Understanding Kamlesh Patni’s Goldenberg Scandal

Goldenberg And Kamlesh Patni’s Idea That Solved A Short-term Problem…

…But Created Another That Our Great Grand Children Will Still Be Grappling With decades from now

In the early hours of this morning I switched on my TV to the Trinity Broadcasting Network (TBN) channel, only to be greeted by a site that brought tears to my eyes.

American inspirational preacher Bishop T.D. Jakes was distributing food to Kenyans desperately scrambling for it. The people whose hands were reaching out in pleas for the Bishop’s handouts were not children but older, once respectable mostly middle aged Kenyans who have now obviously reached the end of themselves.

The Bishop’s words to the sponsors of his ministry in the United States made my tears flow faster. He said, "All these people need is a chance…"

I quickly switched off the TV and sat down to write my blog entry for today, determined to tell the story of how exactly those poor Kenyans screaming and begging for handouts ended up where they are today. It can all be traced back to mega-scandals like Anglo Leasing and Goldenberg.

During The John Githongo BBC interview, he was asked a question that is difficult to answer in one brief comment. The question was, "what is the impact of corruption on the ordinary Kenyan?"

I appreciate that not all readers of this blog are Economics majors from some university so I will tell you a story to illustrate exactly what happened to those poor Kenyans and many like them all over the country. Heck, even to you and me.

Once upon a time there was a peaceful village where every villager had a fighting chance. All they did at this village was rear goats, thousands of them. They ate the meat and drank the milk from goats. Goats were so important that they were the currency or legal tender for trading at this village.

One day the wise old chief of the village died and after they buried him under the mango tree (as he had requested), a new leader took over the reigns of power at this goat village. Somebody advised the new village chief that he would grow popular with the people by abolishing taxes. He was advised go into business for himself using all the vast resources already at his disposal. Since nobody knew any other business at this village, he naturally opted to go into the business of rearing goats.

Within no time, the king had a much larger herd of goats than all the villagers put together. In other words, the number of goats at this village had increased by more than 100 per cent virtually overnight. And surely this was a good thing because there was more wealth at the village and besides villagers no longer needed to pay any taxes to the chief.

However soon the villagers realized that they were facing a serious crisis. The goats were the only currency used at this village. People exchanged goat milk for small items and if they wanted to make a big purchase like buying land, they exchanged several goats for it.

Because there were suddenly too many goats in the village without an increase in other resources, the value of this goat currency fell dramatically. Land that people would often ask 10 goats for, they now asked for 30 or 35 goats. And they still ended up getting a buyer. Usually it was the chief himself who now actively purchased vast tracts of land to graze his rapidly growing goat population, or sometimes it was a member of his family.

So, guess what happened? Prices were raised even higher to 65 to 70 goats for land that was purchased the previous day for only 35 goats. Actually prices were now climbing at an uncontrollable rate. The villagers were simple people and they never really understood what hit them but they noted that their wealth was wiped out overnight, even as their leader and his immediate family got wealthier by the day and ended up owning vast tracks of land.

They had wildly cheered the new chief when he had announced the abolition of taxes. But then shortly after that, everything had suddenly started getting too expensive. Now they longed for the village to go back to the good old days when they paid taxes but were prosperous.

The sad ending to this tale is that the once prosperous villagers all ended up with no goats and were forced to go to work on their chief’s vast tracks of land in exchange for food.

The evil chief had no problem with the new state of affairs. He was now the richest chief ever and his subjects were so poor that all of them virtually worked for him. His political advisors were delighted. It meant that it was unlikely that anybody would oppose him.

Inflation is a complex subject, but this is a simple illustration that illustrates it. Some economists call it the situation where too much money is chasing too few goods. It is important to understand inflation so as to fully grasp and understand the impact of Goldenberg, Anglo leasing and all the other scandals that have conspired to bring ordinary Kenyans down to their knees. Government promoted economic crimes that have turned a once prosperous people into beggars fit only to labor for food on land they no longer own, even as their leaders and his close associates get richer by the day.

Kamlesh Patni’s Business Idea

Those who have been following the Goldenberg saga closely will not have missed Kamlesh Patni’s arrogance. The chief architect of the Goldenberg scandal seems to believe that he is innocent and that he in fact did the country a great favor.

There are those who would agree with him although this blogger is not one of them. Still it is important to understand why Patni believes what he believes.

The World Bank’s decision to cut off Aid to Kenya in the late 80s was just one of the reasons that caused a serious foreign exchange crunch at Treasury. The other reasons were a serious decline of the coffee industry that was politically motivated to neutralize and reduce the financial power of the politically aware Kikuyu tribe. Especially those who had been close to the previous Kenyatta regime and whose stolen wealth was mostly invested in huge coffee plantations purchased from white settlers. Tourism had also slowed down due to increased international competition as previously Eastern European countries started to open up. Actually a combination of many factors almost brought down the Moi government financially.


Kamlesh Pattni: A business idea that cost many Kenyan lives

Kamlesh Pattni was then nothing more than an ambitious young entrepreneur who dared to dream big. One day Patni got what he saw as a brilliant idea to deal with the foreign exchange problem. Why not go into the business of supplying foreign currency to the government? In dealing with precious stones finding their way into the country from places like the Democratic Republic of Congo, Patni had been amazed at the sums of US dollars available in the local black market. He knew that there were enough dollars already in the country to ease the foreign exchange crisis at the treasury.

Using his contacts, his idea soon reached the corridors of power and just in time for a government now desperate for foreign currency.

The idea was simple, Patni would buy the foreign exchange in the local black market and supply it to the government at a handsome profit. The government would have its’ badly needed foreign exchange and Patni would have his billions. The wananchi would not suffer the consequences of no foreign exchange, which would have been very grave indeed. Like not having paraffin to put in their stoves for cooking or petrol to run the matatus that got them to work. So everybody would be happy.

There was just one little problem. The rate of exchange in the black market was much higher than the official rate in true black market tradition. To solve that problem, the now infamous export compensation scheme was used. In this scheme the government paid out a certain percentage to exporters (in local currency) as an incentive to continue exporting more and thus earning Kenya valuable foreign currency.

We now know that Goldenberg was used to raise funds for the first multi-party elections President Moi’s Kanu faced in 1992. It is said that during those memorable elections money was being distributed in cartons from a building near the University of Nairobi. So rather than the guy calling the shots saying, give so and so so much money, instead they would say give this person 10 cartons, give that other guy 100 cartons. It is said that these cartons of cash were stacked high to the roof and filled a huge un-partitioned office space. All the money was in crisp newly printed 500 notes that came to be aptly known as Patnis’.

The inflationary consequences and magnitude of this stunt and the Goldenberg scum were colossal (please refer to the story on the goat village). Some experts believe that the damage will never really be repaired.

Now you can understand the need to use the term ‘economic crimes’ and ‘economic sabotage’ when describing the Goldenberg and Angle leasing scandals. But then you also need to understand that Goldenberg-like and Anglo-leasing like scandals started at independence. Only that in those days, you would lose your life, if you dared try to expose them. Many brave, patriotic Kenyans including one famous one called JM Kariuki ended up dead in places like Ngong Forest with dismembered genitals.

As terrible as that was, it comes nowhere near the suffering ordinary Kenyans have gone through since independence, all because of corruption in high places.

So what is the effect of corruption on ordinary Kenyans?

Answer; Too tragic to explain in words. Hopelessness, lost opportunities and a situation where working hard and honestly no longer pays. Little wonder that so many youngsters in Kenya today have now opted for a life in serious violent crime. Corruption results in deaths and irreversible damage and suffering to the lives of millions of citizens. It is a great injustice that those who kill one person are hanged and yet those who kill millions by practicing corruption continue to enjoy life and hire expensive lawyers every time their names are mentioned adversely.

Corruption in Kenya has been a great injustice to the ordinary person who wants nothing more than a chance. A chance to fend for themselves and fight for a better tomorrow.

What is the secret that Moi can kill for?