Month: November 2016

Key themes for Kenya in 2016

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This article first appeared in my column with the Business Daily on November 27, 2016

The year is coming to an end; what have been the key economic themes that defined 2016?

The first, and most obvious was heightened political tension going into an election year. Once the budget was read mid-year, election mode kicked in fully. Sadly this means the economic realities linked to an election year started early. Elections in Kenya tend to be associated with two phenomena: instability and dampened economic growth. Politically charged rallies, demonstrations and related civil instability occurred over the course of the year, all of which negatively informed economic growth. The fact that economic performance still seems tethered to election is a reflection of the immaturity of socio-political and economic institutions in the country.

The main means through which this can be addressed is for major politicians to refrain from tribally oriented, inflammatory and irresponsible comments across the political and related tribal divide. Further, political parties should be aligned to ideology not tribe so that analysts can anticipate what type of administration the winning party would likely espouse. Sadly, this year made it clear that the tribal formula still reigns supreme with regards to political alignment and related electioneering.

Image result for elections

(source: http://rewire.news/wp-content/uploads/2013/08/election-ahead-sign-375×250.jpg)

Secondly, financial mismanagement was a central theme. Over the course of the year and stemming from last year, numerous, large scale cases of allegations of grand corruption in government have been highlighted in the media; and opposition has made it clear that at national level, accusing the national government of corruption will be a major election platform. However, bear in mind financial mismanagement is at both national and county level. Indeed, my experience indicates that there is gross mismanagement of funds at county level headed by individuals aligned to the ruling party as well as opposition.

However, the attention of Kenyans is fixated on national government, and although this is warranted, county governments deserve such scrutiny as well especially because there is no real pressure on the latter to be financially accountable. This is due to a number of factors; firstly the theme has been to ‘go gently’ on county governments and give them the benefit of the doubt so that devolution can take root in the country. Secondly, there are serious capacity constraints with regards to financial expertise at county level which makes embezzlement easier and tracking of financial performance more difficult. The final factor behind the lack of robust monitoring on county spending is linked to the fact that national government is not willing to highlight corruption at county level not only because it will turn attention to an issue that has bedevilled them, but also because they do not want to be seen to be speaking in a manner that can be interpreted as attempting to stifle devolution.

As we go into December and an election year, corruption is likely to gain more attention. Kenyans can expect to hear pledges at both national and county level from aspirants sharing plans on how they can finally kill the beast called corruption. Kenyans should not be distracted by such antics but rather work with local and international partners to create and strengthen institutions that monitor spending.

Image result for corruption Kenya

(source: http://www.monitor.co.ke/wp-content/uploads/2015/03/stock-footage-a-sign-at-the-university-of-nairobi-in-kenya-proclaims-a-corruption-free-zone.jpg)

Finally, a key theme of the year has been the disconnect between GDP growth figures and the lived reality for Kenyans. Major factories have shut down, thousands of jobs have been lost in key sectors and Kenyans feel as though they are not reaping the fruits of economic growth. As I have stated previously this seems largely linked to the neglect of the informal economy and related micro and small enterprise where most Kenyans earn a living; this must change.

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

What is really going on with the Kenyan Economy? TV Interviews

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On November 13, 2016 I spoke on a panel on KTN on the disparity between Kenya’s GDP growth statistics and the lived economic reality of Kenyans.

On November 9, 2016 I was part of a two person panel on K24 discussing the state of the Kenyan economy.

Factors affecting the Kenyan economy

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This article first appeared in my weekly column in the Business Daily on November 20, 2016

I have been getting several questions pertaining to what is ‘really’ happening in the Kenyan economy. Many Kenyans see incongruence between economic growth statistics and their own lived experience. According to the World Bank the economy is expected to grow by 5.9 percent in 2016; the Kenya National Bureau of Statistics reported that Kenya’s economy expanded by 6.2 percent in Q2 2016.  However, several companies have closed down operations in the country and thousands of jobs have been lost this year alone. There are numerous variables that may be informing why Kenyans do not seem to be feeling the positive effects of economic growth.

The first is that GDP growth and Ease of Doing Business data do not capture the reality of the growth and Ease of Doing Business in the informal economy where over 80 percent of employed Kenyans earn a living. Therefore, one cannot extrapolate positive overall statistics as reflective of performance of the informal economy. To what extent does Ease of Doing Business research reflect improvements in the business environment for informal businesses? Parameters such as increased ease with regards to tax compliance and business registration inform Ease of Doing Business performance, yet these are parameters with which informal businesses largely do not intersect. Thus, perhaps the incongruence stems from the fact that the economy from which millions earn a living is largely ignored by official data gathering and analytical efforts.

Image result for business kenya

(source: http://www.standardmedia.co.ke/business)

With regards to companies closing and job loss, several factors at play; I will focus on manufacturing and the banking sector. Manufacturing in this country is under threat because the cost of doing business for manufacturers in Kenya remains high particularly with regards to electricity, transport, cross-county taxes and, frankly, corruption. Additionally, the country has allowed the entry of cheap goods, particularly from Asia, to flood the market; goods that benefit from protection and subsidies in their home economies which is not reflected here. The combination of these factors is making Kenya an increasingly uncompetitive location for manufacturing which is diametrically opposed to the Government’s industrialisation agenda. With regards to the banking sector, job shedding seems to be informed by automation and the interest rate cap. Mobile and e-banking means that many customers do not need direct human contact to effect the transactions they require. The interest rate cap has removed a key risk management tool that banks used to manage information asymmetry with regards to credit worthiness. As a result, banks seem to have limited space to make numerous loans as the risk buffer is no longer present. Fewer loans means fewer staff are needed to monitor loan compliance.

Image result for manufacturing kenya

(source: http://www.theeastafrican.co.ke/image/view/-/1428984/medRes/371054/-/maxw/600/-/lpr3kh/-/manu.jpg)

Kenyans are also concerned that economic growth is not associated with job creation; the country seems to be stuck in the ‘jobless growth’ rut. Again, this is informed by several factors. Firstly, Kenya’s economic growth is services driven, and services produces far less jobs than manufacturing for example. The main services sub-sectors that are labour intense are health, education and hospitality; sub sectors such as telecoms and financial services need far less labour. It is no secret that tourism in the country has been hit leading to job losses; and even when there is marginal recovery, a limited number of jobs are created and those are seasonal. Until the manufacturing sector is given the attention it requires such that economy is driven by export-led manufacturing, the ‘jobless growth’ challenge will continue. Finally, the education system in the country is doing a gross disservice to the youth by making millions of young people essentially unemployable. 62 percent of Kenyan youth aged 15-34 years have below secondary level education. Further, Kenya is characterised by a persistent mismatch of skills between what is taught and the skill requirements of the labour market. Thus most youth are poorly educated and those who are well educated are not trained in skills the labour market seeks.

Finally, financial mismanagement at both national and county levels is compromising growth. It seems that government funds that are meant to be economically productive and generate economic activity do not reach intended projects. As long as this continues to occur, jobs and growth that could have been created by government investment and financing will not materialise.

All these factors inform the disconnect between rosy economic statistics and the reality Kenyans feel on the ground; and these will persist if there is no change in financial management and economic development strategy going forward.

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

What Trump means for Africa

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This article first appeared in my weekly column with the Business Daily on November 13, 2016


The United States shocked the world (and themselves) by electing Donald Trump as the next President of the country. While the USA tries to unpack what this means for them as a country, Africa should ask similar questions as well. Trump barely mentioned the continent during his campaigning and the little that was said was disparaging. For example he tweeted ‘Every penny of the USD 7 billion going to Africa as per Obama will be stolen – corruption is rampant!’. Clearly he seems to have a pessimistic view of the continent, so what would a Trump Presidency mean for Africa?

https://static01.nyt.com/images/2016/01/28/world/28trumpbelgium-web2/28trumpbelgium-web2-facebookJumbo.jpg

(source: https://static01.nyt.com/images/2016/01/28/world/28trumpbelgium-web2/28trumpbelgium-web2-facebookJumbo.jpg)

The first is insularity. The USA is number one for Trump and his focus will be targeted on his own country and fixing domestic problems. There may be a contraction of the presence of the USA as an aggressive global player in the current international order. For example, Trump stated that North Korea should be China’s problem to solve, not USA’s. And Trump has openly rejected the notion that the USA should be the world’s policeman. What this means for Africa is that we can expect the USA to be far less involved in African affairs than Obama has been.

For example, analysts make the point that the Obama administration has overseen an expansion of American military might in Africa. An investigation found that the United States maintains at least 60 bases or military outposts throughout Africa. Will Trump find it necessary to maintain such a heavy and expensive military presence on the continent? I would anticipate continued presence in areas in Africa that are hotspots of Islamist terrorism such as Al-Shabaab in Somalia and Kenya given how important defeating such entities such as ISIS are to him. However, there may very well be a reconfiguration and roll back of military on the continent in other areas so that the money can be channelled elsewhere. Thus on one hand Trump may support extreme militarized responses to potential terror threats in pockets of Africa, but a withdrawal in less tense areas.

Secondly, Trump seems to be of the view that Africa is corrupt and that money that currently goes to Africa would be better spent on the USA’s own pressing needs. Perhaps Africa should expect reductions in funding to entities such as USAID and even the removal of programmes such as President’s Emergency Plan For AIDS Relief (PEPFAR) may be on the table. Further, given Trump’s position on climate change, the USD 34 million programme Obama announced to help developing countries strengthen their climate resilience may be scrapped.

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(source: http://www.animaatjes.nl/plaatjes/a/afrika/animaatjes-afrika-96997.jpg)

Finally, one of the points Trump has made clear is his intention to renegotiate trade agreements for the benefit of the USA. He is of the view that current trade regimes are costing the USA jobs and income. Although his statement have been mainly targeted at countries such as China, Africa should not assume the continent will not be affected. As Quartz Africa points out, the African Growth and Opportunity Act (AGOA) which gives African exports to the US preferential treatment, expires in 2025. Trump’s administration will need to begin negotiating its renewal soon after he takes office. I think Africa should prepare itself for, at a minimum, much harder negotiations with the Trump administration than was the case under Obama.

In short, Africa should be aware of the fact that Africa has been not a priority for Trump thus far, and although his administration will have to address the continent, the generosity Africa benefited from under Obama will likely end under Trump. Further, Trump’s election as President has deeply divided the USA and he will need to expend effort addressing this divide, leaving him far less time to think about Africa.

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

The Social Market Economy and Africa

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This article first appeared in my weekly column with the Business Daily on November 6, 2016


The social market economy is an economic system based on a free market operated in conjunction with state provision for those unable to sell their labour, such as people who are elderly, incapacitated or unemployed. The concept was originally promoted and implemented in Germany in 1949 designed to be a third way between laissez-faire economic liberalism and socialist economics. The foundation of the social market economy is a free market with the provision of a social safety net. Often the social element is conflated with socialism but as analysts point out, social market economics rejects the socialist idea that states can replace markets.

The social market economy is a model of economic structure and redistributive nature from which Kenya and Africa can learn. This is largely because economic structures in Kenya and Africa tend to be defined by economic dualism where there is a limited middle class and a growing chasm between rich and poor. The social market economy is a key means through which this chasm can be straddled, providing support to and pulling millions out of dire poverty. However, for an effective social market economy to work, specifically the social protection portion, three elements are required.

Image result for welfare (source: http://watchdog.org/wp-content/blogs.dir/1/files/2014/01/welfare-sign.jpg)

The first is robust revenue generation; in order to deploy effective social protection, the government must generate sufficient revenue to not only meet its direct needs but have enough money to allocate funds to welfare programmes. Social market economies cannot function via debt or credit financing as the welfare component is not directly economically productive but rather economically redistributive. Secondly, sound fiscal management is crucial. A social market economy can only truly work in the context of fiscal management where public finances are managed competently, efficiently and transparently. Finally, wealth redistribution must be done via a transparent and just redistribution model. The redistribution of funds via the welfare elements of the social market economy must be clearly guided by the concept of redistributive justice, fairness and the promotion of basic equity.

However, as it stands Kenya and indeed much of Africa cannot truly deploy social market economic social protection because all three components mentioned above are weak. Kenya does not have truly robust revenue generation partly informed by levels of poverty in the country which make tax extraction from a significant portion of the population difficult if not impossible. In terms of fiscal management, Kenya has well-documented weaknesses in this area with numerous massive public financial mismanagement scandals. Financial mismanagement renders intentions of social protection impotent. Sadly the third element, just and fair redistribution, is still weak in Kenya and much of Africa; most have not developed robust systems and formulae for wealth redistribution.

Image result for fiscal management (source: http://inthedriversseat.org/wp-content/uploads/2014/08/fiscalmgmt.jpg)

However, it must be pointed out that while the concept of the social market economy has its strengths it has weaknesses. The first of which is that it is a type of ‘first aid’ where one part of the system, free markets, create negative externalities such as income inequality that are then sought to be corrected by the other part of the system, social protection. Additionally, social market economies can engender dependency in some and if not, often those who are on public social protection programmes are stigmatised and labelled lazy, unintelligent and ‘living off those who work hard’. Thus another conundrum arises where the intention to promote human dignity through social protection is erased by the lived social stigma associated with being on welfare.

However, in my view the biggest risk the social market economy poses to Africa is its potential to destroy social capital. It can be argued social capital is generated through the culture of dependency that defines Kenya and Africa at the moment. Saving up to lend money to your brother or take your niece through school creates social ties and bonds that arguably improve the quality of life of all involved. Would the implementation of a social market economy make such relations unnecessary and destroy this social capital?

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