- The problem with borrowing and using savings for consumption is that, unlike investment, consumption has no returns.
- However, when compared with the Gross Domestic Product (GDP), that is, the value of goods and services produced in the country, it turns out that consumption has been growing faster than GDP
- In the East African Community, Kenya consumes a higher proportion of GDP than her neighbours
An analysis of household consumption trends shows that on average, Kenyans can no longer live on their income and have resorted to draining their savings to survive.
For more than three years now, Kenyans have been spending more than they earn, exposing themselves to an increasingly onerous debt burden, a Nation Newsplex review of government consumption data reveals. The data was analysed in collaboration with the Institute of Economic Affairs (IEA).
Data from the 2016 Economic Survey, which was published in May, shows the consumption rate was 102 per cent of income in 2013, 103 per cent in 2014 and 102 per cent in 2015.
Consumption is the amount of money spent on goods and services not including investments. When consumption goes above 100 per cent of income, it means that people are not saving any money but are spending what they had saved earlier or borrowing to make ends meet.
A comparison of savings with borrowing data from the Kenya National Bureau of Statistics reveals this very clearly. On one hand, net national borrowing accelerated from Sh190 billion in 2010 to Sh579 billion in 2015. On the other hand, savings rose from Sh83 billion in 2010 to Sh121 billion in 2011, but then plummeted below zero from 2013 onwards.
The data is saying that we risk being trapped by debt. The problem with borrowing and using savings for consumption is that, unlike investment, consumption has no returns.
IEA CEO Kwane Owino says the dis-saving was probably driven by high oil prices, which then created a rise in the cost of living. “If wages are stagnant, then people need much more money to afford the same things such as food and other necessities,” he says.
The average consumption per person rose from about Sh60,000 per year in 2010 to Sh70,000 in 2015, an analysis of data from the 2016 Economic Survey reveals. This is an overall growth rate of 17 per cent in the five year period, or about 2.8 per cent per year.
At first sight, this does not appear bad. However, when compared with the Gross Domestic Product (GDP), that is, the value of goods and services produced in the country, it turns out that consumption has been growing faster than GDP.
The data shows that per capita consumption was 76 per cent of GDP in 2010 and this ratio increased steadily to about 80 per cent from 2013 onwards. Obviously, it is desirable to have consumption lower than GDP, but the narrowing of the gap is worrying.