Month: January 2018

Counties starting to realise their power to drive projects

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This article first appeared in my weekly column with the Business Daily on January 28, 2017

Over the last week I have been  traveling around the country and interacting with county governments  on various assignments. What has become clear is that county governments are beginning to truly appreciate the power they have to guide the direction of development in their counties. Devolution is reorganising power dynamics at county level in several ways.

The first is that devolution seems to be engendering brain gain to counties. Professionals from private sector and development agencies are now working as technical staff in counties. This is due to both push and pull factors. On one hand, county governments are seeing the wealth of expertise in their county and pulling individuals to lead various dockets in the county governments. Secondly, as professionals interact with county governments, they begin to get excited about how they could contribute to the development of the regions in which they work and push themselves into county structures. This confluence of factors is creating a situation where county need for expertise meets the willingness of professionals to work in the county, to the benefit of the county.

Council of Governors meeting. FILE PHOTO | NMG

(source: https://www.businessdailyafrica.com/image/view/-/4281906/medRes/1870589/-/maxw/960/-/usgtixz/-/GOV.jpg)

Secondly, counties have learnt from the first phase of devolution and county structures are strengthening which has implications for numerous players. The first is that stronger structures at county level means development partners must align their funding and programs with County Integrated Development Plans (CIDP). No longer are donors coming in with thematic areas and priorities with which counties must comply; it is now the other way around.  Secondly, counties are becoming increasingly aware of the power of private sector in their counties and are taking steps to make the private sector environment positive and enabling. There is a willingness in many county governments to engage with the private sector on what county governments can do to build private sector activity in their jurisdictions with a focus on job creation and income growth.

To be clear these dynamics are not unfolding evenly across counties, but this is the general direction of the momentum being generated at county level. For example, counties are not interested in coordinating numerous donor programs each with varied objectives not linked to the CIDP; that is where the momentum sits. It is clear that in this second phase of devolution, that donors and development partners have to not only align their programs with the CIDP, they must ensure that  County Governments are aware of their activities. There is a sense of autonomy emerging. Donors aren’t the all powerful entities they used to be; either they make themselves relevant or counties will eventually have no real use for them.

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(source: jamhurimagazine.com/thumbnail.php?file=47_Kenya_Counties_217764471.jpg&size=article_large)

In terms of private sector, what is clear is that there is growing interest for county governments to engage with private sector. As counties open channels for communication with the private sector, there is impetus  for private sector to effectively organise itself at county level to fully leverage the attention of county government. Private sector associations must now ensure they have representation in all counties, so that they are prepared to present their ideas on how to work more effectively at county level. Gone are the days where private sector associations had a main office in Nairobi and paltry representation at county level. Private sector must be organised and effective at both national and county levels if they are to bring strategies, relevant to the local context, to the table.

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

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Shared economic values can heal the political divide in Kenya

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This article first appeared in my weekly column with the Business Daily on January 21, 2018

Last year’s election highlighted the deep and bitter political divide among Kenyans, divisions usually rooted in tribal identity politics. However, if one were to ask Kenyans what they want for the country, one would likely find similar answers across the political divide. We want good schools and hospitals, decent jobs, respectable roads, security, shelter, an end to corruption and freedom from hunger and poverty. And since Kenyan politics is renowned for not being rooted in ideology, it is possible that individuals from opposite sides of the political divide could have similar views on how the government can better provide services and stimulate economic development. It is only in Kenya that two people may have identical ideologies of how they want the country to run, but then vote for different candidates due to tribal identity.Image result for 47 tribes of Kenya

(source: https://hornaffairs.com/wp-content/uploads/2016/07/Image-Kenya-ethnic-distribution-map.gif)

This conundrum is one that can be tapped into in order to unite Kenyans. The fact that Kenyans share concerns across political divides ought to be leveraged to bring the country together. Rather than focusing on the politics of identity, Kenyans ought to focus on the politics of issues such that both the ruling party and opposition engage Kenyans on how they will or would improve the socio-economic status of Kenyans. Kenyans could unite and, as a people, make the same demands regardless of which political party is in power.

Further,  the fact that Kenyans may well share ideologies on socio-economic development could be used to tackle another monster in the closet—the class divide. Just under half of Kenyans live at or below the poverty line, and the bulk of the rest live day to day or pay cheque to pay cheque. This means that there are those on opposite ends of the political divide who have similar incomes, standards of living and daily struggles. Those who would likely relate more to fellow Kenyans who face similar issues but are of a different political leaning than those of another class but with whom they are aligned tribally. It is important that Kenyans unite around addressing the class divide in Kenya rather than letting politicians use the class divide as a tribal motivator as to why Kenyans should vote for them.

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(source: http://www.msafirimag.com/wp-content/uploads/Hand.png)

Finally, Kenya can use economics to unite the country; the economics that builds incomes, creates jobs and delivers high quality government services. Kenyans ought to find those with whom they share ideologies on economic development and create fora that discuss shared concerns, no matter one’s political affiliation. In using economic development as a starting point, Kenyans will find that they have more in common with their sworn political enemies than perhaps they thought.

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

Factors that will inform the cost of living in 2018

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This article first appeared in my weekly column with the Business Daily on January 14, 2017

This year started with the news that price for maize flour has increased from KES 90 to KES 115 after the stock Government subsidised flour ran out. Understandably, Kenyans are complaining with many asking how they are going to manage rising costs of living, particularly in urban areas.

There are several factors informing the increase in the cost of living the first of which is that the country has not fully recovered from the 2017 drought. The short rains have not been as robust as hoped and thus food production is till sub-par. As a result, until the country fully recovers, Kenyans can expect to continue to face upward pressure on food prices.

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(source: https://www.foodbusinessafrica.com/wp-content/uploads/2017/09/MaizeonShelfKenya.jpg)

Linked to the point above is continued aggressive inflation. During the last four months of 2017, average inflation was between 7.98 and 8.4 percent- well above the preferred government ceiling of 7.5 percent. Thus inflation will mean money does not stretch as far as it used to, and thus Kenyans will find basic items eating into their household budgets significantly.

Third is the reality that 2017 was a tough year for the economy due to several factors, the first of which was a struggling agriculture and financial sector. Agriculture which is about 30 percent of the economy was hit by the drought and the financial sector, which is about 10 percent of the economy, was hit by the effects of the interest rate cap. Finally, the prolonged election period affected the economy and GDP growth was revised downward from 5.9 percent to an actual growth of 4.4 percent in Q3 of 2017. Elections have tended to have a negative effect on economic growth and 2017 was not an exception. Suspended investment decisions and disrupted business activity led to the reality that Kenyans did not make as much money as they would have had it not been an election year. As a result, Kenyans are feeling the pinch of muted economic growth as having less money in their hands leaving them feeling more broke than usual.

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(source: https://www.bizmalawi.com/sites/default/files/images/news/inflation1.jpg)

Fourthly, as I have stated before, the interest rate cap led to a contraction in credit growth as banks became more hesitant to extend credit in the context of capped loan pricing. Sadly, credit growth may be further stymied by the onset of the new International Reporting Financial Standard 9 (IFRS 9) where banks are required to switch from an incurred to an expected loss model. Without getting into much detail, IFRS will mean that, at least in the short term, banks will be more risk averse as they reduce lending periods to high-risk borrowers to limit the probability of default. Thus Kenyans may find that it will be even harder to get access to credit due to both the cap and adoption of IFRS. This will lead to less money in the hands Kenyans which will make them to more acutely feel the cost of living.

Finally, the cost of oil is set to rise in 2018, which is not good news for Kenya which imports oils products. Increases in oil prices will likely drive inflation upward exacerbating the already high inflation status the country is in at the moment.

In short, Kenyans should brace for a high cost of living in the short term. It is hoped that a return to stability will allow the economic engine to get back to normal and create channels through which Kenyans can earn an income to adequately meet their cost of living.

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

TV Interview : Cost of Living in 2018

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On January 10, 2018 I was part of a panel discussing the cost of living in Kenya in 2018

 

How to Achieve Kenyatta’s Big Four

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This article first appeared in my weekly column with the Business Daily on January 7, 2018

Last month, President Kenyatta indicated that his last term would focus on the big four for economic development in Kenya. These are food security, affordable housing, manufacturing and affordable healthcare; the article focuses on the first three.

A considerable challenge with food security at the moment is that it is dominated by small scale farmers who operate at a subsistence level with limited financial resources and technical support that would allow them to make their farms more productive and get their products to market. A key element for this sector would include a reinstatement of technical support to rural farmers in the form of agricultural extensions officers. Additionally, storage of food products has to be vastly improved in order to ensure food does not rot before reaching market, but also allow farmers to use stored produce as collateral for credit to improve farm inputs. Finally, financial support should be targeted at the sector to improve the quality and cost of farm inputs and encourage the strategic use of farm technology. Linked to this is the crucial need for government entities that purchase food products from farmers to pay in a timely manner such that farmers can have a seamless farm cycle.

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(source: https://agra.org/news/wp-content/uploads/2016/11/MWfarmer-maize-green-790×527.jpg)

Manufacturing is linked to agriculture. The manufacturing sub-sectors of focus are the blue economy, agro-processing, leather and textiles, all of which require agricultural inputs. Government first ought to coordinate manufacturing inputs with agricultural strategy such that factories have robust source markets. And as the President pointed out, the skills gap for the sector has to be addressed so that there are enough individuals with the appropriate skills sets to drive manufacturing. In addition, the cost of production must be cut in order to make Kenyan products more competitive. Thus the step taken to cut the cost of power is important although clarity is required on how it will be implemented and implications for fiscal policy. Finally, the sector ought to benefit from fiscal incentives such as tax rebates, tax deductions and other strategies to encourage the development of industrial capacity.

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(source: https://www.africa.com/wp-content/uploads/2016/03/Kenya-factory-jobs2.jpg)

It is encouraging to see affordable housing as a priority, as this sector has been direly neglected in the past. As of 2015, the annual housing requirement in Kenya stood at about 132,000 units with a backlog of 1.85 million units. This has created a dynamic where excess demand fuels price escalation in terms of home prices and rents charged. First, government ought to encourage the adoption of technology and materials that reduce construction costs. Secondly, government must improve access to land and facilitate the registration and transfer of titles. Thirdly, financing for the construction and purchase of affordable homes must be incentivised. Savings and Credit Cooperative Organization (SACCOs) have overtaken commercial banks and mortgage providers in the provision of home construction loans in Kenya and account for more than 90 percent of home loans in Kenya. However, there are no fiscal incentives that target SACCOs- this must be rectified. Finally, government must create a registry of whom qualifies for affordable housing. Currently, when cheap houses are constructed, wealthy individuals purchase several units and rent them, locking out low income individuals from purchasing the homes- this must stop.

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

The Three Economic Paths for Kenya in 2018

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This article first appeared in my weekly with the Business Daily on January 1, 2018

For the better part of 2017, Kenya was in the throes of politicking, elections and political tension. As the new year starts, there are questions as to what direction the country will take in 2018. It seems there are three paths the country could take, each with different economic results.

The first is that heightened political and related tribal tension, will continue unabated. The country may see a parallel swearing ceremony from opposition and continued reluctance for dialogue from the ruling party. Civil unrest will continue as per 2017 which will likely result in dampened business prospects for the country. The combative back and forth from both sides of the political divide will lead to the continuation of jitters that create anxiety in both domestic and foreign investors. This will lead to subpar investment into the country and the related knock-on effects of suspended investment decisions. Domestic businesses, particularly SMEs with limited financial buffers, will continue to struggle as political tensions stifle purchasing appetite, the flow of money and robust business activity. The ‘wait and see’ attitude of investors will extend into 2018 and the consequences of political uncertainty and tensions will continue to exert negative effects on economic growth.

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(source: https://upload.wikimedia.org/wikipedia/commons/thumb/4/49/Flag_of_Kenya.svg/2000px-Flag_of_Kenya.svg.png)

The second scenario is one where the ruling administration will respond to political upheaval with a heavy hand marked by aggressive armed action while the opposition party and its followers continue with determined political mass action and resistance. The economic consequences will depend on how hard-nosed the clamp down on political protests will be, and how determined opposition supporters will be in sustained resistance. It is possible that a tense calm will settle over the country as people deal with the reality of having to get on with life, as well as fatigue from what feels like years of political conflict. Thus in this case, there will be an overall but artificial calm, punctuated by recurrent sparks of protest and unrest. Some investments in resilient sectors and geographical areas may get the green light to cautiously proceed while others will remain suspended, waiting for a clearer political outcome. Thus some sectors or geographical areas will see a resumption of business activity and investment, while others will continue to be left out.

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(source: https://softkenya.com/kenya/wp-content/uploads/2011/09/Cash-crop-economy-in-Kenya.jpg)

The final scenario is one where the ruling party and opposition seek to engage in authentic dialogue and conflict resolution resulting in the restoration of genuine peace and calm in the country. Both national and county government will be able to execute their mandate without having to engage in a political juggling act. Investors and businesses will likely fully engage in economic activity, seeking to catch up from all the opportunities that were lost in 2017.

So which of these three scenarios will pan out in 2018? Only time will tell.

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