I have recently developed a very peculiar habit of musing over economic data for days, weeks and even months. The interesting aspect about data is that it rarely lies. The old saying by W. Edwards Deming of "in God we trust, all others must bring data" rings true.
Kenya is currently experiencing a very painful slow down in economic growth; forecasts have been revised downwards to 3.5-4.5 percent. After factoring in population growth and inflation one quickly realizes the national cake could actually be shrinking. According to Vision 2030, we are supposed to hit 10 percent growth in 2012 and maintain that rate up to 2030, unfortunately several factors are conspiring to derail our objective.
Due to the rapid development of information technology, today we live in a highly volatile world. These are not the same conditions under which the Asian tigers like Singapore transformed themselves (their achievements are exceptional nevertheless).
Today in our deeply integrated world, capital & risk freely roam the global in search of short-term financial gains. Huge capital inflows today, quickly turn into huge capital outflows tomorrow, as we have seen on the Nairobi Stock Exchange.
It is against this backdrop that Kenya is aiming to lift itself out of acute poverty. A great analogy for Kenya would be a ship. This ship has to face a storm, heavy winds, raging waters, a leaking hull and infighting amongst the crew. We have to manage and overcome several variables at once.
To say that the odds are stacked against us is an understatement. The next decade is mission critical. We find ourselves in this precarious situation because since independence we have failed to put our ship on the right course.
Related: Kenya Economy
In our myopic view of the world we are trapped in a zero sum game where nobody wins. Business will not grow if income does not grow and income will not grow unless business grows. The two are part of a wider system that transcends nations and markets.
Kenyan policy makers and bureaucrats are spending a lot of time putting out fires. The Central Bank of Kenya has squeezed credit by hiking interest rates in a losing battle to control the exchange rate. Kenya Revenue Authority has raised import duty and is looking for other avenues to squeeze consumers and incomes. All this is being carried out in a vain attempt to reduce our trade imbalance and to increase revenue for our rapidly expanding government. While I do not doubt the noble intentions of our bureaucrats it is important to question these reactionary policies.
All these efforts to correct perceived threats are reducing our country's competitiveness and further worsening our unfavorable business environment. Millions of Kenyans are unemployed or underemployed (Youth unemployment is a growing problem constituting 70 percent of total unemployment). Any historian will narrate how this is a time bomb waiting to explode if poorly handled.
What we are witnessing is a cocktail of government bodies unilaterally acting in ways that are detrimental to the whole system. There seems to be no co-ordination or coherence in government. To add to our predicament we have a beehive of power hungry political parties that have absolutely no agenda for Kenya. One wonders how all this will play out.
An extremely ignorant perspective on debt is being peddled around the world. There is nothing wrong with debt or deficit spending as long as the productivity gains on investments are higher than the interest payments. Generally no country has developed without piling up huge amounts of debt but it is how the debt is used that determines the outcome. The USA, for instance, would not be what it is today without capital inflows and immigration from Britain & Europe since the 18th century. Greece's problem on the other hand(which is rarely mentioned) is one of corruption, tax evasion, and debt being consumed rather than invested.
Freedom to print your own money will not solve a problem of human failure, it will just postpone the pain. Kenya must borrow heavily and encourage Foreign Direct Investment, but for our debt to be well deployed we must drastically reduce corruption, increase productivity, hire based on merit and approach limits to growth from a systems perspective.
A good case study of debt being poorly used is the Nairobi City Council. It has borrowed heavily knowing full well that the taxpayer is picking the tab. Instead of using this debt wisely, the council has been milked dry by individuals hell bent on increasing their personal wealth at the expense of their country. Like many other state entities it is overflowing with idle workers and is wasteful beyond comparison. If we do not see the forest for the trees we will all be in for a very long and bumpy ride.
By John Seno
John Seno is a Kenyan entrepreneur who runs several companies including Random Group Limited and OTB Africa Limited. Seno is also a strategic adviser to Kehl Design Agency, which specializes in Branding and Web development. Read more of John’s Seno Perspective at his blog.
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