Thursday, 16 March 2017

State of the Economy: Discontent, Progress & the Road Ahead


President Uhuru Kenyatta delivering the State of the Nation address.
Courtesy: The Star
Following the State of the Nation address by President Uhuru Kenyatta, various remarks have been made on just how well or how bad the economy is performing. Of course, the interpretation of the aforementioned statement is directly dependent on which side of the political spectrum your conscience gravitates towards. A dose of sycophancy is therefore the absolute denominator of such fundamentalism but a sober, pristine and objective review of the state of economic affairs is vitally important.

With acknowledgement that Kenya is making progress on the economic front, much more needs to be done for an inclusive economic trajectory to be established. The economy is growing, isn’t it? The answer highly depends on whichever metrics and school of thought one subscribes to as far as ascertaining economic progress is concerned.

In 2016, Kenya’s economy is believed to have grown by 5.9%, an impressive growth considering the growth rates registered by the Sub-Saharan Africa (SSA) sub-continent and the world in general. The average GDP growth rate for SSA was 1.4% and for the entire world was approximately 3%. GDP remains an important macroeconomic indicator but it’s a flawed calibration of ascertaining economic progress. One way through which politicians and majority of journalists as well as a significant number of other pseudo-economists propagate confusion is by attempting to depict economic growth as structural transformation (economic development).

Fast forward, the tax man has done quite well with respect to the recorded increases in tax collection from Kshs.847 billion in 2013 to Kshs.1.2 trillion at the end of 2016 just as the president noted. The crux of the matter, however, is on the expenditure side with ostensibly 50% of the revenue collected going towards the payment of salaries and allowances for the 700,000 plus public officers. Statistical data compiled by The National Treasury indicate that in 2016, Kshs.627 billion was exclusively spent on salaries and wages. The public wage bill is approximately 10% of the economy’s GDP which is way above the global best practice of 7%.

A raft of policy measures were proposed by President Kenyatta to bring down the public wage bill as per the recommendations of the toothless and sort of ineffective Salaries and Remuneration Commission (SRC). The most notable among the proposals is the institutionalization of the pay cuts for the occupants of the political offices. There is no doubt that Kenya’s Members of Parliament smile the loudest at the banks compared to the other nations of the world. The happy-go-lucky Members of the County Assemblies also earn relatively high amounts of salaries. But just how feasible is this proposal to effect the reductions in the salaries and wages? Can we also put on the table other effective ways of dealing with this Kenyan economic monster in the name of the public wage bill?

Good economics is bad politics and bad economics is good politics and so how will the next administration deal with the voracious members of the august house to slash their salaries and allowances? With hindsight, the plausibility of implementing the salary cuts after the forthcoming general elections remains a Herculean task. In 2013 the Executive attempted to implement the proposals by the SRC focusing on cutting the salaries/allowances of the MPs and came up with new remuneration structures. This move was quickly thwarted due to political expediency. The number of representatives both at the national and county levels should be reduced and so is the number of workers employed by both levels of government. However, this is an issue that will be politicized bearing in mind the doctrine of political arithmetic.

Unemployment remains a thorn in the flesh for the current administration. In the State of the Nation address, the president highlighted that 2.3 million jobs have been created since the inception of the Jubilee administration. From the available statistical data by the Kenya National Bureau of Statistics (KNBS), this is in fact very true but the devil therein lies in the details, especially in the hidden information; there is need to assess the total number of jobs created in the formal sector and the informal sector. Facts indicate that for the last three years, around 20% of the total number of jobs created within the Kenyan economy was in the formal sector implying that the informal sector has been creating a larger proportion of the employment opportunities.

President Uhuru being received by MPs before the SOTN address.
Courtesy: Business Daily
A significant number of Kenyans feel that the president should also have addressed the retrenchment and lay-offs by various firms in the country. He simply couldn’t; it is politics you know! I hold the view that politics overtakes this crucial national issue of lay-offs. Most of the people do not endeavor to focus on the microeconomic aspects especially the business strategies for the affected firms and incidence and impact of technology which is a pronounced factor in engendering creative destruction. This is not in any way to suggest that perhaps the macroeconomic environment is not responsible but methinks the labour redundancy in the affected firms has been majorly occasioned by the microeconomic factors.

Official statistics by The National Treasury indicate that the national debt currently stands at Kshs.3.5 trillion which is approximately 51% of the country’s Kshs.6.9 trillion GDP (2016 estimates). There is a lot of uneasiness that perhaps the debt level is spiraling upwards at a very fast pace. There are two things to note with respect to this issue. First, borrowing is very crucial for any economy only if the money borrowed is chiefly used to finance key projects that generate more output in the future. Secondly, excessive borrowing is dangerous for the economy especially if a huge chunk of the national debt is in foreign currency. What exactly is the Kenyan debt situation?

If the last three years are to be considered, there is little doubt that borrowing is going to reduce. Reflect on the just-to-be read 2017/2018 Budget Policy Statement which as per now is pegged at Kshs.2.6 trillion. The relatively huge budgetary deficit will certainly demand for an increase in borrowing domestically and externally. Locally, banks will always be ready to lend to the government and in view of the misinformed capping of the interest rates we should expect the banks to lend more finances to the government than the private sector. Excessive borrowing, if not checked, will result in the crowding out of the private sector. The president’s reassurance that the country is not at risk of defaulting its loans because of the budgetary provisions to service the debts offers a glimmer of hope but we must be wary of the “whats” and “ifs” of the external debt. What if the economy of China (our largest creditor) or of the sovereign bond (read Eurobond) creditors experiences a recession or financial crisis? What if the government is unable to repay the debts? This is an economic discussion for another day. The borrowed funds have extensively been invested in the construction of the Standard Gauge Railway (SGR), roads, expansion of the Port of Mombasa, among other infrastructural projects.

The capping of the interest rates has outrightly backfired and the president acknowledged that the usury laws have slowed down the credit advanced to the SMEs and other high risk borrowers. I have always been consistent in castigating the regulation of the interest rates which appears to have been a matter of gaining political mileage. This is a perfect illustration on just how good politics is bad economics. The proponent of the Banking Amendment Act (2016) seems to have been acting on behalf of some interest groups (read cartels) who may have intended to run a very huge credit black market or who have the largest market share in the microfinance industry. This is a perfect example of the tail wagging the dog, as clearly put by Charles Wheelan, a move which ultimately dents the economy. Equity Bank, a bank which lends to most of the low-end borrowers, has already made losses. The good news, however, is that the president gave an indication of reviewing the laws on capping the interest rates. But did he not envisage the legislation as a perverse incentive? It’s good politics and bad economics after all.

The SGR passenger locomotives.
Courtesy: Standard Media
Key infrastructural projects in various sectors seem to be taking root thanks to economic diplomacy. The SGR is a key project whose input in the economy cannot be underestimated. While I am in agreement that the cost of the SGR was seriously inflated, I differ with most critics that it is destined to be a white elephant. The SGR is certainly not a brainchild of the Jubilee administration nor is it a flagship project of the same administration. This is one of the key infrastructural projects as outlined in Vision 2030 and the aspect of continuity of government is responsible for the implementation of such. The commissioning of the operations of the electric railway linking Ethiopia and Djibouti has elicited debate as to why Kenya opted for the SGR and not a modern railway line as per the global standards. It should be well-known that the EAC members formally agreed to construct SGRs in their respective countries. However, the Kenyan SGR can still be upgraded to an electric one at a cost of Kshs.40 billion.

Other notable benefits from the economic diplomacy that will go along in transforming the economy include the construction of the Kenya Advanced Institute of Technology at the Konza Techno City fully funded by the South Korean government. The German government is also developing new curricula for technical and vocational training institutes offering automotive engineering courses. Israel has also come in to facilitate agricultural expertise and technology. These are critical investments that will increase the capacity and sophistication of human capital that is a key driver of structural transformation. The manufacturing sector that is on a lull is a beneficiary of economic diplomacy with various plants set up and others being established. However, the government must also be committed in implementing the policy on setting up the Special Economic Zones (SEZs) to speed up investments in the manufacturing sector. India has also pledged to provide a market for some of the agricultural produce from Kenya.

This economic diplomacy also sets ground for more suspicion. It is of essence in economics that economic agents and units observe the doctrine of trade-offs. As much as these countries have pledged to invest in Kenya and Kenyans, what are they getting in return? My hunch is that they are after the oil and markets. In fact, for China, the oil is on their radar in addition to helping most of their unscrupulous businessmen to set up shop in the country. Economic crimes continue to drain the financial resources of the economy. We are told Kshs.3 billion has been recovered but we should have in mind that close to Kshs.500 billion of the budget is never accounted for. The Jubilee administration has not been impressive as far as the fight against corruption is concerned. More needs to be done.

We have to acknowledge the progress made but at the same time offer constructive criticism on the economic missteps. The economy is growing after all but developing at a slower pace that is generating frustrations and fueling discontent.

This article was first published on blog.savicltd.co.ke.









Thursday, 9 March 2017

The Disillusionment & Dissension of Globalization


Image: Courtesy
The global integration of the nations of the world on different paradigms and strands has largely been beneficial but at the same time, it has generated negatives on a wider scale. This is in no means to suppose or suggest that the global inter-linking of states and non-state actors is doomed to fail, but rather a wake-up call to the concerned entities (the multi-lateral institutions in particular) about the rising uncertainties and/or backlash against the doctrine of globalization.

There are two critical junctures in world history that apparently and ultimately led to the surge of globalization; the economic reconstruction of Europe after World War Two as directed by the Marshall Plan, formulated under the auspices of George Marshall, who served then as the Secretary of State for the United States of America. It was during this point in time that the Bretton Woods institutions namely the World Bank (International Bank for Reconstruction and Development, IBRD) and the International Monetary Fund (IMF) were established. The economic relations between Europe and the USA were furthered by these institutions and the mandate of the two was later expanded to reflect a global view.

The other critical juncture was the fall of the Berlin Wall and the fall of communism in Eastern Europe that culminated in the end of the Cold War. This was a milestone in view of globalization because it meant the opening up of the communist states and other aligned communist nations to the politico-economic activities of the rest of the world (Read the capitalistic world). It is important though to note that the surge in globalization was dampened by the global financial/economic crisis witnessed in 2008/09.

So, why the dissatisfaction and dissent against globalization? This has largely been occasioned by unfulfilled promises propagated by the pro-globalization individuals and institutions. As a matter of fact, globalization was initially touted as a mechanism that would effectively enhance the economic growth and development of the so called Third World countries. The notions that were initially harbored envisaged a fair global trade regime with minimal interference and interventionist policies by the advanced economies of the world. But the resentment against globalization can be clearly noticed even in the developed economies.

The Developed Economies Vantage Point
As noted, the negative effects of globalization are not confined to the developing economies and the newly industrializing economies as a significant number of the advanced economies are experiencing the backlash against this politico-economic phenomenon. The relocation of a good number of industries from the Western world to some of the Asian economies has resulted in labour redundancy with the industrial workers of the former being rendered jobless. Of course this relocation of industries is premised on the incentives at play and the aspect of economic geography. The Asian economies where these industries relocated were guaranteed access to relatively cheap labour plus other subsidies offered by the governments. This is a matter that a significant number of citizens in the Western economies view as a negative engendered by globalization.

World Bank headquarters.
Photo: Courtesy
It goes without doubt that the rise in populism and nationalism in some of the Western nations is perhaps a harsh reaction to globalization. The influx of immigrants has led to resentment with the right-wing ideologues taking it as part of their agenda to formulate policies and pieces of legislations that seek to check on the number of immigrants. There is a growing perception that the immigrants are competing directly for employment opportunities with the natives even for the low skilled jobs and this factor was partly responsible for Brexit and the triumph of President Donald Trump in the hotly contested and divisive US presidential election.

Of essence is the prevailing attitude that membership to economic blocs and/or economic unions has curtailed the power of the independent states to be able to negotiate for better trade deals with other countries. Despite a guaranteed access to a ready market, majority of the Britons so it fit to vote in favour of Brexit in pretext of the jeopardized sovereignty thanks to the policies and legislations of the European Union. Through the Executive Orders, President Trump nullified the membership of the USA to the North America Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). The reason for this; industries/firms would shift to member countries where business costs are a bit lower.

An African Standpoint
Whether the African countries have benefited from globalization or not depends on which angle one views the matter from. The concept of globalization, from an African point of view, has not greatly benefited the African economies. Of course one of the factors that supports this statement is the aspect of global trade where African economies operate on the periphery and are well stuck at the bottom of the international trade. This has ostensibly been precipitated by the protectionist measures adopted by the developed economies and some of the newly industrializing economies.

The World Trade Organization (WTO) has never been committed to ensure that the principle of fairness is adhered to in global trade which has given room for the advanced economies to institute protectionist measures against some of the agricultural products/produce originating from Africa. But it is a matter of political expediency as the WTO is controlled by the world’s developed economies. Even the Africa Growth Opportunity Act (AGOA) was to help the African economies to access the American textile market but its efficiency as a policy instrument is highly questionable.

Map of Africa.
Image: Courtesy
Economic globalization has led to the incidence of capital flight and tax evasion from Africa through the multi-national corporations (MNCs). This is simply corruption at play and the bottom line is that most of the African governments collude with some of the MNCs to rob the African countries. When the so-called trade deals are signed between two countries (an African one and a foreign state) to develop infrastructure or exploit minerals, full disclosure of the trade agreements are never made to the public. This is the major reason why some of the MNCs take the lion’s share of the revenue from the natural resources and even engage in illicit economic activities.

Political globalization has always taken a backseat with economic globalization being prioritized and this has disadvantaged Africa. The non-commitment by the advanced economies to institutionalize reforms in the multi-lateral institutions is a pointer to the continuation of the dependency syndrome which has over the years been perfected by the world’s dominant economies. The World Bank must be reformed if the development assistance that it offers to African countries is to be beneficial. The International Monetary Fund should be reformed so that its policies are not in favour of the USA and other advanced economies as it is currently. Reforms are needed at the WTO to ensure that Africa, highly disadvantaged on the global trade scale, benefits the most from international trade. The United Nations must also be reformed and have an overarching role in view of the other multi-lateral institutions.

The Chinese Eye View
For a relatively long period of time, accusations have been labeled against the Chinese for being circumspect towards globalization. Should the Chinese really be blamed for this? The Chinese should not be blamed wholesomely for the (perceived) failures of globalization. China was very clear on its economic model and set out to actualize it through the implementation of feasible and viable economic policies that were suitable to the Chinese socio-economic and political conditions.

A man looks at the Pudong financial district of Shanghai in this November 20, 2013 file photo. REUTERS/Carlos Barria/Files
China outsmarted globalization at that point in time when the Western nations were busy propagating for the idea. It was through the economic wisdom of the Chinese that they instituted industrial protectionist policies to cushion the local industries and create more employment opportunities for the Chinese nationals. In fact, the industrial economies of scale created from the concentration of industries in regions/cities with very high populations (economic geography) led to the relocation of a significant number of industries from the Western economies to China. If China was to fully embrace globalization as it was being pushed to, then the economic growth and structural transformation witnessed in the country could not have taken place.

From a Chinese perspective, embracing globalization at the early stage of the economy’s reformation would have been economically suicidal as globalization is a jungle where the strongest (advanced economies) always take advantage of the weakest (economies that are playing catch-up).  At the moment, though, China’s economic progress significantly relies on globalization with the country making serious infrastructural investments in Africa, Europe, South America and largely trading with the USA (China is the largest trading partner of the US). There is a very high possibility that China could be the world’s major driver of globalization at this moment in time.

The Road Ahead
The world should concentrate its efforts in making political globalization to work by being committed to reforming the United Nations, the World Bank, the IMF, and the WTO among other multi-lateral institutions. Institutional reforms would imply that proxy wars are eradicated from the face of the globe and viable investments are made by these institutions. This is a potent way of reducing the number of immigrants into the advanced economies. Advanced economies allocate a lot of financial resources to fund the wars at the expense of investing in their respective economies.

Skepticism in the face of constructive globalization is inevitable because of the geopolitical interests at play. Africa, through the African Union must seize the moment and push for better deals at the global roundtable. The reformation of globalization will be beneficial to all the units though in varying degrees but at least guarantee the socio-economic transformation of developing economies ceteris paribus.

China’s continued structural transformation will play a very significant role in reshaping the globalization trajectory. This could work in favour of Africa or against Africa depending on the costs and benefits realized from the Chinese model of international relations.


This article was first published on blog.savicltd.co.ke.

Friday, 17 February 2017

Candid Conversations on the Kenyan Polity


Parliament buildings in Nairobi.
Image: Courtesy
Progress? Stagnation? Or a combination of both? Just what description suits the state of affairs of the Kenyan Republic 53 years after independence? I am not in the business of being the jury and the judge at the same time but I endeavor to present an analysis on the insincerity, machinations, dogmatism, disillusionment, disparity, unfairness and hopefully the positives that outrightly define and deeply describe the Kenyan polity.

There is a common narrative in the public domain and more specifically in the developmental circles regarding the similar state of socio-economic affairs between Kenya, the Asian Tigers and the Tiger Cub economies in the 1960s, 70s and a better part of the 1980s. Available information indicates that these economies’ challenges were similar to Kenya’s in terms of the level of infrastructural development, absolute and relative poverty rates among other socio-economic indicators. No doubt that these Asian economies took-off while Kenya, a peer country at that point in time, is still trying to find a balance on the developmental  scale.

In cognisant of the developmental differentials between Kenya and these Asian countries in terms of the socio-economic complexities and dynamism, it is still relevant and fundamentally important to thoroughly interrogate and investigate where the rain began beating us. In any case, some degree of harshness is required when evaluating a country which at one time was classified as a peer economy to the Asian economies. Is it that Kenya’s progress, as envisaged at the turn of the independence period, been hampered by certain intrinsic factors, internally and externally?

The Wabenzi Culture
Members of the civil society protesting against corrupt leaders.
Photo: Courtesy
The big man’s syndrome, the so-called wabenzi, augmented with the get-rich-quick schemes since 1963 have often dragged Kenya’s potential to be an economic powerhouse in Africa. The various administrations and/or regimes that Kenya has had since attaining her independence have one common denominator; corruption/embezzlement of public financial resources.

The administrations of Jomo Kenyatta and Daniel Moi are a summation of 39 years of cronyism. I strongly hold the view that Kenya would be a different country, in positive terms, were it not for the malfeasance exercised during Jomo’s and Moi’s regimes as the presidents of our Republic.

One of the notable ideals that underpinned the struggle for Kenya’s clamour for independence was indeed the maxim of economic independence in which all the Kenyans irrespective of their ethnic, racial, gender or ideological orientations were to be guaranteed equal economic rights. The Jomo Kenyatta administration had the mandate of institutionalizing the independence manifesto in which economic rights were to be keenly observed.

The treachery that was employed by the Republic’s first administration under the leadership of Jomo Kenyatta engendered a wicked culture in the country’s public administration system. It was then that personal interest was placed above public interest/service hence the entrenchment of the culture of amassing wealth without any metric of accountability being taken into account.

There is no doubt that Jomo Kenyatta and his cronies furthered the challenges of the land question in Kenya which had initially been perpetuated by the colonialists. The land question remains unresolved in this country since then as the Republic has lacked a bold political leadership to right the wrongs committed over 50 years ago.

These economic crimes, of the illegal accumulation of wealth, were engineered by honchos in the Kenyatta administration who were either politicians or individuals who had strong political connections with the highest office in the land.  This is the point in time in which Kenya’s politics was poisoned whereby it became the absolute pathway to richness. Moi’s administration exacerbated the situation for 24 good years.

The culture is still in place and perhaps the situation has even intensified. Across the country, more than 90% of all the candidates for the various political offices have only one main agenda; to utilize the opportunity of occupying a political office to accumulate wealth.

Selective Application of Justice
Kenya's Judiciary.
Photo: Courtesy
Despite the reformations that have taken place in the country’s justice system, more needs to be done as far as the observation of the doctrine of the rule of law is concerned. The principle of fairness and equality before the law changes tune depending on how deep one’s pockets are or how well he/she is politically connected.

It is evident in this Republic that the economic and political elite are treated differently than other citizens even when some members of the former group are found to have planned and executed criminal offences especially the economic crimes.

The lords of graft who steal millions and billions of shillings are hardly locked up behind bars compared to the high number of petty offenders who continue to fill up the prisons. A good number of the officers within the justice system ranging from judicial officers to law enforcement officers have oftentimes been bribed to delay the administration of justice. These deliberately occasioned delays in prosecution and jailing of the corrupt wealthy and mighty (The big fish) in Kenya has always been an incentive for the increase in the rate of corruption.

The selective application of justice has all along punctured the country’s economy; it is an incentive for the politically connected individuals to steal public resources which would otherwise have been invested in viable infrastructural projects. As a matter of fact, how can serious private investors have confidence in the government if economic crimes aren’t punished heavily? This is a concern for the private investors with regard to property rights.

Haunted by the Ghosts of the 1960s
Pupils in a congested public primary school.
Courtesy: Standard Media
At the turn of independence, the then government was focused on eradicating three notable challenges; poverty, disease and ignorance by institutionalizing viable economic policies, establishing an effective healthcare system, and setting up an efficient education system. As a matter of fact, a national blueprint, African Socialism and its Application to Planning in Kenya, was drafted to fast-track the process of achieving the targets set by the then government.

Unfortunately, the development plan was never fully implemented and the same fate faced the subsequent policy frameworks formulated to improve the living standards of the citizenry as I illustrated in a previous article. Significant strides have been made in the course of the last 50 plus years of independence but there is lot that needs to be done to tackle poverty, improving healthcare and the education standards.

As much as there has been progress in the education sector, the government must be committed in improving the conditions especially in most of the public primary schools. These schools have a poor teacher-pupil ratio, dilapidated facilities and a chronic shortage of learning equipments. I am longing for the day that most members of the political elite, the upper-middle class and the wealthy will take pride in enrolling their children in public primary schools.

The conditions in the public health facilities must be greatly improved for the benefit of all the citizens. The political leadership; the Executive and Parliament, has never been fully committed in establishing a universal healthcare system in the country. The political class doesn’t even have confidence in the public healthcare system because it is ill-equipped. This has contributed to medical tourism where each year there is an increase in the number of patients traveling to countries such as India to seek for medication. The billions of shillings looted in the Ministry of Health in each fiscal year is enough to set up modern health facilities that are fully equipped with modern machinery for treating the non-communicable diseases such as cancer, diabetes, and others which are on the rise.

Tribalism: The Dark Paradise
An IDP camp following the 2007/08 PEV.
Photo: Courtesy
Negative ethnicity is real in Kenya with a good number of socio-economic and political arrangements/deliberations taking shape along the ethnic divisions. Since independence, the successive governments have been characterized with deeply entrenched tribalism as a result of the “we” versus “them” mentality. This has really worked against the realization of Kenya as a one united nation.

Kenya’s politics is largely based on ethnicity. In a nutshell, the doctrine of ethnicization of the political system is pronounced in our Republic. Just as I have noted earlier in this article, most of the challenges experienced in Kenya can be traced to the first post-colonial government and these mistakes haven’t been rectified by the successive governments.

Tribalism isn’t confined to politics but it is alive and kicking in other structures of the Kenyan polity especially regarding employment opportunities, awarding of tenders and contracts or even access to public services which all the citizens are entitled to.

Negative ethnicity has troubled our Republic and this has significantly hindered economic progress. Following the 1992 general elections, there were ethnic clashes that took place and even the 1997 elections had certain parts of the country recording ethnic flare-ups. Despite the fact that the 2002 general elections were peaceful, regions such as Kuresoi in Nakuru County experienced ethnic clashes. The mother of all ethnic explosions rocked the country in 2007 following the disputed results of the presidential elections. The 2007/08 post-election violence (PEV) was much more than the election results; the existing unfair distribution of national resources was the primary factor precipitated by the “we” versus “them” mentality.

Taking into account that the PEV was our Republic’s critical juncture in restructuring the systemic challenge of negative ethnicity, profound measures such as the formation of the Truth Justice and Reconciliation Commission (TJRC) and the enactment of a new Constitution were put in place. To ensure that there is fairness in the distribution and redistribution of national resources, the aspect of devolution was indoctrinated in the Constitution. However, the tragedy has been the failure by the political leadership to implement the recommendations of the TJRC report and this puts the country at risk of another major ethnic outburst.

Various parts of the country continue to witness occasional fighting among some of the communities. These cases are common among the Pokot, Turkana and Marakwet communities; along the border of the Kipsigis-Kisii, Luo-Nandi, Kisii-Maasai, Kipsigis-Maasai, and Orma-Pokomo among others. The fights have disrupted the economic activities in these regions.

The Economy: A Distorted & Non-Inclusive Complexity
Jua kali artisans.
Courtesy: Business Daily
The economy is growing but hardly developing; the rate of structural transformation in Kenya’s economy has been extremely slow. This is why cases of extreme and/or absolute poverty continue to be on the increase. Of course the national government and its honchos will always viciously defend the economy’s progress but their defense is anchored on the estimates of the Gross Domestic Product (GDP) which is a foggy way of analyzing the economic progress of any economy.

Developed and the newly industrializing economies experienced structural transformation due to the fact that their governments were committed in making heavy investments in the manufacturing sector. Kenya’s manufacturing sector currently makes up 11% of the country’s GDP compared to 16% in the 1970s and part of the 80s. This decline is largely due to the lack of bold political leadership to effectively implement the development blueprints/economic policy frameworks and also the Bretton Woods institutions (IMF, World Bank) are partly to be blamed following the fantastic failure of the Structural Adjustment Programmes (SAPs) back in the 1980s.

At the moment our economy is faced with the twin deficit problem; trade deficit and fiscal deficit. The trade deficit has been occasioned by a large volume of imports compared to the relatively lower volume of exports as a result of lacking a vibrant manufacturing sector. The fiscal deficit has increased tremendously under the Jubilee administration presenting a possibility of a debt overhang.

The major reason why Kenya resorts to borrow largely to finance its expenditure is because of the low levels of savings within the economy. Savings play a crucial role in financing investment projects and in due course cushioning the economy against the shocks that may emanate in the case of the externally sourced funds. Currently, the level of savings in Kenya is around 14% which is low for any economy seeking to have a strong economy.

Kenya’s economy is largely reliant on the informal sector and this has significantly contributed to the rising levels of unemployment. More jobs are created in the informal sector compared to those created in the formal sector. Unemployment is a ticking time-bomb and in any case a concern for the country’s political stability. The frustrated, unemployed “army” is a threat to national security. History has shown that economic frustrations are bound to generate political turmoil in a polity.

Food security, as detailed in an article co-authored by my colleague and I, is still a major challenge to the government fifty-plus years down the line. The successive governments have always adopted reactionary measures in approaching the issue of food insecurity and it seems learning from history has been a tall order for the country’s political leadership.


So, where do we stand as a country? Are we on the path to prosperity? Is the political leadership committed to transforming the country’s economic landscape? Find the right the answers.


This article was first published on blog.savicltd.co.ke.

Friday, 3 February 2017

Kenya’s Policy Dilemma in Perspective


An artist's impression of Nairobi under Vision 2030
Image: Courtesy
If nearly all the socio-economic policies that have been formulated in Kenya since 1963 were to be fully implemented, there is no doubt that this country’s economy would feature among the newly industrialized economies not just in Africa but in the whole world.

The implementation of these policies would have translated to low levels of poverty in the country, enough food for all Kenyans, a vibrant manufacturing sector, a high number of formal job opportunities, a better healthcare system, a highly developed transport system, proper access to clean water among other positives that are associated with an economy that is undergoing structural transformation.

In evaluating and reviewing a good number of these policies, there is a consistent feature that clearly defines the policy process/cycle in the country; the aspect of policy dilemma. The policy process involves several stages with the most pronounced phases being policy formulation and policy implementation. The formulation of socio-economic and/or public policies involves the input of the various stakeholders and the implementation phase largely depends on the rate of efficiency of the government- ministries, agencies, state departments and institutions.

Policy dilemma, in this case, refers to how magnificent policies are formulated but implemented in a flawed and inconsistent manner. This has led to the recurrence of the socio-economic challenges/problems that bedevil the country creating a developmental scenario of making three steps ahead and five steps backwards. With reference to this, it is not a surprise that some of the challenges that faced the nation in the 70s, 80s and 90s have never been amicably solved.

Take for instance Kenya’s first comprehensive development blueprint, Sessional Paper No.10 of 1965: African Socialism and its Application to Planning in Kenya. This policy document highlighted the course of action that was to be followed to steer the country’s nascent economy with the public sector and the private sector playing an important role in its implementation. Three challenges were to be solved by this policy; poverty, disease and ignorance implying on a large-scale that all Kenyans were to have access to affordable healthcare and education as well as better living standards. Several gains were made but its implementation was thwarted along the way by both internal and external forces.

Women fetching water from a river in Kenya.
Photo: Courtesy
The current water shortage problem experienced in the country would be non-existent if most of the water policies that have been formulated over time were effectively implemented. The most notable policy initiative to solve the problem of access to clean and available water can be traced to 1974. During this year, there was the formulation and subsequent launch of the National Water Master Plan Initiative whose slogan was: Water for All by the Year 2000. The implementation of this policy never came to fruition.

In 1986, another policy paper was drafted; Sessional Paper No.1 of 1986 on Economic Management for Renewed Growth. This policy paper incorporated the Structural Adjustment Programmes (SAPs) and it was formulated following the conditions issued by the Bretton Woods institutions (World Bank & IMF) on the supposed economic restructuring the government was to adopt in return for financial assistance from these institutions.

This policy document addressed the following: market liberalization, reduced role of the state in the economy, deregulation and privatization of some of the state-owned enterprises. Since this policy was recommended by the Bretton Woods institutions, the government implemented nearly every bit of it and the outcomes were not pleasing at all; it did more harm than good. This was because its recommendations were based on the model of the USA economy and not on the local conditions that were prevalent in Kenya’s economy.

A Sessional Paper on the Micro and Small-scale Enterprises (MSEs) was formulated in 1992. The objective of this policy document was to transform the MSEs by institutionalizing a high degree of formality in them as a larger percentage were operating informally in the agricultural sector. The agricultural sector at that time contributed approximately 30% of the country’s Gross Domestic Product (GDP) and most of the Kenyans depended directly and indirectly on the sector for their source of livelihood.

What could be the scenario in case the Sessional Paper on the MSEs was fully implemented? A strong foundation for the manufacturing sector would be created as a result of the establishment of the agro-based industries, food production would have certainly increased hence making the country to be food secure, a high number of formal employment opportunities would have been created among many others.

A policy framework for achieving industrialization by the year 2020 was developed in 1996 specifically known as Sessional Paper No.2 of 1996; Industrial Transformation to the Year 2020. The overarching objective of this policy paper was to develop a vibrant manufacturing sector in the country that would have enabled Kenya to be a newly industrializing economy.


The entrance to Kenya's Export Processing Zone at Athi River.
Photo: Courtesy
The implementation of this policy framework was flawed largely due to the inherent institutional weaknesses and structural inconsistencies which some are in-built in the policy itself and others being explicit to the policy. Its total implementation, with the rectification of its weaknesses, would have steered the economy’s trajectory to be defined in terms of the structural transformation.

With the institutionalization of the NARC administration in 2003, great attention was paid in reviving the country’s economy. To actualize this, a policy paper was formulated; the Economic Recovery Strategy for Wealth and Employment Creation (ERS) for the period 2003 to 2007. This policy document envisaged an economic growth rate of 7% upon the completion of the five year period in which it was to be implemented. In 2007, the country’s economy grew by 7% a clear indication that this policy framework was effectively implemented.

As the period of time for the implementation of the ERS was elapsing, the Sessional Paper No.10 of 2012 on Kenya’s Vision 2030 was designed. The main objective of the Vision 2030 is to transform the country into a middle-income economy by largely investing in the manufacturing sector and key infrastructural projects. The implementation of the Vision 2030 was to occur in phases denoted as the Medium-Term Plans (MTPs). The first MTP covered the period from 2008 to 2012, the second MTP from 2013 to 2017 and so on.

In as much as some significant progress is taking place especially in the construction of infrastructural projects, certain fundamentals have been ignored, for instance, the government hasn’t been largely committed to heavily invest in the manufacturing sector. Achieving the objectives of Vision 2030 remains a mirage considering how its implementation process is being executed.

Inconsistent & Flawed Implementation
Both internal and external forces have contributed to the failure of the holistic implementation of the policy frameworks formulated since independence. The major cause of the failure to fully implement these policy documents is the lack of a committed political leadership. The country’s political leadership has always focused on enriching itself at the expense of steering the country’s economy. Politics plays a crucial role in the implementation of the policy frameworks. All the administrations that have existed in Kenya starting from Jomo Kenyatta’s era have been rocked with massive corruption. However, Kibaki’s administration was more serious when it came to the implementation of national development blueprints compared to the others.

The urge to implement the policy proposals advocated by the World Bank and International Monetary Fund without subjecting them to scrutiny has in one way led to the flawed implementation of such policies. Normally, the policies championed by the Bretton Woods institutions are ignorant of the prevailing circumstances in the developing economies and they are formulated in accordance with the model of the economy of the United States of America. These are two different and primarily distinct economic models. The challenge is the readiness to embrace the policy proposals of the Bretton Woods institutions and disregard the locally formulated ones.

An in-built weakness could also be responsible for the flawed implementation of the policy frameworks. It is highly possible that the formulation phase is executed with so many assumptions and errors. Definitely, the problem of insufficient data comes into play causing the data collection phase to majorly rely on guesswork creating a situation that is different from the reality on the ground. This ultimately leads to a disconnect between the formulation and implementation phases of the policy frameworks.


The implementation phase of the policy process is crucial and the failure to effectively execute it will not create the desired socio-economic transformation. Politics plays a significant role in this phase hence the need to have a visionary political leadership in place. Kenya’s lack of a visionary leadership coupled with the challenges of inadequate data and the pressure from the Bretton Woods institutions have collectively hindered the country from fully implementing the various policy frameworks, some of which I have highlighted in this article. With proper implementation of the policies there is no doubt that most of the recurring problems in the country will be fully solved.


This article was first published on savicltd.wordpress.com.



Friday, 27 January 2017

What is in Store for Kenya’s Economy in 2017?

Kenya's capital Nairobi.
Photo: Courtesy
At the beginning of this year, many analysts and journalists as expected delved into making predictions about the possibilities and eventuality of Kenya’s economy. The overriding theme in the forecasts has oscillated on how the country’s economy will react to the increasing political temperatures in this electioneering period. Historically, Kenya’s economy has always been negatively affected by the exogenous shocks occasioned by political events/activities in the years in which the general elections have been held.

In 2016, Kenya’s economy is believed to have grown by 5.9% as compared to 2015 in which the country’s Gross Domestic Product (GDP) expanded by 5.6%. The 5.9% GDP growth is impressive with respect to the growth rates registered by peer economies, the Sub-Saharan region and the global average. In 2016, Sub-Saharan Africa (SSA) registered a growth rate of 1.4% which is the lowest ever for the region in two decades. This slump in SSA’s growth rate is attributed to the decrease in the global commodity prices such as oil and other minerals which are key export commodities for most of the country’s in this region. Kenya’s economy, being not so dependent on such commodities, was able to register a GDP growth rate of 5.9%.

Earlier projections by The National Treasury and the Word Bank have pointed out that the country’s economy is expected to grow by at least 6% in 2017. A growth rate of 6% for 2017 is pegged on various factors; endogenous and exogenous.

Fast forward, various economic phenomena are expected to shape the country’s economic trajectory in 2017. One of the activities that will definitely alter Kenya’s economic architecture is the Standard Gauge Railway (SGR) whose first phase, linking Mombasa and Nairobi, is expected to commence operations in June 2017. According to the Ministry of Transport and Infrastructure and The National Treasury, the SGR once fully operational will expand the country’s economy by 2.5%.

An image showing a section of the SGR.
Photo: Courtesy
For the SGR to contribute significantly to the country’s economic growth and development then some tough decisions must be made by the government including imposing bans on the transportation of commodities via the road using the trucks. However, the possibility of such an action being taken by the government is low considering that most of the trucks are owned by politicians and individuals who are well connected politically. In any case, the SGR is not only confined for the transportation of cargo but passengers as well. But to generate significant amounts of revenue then the operations of the SGR must be near full capacity and this will have massive implication on the privately-owned long-distance trucks. If at all the government is not going to impose tough restrictions on the long-distance trucks, then the SGR will largely be used to transport passengers and its expected returns on investments may just turn out to be lower.

In June 2017, Kenya is expected to start exporting crude oil against the possibilities that such a move in view of the energy infrastructure that is in place may totally fail to generate significant revenue, create meaningful jobs and create viable linkages with the other sectors of the economy. The exploration of oil backed up by sound systems and structures is an economic activity that is bound to spur growth and development unless there are prevailing exogenous shocks such as low crude oil prices around the world.

Ngamia 1 oil well in Turkana County.
Photo: Courtesy
It is expected, for the start, that only 2,000 (318,000 litres) barrels of oil will be drilled daily from the oilfields awaiting transportation to Mombasa. This amount of oil is certainly insignificant as far as the doctrine of economies of scale is concerned. This is the first misstep that the government is making. From the oilfields, the oil will be transported by road to Eldoret from where it will be transported via the railway line to Mombasa.

The 2,000 barrels of oil will have to be transported by at least 20 trucks daily from Turkana to Eldoret which is not economical at all. The trucks and trains that will be used to transport this crude oil need to be fitted with heating systems to maintain the suitable temperature recommended for crude oil and it will take at least more than one day for the crude oil to be hauled on the trains from the trucks. We should also not forget to factor in the risks associated with transporting crude oil on the road.

With reference to the early oil pilot scheme, the crude oil will be transported by train from Eldoret to the Kenya Petroleum Refineries Limited in Changamwe for specialized heating. Experts estimate that it may take not less than two months before the capacity of one shipping tank is attained and this implies further costs. After the capacity for a shipping tank is attained, the crude oil will be transported for a further 13.5km to the Kilindini Harbor for shipment. The early oil pilot scheme is uneconomical and inefficient and patience should have been duly exercised by first waiting for the construction of the proposed 865 km pipeline which has the capacity of transporting 80,000 to 120,000 barrels of oil per day.

This pilot phase is a move meant to benefit the multi-national corporations that are drilling oil in Kenya. Kenya’s economy is not expected to highly benefit from this early oil pilot scheme and the country will lose billions of money and only a handful of employment opportunities will be created.

The performance of the stock exchange market (Share index value) is another economic phenomenon that keen attention must be paid to. From my vantage point of view, the performance of the Nairobi Securities Exchange could be headed to the dogs if its recent performance is anything to go by. In the first 17 days of this year the Kenyan stock exchange market lost Kshs.153.5 billion. This is a clear pointer that Kenya’s economy has relatively large amounts of hot speculative money. There is no doubt that this wave of the hot speculative money leaving the economy has been triggered by the uncertainty surrounding the general election. Unless the situation normalizes, the rushing out of this hot speculative money from the economy may increase and in turn worsen the situation at the bourse as the general election fast approaches.

As for the electoral cycle, 2017 is a critical juncture in which very serious evaluations of the second Medium-Term Plan (MTP) should be done. The MTPs are cyclical phases detailing the structural and systematic implementation of Kenya’s development blueprint, Vision 2030, in accordance with successive governments that are instituted after each general election.

Considering the state of economic affairs in the country with the goals of Vision 2030 and with respect to the second MTP then clearly the economy is off the mark. The challenges which the second MTP was supposed to address include: the low level of domestic savings which is currently 14% of the total national GDP estimates, high dependence of the country on rain-fed agriculture, high levels of unemployment and poverty, the narrow range of exports, socio-economic inequality among others.

Objectively, the government has done little as far as the targets of the second MTP are concerned. The nexus of this is rooted in the flawed implementation of the existing policies. The implementation process of the Vision 2030 (second MTP) and other supporting policies has been overtaken by cases of grand theft (Corruption) and the prioritization of politics over policy implementation.

Perhaps the most anticipated event that will ultimately shape the country’s economic trajectory going forward is the 2017/2018 Budget Policy Statement which is expected to be read in April this year just four months to the general election. The 2017/2018 Budget Policy Statement, which has already been drafted by The National Treasury, amounts to Kshs.2.288 trillion. The fiscal deficit for the 2017/2018 budget is projected at Kshs.582.4 billion (Excluding grants) with the government expected to plug this deficit by netting in Kshs.221.1 billion from external sources and by sourcing for Kshs.320.7 billion domestically.

CS Henry Rotich at a past budget presentation event.
Photo: Courtesy
From the above, it is evident that the public/national debt will continue rising. According to reports by The National Treasury the public debt is approximately Kshs.3.7 trillion and with an impending budgetary deficit the figure is bound to increase to around Kshs.4 trillion by the end of the 2017/2018 financial year. This will dent the state of the economy especially if the general election occasions a slump in the economic growth rate. Borrowing by the government is not bad but the amount borrowed must be seriously invested in viable infrastructural projects and in the manufacturing sector which have a very high potential of sustaining long-term economic growth as well as structural transformation.

2017 will certainly be a defining moment for the banking industry following the capping of the interests rates. The essence of Economics disputes the enactment of the usury laws unless such capping is meant to promote funding for specific sectors/segments of the economy or if it is instituted only for the short-term. A number of banks have been forced to lay off some of their employees following the operationalization of the law. It will be interesting to see the profit margins recorded by the banks as they will be announcing their financial performance in a few weeks time. The reality on the ground is that most of the banks have instituted tighter conditions for advancing loans to prospective customers. A larger proportion of high risk borrowers have been highly affected and banks prefer to lend to the government.

On a general scale, however, the political activities leading to the general election in August this year is the primary factor that will influence negatively or positively the performance of the country’s economy. Major investments in the private sector will be based on speculation and there is no doubt that the country’s economic growth rate may reduce in 2017.