Economics is a terribly boring and yet it is terribly important.
Especially at a time like this in Kenya. For all intents and purposes this should be a pure economics post. But don’t worry I will not bore you today with macro-economic policy blah blah and stuff like that. Rather I will tell you some nice stories that will help you understand the mechanics of what is happening.
Why should you care about what is happening? Because whether you like it or not you are going to get hit in a very major way by what is unfolding currently. When the exchange rate to a dollar hits the three digit figure of Kshs 100 EVERYTING YOU HAVE TO PAY FOR will increase dramatically in price. Because EVEN if it is manufactured locally there is some imported content in it. Even agricultural produce is transported from the farm using petroleum products which are imported. Let us not even discuss oil prices in this post because if we do you will probably just lie down and wait to die quickly.
There was this man who had very high costs. He made them higher himself by taking a second wife. Each wife had children in school and so you can imagine what kind of costs we are talking about here. At first it was not a problem because he was dealing in drugs. But one terrible day the police moved in and shut down his cartel. He was lucky not to end up in prison. He had taken the right precautions and there was no evidence to link him to the vice. But he often wondered whether it may have been a better thing to end up in prison where he did not have to worry about how to put food on the table for his enormous family.
That man is Kenya with the big fat grand colallition government. It is now clear that drug money has been playing a much more major role in propping up the Kenyan economy than anybody will dare admit. Even the unprecedented political crisis of January 2008 did not put a dent on the shilling but the naming of drug king pins by President Obama has had a devastating effect on the Kenyan economy. Actually it has among other scary things put the Kenya shilling on a free fall where most analysts believe that we shall see a Kshs 100 US dollar by the end of this month or soon after.
What has happened at the treasury is that all of a sudden foreign currency has become very important and there are those analysts and experts who are suspecting that the government has accordingly changed it’s policy from that of keeping a strong shilling to one of attracting as much forex as possible at all costs. So in effect the government has decided not to fight the war they know they will lose anyway of trying to prop up the shilling. For those who have never understood; how is the shilling propped up? Imagine a situation where there is a scarcity of sukuma wiki (Kales) at the nearest fresh vegetable market to where you live. What will happen? Prices will shoot up dramatically. However they will come down very suddenly if a lorry or two suddenly arrives at the market loaded with sukuma wiki. Prices will fall like a stone back to normal or even below normal. That is exactly what the government does as part of it’s fiscal policy when forex gets scarce due to various factors, it brings “lorry loads of foreign exchange” to the marketplace which has the effect of keeping the shilling strong. Clearly the situation now is that somebody has realized that even if they bring 10 lorries of sukuma wiki to the market the prices will not go down because the demand for the vegetables from the hungry vilagers is much higher than 20 lorries. let alone 10 lorries. So in this case people will buy the lorry loads of sukuma wiki at high prices and some will not get any ad rpices will continue to climb. This is the situation the fiscal planners of Kenyan economy suddenly find themselves in.
In one sentence the word on the economics streets of Nairobi is that old man Kenya is completely flat broke and very desperate. What do you do when you are broke? You borrow. But what if you snubbed the people you usually borrow from over the last few years? Kibakinomics has involved snubbing old friends like Britain and United States for new kids on the bloc like Libya, China and the Arab world. Now Gadaffi of Libya is pretty much gone, the Arab world has their own very serious political problems just now mainly caused by Facebook that need plenty of cash to keep under control. China is busy and excited doing deals in the western world and has in recent times dramatically reduced engagement in Africa which is not a priority at the moment. Kenya’s old friends may be willing to help but they are waiting with their long list of demands before they can do anything. And besides Mwai Kibaki’s pride will not allow him to grovel at the feet of anybody and beg while asking to be forgiven for straying.
So where does that leave us?
You don’t want to know...
Because everything is pointing towards unprecedented economic crisis. A depression of the magnitude that has never before been witnessed in these shores. Prepare for scenes from the Great depression in America being played out on Nairobi streets. In the days of the great depression New York city was filled with very smartly dressed men in designer suits who were hungry because they suddenly couldn’t afford a meal. Many others (also in their smart suits) were jumping off high buildings to their death below. Our old friend Mwarangethe was right after all only that even he downplayed the catastrophe that is about to unfold.
What should you do?
Rush to your bank now and open a Euros or US dollar account and if you receive money from anywhere in the world in these currencies keep it there. Even if it means borrowing Kenya shillings to keep things going.
If you have never been interested in farming in your life you had better start getting very interested pronto. At least grow your own food if you feel that it is below you to grow and sell farm produce (a business that is guaranteed to be extremely profitable in the months to come).
But even if money is the least of your worries, don’t think this thing won’t touch you. Just think about it. All those guys who were relying on the drug trade to put food on the table, what will they do now? What about all those folks who are losing their good jobs everyday as the economic crunch continues to bite? Even if just 10% of them go into violent crime we all have too many reasons to be very very worried.
Will the last person leaving the crumbling house please remember to switch off the lights.
Moinomics, Biwottnomics and what Goldenberg really did to you explained in simple standard two English
Most recent post by Chris Kumekucha (a few hours ago).