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.


(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.

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(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

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.

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(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.

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(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


TV Interview: State of the Nation with a focus on the economy

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On Monday February 27, 2017 I was interviewed by Citizen TV on the State of Kenya’s Economy.

TV Interview: The economy and upcoming elections

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On Sunday February 26, 2017 I was part of a panel that was interviewed by KTN on the economic issues that ought to be addressed by political aspirants.

TV Interview: The state of the Kenyan economy

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Yesterday I was interviewed by Citizen TV on the state of the Kenyan economy.

Devolution can give birth to issue-based politics in Kenya

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This article first appeared in my column in the Business Daily on January 15, 2017

As the election season begins to heat up with various aspirants vying for seats at national and county level, the electorate should begin to think about how to ensure to their issues and concerns are addressed by the next crop of leaders. As we all know, at national level, political alignments are defined by tribal groupings and affiliations. This formula of politicking is unlikely to change at national level, however this need not be the case at county level. Although in some cases, tribalism has been devolved to the county where there is a growing obsession with clan-based politics, such trends can be stopped and be replaced by issue-based politics.

Outside the major metropoles of Nairobi and Mombasa, relative tribal homogeneity dominates most of the other counties, especially rural counties. Ergo, in most cases, the direction of how that county will vote at national level will be informed by tribal political affiliations. However, for county posts the possibilities are more fluid as many of those who will be vying for office, particularly in rural areas, will be from the domicile tribe. This provides the opportunity for issue-based rather that tribe-based politics to dominate at county level. Devolution has provided an opportunity for the electorate to ensure that, at the local level, their issues, concerns and priorities take precedence over tribe or clan-based political jostling. It is at county level that Kenyans can make sure all aspirants talk about issues, rather than copying the tribe-based political back and forth dominant at national level. It is at county level that Kenyans can force aspirants to get off the ‘tribe’ pedestal and instead stand on the ‘issues’ pedestal.

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(source: http://www.clipartkid.com/images/72/got-something-to-say-cancel-reply-GOekmG-clipart.png)

Now, as mentioned, in some parts of the country, devolution is leading to the devolution of tribalism. Some Kenyans are now voting, at county level, based on which clan different aspirants belong to. This is pure folly that dangerously mimics tribally aligned politicking at national level, the damage of which Kenya has seen in the past. Thus, the time is now for Kenyans at county level to insist on aspirants speaking to addressing issues rather than focussing on clan-based affiliations. Kenyans have a window of opportunity to make certain that the culture of selecting county leaders on issues takes root.

Indeed, once the election period is complete and the new administrations at national and county level have been selected, Kenyans can truly exert pressure at county level for the issues to be the focus of the incoming administrations. At national level, there will continue to be tribe-based political tensions, this need not be the case at county level. Kenyans must leverage the power that has been afforded them through devolution and organise themselves at county level into issue-focussed caucuses that pressure county leadership and technical executives to communicate how county issues will be addressed.

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(source: http://www.insthead.com/eng/wp-content/uploads/2012/12/Team-Development-Right.jpg)

Finally, devolution can enable issue-based fiscal policy formulation at county level. At the moment, budget making at county level is haphazard and disorganised defined more by personal agendas than county needs. Kenyans can follow the lead of Elegyo Marakwet county and devise budget formulas that prioritise county needs, not personal agendas. The Elgeyo Marakwet County’s Equitable Development Act 2015 creates a budget formula that distributes the county budget based on equality and equity. Such strategies ought to be encouraged in all counties as they are a first, crucial step to ensuring equity and equality inform county budget making and fiscal policy formulation.

In short, there is ample room for Kenyans to use the upcoming elections to ensure that their issues take precedence at county level. And in encouraging issue-based politics to take root at county level, such thinking may trickle up and direct national politicking to be focussed on issues, not tribe.

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

Dynamics to look out for in 2017

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This article first appeared in my column with the Business Daily on January 1, 2017

As 2017 starts it is important to take note of key dynamics that will define the year in Kenya. Most of the dynamics will be related to the elections at both national and county levels. There are several issues married to this concern the first of which is political and civil stability. There are already signs that the race for office at both national and county levels will be intense with potential for unrest. It is important that all aspirants as well a security minimise any instability that may emerge from the elections to limit its potentially negative effects on the economy. Kenya’s election year tends to be associated with lower economic growth. It is time to break away from this by securing stability regardless of whether it is an election year or not. This can only be achieved if aspirants from both sides of the political divide are responsible in their speech and actions and are all committed to well governed elections.


(source: http://empowerla.org/wp-content/uploads/2015/12/Elections-Blog-Banner.png)

Secondly, there has been and will continue to be an intensification of tribalism associated with the elections. The problem with tribalism is not only that is it morally abhorrent, it is foolish. The folly of tribalism related to electing leaders is that is engenders a culture of unaccountability in leaders. Regardless of how the leaders of the ruling or oppositions parties behave and perform, they are guaranteed that Kenyans will vote for them depending on tribal bent. Thus leaders do not need to meet promises made, develop the country or be accountable because they know when elections come around, none of the aforementioned will affect their vote; only tribe will. Thus it is wonder that Kenyans complain about poor leadership yet it is the obsession with tribe in this country that feeds that culture of unaccountability in leadership. This year Kenyans should start the process of ending the culture of tribalism by demanding ideological positions from aspirants on how they will rule at national and county levels.

Another big dynamic will be fiscal policy and management. With regards to fiscal policy, the budget will be read in the middle of the year at the height of electioneering. It is important that Kenyans pay attention to fiscal policy to understand the financial plan for the country going forward. This is important as there may be a change of guard before the end of the fiscal year either at the political or technocratic level. Secondly, election year is a good time for Kenyans to ask hard questions on the management of public budgets. The issue of fiscal management or the lack thereof has beleaguered Kenya for the past five years both at national and county levels. The allegations of graft at national level have been well publicised yet those at county level are essentially ignored. This is a dangerous dualistic mind-set as continued graft at county level poses a clear and present danger to the ability of devolution to deliver on development. Counties in both ruling party and opposition dockets are culpable; this is a non-partisan issue. Therefore this year Kenyans should demand, at both national and county level, clear strategy by all aspirants on how they will address this issue of fiscal mismanagement. This should be coupled with an expectation from aspirants to devise prudent fiscal policy at national and county level.

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(source: http://www.charlesclifton.co.uk/wp-content/uploads/2016/06/Fiscal.png)

The final big issue is the development agenda for the next five years; what theme will define the next era of rule? It is clear that over the past five years, infrastructure has been a key theme for the government. Will this be continued for the next five years? My view is that there should now be a shift from infrastructure to manufacturing and green industrialisation. The share of manufacturing in GDP in Kenya has been stagnant for decades. As a result, Kenyans have not fully benefitted from the related job creation, rise in disposable income and penetration of Kenyan products in the African market. The time is now for the next administration to develop a clear strategy and plan for manufacturing and green industrialisation as the theme that will define the next five years.

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