Economics

Intellectual dishonesty is killing Kenya

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This article first appeared in my column with the Business Daily on September 2, 2017

Over the past year, a troubling trend has emerged; the use of intellectual arguments to present a one-dimensional analysis of complex issues in order to either generate support for or discredit certain political positions. It has become clear that many analysts and public intellectuals are using their knowledge base and expertise in a spirit of intellectual dishonesty.

The truth is that any topic being discussed has several dimensions to it. It is my view that it is the role of expert analysts and public intellectuals is to provide comprehensive, rigorous and apolitical analysis of issues so that Kenyans get a robust sense of the factors being discussed and the complexities therein. Thereafter, Kenyans can reach an informed conclusion. For the most part, this does not seem to be happening. What is happening instead is public intellectuals and analysts deliberately creating incomplete analysis and narratives that service certain political agendas. This is problematic for two reasons.

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First is the moral issue of intellectual dishonesty. All arguments have information that can both support or challenge a narrative. There is no single issue, especially when it comes to the political and economic reality of Kenya and Africa in general, that can have a single narrative and line of argument. Honest intellectuals will present both sides of a given argument and then state that they support a certain side because of certain merits. Instead what some public intellectuals seem to be doing is taking a given, one-dimensional political position and creating incomplete analysis to either support or discredit certain political agendas. This is creating immoral intellectual posturing where experts know they are not giving comprehensive analysis because they have a political agenda in mind. This is the height of intellectual dishonesty and goes against the spirit of robust intellectual exercise and practise.

Second is the issue of misinformation. The truth is that most Kenyans are often not aware of the layers of complexities of issues when analysis is given from certain technical backgrounds. As an economist I have the privilege of having a knowledge base where I can point out the holes in economic arguments. Most Kenyans do not have this privilege. Thus, in analysts and experts knowingly providing incomplete analysis, they are actually in the business of misinformation because Kenyans will be of the view that that the expert’s one-dimensional analysis is the only or best way to interpret a given issue. I am not suggesting that analysts and public intellectuals should not have certain positions, they should. The problem is that many do not point out counterarguments to their position and thus lead Kenyans down the road of incomplete analysis and misinformation. Thus, rather than analysts contributing to a culture of intellectual rigour and knowledge creation, they are contributing to a culture of intellectual deception and misinformation.

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When knowledge and intelligence are used to beget bigotry rather than challenge it, what happens is that the nation creates a habit where narratives are not questioned and blanket statements are taken as the gospel truth. Intellectually dishonesty begets intellectual laziness where arguments are not interrogated but rather taken as fact. This should not be encouraged. It is time Kenyan analysts and public intellectuals took a long, hard look at their behaviour and decide who it is they serve. Are they using their knowledge to serve Kenyans or politicians? The answer to this question will determine the nature of intellectual discourse in this country and for which Kenya will be known.

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

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TV Interview: Blow to business due to the election season

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On September 20, 2017 I was interviewed by the China Global Television Network (CGTN) on the effect of the nullification of Kenya’s presidential election on the economy.

TV Interview: Impact of an extended election season on the economy

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On September 20, 2017, I was part of a panel on Citizen TV discussing the impact of the extended election season on the Kenyan economy.

 

Financial Inclusion in Kenya

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This article first appeared in my weekly column with the Business Daily on September 17, 2017

In August, the Brookings Institution released its Financial and Digital Inclusion Project report which evaluates access to and usage of affordable financial services by underserved people across 26 countries. The 2017 report assessed financial inclusion ecosystems in terms of country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital financial service. Kenya was ranked number one for the third consecutive year.  Kenya’s top rank was driven by its robust commitment to advancing financial inclusion, widespread adoption of mobile money services among traditionally underserved groups, an increasingly broad range of mobile money services (including insurance and loan products), and an enabling regulatory environment for digital financial services.

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The UN defines financial inclusion universal access, at a reasonable cost, to a wide range of financial services, provided by a variety of sound and sustainable institutions. A key is to ensure that all households and businesses, regardless of income level, have access to, and can effectively use, the appropriate financial services they need to improve their lives. According to the Brookings report, 75 percent of adult Kenyans have a financial account, and 71 percent of women own financial accounts.

This is welcome news for Kenya because, as a study by the University of Nairobi argues, without inclusive financial systems, the poor must rely on their own limited savings and earnings to pursue growth opportunities which can contribute to persistent income inequality and slower economic growth.

However, there are gaps in the report that understate factors that hamper actual and lived financial inclusion in Kenya. While the report acknowledges that Kenya can make further improvements in consumer protection, better regulation of FinTech, improving cybersecurity, enhancing digital infrastructure and promoting financial education among underserved populations (particularly women), other factors were not addressed.

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Firstly, as a UN report points out, innovative and inclusive finance, is not a ‘silver bullet’ to get people out of poverty. If efforts are not made to improve income levels of the economically marginalised, then access to financial services is of limited use. Financial inclusion is not useful in and of itself as it can only be leveraged when income levels allow robust use of systems established.

Secondly, is the issue of risk profiling in existing financial systems that may lock out the poor from actual access to financial services. The availability of numerous financial products is useless to those who are denied access to products due to their risk profile. Now that the network of inclusion exists, affordable financial products ought to be created for the financially marginalised so that digital platforms become a more effective means of expanding economic empowerment.

Finally is the interest rate cap and how it has affected lived financial inclusion in Kenya. The cap has been associated with a notable decline in credit growth particularly in ‘high risk’ segments such as SMEs, the self-employed and informal businesses. What is the use of having a financial account if in reality, one cannot qualify for the financing that makes having the financial account useful in the first place? While there are welcome signs that the cap may be reversed in the near future, the report ought to better incorporate the interrogation of domestic factors that regress progress made in terms of actual, lived financial inclusion.

Kenya ought to be proud of achievements garnered in terms of financial inclusion yet remain aware of further improvements that ought to be made to better link financial inclusion with economic empowerment and development.

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

 

China taking over manufacturing in Africa?

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This article first appeared in my weekly column with the Business Daily on September 10, 2017

Earlier this year, McKinsey and Company, released a report on Sino-African relations that assessed the activities of Chinese businesses in Africa as well as Sino-African economic partnerships. There are about 10,000 Chinese-owned firms operating in Africa today and about 90 percent of these are privately owned debunking the myth that Chinese business activity in Africa is dominated by State Owned Enterprises and overly influenced by state craft. Of particular interest is understanding how the Chinese presence is informing industrial development, a chronically underdeveloped sector on the continent.

31 percent of Chinese firms in Africa are in manufacturing and they already handle about 12 percent of industrial production in Africa with annual revenues of about USD 60 billion; revenues in manufacturing outstrip that of any other sector listed. Chinese factories are focused on Africa’s domestic markets, 93 percent of revenues come from local or regional sales in Africa.

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One third of Chinese firms report profit margins of over 20 percent in 2015. In manufacturing this is attributed to ample pricing headroom in Africa; prevailing market prices for manufactured products are so high that Chinese firm earn comfortable profits and their profit levels are higher than those of African firms. Interestingly although manufacturing is capital investment and commitment heavy, 31 percent of firms made investment decisions within a week. 67 percent of firms investments are self-financed and Chinese companies are optimistic about the future of the African market with most firms indicating plans for expansion.

Chinese firms are also generating local employment as 89 percent of employees are African; this figure is 95 percent in the manufacturing sector. 61 percent of firms upskill African employees through professional training and/or apprenticeships, an indication that Africa is poor at educating Africans with skills relevant for employment. In terms of management, 44 percent of managers are African, this figure is 54 percent in the manufacturing sector. Chinese firms contribute to African markets mainly by introducing new products, services, technologies and methods.

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The report is clearly optimistic of Chinese firm activity in Africa, for example more content is focused on detailing the benefits than to delineating the costs; one wonders why. And the costs are significant, there are concerns of Chinese firms engaging in dumping where they sell products in export markets at prices below those in domestic markets. This may be leading to ‘unfair’ capture of export markets from African firms. Breaches of labour regulations are more common among Chinese firms than in other foreign-owned firms. These include inhumane working conditions, work without contracts, exceeding legal limits on work hours and threatening to fire workers who refuse to work in unsafe conditions.

Clearly Chinese firms will continue to make inroads into Africa and the continent will accrue many benefits from this but will also have to vigilantly manage the costs. With regards to industrialisation, it will be interesting to see how African industrial policy will be structured to encourage a stronger indigenous presence in the sector given the ability, innovation, efficiency and commitment of Chinese manufacturing firms, firms which also benefit from African trade deals as they are domicile here. Chinese firms make it clear that there is a lucrative domestic market that indigenous firms have failed to fully tap and thus African firms have a lot to learn from Chinese firms. If trends continue, a situation may emerge where African industrialisation is owned and dominated by Chinese firms. While this is welcome in terms of contributions to Africa’s development, can it then be termed ‘African’ industrialisation?

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

TV Interview: The effect of the elections on the economy

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On September 7 2017, I was on a panel on Citizen TV discussing the effect of the elections on the Kenyan economy.

Is the mall economy in Kenya viable?

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This article first appeared in my weekly column with the Business Daily on September 3, 2017

Over the past few years the hype of the emerging African middle class has made headlines across the world. The Harvard Business Review (HBR) makes the point that consumer spending power in Africa has risen from USD 470 billion in 2000 to over USD 1.1 trillion in 2016. In Kenya we have seen investors angling for a piece of that pie evidenced in the rise the mall economy. Kenya has about 53 malls of which about 30 are in Nairobi; another 19 are under construction. This mall obsession begs the question as to whether the aggressive growth of mall space is sustainable. HBR states that some multinational companies (many of whom sell products in malls) are finding that their business in the region is underperforming. In a survey of 20 senior executives working in Africa, 6 said they struggled to hit revenue targets. So, what’s going on?

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There are two sides to this story. On one hand, yes it’s true that growing incomes have increased spending power and some of that will be directed to spending in malls. Some consumers prefer the setting and security of malls as they can let children wander freely, buy items that probably cannot be found elsewhere (think golf equipment or high quality makeup) and enjoy the variety of products on sale in a mall space. Also as Johnson Nderi from ABC Capital points out, supermarkets in malls do well because of the convenience, variety and relative affordability of goods offered there. There is also the Kenyan customer who enjoys the exclusivity of the mall experience and feels that money spent in a mall is money well spent because the experience simply cannot be found anywhere else. Ergo, demand for shopping malls will continue to exist.

On the other hand, according to the Deloitte’s 2015 African Powers of Retailing report, approximately 90 percent of retail transactions in Africa occur through informal channels. Why is purchase in the informal economy so strong and how does this impact malls? There are several factors that inform purchase in the informal economy; the first is quality and variety. For example, most Kenyans prefer getting fresh food items from informal open air markets, not supermarkets in malls because there is a feeling the produce bought in open air markets are fresher and thus are of better quality. Most Kenyans buy clothes from informal second hand clothes vendors because the variety and quality of products on offer there often cannot be matched by shops in malls at that price point.

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This leads to the second issue which is pricing; malls have underestimated how sensitive Kenyans are to value for money. Kenyans don’t see why they should pay for expensive mall rent added to the purchase price of goods bought in malls. Why are we paying for the rent of stores in shopping malls? Kenyans are also ingenious in getting value for money. For example, Kenyans prefer to search online for furniture or go to a furniture shop in a mall and then go to an informal carpentry outfit to get a replica made at a fraction of the cost. Why pay the full mall price when there are alternatives? This purchase psychology eats into the appeal of shopping in malls.

Unpacking the spending habits of the African middle class and the psychology that determines that spending is complex. Sadly an oversimplification of this complex mind may be leading to some poor investment decisions.

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