Month: January 2016

Why Kenya needs to reorient its economy

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This article first appeared in my column with the Business Daily on January 24, 2016


Kenya is an import economy and the country’s journey as an import economy has made key flaws of this economic orientation evident. One clear problem is having a chronic and substantial Current Account Deficit, secondly government has to be hawk eyed about KES depreciation to keep import bills manageable, thirdly the country is unable to generate forex to pay foreign-denominated debt and finally Kenya’s import economy exacerbates the country’s unemployment problem. How? Well as an import economy we are essentially exporting jobs by hiring people from other countries to make goods for us to purchase.

Thus there is reason for a serious conversation to be had on how to reorient the economy to be one driven by exports, and not the export of raw commodities, but manufactured goods. If Kenya becomes a net exporter of raw commodities be they agricultural commodities or fuels and metals, the country will simply fall into the resource trap in which so many African countries find themselves where they cannot and do not determine the value of the commodities they export and thus fall victim to fluctuating commodity prices. Export orientation rooted in industry and manufacturing is a means of avoiding this trap and will allow the country to have greater control of the pricing of exported goods.

(source: https://conceptdraw.com/a1704c3/p10/preview/640/pict—business—vector-stencils-library.png–diagram-flowchart-example.png)

Further, export orientation is advantageous because momentum will shift from having a CAD to a Current Account Surplus, and this would be good news for several reasons. Not only would government be comfortable with the devaluation of the KES (where the momentum is at the moment), exports generate forex that government can not only use to build up reserves but also more easily pay off foreign denominated debt without having to go through the expensive headache of selling KES.

Secondly, export orientation has, time and again, proven to be an effective means of pulling millions out of poverty. As a net exporter, a more serious dent can be made in Kenya’s unemployment problem as the country will be in a position where it is Kenyans being hired by companies locally to make goods for people in other countries. In the most simple terms, being a net goods exporter generally means you are a net job importer. This set-up is obviously a plus in not only putting Kenya’s labour market to good use, export orientation rooted in waged employment builds disposable income developing the local consumer market where more people have more money with which they can purchase more goods and services thereby fueling economic growth. Further, export orientation can be a useful risk mitigation technique as companies that export will have an easier time riding out fluctuations in the Kenyan economy and are more likely to stay in business.

(source: http://www.niras.com/~/media/images/niras-com/jobs/job-vacancies/job-vacancies-550×210.ashx)

Finally, as an export economy serving numerous external consumer markets, not only will it allow more companies to hire more people, targeting a massive external market is a much more effective strategy for generating sales and profits beyond the limited domestic market. As a result, Kenyan owners of businesses of all sizes can be in charge of profitable businesses that build their wealth and that of the country. This will also be good news for government because a larger number of profitable companies will translate into higher tax collection and revenue generation. Thus government will become more self-reliant in financing key development projects.

Clearly export orientation has its challenges; exporting comes with regulatory, commercial and financial challenges businesses would not have otherwise faced if they just focused on growing revenues in their domestic market. Further, as was seen in the 2008-09 financial crises, if external consumer markets are hit by financial troubles, it will affect exporters. However these are risks that can be mitigated. For example, government can provide more effective direction on the requirements of exports into various markets and with the private sector, help businesses to access the export finance they need to grow. Further, Kenyan companies can begin by focussing on export markets within Africa where the trend is consumer market growth.

 Anzetse Were is a development economist; anzetsew@gmail.com

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How entrepreneurship can drive structural economic change

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This article first appeared in my weekly column with the Business Daily on January 17, 2016.

Entrepreneurship is increasingly being perceived as Africa’s silver bullet to ending poverty. All you need to do is start a business, the commentary promises, and with hard work, you’ll be rich. Such simplistic thinking is intellectually lazy because in order for entrepreneurship to make serious dents in Africa’s poverty, there has to be strategic direction and oversight. Directed and deliberate action to promote entrepreneurship can drive structural economic transformation, particularly industrialisation. Industrialisation is important for several reasons such as creating jobs, building disposable income and moving towards an export-oriented focus through which forex can be accrued so that millions are dragged out of poverty. So what components need to be in place to make this work?

 (source: https://anzetsewere.files.wordpress.com/2016/01/711ab-industrial.jpg)

The first is direction from government; and here there is good news for Kenya. Late last year government developed the Industrial Transformation Programme which charts out a strategy to build manufacturing and industry in sub-sectors such as agro and fish processing, textiles and apparel and leather. It seems as though this programme will be coordinated with the Kenya Industrialisation Policy (2010) which acknowledges the need to build supporting features for industrialisation such as transport infrastructure, energy, ICT and, water and sewerage. Bear in mind that there are critics of Industrial Policy and many African governments have been advised and in some cases convinced not to pursue aggressive industrialisation policies in the name of deregulation rooted in ‘small government’. African leaders have been given numerous examples of where Industrial Policy failed such as those pursued by some Latin American countries in the 1990s and even in Africa. But the truth is that in some countries such policies have worked in areas such as East Asia and even in the very regions whose governments are anti- Industrial Policy when it comes to Africa.

Africa should stay focused and push for robust Industrial policy because as the Foreign Policy magazine aptly states, failures in Industrial Policy say more about how to do industrial policy- not whether it should be done. As a result, Foreign Policy continues, the Kenyan government and others serious about industrialisation may well have renegotiate, and re-design previous international trade commitments, and refuse to sign new ones that put them at a disadvantage. The creation and pursuit of Industrial Policy, particularly in the context of regional economic blocs can provide a foundation on which enterprises can be developed or supported to start in a manner that drives industrialisation forward.

The second element required to allow entrepreneurship to drive industrial change is strategic financing. The Industrial Transformation Programme already has provision for an Industrial Development Fund but further steps ought to be taken. Government can do what is possible with regards to financing industry-focused enterprises but the private financial sector has to play a role as well whether these are Banks, Equity Funds, Venture Capital Funds, Angel Investors or Impact Investors. Specific, targeted and coordinated financing ought to be made available to credible industry-focused businesses. Through such coordinated, sector-specific lending buttressed by proactive Industrial Policy, a gradual transformation can occur in terms of the composition of businesses that make up Kenya’s, and indeed Africa’s, economy.

(source: http://amoreec.com.sg/wp-content/uploads/2014/11/Money-Sign.png)

The final element and perhaps the most important, is robust and uncompromising anti-corruption oversight; without this the aforementioned will simply not work. If corruption sullies the strategy detailed here, businesses will be selected for financing in the spirit of cronyism and building favour banks rather than in the spirit of culling out weak enterprises such that the best rise to the top. Corruption will also make analysis impossible and analysts will be unable to determine elements of the strategy that are working and those that ought be modified or dropped altogether.

Anzetse Were is a development economist; anzetsew@gmail.com

My interview with CNBC Africa on the outlook of Kenya’s economy in 2016

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The year 2015 was marked by volatility in Kenya’s macro-economic space, especially the forex market and inflation. The year also saw various economists such as World Bank and the IMF downgrade growth forecast for the Kenyan economy. CNBC Africa caught up with Anzetse Were, a Development Economist to unpack what 2016 could have in store for the country’s economy.

http://www.cnbcafrica.com/video/?bctid=4701293093001#

How Kenya’s economy looks for 2016

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I sat down with CNBC Africa to talk about what to expect in Kenya’s economy this year.

Source: How Kenya’s economy looks for 2016

What to expect in Kenya’s economy in 2016

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This article first appeared in my weekly column with the Business Daily on January 10, 2016

The year 2015 was instructive for the Kenyan economy and government. So what is in store for the economy in 2016? There are key factors that will bolster economic growth as well as factors that may threaten growth.

Inflation

Inflation started inching upward last year and reached 8 percent in December 2015, above the 7.5 percent limit preferred by the Central Bank of Kenya (CBK). The bulk of this inflation has been import inflation associated with the KES weakening against the USD pushing up import bills. This spillover effect may continue to drive the cost of imports upward fuelling more rises in inflation. Therefore, the CBK should continue to keep an eye on inflation and take action to pull inflation below the 7.5 percent limit when needed.

(source: http://i.telegraph.co.uk/multimedia/archive/01811/inflation_1811026b.jpg)

Interest Rates

Part of the conversation that dominated conversation about the economy at the end of last year was rising interest rates. A combination of factors such as rate hikes to control KES depreciation, aggressive borrowing from government in domestic markets and high T-bill rates contributed to some banks signaling intent to raise rates. Sadly the news does not get better this year; as mentioned, inflation is at 8 percent and as this is above the preferred CBK limit, it is possible that the CBK will raise interest rates to try and manage upward pressure on inflation. Further, as the US economy continues to recover, it may lead to a further strengthening of the dollar against the KES. Thus again, as we saw last year, CBK may raise interest rates to manage KES depreciation against the dollar. In terms of any foreign borrowing in which government would want to engage this year, IMF’s Lagarde makes the point that the increase of interest rates in the USA has already contributed to higher financing costs for some borrowers, including those in emerging and developing markets. Therefore, government should be ready to borrow on more expensive terms in international markets this year. Also bear in mind that government’s management of the Eurobond has negatively impacted investor confidence in government fiscal management; this is likely to translate into more expensive borrowing terms as well.

Intensification of Political Activity

It is almost certain that electioneering will start this year with politicians beginning to build momentum for elections next year. Sadly in Kenya, intensification of political activity tends to be correlated with lower growth. Luckily this is a threat that can be managed if politicians on all sides of the political divide are responsible in comments made and avoid negative political sensationlisation of issues in their bid to garner votes.

Infrastructure

The good news for the economy is that key infrastructure projects are progressing well. In terms of transport infrastructure, the construction of the standard gauge railway in Kenya is ahead of schedule. Further there are updates and expansions in the country’s airports and ports and the tarmacking 10,000 kilometres of new road is ongoing. Secondly, important strides are being made in energy infrastructure; solar power projects will add 1 gigawatt of power to the grid, there is a 310-megawatt wind farm in Lake Turkana as well as the drilling of 20 new geothermal wells. The implications of how such investment, some of which complete this year, could fuel economic growth is apparent.

(source: https://d3n8a8pro7vhmx.cloudfront.net/windustry/pages/433/attachments/original/1437488150/ph2009112004317.jpg?1437488150)

Ease of doing business

Kenya climbed up 21 places on the World Bank’s Ease of Doing Business Index to stand at 108 in 2016. This is a positive sign to investors both local and abroad in terms of Kenya’s attractiveness as a business and investment destination. It is important that stakeholders keep the positive momentum going in order to bolster Kenya being perceived as san attractive country in which to invest.

Anzetse Were is a development economist; anzetsew@gmail.com

My Panel Feature on Citizen TV Business Segment on Kenya’s Economy in 2016

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I was a co-panelist with Dr James Mwangi CEO of Equity Bank Group, Dr Laila Macharia Vice Chair of the Kenya Private Sector Alliance and Joshua Oigara CEO of the Kenya Commercial Bank Group in a discussion on the expectations around the performance of the Kenyan Economy in 2016.

Anzetse Were named one of the best communicators of 2015

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I was named as one of the best communicators of 2015. Read the full list of those nominated here>> https://paulachar.wordpress.com/2015/12/28/best-and-worst-communicators-of-2015/

Ms. Anzetse Were- Great Delivery (Mastery of Content and Language)

Anzetse

Anzetse is a Development Economist and also the author of “Drivers of Violence: Male Disempowerment in the African Context”. She has been able to masterfully combine her work in gender programming and her economic consulting with a great ability to communicate.

Her ability to mainstream her economic analysis to diverse audiences and  to articulately frame her positions while deploying supporting evidence made her one of the most recognisable economists on current affairs programmes.In her economic analyses and dispositions she came across as personable and objective using each speaking opportunity or media appearance as a moment to instigate debate.

On matters of gender programming and rights advocacy her Direct Communication Style can be termed as Hard-hitting yet bearing compassion and is non condescending. Anzetse is an articulate analyst who has certainly helped to bring back proper diction on Television debates.