Will huge capital investments hurt private consumption?

KENHA workers elect bumps at Rironi area along Nakuru Nairobi highway following a string of accident that have claimed numerous lives. June 1, 2023. [File, Standard]

For an economy whose indicators point to a dwindling consumer purchasing power, the government’s insistence on capital build-up as an enabler of economic growth seems to be moving away from the once-acclaimed Bottom-up Economic Transformation Agenda (Beta).

The Sh464 billion Nairobi-Mombasa expressway, Sh160 billion Nairobi-Nakuru-Mau Summit highway, affordable housing projects, and rebooting plans for the Nairobi International Financial Centre (NIFC) as contained in the Finance Bill, 2025, are some of the key projects in the President William Ruto-led administration.

But with an economy that is yet to fully recover from the runaway inflation in 2022, a battered shilling in 2023, Gen Z protests in 2024, and decelerated growth in 2024 of 4.7 per cent, it raises questions about whether this is the optimal way to reboot the economy.

According to Churchill Ogutu, an economist with IC Group, the government’s intention to stick its hand in every segment of the economy has not made the situation any better amid key economic challenges.

“Right now, the government wants to put its hand and fingers in economic sectors where it does not have the competency to do so. It just needs to let the private sector run the show,” he said.

Mr Ogutu said that with the current indicators, the government should ensure the economic model is driven towards consumption in whichever way.

“As it is right now, most of the rhetoric is favouring a capital-oriented economic growth model. All this privatisation and public private partnerships (PPPs) speak to the high level of capital-intensive growth as opposed to consumption that might now be able to benefit pockets of the ordinary mwananchi,” he explained.

He said some effort has been seen from the monetary policy with the consistent reduction of the Central Bank Rate (CBR) to ease the flow of credit to the private sector.

“But it needs more than that. We need to see from the government much more being done to be able to revive private consumption in the economy,” he said.

A key indicator of consumption power can be found in analysing real wages. A drop in real wages shows that the purchasing power of workers, who are the consumers, has been eroded as their income has not kept up with growing inflation.

The 2025 Economic Survey Report by the Kenya National Bureau of Statistics (KNBS) shows real earnings contracted further in 2024 by 0.3 per cent. In the last five years, this growth has been negative at 1.4 per cent in 2020, 3.8 per cent in 2021, 3.1 per cent in 2022, 4.1 per cent in 2023, and 0.3 per cent in 2024.

Agriculture, forestry, and fishery, the country’s main sector, recorded a drop in real wage earnings from Sh302,572.0 per employee to Sh300,081.7 per year.

The accommodation and food services sector, which recorded the most growth in 2024 at 25 per cent, saw a drop in real average wage earnings per employee from Sh358,433.7 in 2023 to Sh350,305.6 in the same year.

Financial and insurance activities dropped to Sh1.70 million from Sh1.17 million, while transportation and storage dropped to Sh1.24 million from Sh1.26 million. Yet, a capital economic model, to some extent, may be fit for Kenya if the views of Equity Group Holdings Chief Executive James Mwangi are considered.

As he presented the Group’s first quarter results, Mwangi pointed out how Kenya, and the larger sub-Saharan Africa, is recording faster economic growth compared to the rest of the world. He said this growth has attracted a lot of debate about whether this region will become the Southeast Asia of 30 years ago.

“A deep dive suggests that it is possible because that rapid growth is underpinned by massive infrastructure investment,” he said. “Today, we are waking up to Rironi-Mau Summit infrastructure. That will be an infrastructure of its kind in the region and will have a significant impact.”

Construction sector

Recently, National Treasury Principal Secretary Dr Chris Kiptoo, while addressing concerns raised by the private sector, including pending bills, revealed that payment of Sh80 billion of the verified Sh229 billion owed to suppliers was ongoing.

This Sh80 billion belongs to contractors and suppliers in the road sector, which also points to the capital economic model the government is adopting.

“We can already see in the (road) construction sector. They have been paid and are already at work,” he said.

Apart from being an enabler of economic growth, another selling point of this capital-oriented economic growth model has been the creation of jobs. According to President Ruto, the affordable housing project has provided 250,000 jobs. At least this was the figure by the end of April 2025.

The norm in the construction industry is that a majority of the jobs are informal, with a few certified individuals who do most of the supervision. Yet data from the 2025 Economic Survey Report shows a drop of 65,800 in jobs created in 2024, speaking to the fact that the capital-oriented economic growth may not be reaching those at the bottom of the pyramid. The number of new jobs created by the economy in 2024 stood at 782,300 compared to 848,100 in 2023. “There was a slowdown in the number of new jobs created in the informal sector from 720,000 in 2023 to 703,700 jobs in 2024,” the report says.

The Federation of Kenya Employers’ chief executive, Jacqueline Mugo, speaking on the sidelines of the federation’s 66th Annual General Meeting, pointed out the stark mismatch in the economy exhibited between job creation and the labour market.

She called for targeted policies that would facilitate the private sector to create more jobs, pointing out that data from the 2025 Economic Survey Report showed that just 75,000 jobs were created in the formal sector in 2024. This is a drop from Sh123,000 in 2023 and Sh109,300 jobs in 2022. These numbers, she said, are against the backdrop of 800,000 to 1.2 million graduates getting into the labour market annually.

“This stack mismatch between job creation and labour market illustrates a harsh reality that Kenya is educating its youth for a lifetime of unemployment unless something changes,” she said. “The country cannot continue producing skilled graduates without ensuring a corresponding growth in employment opportunities.”

The idea of developing the country’s infrastructure is vital if Kenya seeks to attract investments, particularly foreign direct investments (FDI) inflows, according to Industry Principal Secretary Dr Juma Mukwana.

While addressing manufacturers at the launch of the Route to Market Strategy, the PS, who defended the country’s tax regime, said the collections are important to build infrastructure that will smoothen the operation of businesses that set up shops in the country.

“If we are not attracting new investments, we are not going to be competitive,” he said.