Despite possessing massive potential in natural resources, individual states within East Africa remain too small, and too fragmented, to fully utilise these resources in the global arena, without being exploited by larger and more developed economies. The hope of citizens as such lies in an East African Federation and, further down the line, a fully-integrated African state.
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]]>Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Despite possessing massive potential in natural resources, individual states within East Africa remain too small, and too fragmented, to fully utilise these resources in the global arena, without being exploited by larger and more developed economies. The hope of citizens as such lies in an East African Federation and, further down the line, a fully-integrated African state.
Despite possessing massive potential in natural resources, individual states within East Africa remain too small, and too fragmented, to fully utilise these resources in the global arena, without being exploited by larger and more developed economies. The hope of citizens as such lies in an East African Federation and, further down the line, a fully-integrated African state.
The scramble for East Africa is on. According to a US geological survey the region is sitting on 9 trillion dollars worth of oil and gas. Whether this figure also includes the potentially resource rich horn of Africa – Somalia & Ethiopia – is not stated clearly, but East Africa certainly has caught the world’s attention and every major global player now wants a piece of the action. Consequently, we, as citizens of East Africa, are faced with critical policy choices, which will make or break us.
For the better part of the period after independence, East Africa has operated as small, “independent”, balkanized states that have been inward, rather than outward, looking. Only a tiny fraction of the populace realized how detrimental this mode of operation was for the region as a whole.
Related: Are Bad Habits Stifling Africa’s Economic Potential?
Related: Africa’s Oil Bill Outstrips Overseas Aid
In a globalized economy, huge economic blocs are better placed to productively participate in economic activity that improves the living standards of their citizens. As small balkanized states, a self-imposed ceiling ensures a vicious scramble amongst the moneyed elite for a piece of a very small cake. In this scenario, social mobility is next to impossible as the poor fall victim to a system that does not creates decent jobs – and in effect only rotates the meagre resources available to those who already have.
A tiny balkanized country of 40 million people like Kenya simply cannot compete on any level with a relatively socially-cohesive country of 300 million people like the U.S.. So broadly speaking, our hopes and dreams of a better future for our children lies in an East African Federation and, further down the line, a fully-integrated African state.
The magic bullet for economic development is in creating economies of scale. Mass production and mass consumption are the drivers of economic growth. No state within East Africa and arguably in the horn of Africa has the numbers to go it alone. In fact across the whole of Africa, only Nigeria can boast of the kind of numbers needed to grow and sustain economic activity on a large scale – and even Nigeria is dwarfed by the larger emerging economies like China, India and Russia.
[quote]So as suspicious as we are of each other, the fact is that Africans can only rise together. It is important to note that it is in the interest of the West and Asia for us to remain divided because they will retain a massive bargaining power over us. Africa is resource rich and if we worked together, we could form a price fixing cartel like OPEC for all our resources, in the process extracting a bigger portion of value from the global economic system.[/quote]Related: Africa Rising: Can “The Dark Continent” Outshine Its Former Colonial Masters?
Related: Can Africa Break Its Resource Curse?: Joseph Stiglitz
Related: Will Africa’s Wet Dreams Turn Into A Nightmare?
With bigger markets, harmonized laws and tax regimes our businesses will no longer have to participate in a race-to-the-bottom by engaging in mafia style territorial business where the winner takes all. A larger base of consumers will also be able to support all kinds of industries and ventures.
I also see the role of African banks as development institutions. Speculation and risk averse loan provisions will not create jobs worth speaking of, so our banks have to be incentivized to make more loans to the productive sectors of our society, while government can help facilitate this by offering guarantees. But banks must also act responsibly and carry out due diligence while also deepening it’s efforts to provide technical as well as financial support to the economy. The only reason for banks to exist is to facilitate economic growth.
[quote]We are sitting on a massive opportunity, the possibility of pulling millions of Africans out of poverty but the work starts with changing our perspective of who we are and our place in the world.[/quote]By John Seno
John Seno is a Kenyan businessman 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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The post The Great East African Dream: Economic Integration For A Better Future appeared first on Economy Watch.
]]>Ever since the start of their post-colonial era, problems such as corruption, poor governance, ethnic divisions and poor infrastructure have continued to haunt several African economies in their quest for sustained economic growth. Can these issues be overcome and will Africa live up to its promise?
The post Are Bad Habits Stifling Africa’s Economic Potential? appeared first on Economy Watch.
]]>Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Ever since the start of their post-colonial era, problems such as corruption, poor governance, ethnic divisions and poor infrastructure have continued to haunt several African economies in their quest for sustained economic growth. Can these issues be overcome and will Africa live up to its promise?
Ever since the start of their post-colonial era, problems such as corruption, poor governance, ethnic divisions and poor infrastructure have continued to haunt several African economies in their quest for sustained economic growth. Can these issues be overcome and will Africa live up to its promise?
I was recently in Tanzania and it was interesting to observe the similarity in the living standards of the Tanzanian majority and the Kenyan majority. While Tanzania practiced socialism for a long time under its founding president, the late Julius Nyerere, Kenya, on the other hand, had always been a moderately free market economy with private property rights and a fair bit of competition.
But In the 1980s and 1990s, both countries also opened up their economies through privatization of state corporations, liberalization of markets and deregulation. Despite this however, both nations experienced mixed results that really haven’t pulled the masses out of poverty.
Often, gains made through economic liberalization are severely hampered by political allocation of resources. When politics becomes the main criteria for allocating resources, the incentives under which free markets work are changed substantially – to the extent that market equilibrium is no longer achievable. Under these conditions, markets are characterized by low productivity, corruption, nepotism, trade imbalances, monetary instability and a host of other systemic problems that limit economic growth.
Further worsening the situation is a political culture based on negative ethnicity, idolization (personality cults), favour seeking, weak legislation and ignorance. This feeds a vicious cycle that perpetuates legacy issues inherited from successive regimes.
[quote]Although Afro-optimists often paint a very rosy picture of Africa’s future, they do not appreciate the delicate nature of our loosely integrated nations. The reality is that economic growth today can quickly be erased by an election gone bad tomorrow. We have numerous illustrations across the continent of nations with massive potential that have been dragged into the abyss overnight. [/quote]Additionally, Africa also habitually clings on to ideologies of the past. For instance, African leaders, tired of working under the Western microscope of good governance, are now fashionably looking east to China for development partners. During the cold war era, Africa, like other developing regions, was conveniently provided with development assistance by the West without much emphasis on good governance; and so it’s fair to say that we are still suffering from a ‘Cold War Hangover’. We want assistance but without the accountability.
Related: Africa Economy: Solid Growth, Investment, and Trade, but at a Cost
Our resource wealth has also gone a long way towards blinding us. Although Africa has traditionally been a major supplier of raw material, we forget that the only way to truly benefit from our resources is to reduce exports of unprocessed raw material and instead increase exports of finished products. Our focus has to be value addition.
To date politicians and politically connected individuals skim revenues generated from the sale of our resources. This habit wouldn’t be so damaging if the diverted revenue was reinvested in our economies but that does not happen. The proceeds are swiftly transferred abroad further depleting the continents wealth.
We can stop this counterproductive behaviour by paying civil servants and bureaucrats well. We lose more money to corruption than we save from underpaying civil servants. The only way to fight corruption is to reduce its incentives. Civil servants are the administrators of public finance, if they are well compensated more of them will diligently protect the public’s interests.
[quote]The popular notion is that public service is some kind of higher calling that justifies low pay but the truth is humans are very sensitive to value and incentives. If we feel we are bringing more value to the table than we are receiving, we will readdress the imbalance through any means necessary.[/quote]Related: Can Africa Break Its Resource Curse?: Joseph Stiglitz
Related: Will Africa’s Wet Dreams Turn Into A Nightmare?
In order for us to overcome all these socio-economic challenges, we must replace our myopic view based on our ethnic identities too – with a new identity based on our humanity. As idealistic and rosy as it sounds, we have to create a socially cohesive, multi-racial society that rewards effort, initiative and courage. It is disheartening to note white Kenyans and Asian Kenyans are not adequately represented in parliament or government. It is only through social integration that the foundation of trust (upon which economic activity is based) emerges. With a firm foundation of trust all other challenges become less daunting.
Beyond social cohesion issues, infrastructure is another critical area that has to be managed well. We say time is money and the characteristic of poor infrastructure is endless delays that slow the whole economy. Poor infrastructure lowers productivity, increases waste, increases production costs, increases transaction costs, prohibits trade, reduces population mobility, slows supply chains and increases the counter-party risk of our landlocked neighbours like Uganda.
Africa’s development is pegged on inheriting manufacturing jobs from Asia. China is projected to shed 85 million manufacturing jobs in the next decade, for us to inherit these jobs we must invest heavily in world class infrastructure, namely roads, ports, energy, mass public transit systems, rail, pipelines and more. It is worth noting that no region in the world has managed to lift its people out of poverty without some form of industrialization; so while it is nice to talk up knowledge-based industries like IT, we must appreciate that currently the masses can only be absorbed into labour intensive industries like manufacturing and large scale agriculture. Only through time, as automation takes over and further improvements in education, will we enhance the productive capabilities of our population and transform us into a knowledge-based societies.
Related: Africa Rising: Can “The Dark Continent” Outshine Its Former Colonial Masters?
Related: The Future of Renewable Energy in Africa: Promising or Precarious?
Overall I’d say there are a lot of positives, more positives than negatives. As long as we remain aware of the obstacles we must overcome and implement good strategies & sound policies the future is bright.
By John Seno
John Seno is a Kenyan businessman who run 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.
Got something to say about the economy? We want to hear from you. Submit your article contributions and participate in the world’s largest independent online economics community today!
The post Are Bad Habits Stifling Africa’s Economic Potential? appeared first on Economy Watch.
]]>READER SUBMISSION –By 2030, Kenya, East Africa’s largest economy, hopes to become a “middle-income country providing a high quality life to all its citizens”. Yet while the government’s Vision 2030 plan is strong in ideology and rhetoric, it neglects to compensate for the true problem in the country: human failures such as endemic corruption, poor governance, and low productivity.
The post Kenya’s Slow & Painful Path To Vision 2030: A Result Of Human Failure? appeared first on Economy Watch.
]]>Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
READER SUBMISSION –By 2030, Kenya, East Africa’s largest economy, hopes to become a “middle-income country providing a high quality life to all its citizens”. Yet while the government’s Vision 2030 plan is strong in ideology and rhetoric, it neglects to compensate for the true problem in the country: human failures such as endemic corruption, poor governance, and low productivity.
READER SUBMISSION –By 2030, Kenya, East Africa’s largest economy, hopes to become a “middle-income country providing a high quality life to all its citizens”. Yet while the government’s Vision 2030 plan is strong in ideology and rhetoric, it neglects to compensate for the true problem in the country: human failures such as endemic corruption, poor governance, and low productivity.
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
Related: Kenya Economic Statistics and Indicators
[quote]Any Kenyan adult knows we are still stuck in a state of endemic corruption, poor governance, low productivity, ethnic division, male chauvinism and a host of other negative factors that have developed a life of their own. Governments around the world argue over ideology, austerity vs. growth, while giving little attention to the actual problem that is a human failure.[/quote]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.
Related: Africa Rising: Can “The Dark Continent” Outshine Its Former Colonial Masters?
Related: Can Africa Break Its Resource Curse?: Joseph Stiglitz
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.
Got something to say about the economy? We want to hear from you. Submit your article contributions and participate in the world’s largest independent online economics community today!
The post Kenya’s Slow & Painful Path To Vision 2030: A Result Of Human Failure? appeared first on Economy Watch.
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