Real Estate (6.7%), Transportation and
Storage (7.2%), and Financial and insurance activities (12.5%).
• The per capita income for Kenya has stabilized at slightly over US$ 2,000 for the years 2019 to
2021 thereby making Kenya still be categorized at lower middle-income levels.
• The per capita income improved from US$ 1,805.4 in 2017 to US$ 2,204.7 in 2021.

Historical GDP growth, per capita, inflation

Trends in employment and real GDP growth in Kenya
05/12/2022 5
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
18,000.0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Employment
and
Real
GDP
Growth
(%)
Employment
'000
Formal Employment Informal Sector
Formal Employment Growth Informal Employment Growth
Total Employment Growth Real GDP Growth

Bottom-Up Economic plan: Highlights
• The priority programmes aim at;
• Bringing down the cost of living
• Eradicating hunger
• Creating jobs
• Expanding the tax base
• Improving our foreign exchange
balance
• Inclusive growth
• Sectors – Key pillars of Bottom-up economic plan;
1. Agriculture
• Financial Commitment- budget Ksh 250bn
FY2023-FY 2027
2. Micro Small and Medium Enterprise Sector-
budget (Ksh 250 bn)
3. Housing and Settlement –budget (Ksh 250
Bn)
Ksh 50 Bn from budget commitment and Ksh 200
Bn pension funds
4. Healthcare –Budget neutral
5. Digital Superhighway and Creative Economy
Ksh 40 Bn-Universal Service Fund
05/12/202
2
6

Bottom-up economic plan: Targets
• Targets to:
– Mobilise and influence allocation of capital in a way that generates most benefits to
the economy
– Create Employment focusing on agriculture and informal sectors,
• Hence, the model directs resources to the two sectors
– Promote income distribution, economic stability, adequate tax revenue,
• Model focuses on investing the limited capital available where it will create the most jobs
– at the bottom of the pyramid.
• Commitment to invest Sh500b over the next five years in smallholder agriculture and the
informal sector.

Highlights – Policy Concern
• Economic Transformation
– transform Kenya’s economy through the “bottom-up economic plan”
– empower MSMEs and farmers, as the engine for growth; as well job creation
• Tax Revenue and Tax Administration
– broaden the tax base and ensure that everyone pays their equitable share of the tax burden
• Servicing public debt and pending bills
– Service debt, borrow cheaply and pay bills going forward.
• Employment creation & Access to credit
– Establish Hustler fund
• Budget allocation and Sector funding
– Key sectors to receive enhanced funding
• Subsidies
– enhance food production to eliminate the food subsidy and establish a fuel stabilization fund

Modeling the impacts of the Bottom-Up plan:
Assumptions
• KIPPRA and IFPRI team have reviewed the Bottom-Up Economic Plan at subsector-
levels; (e.g., target increases of maize yields, reducing dependence on food imports, supporting
export value chains of coffee, tea, avocado etc.; apparel industry, renewable energies, universal
healthcare, road infrastructure, housing, education, healthcare etc.).
• Based on expert opinions, the team has then estimated the expected sub-sector level
growth rates for 89 sectors.
• Based on these subs-sector-level estimates, the team has then used an economy-wide
CGE model to estimate the impacts of the Bottom-Up Economic plan on social
outcomes.

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For your Attention
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Tel: +254 20 4936000; +254 20 2719933/4
Cell: +254 736 712724; +254 724 256078
Email: admin@kippra.or.ke
@KIPPRAKenya
www.kippra.or.ke

Bottom-Up Economic Plan Modeling Results
Modeling Economywide and Household Impacts (2022-27)
Lensa Omune, Clemens Breisinger, Xinshen Diao, Benson Kiriga,
Joshua Laichena, Juneweenex Mbuthia, and James Thurlow
Contacts: Clemens Breisinger, c.breisinger@cgiar.org
Joshua Laichena, jlaichena@kippra.or.ke

Scenarios | Base-Run and Accelerated Growth
• Use economywide model of Kenya
• Cover all sectors, production and consumption in the
economy
• Estimates impacts of sectoral growth assumptions
• Base-run = Continuation of recent trends (in 2009-2019
before the Pandemic)
• Accelerated growth = More ambitious outlook based
on assessment of “Bottom-Up Growth Plan”
• Measures outcomes at multiple scales
• Macroeconomy (e.g., investment, trade, prices)
• Sectoral production and employment
• Household impacts (e.g., income, poverty, food security)
Outcomes under Base-Run and Accelerated
Growth Scenarios (2022-2027)
+$320
(35,000 KSh)
per person
-2.8 million
poor people
2.47
2.17
2.79
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2022 2023 2024 2025 2026 2027
GDP
per
capita
($1000)
Base-run Accelerated growth
17.4
19.7
14.6
14.0
15.0
16.0
17.0
18.0
19.0
20.0
2022 2023 2024 2025 2026 2027
Poor
population
(millions)

Headlines | Macroeconomy
• Economy grows much faster under Bottom-Up Plan
• Total GDP growth rises from 4.8% to 7.2% per year (in market
prices)
• Private and public consumption demand grows slower
than GDP
• Leads to falling consumer prices (CPI falls from 0.8% to 1.2% per year
in 2022-2027)
• Investment growth accelerates
• Doubling base-run annual growth rate (from 3.9% to 8.1%)
• Capital supply grows much faster than land or labor
• Trade position improves significantly
• Stronger export growth (relative to imports, 11.3% vs. 5.5%)
• Economy reorients towards exports and investment
• Goal of Bottom-Up Plan
Growth Under Base-Run and Accelerated
Growth Scenarios
(average annual growth rate, 2022-2027)
4.8%
4.8%
4.5%
3.9%
5.6%
4.0%
-0.8%
7.2%
5.9%
6.0%
8.1%
11.3%
5.5%
-1.2%
Total GDP
Consumption
Government
Investment
Exports
Imports
CPI

Headlines | Sector GDP Growth
• Growth accelerates in all broad economic sectors
• Additional 2-3.5%-points growth rates across sectors
• Relatively larger accelerations in agriculture (“bottom-up”)
• Economy continues to undergo structural change
• Slower growth (in absolute terms) in agriculture that has lower
productivity
• Faster growth in manufacturing that has higher productivity
GDP Growth Under Base-Run and Accelerated
Growth Scenarios
4.9%
3.4%
3.2%
4.4%
4.9%
5.6%
5.4%
7.4%
5.6%
5.3%
7.1%
8.3%
8.9%
7.9%
Total GDP
Agriculture
Crops
Livestock
Industry
Manufacturing
Services

Headlines | Decomposition of Growth
• Capital accumulation is an important source of
accelerated growth
• Investment growth = 8.1%
• Construction growth = 8.2%
• Capital stock growth ~ 6%
• Capital contributes to 20.3%-points of total GDP growth in
2022-2027 (43.2%)
• It contributes to 3.4%-points of additional GDP growth in
2022-2027 (16.4%)
• Productivity (TFP) growth is the most important source
of additional growth
• TFP contributes to 12.4%-points of additional GDP growth
in 2022-2027 (16.4%)
• Labor force growth is the third important source of
accelerated growth
• Labor growth explains 6.2%-points of total accelerated
GDP growth in 2022-207 (43.2%)
Decomposition of GDP Growth Under Base-
Run and Accelerated Growth Scenarios
(total growth in 2022-2027, %)
5.7 6.2
0.2
1.3 1.7
0.3
16.2
20.3
3.4
3.6
14.9
12.4
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Base-run Accelerated growth Additional growth
Total labor Land Total capital TFP
26.8
43.2
16.4

Headlines | Sources of Investment
• Three sources finance the investment, and they all grow
rapidly
• Private savings = 7.8%
• Foreign inflows = 7.3%
• Public savings = 44.3%
• Public sources grow most rapidly but the share in total
investment is small (3.3%)
• Private sources are most important (66.6%)
Growth of Different Sources of Investment
Under Base-Run and Accelerated Growth
Scenarios
(Annual average growth rate, 2022-2027)
3.9%
3.5%
4.6%
10.8%
8.1%
7.8%
7.3%
44.3%
Total Inv
Private
Foreign
Public
66.6
30.1
3.3
Private Foreign Public

Aside | Internal Consistency
• Assessment of Bottom-Up Plan suggests that construction
growth will accelerate substantially
• But construction is constrained by investment growth
• Construction growth = 8.2%
• Knock-on effects on key construction inputs (e.g., cement, quarrying,
etc.)
• Modeling faster construction growth will require faster
investment growth (i.e., new macro assumptions)
• Implies slower consumption growth (and possible smaller poverty
impacts)
GDP Growth Under Base-Run and
Accelerated Growth Scenarios
3.9%
4.1%
4.5%
5.6%
8.1%
8.2%
5.9%
11.1%
Investment demand
Construction GDP
Other mining GDP (quarrying)
Nonmetal minerals (cement)

Headlines | Household Impacts
• Incomes and employment rises with accelerated growth
• GDP per capita increases $320 (35,000 KSh) by 2027 ($2,470
vs. $2,790 under the two scenarios by 2027)
• Additional 700,000 jobs created by 2027 (4.3 mil. vs. 5.0 mil.
Increases from 2022 under the two scenarios)
• Rising incomes reduce poverty
• 2.8 million fewer poor people by 2027 (2.7 mil. Vs. 5.3 mil.
Fewer poor people than in 2022 under the two scenarios)
• Growth benefits poorest of the poor (-0.55%-point vs. -0.85%
point falls in poverty gap from 2022 under the two scenarios)
• Food security also improves
• 1.5 million fewer undernourished people (1.4mil. vs. 2/9 mil.
Few hunger people than in 2022 under the two scenarios)
• Diet deprivation declines (i.e., gap between household-level
consumption and healthy reference diet, based on six major food groups,
falls by 0.90% vs. 1.68% from 2022 under the two scenarios)
• Bottom-Up Plan is consistent with its goals
• Faster growth and job creation
• Reduced poverty, hunger, and cost-of-living
Poverty and Food Security Outcomes Under
Base-Run and Accelerated Growth Scenarios
(change in outcomes, 2022-2027)
0.30
4.3
-1.46
-0.55
-0.82
-0.90
0.62
5.0
-2.35
-0.85
-1.30
-1.68
GDP per capita ($1000)
Jobs created (millions)
Headcount (%-point)
Gap (%-point)
Hunger headcount (%-point)
Diet deprivation (ReDD)
(using
MP
price
one)
Poverty
Food
security

Transforming Food Systems in
Kenya: Policy Options for a New
Era of Growth and Prosperity
Joseph Karugia
Principal Scientist, ILRI and CGIAR Country Convener for Kenya
Presented at NPS/KIPPRA Seminar on “Leveraging the New Bottom-Up
Economic Plan for Food System Transformation in Kenya”
Nairobi, Kenya, 5th December 2022

www.cgiar.org
• Complex domestic and global environment
• Population growth
• Urbanization
• Youthful population
• Limited structural transformation
• Climate change related shocks – droughts, floods, etc
• Other shocks – Covid-19 pandemic, Russia-Ukraine war
Introduction

www.cgiar.org
• Poverty, unemployment, food
insecurity, malnutrition
• Harness the potential of food
systems to address these
challenges
• Forthcoming book on “Food
Systems Transformation in Kenya:
Lessons from the past and policy
options for the future”
Introduction…

www.cgiar.org
2. Accelerate the industrialization
and commercialization of the food
system
 Mechanization
 Productivity
 Value addition
 Non-agricultural jobs
 Integrate farmers to domestic and export
markets
Priority actions
1. Broaden the strategic and policy focus from a “food
security” to a “food systems” approach
 To support the economic transformation envisioned by Kenya’s Bottom-
Up Economic Transformation Agenda 2022
 Focus on sub-sectors that reduce poverty, create employment, improve
diets

www.cgiar.org
3. Expand access to food system activities for smallholders
 Better-targeted and administered fertilizer subsidy system; supporting domestic
fertilizer production; reducing last-mile delivery costs; promoting the use of
alternative or additional fertilizer sources
 Enhanced access to credit. The use of formal insurance markets is a viable policy
option because it transfers risk outside of households and thus protects their
collateral. Bundling insurance with credit also minimizes the risk of default by
smallholder borrowers
4. Build on Kenya’s digital success to transform food systems
 Expand digital infrastructure, particularly in remote rural areas
 Pursue public-private partnerships for transformative and sustainable digital
innovation and scaling
Priority actions…

www.cgiar.org
5. Improve nutrition through production
and consumption policies
 Food systems development will raise real incomes of
households – producers and consumers
 Promote a more diverse food production base that
reduces reliance on food imports
 Invest in food safety
6. Provide better opportunities for women
to make food systems more productive
 Harness women’s contributions to realize the full
potential of the Kenyan food system
 Policies must address low rates of women’s land
ownership, minimal participation in decision-making
and food governance, challenges in obtaining
resources to produce food, and weaker networks
than men
Priority actions…

www.cgiar.org
Priority actions…
7. Improve animal health and disease
control
 Support the veterinary laboratory system by
providing technical support for disease
surveillance, diagnosis, and quality control
 Promote equitable access to services (for
example, vaccines), especially in value chains
where women play a large role, such as
indigenous chicken value chains
 Establish a “One Health” approach to control
zoonotic diseases and cross-county and
transboundary infectious diseases
 The private sector can also aid in the last-mile
delivery of efficient and timely veterinary
services
 Private and public sector initiatives should
coordinate with Kenya Wildlife Services to
control diseases at the livestock-wildlife
interface

www.cgiar.org
8. Allocate appropriate levels of domestic funding
 Only 2 percent of the national budget dedicated to agricultural sector
 This expenditure remains below public agricultural expenditures in other sub-
Saharan African countries and far below the Malabo commitment of 10 percent
 Shortfalls in expenditure have stalled 216 projects in the government’s agriculture,
water, and environment sector — more than any other sector
 An estimated 83 percent of agriculture-related projects are externally funded,
which can jeopardize sovereignty in designing food policy
9. Build policy coherence by aligning policies across the food
system
 Kenya has attempted to build policy coherence by using mechanisms like the
Agriculture Transformation Agency (ATO), Joint Agricultural Sector Steering
Committee, the Council of Governors, and the Agriculture and Rural Development
Partners Group
 But a mechanism that would allow coordination of all food system actors is
missing. A good starting point would be development of an overall framework for
food systems transformation with a clear vision; shared objectives, roles, and
commitments; and a strong monitoring and evaluation system for regular
progress reviews and assessments of results
Priority actions...

www.cgiar.org
10. Strengthen the science-policy interface for more effective,
research-based policies.
Research spending should be considered an investment and as such, financial
commitments to Kenyan research institutes should be increased. Public
investments in universities must also be optimized to generate research and
innovations and promote scaling
Policymakers should support making data open and easy to use. The push for
open data can be worthwhile in the long run, though it will likely require
coordination with relevant ministries and institutions
Policymakers can play an active role in coordinating Kenya’s fragmented research
landscape, while research organizations coordinate their research activities and
methodologies. Collaboration and coordination between national and
international researchers can lead to more relevant, rigorous, and coherent
research
Priority actions…

www.cgiar.org
• No silver-bullet policies
Policy commitment
Implementation
Tracking – ensure steady progress
The challenges Kenya faces make it urgent to act
Improved technology, access to information, evidence – opportunity to transform
food systems in Kenya
Conclusion

APPENDIX SLIDES
Bottom-Up Economic Plan modelling results

Headlines | Growth-Poverty Drivers
• Bottom-Up Plan emphasizes “quick-wins”
• Agricultural production
• SMEs in manufacturing and informal sector
• Source of accelerated growth matters
• Drives strong poverty and food security outcomes
• Model can isolate sectoral contributions
• Growth driven by agriculture is far more effective at
reducing poverty (PGE = -0.8, i.e., 1% increase in GDP per
capita driven by agric. productivity gains leads to a 0.8%-point
decline in poverty headcount rate)
• Emphasis on “bottom-up” growth is consistent
with targeted household outcomes
• Broad-based income growth and job creation
• Greater food availability and lower prices (i.e.,
improved cost-of-living)
-4.5%
12.9%
-1.9%
2.4%
-3.1%
10.9%
Poverty
GDP per capita
Accelerated growth Agriculture only Nonagriculture only
Changes Under Accelerated Growth and Sector-
Specific Growth Scenarios
(deviation from Base-Run outcomes in 2027)
-0.3
-0.8
-0.3
Poverty-growth elasticity (poverty /
GDP per capita)

Growth | Food Crops
• Notes:
3.1%
3.8%
3.9%
4.4%
2.6%
2.3%
3.2%
4.7%
0.9%
5.0%
5.7%
9.3%
7.7%
3.4%
3.2%
4.5%
6.4%
3.2%
All food crops
Maize
Rice
Pulses
Groundnuts
Cassava
Irish potatoes
Vegetables
Fruits

Growth | Other Crops
• Notes:
3.2%
0.8%
0.9%
0.8%
0.9%
4.1%
3.5%
3.0%
5.3%
3.7%
2.6%
2.8%
2.6%
6.3%
5.8%
9.7%
All crops
Nuts
Bananas
Cotton
Sugar
Tea
Coffee
Cut flowers

Growth | Livestock
• Notes:
4.4%
4.4%
4.0%
6.6%
3.6%
3.6%
3.3%
7.1%
7.4%
6.8%
9.1%
5.5%
5.8%
5.2%
Total livestock
Cattle
Milk
Poultry
Eggs
Small ruminants
Fish

Growth | Food Processing
• Notes:
5.0%
5.0%
2.6%
1.0%
7.3%
5.2%
5.2%
7.3%
6.7%
2.9%
2.9%
12.7%
8.8%
6.2%
Total food processing
Meat
Wheat milling
Sugar refinery
Coffee processing
Tea processing
Beverages

Growth | Other Manufacturing
• Notes:
6.0%
6.3%
6.7%
6.7%
7.5%
4.9%
3.2%
12.8%
14.9%
11.2%
10.4%
12.3%
9.0%
5.2%
Total textile
Clothing
Leather & products
Paper products and printing
Total chemistry
Total machinery
Basic metals

Growth | Other Industry & Services
• Notes:
5.6%
4.1%
5.0%
5.8%
4.8%
5.8%
5.9%
4.4%
7.7%
8.2%
7.5%
8.6%
6.6%
8.2%
8.8%
5.9%
Water & electricity
Construction
Trade
Transport
Hotel & restaurants
Information & communication
Financial & business services
Education

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