Key Problems In The Kenyan Economy And Why The Economic Boom Is A Myth Or Joke in Poor Taste

i) A quick survey by this blog shows that most Kenyans are now much worse off than they were during the Kanu regime’s last days in 2002 (when we all thought we had hit rock bottom. Little did we know that we hadn’t seen anything yet). The booming economy must be very selective. We know that it takes time for the effects to trickle down to the wananchi but just visit neighboring Tanzania and you can immediately “feel” the difference in the economy. It is not an accident that hundreds of businesses have relocated from Kenya to Tanzania in the last three years or so, some shutting down their Kenyan operations for good.

ii) It is crystal clear that despite what they say, the government has no clear policy, let alone priorities for the Kenyan economy. They may think that they have a good excuse in the fact that they have been busy putting out (political) fires. However it is clear to most Kenyans that the campaign promise to create 500,000 new jobs a year has actually ended up in a situation where 500,000 old jobs are being lost every year. The main reason is that the Kibaki administration just doesn’t know what they are doing as far as the economy is concerned. One example of this is the strong Kenyan shilling, which has been responsible for the loss of thousands of jobs in the horticulture industry.

This is a clear example of how terribly wrong things can go when you practice text-book economics without wide consultations on the ground. This is sometimes the problem when a person feels that they know something too well. President Kibaki was the finance minister in the peak-performance years of the Kenyan economy in the 70s. Why consult when you already have the right prescription in your hands. The only problem is that a lot has changed since the 70s.

There is no denying that the original idea was noble enough. Reduce interest rates, and borrowing will increase which will spur economic growth. Strengthen the Kenyan shilling to help cement this situation and also to make imports cheaper and thus kick-start the economy. (don’t believe for a moment that the Central Bank is not manipulating the so-called strength of the Kenyan shilling. Amazingly the shilling has even ignored significant political developments in the country – clear evidence of manipulation).

But there are a few problems here.

a) The government failed to analyze the impact of this policy before implementation. A bird in hand is better than two in the bush. Policies should at least maintain gains made in the past even as new policies and directions are pursued, otherwise it is easy to end up much worse than before. The key export sector has suffered massive revenue loss and job losses thanks to this policy which has benefited very few because even industries with a large percentage of imported inputs are yet to pass the benefits of a cheaper dollar to their clients. They are unlikely to ever do this
b) A large percentage of Kenyans have always felt intimidated by banks and prefer to borrow from Saccos (Savings and credit societies). So this policy has benefited a tiny handful of rich industrialists who have continued to cut costs by using the borrowed funds to mechanize and automate their operations so as to cut down on their staff numbers. In other words the government has made it easier for industries to reduce their work force.

iii) There are a number of key indicators that usually support an improved and rapidly growing economy. In Kenya they are missing.