economic performance

Obama visit has more to do with US interests than Kenya

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This article first appeared in my column with the Business Daily on July 19, 2015

US President Barrack Obama will be in Kenya this week. It is a good time to take stock of the economic relationship that emerged between Kenya and the US during his administration.

One major thing that the Obama administration has done is to begin catching up with the rest of world in viewing Kenya and the rest of the continent as a viable investment destination.

Before Mr Obama came to power, Kenya was viewed primarily through the lens of aid for social development and support for anti-terrorism activities.Although this notion still persists under the Obama administration, we have seen a visible shift that has already happened in much of the rest of the world; the perception of Kenya as a truly viable business partner rather than a charity case. During the 2014 Africa Leadership Summit, Mr Obama made several announcements on business initiatives targeting the continent, such as Power Africa and the Doing Business in Africa Campaign.

These two changed the tone of economic engagement between Kenya and the US – which had been traditionally defined by the African Growth Opportunity Act (Agoa) where the US was essentially the father figure, giving countries such as Kenya non-reciprocal access to US markets. So although Agoa will be renewed this year, we can expect that details of the deal will be different and will more aggressively protect US interests.

(source: http://www.capitalfm.co.ke/news/files/2015/03/BARACK-HANDSHAKE.jpg)

Mr Obama’s role in building economic momentum between Kenya and the US is seen in the fact that earlier this year, the Corporate Council on Africa — a US organisation devoted to US-Africa business relations and which represents nearly 85 per cent of total US private sector investments on the continent — visited Kenya with an eye on investing in the country.The council plans to ensure that more than 90 companies from the group invest in various sectors of the Kenyan economy over the next three years. The US sees Kenya as truly open for business.

But all these developments ought to be put into the broader context of the economic relationship between Kenya, the US and other countries. In terms of trade, Kenya is a net importer of US goods. According to the Economic Survey 2015, US exports to Kenya were worth Sh57 billion in 2013 while India’s exports were worth Sh258 billion.In terms of foreign direct investment, by 2012 US FDI stock in Kenya was Sh26 billion; juxtapose this with Sh48 billion for China in 2013. So the US has a great deal of catching up to do if it has to compete with the likes of China and India.

 

(source: http://www.theeastafrican.co.ke/image/view/-/1862838/medRes/517820/-/maxw/600/-/g0y51s/-/chindia.jpg)

Economic crisis

Another important shift to note is that the US experienced the worst economic crisis in recent memory during Obama’s presidency. The global financial crisis shattered the confidence that even Americans had in their own economic strength.

Awareness of a weakening global economy has led to the creation of the Trans-Atlantic Trade and Investment Partnership (TTIP), a regional trading bloc comprising the US and the EU.The partnership is an admission that the rich counties are aware of the fact that their global economic clout is declining. So while the US will want to invest in Kenya, the investment will not be done in the spirit of Agoa; it will be done in the spirit of strengthening the US economic footprint in the country and continent with the ultimate goal of strengthening its global economic position.

It’s all well and good if the US can help develop Kenya through investments, but the priority is strengthening the American economy. Kenya would do well to note this.

 Were is a development economist; email@ anzetsew@gmail.com; twitter: @anzetse

This is exactly what terrorist attacks are costing Kenya

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This article first appeared in my weekly column with the Business Daily on April 12, 2015

Almost two weeks ago Kenya experienced yet another horrific terrorist attack credited to militant Islamic group Al-Shabaab. The human loss experienced is immeasurable and Kenyans are still reeling in the aftermath of the massacre.

Terrorist attacks do not only cause loss of lives, they also have long-standing effects on the economy. Terrorism here refers to premeditated, politically motivated violence perpetrated against non-combatant targets by sub-national groups or clandestine agents, usually intended to influence an audience. In general, terrorism reduces consumers’ and firms’ expectations for the future and forces governments and the private sector to invest in security measures and redirect investment away from more productive economic uses.

Weekend of Violence Photo Gallery(source: http://s4.firstpost.in/wp-content/uploads/2013/09/kenya-attack.jpg)

For example, many firms in Kenya spend considerable capital on security costs which is essentially unproductive in that it does not add to their output or improve their product quality. Terror attacks in Kenya have also triggered geopolitical conflict, which is causing further economic disruption by increasing the likelihood of future attacks.

Direct costs of terrorism include the value of assets damaged or destroyed such as plant, equipment, structures and merchandise.  Economic activity is disrupted so lost wages and other forms of income are also part of the direct costs of terrorism. The direct costs of the attacks on Westgate for instance were estimated to cost Sh10 billion. In terms of indirect costs, Kenya’s ability to attract FDI has been hit by such attacks. Indeed, analysis reveals that the presence of terrorist risk corresponds to a decline in the net FDI position equal to five per cent of GDP.

This is attributed to the creation of climate of uncertainty that envelopes the country whenever attacks happen. This prevents potential investors from making new capital investment as they are unsure of the economic implications of the attacks and thus overlook Kenya for more stable economies.

EAC

(source: http://financialjuneteenth.com/wp-content/uploads/2014/12/Investment-opportunities-in-The-East-African-Community-www.financialjuneteenth.com_.jpg)

Indirect costs of terrorist attacks also affect the transportation industry because demand for air travel declines, passenger fares decline, and the inability of heightened airline security personnel to readily process travelers lead to further declines. Tourism in Kenya has obviously been a casualty with travel advisories discouraging foreign nationals from travelling to the country which is particularly bad as often warnings on non-essential travel attract remove insurance cover. Ironically, the travel advisories may fuel terrorism further. How? Well, by contributing to the collapse of the coastal tourism industry, the travel warnings may simply be increasing the joblessness, idleness, poverty, drug use and overall desperation—all well-known catalysts of terrorism.

masaai(source: http://www.onepiecetravel.com/upimg/090911/1_030225.jpg)

Other indirect costs of terrorism could include the pain and suffering of the victims and their relatives as well as the psychological trauma experienced by a stunned nation. Psychological trauma may have negative short-term impact on productivity.

Interestingly in other countries such as the US, the 9/11 attack had a stimulating effect on the economy where monetary and fiscal authorities stimuli were effected to offset the macroeconomic consequences of the attacks.Because of damage accrued, there was a surge in the private sector demand for liquidity which was met by the Federal Reserve cutting short-term interest rates and increasing short-term lending (discounts and repurchases).  Further a $40 billion emergency spending package provided a strong fiscal stimulus.

But sadly developing economies such as Kenya often cannot take such action because they do not have ready access to international capital markets and the fiscal authorities cannot redirect already strained expenditure.

 Ms Were is a development economist. Email: anzetsew@gmail.com, twitter: @anzetse

Economic benefits of decentralisation won’t be immediate

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This article first appeared in my weekly column with the Business Daily on March 15,2015

What will be the impact of the introduction of political, administrative and fiscal decentralisation in Kenya? More importantly, what are the pros and cons of decentralisation with regard to economic development?

How Male Psychology affects Economic Performance

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