Kenya economic model needs rethink

As the leading economy in the region, Kenya is expected to be first in just about every matter. Its companies operate across the region and in some cases globally.

You may think the country's economy is a good example of a capitalist state, one of a perfect competition. Think Again. Kenya has a lopsided economy and its actually an oligarchy.

While we hear ‘Customer is King’ and such adages, the reality is Kenya is a seller’s market and not a buyer’s market. The person or the entity selling the good or service has an unfair advantage as the customer does not really have a choice. Think Kenya Power- who are more concerned about re branding budgets and shiny logos than supplying uninterrupted power to the country.

Nowhere in the world does a single telecom operator have a 60 per cent plus market share. To add to that a premium package for satellite television costs 100 USD per month! The market forces are such that new entrants are sniffed out by a coterie of politicians and industrialists. It’s a sad state of affairs as it is the ordinary Kenyans who have to pay high costs for mediocre services and commodities.

In the name of competition, existing players further cement their positions at the top and almost have a tight grip over what services to offer and pricing levels. This reminds me of Henry Ford- who said ‘You can have any colour as long as its black’

Also about 300 old Kenyan men control most of the senior positions in these organisations and it is such a tight circle that no one can enter it with the aim of serving the consumer!

The banking industry works as a cartel. There are not many countries in the world where you get paid two per cent for the money you deposit and the same money is loaned back to you at 25-30pc.

Its such a simple business model that it hardly requires any number crunching, yet the banks complain about regulations harming their businesses, yet they buy Sh50,000 a -plate-dinner for MP’s to postpone interest rate reviews.

It is appalling that they restrict the money supply in the market, which otherwise would mean young companies can have access to cheap capital to build new services and products and compete against the existing players.

Economists who argue for high interest rates claiming cheap capital will lead to inflation are mistaken as that is valid in economies in different maturity cycles (much larger GDP’s and more mature debt instruments). The same banks were borrowing from ‘discount windows’ and then reselling at market rates leading to the volatility of the shilling and losses of billions to the exchequer and ordinary citizens.

The government needs to understand that unemployment can only be reduced if there are enough companies creating jobs as giant monopolies are not going to create enough jobs to employ the hundreds of thousands looking for jobs. It is the small and medium size enterprises (SMEs) that will form the backbone of the country and create purchasing power.

Kenya is one of the very few countries in Africa where the service industry forms a high percent of GDP and by nipping entrepreneurs in the bud by not providing credit we are killing their ideas and ambitions.

Another short-sighted view taken by the government is high personal tax rates. I don’t see what the government needs my taxes for if I have to further pay my medical bills, buy clean drinking water, pay through my nose for affordable housing and schooling for my kids.

Tax revenue collection actually proves counter-productive and leads to corruption and creation inefficiency. The government should lower tax rates and introduce slab based rates based on the incomes.

Rich people should be taxed more and people with incomes of less than Sh50,000 per month should be exempt from all forms of taxes.

Only then can they think about buying goods and using services which in turn will create employment and create revenues for the government.