The political dynamics of growth and structural transformation in Kenya: exploring the role of state-business relations

UoM administered thesis: Phd

Abstract

Moving beyond a focus on institutional frameworks to the deeper forms of politics and power relations that determine their functioning, this thesis explores the political dynamics of growth and structural transformation in Kenya. Deploying a conceptual framework that combines political settlement analysis, which explores how the underlying structure of power shapes incentives for elites to adopt developmental forms of governance, with two concepts from the state business relations literature, the deals and rents spaces, which together link macro level political settlement analysis with a meso level analysis of specific economic actors, the thesis offers new understandings for Kenyas economic development. It argues that Kenyas period of comparatively good growth during the 1960s and 1970s, generally attributed to the inheritance of reasonably coherent institutions at independence as well as favourable external dynamics, actually owed more to Kenyas relatively stable political settlement, which allowed ruling elites to unveil a closed ordered deals regime that provided favoured investors, predominantly from President Kenyattas Kikuyu ethnic group, but also foreign firms, with sufficient credible commitment to invest in productive activities. Similarly, the thesis finds that Kenyas declining performance during the 1980s and 1990s, explained in the literature by worsening external conditions and the capture of increasingly outdated colonial era institutions, was driven more by the ruling coalitions increasing vulnerability, which incentivised then President Moi to prioritise short term politics of survival over sound economic management, particularly after the transition to multi party politics in the 1990s. This resulted in an extremely closed and increasingly disordered deals space, undermining investor confidence and growth. However, a key finding of the thesis, and one that challenges a general view within the literature that corruption permeated all areas of Kenyas economy during the 1980s and 1990s, is that key sectors like horticulture and garments, which made vital contributions to foreign exchange and vote winning employment, were relatively insulated from these political dynamics, helping to explain why Kenya did not suffer a complete growth collapse. Finally, the thesis finds that improved economic outcomes from the early 2000s did not flow from the enactment of donor demanded reforms, as the literature suggests, but rather from increased order within the deals space. This was driven by a reduction in the ruling coalitions vulnerability as well as the ideological predilections of President Kibaki, Mois successor, whose deeply held ideas drove him to implement his economic vision in the face of countervailing political incentives. Critically, the thesis finds that Kibaki enforced ordered but closed deals in Kenyas financial services industry, giving influential banking and telecommunication firms the regulatory space and certainty that they required to innovate with products like mobile money, kickstarting a financial services revolution that has, amongst other things, significantly improved the availability and costs of credit. However, a key finding is that the closed deals predominant in banking and telecommunications, combined with the open deals found in export focused sectors like horticulture and garments, where firms have utilised their increased holding power to push for further openings in deals, has led to the emergence of a dualistic deals space that, if not tackled through incremental governance reforms, undermines the prospects for Kenya achieving a long term growth acceleration and structurally transforming its economy. These findings inform the thesis policy recommendations, which include a focus on how pockets of effectiveness can play a critical role in promoting growth in otherwise unfavourable governance contexts.

Details

Original languageEnglish
Awarding Institution
Supervisors/Advisors
Award date31 Dec 2018