Practise supply-side policy evaluation by linking training, infrastructure, incentives and competition to productivity and LRAS.
Sources for use with Section C
The economy of Kenya
Figure 1 Annual rate of inflation as measured by CPI, June 2023 to June 2024
Extract A Economic challenges
Kenya is one of the strongest economies in East Africa. In 2023, the rate of economic growth was 5.3%. This was mainly caused by increased output in agriculture, services and construction. Nevertheless, the economy still faces challenges.
Agriculture is very important to Kenya. It contributes 30% to the country’s GDP and employs nearly 60% of Kenya’s workforce. Climate change is a big problem. Droughts, floods, landslides and locust infestations have made it harder to grow crops such as tea and coffee that are important exports for the country. However, Kenya is making progress in developing clean energy. Over 75% of its electricity is generated from geothermal, wind and solar power. This makes Kenya one of Africa’s leaders in renewable energy and supports its goal of a green economy by 2030.
The Government is investing in irrigation and drought-resistant crops to help farmers. The Government is also investing in infrastructure to promote the development of manufacturing industries and to encourage urbanisation. However, many workers lack the skills needed for factory or technology jobs, which makes it more difficult for farmers to switch careers.
In 2023, the unemployment rate in Kenya was 5.6%. The World Bank has predicted that this rate will increase to 7.2% in 2025. Many people, especially in rural areas, are either unemployed or experience underemployment. Some jobs are disappearing because of structural unemployment. The Government is trying to help young people by investing in training programmes such as the Youth Development Fund. This fund aims to create job opportunities in areas such as technology and renewable energy.
Extract B Inflation
Another major issue for Kenya has been a relatively high rate of inflation. To control this, the Central Bank of Kenya (CBK) raised the base rate of interest from 9.5% to 10.5% in July 2023. As a result, the rate of inflation fell in 2024. This higher interest rate also contributed to an increase in the value of the Kenyan currency, the Shilling, which rose by approximately 11% from the end of June 2023 to the beginning of June 2024.
With reference to the information provided and your own knowledge, discuss supply-side policies that could be used to reduce structural unemployment in Kenya.