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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