Economics

TV Panel interview on food security in Kenya

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On May 15, 2017 I was part of a panel discussing food security in Kenya with a focus on maize.

 

 

The cost of living question in Kenya

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


Over the past few weeks there has been deep concern voiced by Kenyans with regards to the rising cost of living in the country. Kenyans want to know why their money doesn’t go as far as it used to in the past.

There are several variables at play here the first of which is a no-brainer: the drought. The drought has had the effect of destroying food crops and livestock leading to cuts in the supply of food products. Yet the demand for food expands each year as new Kenyans are born. The drought has created a situation where food demand far outstrips supply leading to an increase in food prices and food price inflation.

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(source: worldteanews.com/wp-content/uploads/2016/11/WTN161031_KenyaDrought_tumblr_lqip385wlz1r1r5rno1_500-lo-res.jpg)

The second factor at work is the fact that Kenya is an import economy of which food products are a key import. With the strengthening of the dollar as the US economy recovers, the relative depreciation of the shilling (albeit marginal), is making imported goods more expensive and slowly exerting inflationary pressure on food prices.

Thirdly, the interest rate cap has led to a noticeable decline in lending. And although the cap counters inflationary pressure through a contraction in liquidity, the cap means the small loans Kenyans used to qualify for to meet urgent expenses are no longer coming in. As a result, the reduced cash flow for the average Kenyan means that they have to make the little they earn stretch even further as they do not have the cushion of short term loans on which to rely. The effect is that Kenyans feel more broke now than they did last year.

Image result for interest rate cap

(source: https://i1.wp.com/chetenet.com/wp-content/uploads/2017/04/Interest-Rate-Caps-Effects.jpg)

Finally, it would not be a stretch to surmise that there are more Kenyan Shillings moving around in the economy due to the election. Money is being spent on election related expenses that are not present during a non-election year. To be clear, there is no hard data on this which is a shame; there should be a study to assess the extent to which election spending pushes up inflation. I raised this concern with an expert a few years ago; I asked him how the government will manage the likely inflation linked to ‘artificial’ election-related spending. He told me that it would correct itself in the medium to long term as that extra liquidity leaves the economy post- election.

The factors detailed above inform why there seems to a money crunch for many Kenyans. And sadly, the interest cap has shut off the tap of liquidity on which Kenyans use to rely in times like this.

The truth of the matter is that there are no quick and ready solutions to this issue and short term remedial action will not address the structural problems of Kenya being an import economy and the ravaging effects of the drought where millions, if not billions, of shillings in agricultural assets have been lost. And since it is an election year, the related spending will continue and there will likely not be the will to reverse the interest rate cap–not until elections are over.

Government and non-government actors should take this time to assess the various issues elucidated above and develop strategies to buffer Kenyans from the confluence of factors currently making life difficult for so many Kenyans.

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

TV Panel feature on the cost of living in Kenya

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On May 11, 2017 I was interviewed on cost of living issues in Kenya.

Problems with financial accountability at county level

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This article first appeared in my weekly column with the Business Daily on May 7, 2017

The management of public funds is an issue about which the Kenyan populace is passionate. However, the conversation on financial accountability in Kenya tends to be focused on National Government only. While this is right and warranted, Kenyans ought to extend the scrutiny on the accounting of public finances to county governments as well. One of the main purposes of devolution was to bring public finances closer to citizens in a manner that would allow them to have a say in how county budgets were planned for and used. This does not seem to be happening.

As the research firm International Budget Partnership (IBP) points out, the constitution of Kenya and the 2012 Public Finance Management Act (PFMA) require each of Kenya’s 47 counties to publish budget information during the formulation, approval, implementation, and audit stages of the budget cycle. In February 2017, IBP assessed documents related to budget estimates and implementation by county governments that were meant to be produced and made available on their websites between July and December 2016. IBP found that only 2 counties, Elgeyo Marakwet and Siaya, had approved budget estimate documents available on line. In terms of budget implementation documents, IBP found again, only two counties, Baringo and Kirinyaga, had published their first quarter implementation reports for 2016/17 online.

Image result for kenya counties

(source: gabriellubale.com/wp-content/uploads/2012/09/47-Counties-Of-Kenya.jpg)

The dearth of information on budgets by county governments is worrying due to several reasons. Firstly, citizens cannot be sure of how public funds are being planned for and used. The lack of budget estimates and implementation documents means that not only do citizens not know how county governments stated they would use funds, they also do not know how county government actually used the funds. The lack of both budget estimates and implementation documents means that citizens cannot hold county governments financially accountable; there is no documentation against which accountability can be gauged.

Secondly, although the lack of information does not automatically mean funds are being embezzled, the lack of budget reporting facilitates embezzlement.  The fact that most county governments are not accounting for funds, as per the PFMA, provides leeway for unauthorised spending by county governments.

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(source: https://us.123rf.com/)

So why aren’t county governments publishing budget related documents? The first could be a capacity issue. In work I have done on county governments, it is clear that there are massive capacity constraints in county governments. Does every county government have competent and well staffed financial management staff and systems? If not, this constraint should be communicated by county governments so that remedial action can be taken. Obviously the second reason why county governments are not publishing documents is because they enjoy the lack of scrutiny as it allows ‘flexibility’ in the use of public funds.

As Kenyans gear up for elections in August, they should demand considerable improvements in the accounting of public funds by their respective county governments. Aspirants should be taken to task on how they will ensure that the citizenry is fully aware of budget use and that all documents are made public within the stipulated timelines.

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

 

TV Interview: Panel feature on Labour Day

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On May 1, 2017, I was part of a panel on NTV talking about labour and employment issues in Kenya

Three threats to the Kenyan economy

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This article first appeared in my weekly column with the Business Daily on April 30, 2017


Kenya registered relatively healthy GDP growth in 2016 at 5.8 percent. This is an important figure as the average rate of growth for Africa in 2016 was 1.3 percent. It has been noted that in Africa’s current multispeed growth phase, East Africa will be important in pulling up the economic growth of the continent due to limited exposure to the commodities and fairly diversified economies. In this context, Kenya is important for the continent’s growth as East Africa’s largest economy.

That said, it should be noted that there are clear threats to robust economic growth this year. While there are external factors that may mute growth such as Brexit and new policies by the Trump administration, the focus of the analysis in this article will be on domestic threats to growth in 2017.

The first threat is the drought; the Central Bank of Kenya (CBK) has already warned that the economic growth will be negatively affected in 2017 due to the drought. The production of Kenya’s key export, tea has been ravaged; production is expected to drop by 12 to 30 percent. And it cannot be guaranteed that any loss in forex due to lower volumes will be mitigated by higher tea prices. Livestock production has also been devastated. It is estimated that the drought has led to losses of 40 to 60 percent, particularly in the North East and Coast. Secondly, the drought has pushed up inflation which stood at 10.28 percent in March, far above the government ceiling of 7.5 percent. The cost of food has been particularly affected, forcing low income families to put more money aside for basic food needs. Finally, the drought has led to higher electricity prices due to Kenya’s reliance on hydropower; about 39 percent of installed capacity is hydro. Increases in the cost of electricity inflates the price of manufactured goods for the end consumer.

Image result for Kenya drought

(source: thetropixs.com/wp-content/uploads/2017/03/Kenyans-drought-1.jpg)

The second threat to Kenya’s economy is the interest rate cap which is linked to a contraction in lending. As this paper reported, Treasury stated that lending to businesses and homes grew just 4.3 percent in the year to December, down from 20.6 percent in a similar period in 2015. The 4.3 percent credit increase is well below what the CBK says is ideal loan growth of 12 to 15 percent which is required to support economic growth and job creation. Muted lending, particularly to SMEs due to the interest rate cap, will put a damper on the country’s growth engine.

The final threat to Kenya’s economy this year is the general election. Business mogul Aliko Dangote made the point that in Africa many investors often choose to wait for an election outcome before making further investments. Wary local and foreign investors pull back investment in a country and adopt a ‘wait and see’ attitude until elections are finished and the stability of the incoming administration has been established. The IMF echoes this concern stating that the elections in Kenya this year may contain growth momentum.

Image result for Kenya election

(source: https://www.standardmedia.co.ke/ureport-uploads/file-56948d06e60f9.jpg)

The reality is that economic growth ought not be affected by any of the factors above; they could be avoided or better managed. And while the economy is resilient and will continue to grow, the economic impact of the factors detailed above is already being felt by millions of Kenyans.

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

 

How counties can attract smart investment

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This article first appeared in my weekly column with the Business Daily on April 16, 2017

The decentralisation of Kenya ushered in the county structure giving county governments power that was previously unavailable at that level. Sadly what seems to emerging is a focus by county governments is a focus on revenue generation through the imposition of new fees and levies on the private sector. This is arguably one of the most intellectually lazy means of generating income. In some ways it can be argued that the imposition of CESS, advertising fees and myriad of other fees is actually killing the business environment and the ability of private sector to generate jobs and money. So what short, mid and long term, can counties can deploy to attract the right type of investment and generate revenue?

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(source:www.montefeselfstorage.com/wp-content/uploads/2015/06/French-Investments.jpg)

An important action that can be done immediately is to determine the competitive advantage of counties. Within the County Integrated Development Plan (CIDPs), counties should articulate their competitive advantage, and strategies aimed at capitalizing on these in a manner that makes them profit and job generators. Further, it is crucial that important county leaders are identified. These include both those who live in the county as well as those with an attachment to the county. These leaders should be identified from all levels and include leaders in the private and public sectors, NGO leaders, village elders, women leaders, youth leaders as well as leaders from the disabled community. This county leadership should be consulted to develop an investment strategy in order to, among other things, identify county needs (health, education, infrastructure etc.), identify projects related to meeting these needs that are viable, identify sources of funding, develop the capacity required to raise the funds and source the skilled individuals needed to manage and implement the county projects.

In the mid-term, counties need to make an effort to make the county attractive for investment to both foreign and local investors. This includes reducing administrative and regulatory costs of doing business in the county, creating clear implementable strategies for ensuring stability and security, developing robust education and health structures and being seen to be visibly addressing corruption through the development of transparent county level public financial systems. Additionally, counties should participate in the Sub National Ease of Doing Business Index by the International Finance Corporation to determine how competitive their counties truly are.

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(source: https://anzetsewere.files.wordpress.com/2016/10/89a66-small-business-in-kenya-invest-africa-businesses.jpg)

In the mid to long term the county can make efforts to develop Public Private Partnership mechanisms to pull in the private sector to address county population needs. County governments should also clearly define accessible career pathways for the current and future skill needs of the county so as to identify those who are already well suited for key activities in the county in order to catalyse economic activity.

In the long term, counties should consider the development of an investment fund where some revenue can gain interest. This can be divided into short, medium and long term strategies that include deposits, treasury bills, treasury and corporate bonds as well as strategic equities with the ultimate aim of creating a county ‘sovereign wealth fund’. Through these strategies, county governments can build capital in a sagacious manner.

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