Here is why our banks should be encouraged to extend their services in E Africa

Customers queue for service at the Kenya Commercial Bank Moi Avenue branch in Nairobi on June 3, 2014. The latest economic survey data reveals that the financial services industry yields the highest salaries per employee and its earnings are among the highest in the economy. PHOTO | FILE

What you need to know:

  • Kenya stands to gain the most from Addis Ababa’s new-found admiration for the free market.
  • The World Bank points out that our banks are sitting on a quarter of all money corporations squirrel away in Kenya so they can have a bit of money to expand.
  • Keeping distressed banks open is good for the economy; it not only keeps jobs and livelihoods going, but also prevents panic. The fear that banks have bad loans could grind the economic system to a halt. In the UK, for example, when banks were teetering due to the housing bubble burst in the US, the government advanced massive loans to many of them to keep them open and avert a crisis.

The news last month that Ethiopia was looking to liberalise its economy further was good news for our country. Kenya stands to gain the most from Addis Ababa’s new-found admiration for the free market.

The country is the second most populous in Africa. Its growth rate has been in double digits for the past decade. It has a major infrastructure boom. Some of its businesses have done well on the continent. Ethiopian Airlines nowadays makes more profits than all other airlines in the continent combined.

Ethiopia is, booming, destined to be rich and right at our doorstep.

The Lamu pipeline really should be seen as an umbilical cord connecting Addis Ababa to the sea as a back-up if relations with Djibouti ever get frosty.

The first businesses to set up shop when African economies are doing well have been banks, followed by telecommunications.

Kenyan banks have engaged in an aggressive expansion into East African countries and  beyond, while banks domiciled in other East African countries have not yet made serious forays into the Kenyan market. Equity has made its way to the Democratic Republic of Congo and is mulling setting up shop in Ethiopia. The Kenya Commercial Bank already has an office in Ethiopia. 

Even in this age of globalised capital, the home countries of companies that expand usually witness the greatest benefits. Which is why we should encourage our banks to be more aggressive in crossing borders.

Even though Apple makes more profits selling products in China and Taiwan than the US, the benefits accrue to the US where the company is listed. It stands to reason that profitable subsidiaries in other countries will increase the Kenya government’s take in corporate taxes.

The financial services industry is a lot more developed in Kenya than our neighbours. This industry is one where we have a clear competitive advantage over the rest of the region.

We cannot beat Uganda’s and Ethiopia’s sugarcane industry since they have the world’s largest river, the  Nile.  Tanzania will always beat us in mineral production since it is larger and better endowed. Tanzania also looks certain to beat us in the hydrocarbon category; the finds in their natural gas fields are already far ahead of Kenya’s oil discovery. Also, in a world that is getting warmer, gas is likely to find more favour as a fuel than oil.

However, we have bigger, richer banks than any other in the region.

The World Bank points out that our banks are sitting on a quarter of all money corporations squirrel away in Kenya so they can have a bit of money to expand.  

GOLDEN GOOSE

Our goal should be to shepherd the growth of Kenyan banks across the region to tap into the boom in countries like Tanzania and Ethiopia to bolster our economy.

As these two countries arise from their Marxist and socialist slumber, it should be Kenyan banks ready to proffer financial services on the road to development.

Improved social services to Kenyans need likely be built by our improving mining fortunes in Kwale, oil in Turkana and the banking sector.  Banking is part of the mix of service industries that is laying the golden egg.

The latest economic survey data reveals that the financial services industry yields the highest salaries per employee and its earnings are among the highest in the economy.

It is this understanding of how crucial banking is to our economy that should govern the Central Bank’s regulation of the industry.

The fall of Dubai Bank and liquidity problems at Chase Bank directly threaten our attempts to export financial services. Our banks should be properly run and always be viewed as being that way.

Keeping distressed banks open is good for the economy; it not only keeps jobs and livelihoods going, but also prevents panic. The fear that banks have bad loans could grind the economic system to a halt. In the UK, for example, when banks were teetering due to the housing bubble burst in the US, the government advanced massive loans to many of them to keep them open and avert a crisis. It makes more sense to pump money to banks facing runs rather than let them collapse, and only the central bank could do that.

As a country, we have an added incentive to keep our banks ticking through minor panics.  If our banks are characterised negatively locally, our neighbours might shun them at a time when it is in our interest to expand there.

Kenya has the most liberalised economy in the region. Nairobi is already the region’s finance capital, serving as a landing pad for companies looking to spread in the region. Ecobank recently made its local subsidiary the regional hub for East and Southern Africa in the region.  

Reopening Chase Bank soon after its travails was an important vote for confidence in the sector by the Central Bank, particularly for mid-market lenders.

The resulting reduction in liquidity in the economy when a bank is shattered impacts seriously on growth and is borne hardest by those engaged in small business.

A profitable financial system allows the government to provide more social services to its citizens and should be nurtured.

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EXPENSIVE INVESTMENT

Investing in land not  good for the economy

The latest World Bank report points out that, even though Kenya’s economy has grown, our savings rate has gone down since 2005, and we are among the lowest among countries that are our peers.

Savings are usually expected to go up when you get richer, but in our country it is the opposite. Despite the proliferation of Saccos, we are saving less than ever.

I think the answer has to do with our priorities. 

The problem is, of course, where we put our money. Kenyans would rather buy land as an investment for their future rather than get an annuity, start a business, or buy stocks. 

The problem is that land is hideously overpriced. Too much of money that would otherwise have been invested has been tied up in patches of dirt in Ruaka and Kisaju.

Even when the bottom fell out the Nairobi Stock Exchange last year, people preferred to gamble on houses and land.  No country ever grew by speculating on the land beneath their feet.

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FAIR COMPARISON

On health, can we at least try to be like Iraq? 

One reader complained that my comparisons between Kenya and Rwanda on health matters was unfair. Rwanda is a smaller country, with fewer people, ruled by an authoritarian government. Delivering services is a lot easier compared with Kenya.

 So I lowered the bar drastically. Why don’t we compare our healthcare outcomes to a country like Iraq?

Iraq is about three quarters the size of Kenya and has four-fifths our population. It is richer per head than Kenya but has a lot more inequality. It is also a warzone. 

Consider the situation since 2003: Since it was  invaded by a coalition of countries led by the US, the country has not known peace.

Americans used uranium-tinged bunker buster shells on the country. Now they have IS, which has made life a living hell for Iraqis.

That should be a country we could easily beat on the health matters, right?

Well, Iraqis live longer, according to the latest WHO health report. And despite their extremely chauvinistic culture, their women die at a tenth the rate ours do in childbirth and are more likely to have a doctor while giving birth.

Iraqi  children get better nutrition, are less likely to be stunted, and their babies are more likely to reach the age of five.

In addition, their babies are less likely to die at birth compared with Kenyan babies.

Despite having a spate of suicide bombers, Iraqis are also less likely to commit suicide than we are. They have more car bombs going off than anywhere else on earth but their roads are much safer  than Kenyan roads.

If you think Rwanda is an unrealistic and unfair comparison to Kenya in terms of health, could we at least be more like Iraq?