Economic analysis of maritime sector performance in enhancing economic growth in Kenya

Abstract

Maritime sector remains the backbone of globalized trade and manufacturing supply chain as more than 80 percent of world merchandise trade by volume is carried by sea. Maritime transport in Kenya takes care of 90 percent of Kenya’s international trade by volume. Despite the extensive hinterland the port commands, and the recent commencement of SGR Freight services in 2018, the maritime sector performance remains significantly below international standards hindering its vital contribution to the country’s economic growth. The objective of this study was to perform an economic analysis of the maritime sector performance in enhancing economic growth in Kenya. The study sought to determine effect of labor productivity, foreign exchange rate and inflation rate on maritime sector performance and the impact of maritime sector performance on economic growth in Kenya. Target population was Kenya Ports Authority and Kenya Ferry Services while Kenya Maritime Authority coordinated implementation of policies relating to maritime affairs. The study was guided by the endogenous growth model, Solow growth model, the production theory and the agency theory. The study adopted explanatory research design using quantitative data. Secondary Panel data was employed using data on annual basis over the period 2000-2019. Multiple regression and Generalized Method of Moments (GMM) Models were utilized. Applying Multiple Regression model, results indicated that coefficient of labor productivity and foreign exchange rate were 1.2723 and 3.5694 respectively, which were positive and significant at 5 % level, P = 0.000 < 0.05, implying that every 1% increase in coefficient of labor productivity and 1% foreign exchange rate, output increased by 1.2723% and 3.5694% respectively. Applying GMM, the results indicated that coefficient of labor productivity and foreign exchange rate were positive and significant at 5% level of significance, P = 0.000 < 0.05 implying that for every increase in 1% of labor productivity and foreign exchange rate, output production increased by 1.3717% and 3.2744% respectively. Coefficient of contribution of maritime sector to economic growth was, p = 0.084 > 0.05, implying that contribution of maritime sector to economic growth was not significant at 5% level of significance. However, at 10% level of significance, coefficient of contribution of maritime sector to economic growth was p = 0.084 < 0.10 which was positive and significant, which implied maritime industry enhanced economic growth in Kenya. Results obtained using Multiple Regression and GMM models indicated that effect and direction were the same with slight differences in quantity. The study concluded that labour productivity and foreign exchange rate were key drivers to the performance of the maritime sector in Kenya. Maritime sector contributed significantly to the economic growth at 10% level of significance. The study recommends that Maritime sector managers and administrators should consider improving on policies which enhance labor skills and knowledge in maritime sector including training and motivating staff to pursue higher education in the maritime sector in order to increase labor productivity hence improve the effect on economic growth of maritime sector in Kenya. Monetary policy makers to ensure stability in exchange rates considering that high exchange rate volatility could send conflicting signals to investors thus discouraging production, which could affect volumes of trade which will adversely affect maritime sector performance culminating to adverse contribution on economic growth in Kenya. The study adds to the available literature on the performance of the maritime sector in enhancing economic growth in Kenya.