Protecting currency demands change of our economy’s fundamentals
Posted Tuesday, February 21 2012 at 20:00
Primitive’ peasants had an easy way of dealing with social problems.
They had this ritual where they would transfer all the sins of the village to a goat, then cast it out. The word scapegoat originated from this ritual.
In heaping all the problems facing the Kenya shilling on the governor of the Central Bank, Prof Njuguna Ndung’u, we — like our “backward” ancestors — are engaging in scapegoating.
I do not mean to fault the work of the parliamentary committee on the fall of the shilling. Indeed, the report is enlightening in many ways.
The MPs made solid observations on the acts of omission on the part of the governor.
But when you project the economic sins of a society on a single figure, you end up absolving the government of its long-term responsibility for the deep-seated problems besetting the economy.
The shilling behaved the way it did because this society is not prepared to make hard and painful choices.
We have nurtured an economy with a high appetite for imports. Despite the fact that our capacity to generate dollars has been dwindling for a long time, we spend hundreds of millions of dollars every year to import food.
And why do we import food all the time? It is because we have neglected agriculture; we do not invest enough in supporting this sector.
In the rich West, farmers are given weather insurance and other subsidies.
Here, sugar farmers have to wait for months before they are paid. Fifteen years ago, we used to produce 160,000 tonnes of coffee annually.
Today, despite the fact that international coffee prices are at their best in years, we cannot produce even half of that quantity. The story is the same for cotton, pyrethrum, maize, and wheat.
The point is this; financial markets will flip and flop all the time. Greedy bankers will always engage in arbitrage, currency swaps, and all those games they play to make money and which, inevitably, aggravate the volatility of currency.
But when you single out speculators for the volatility of the exchange rate, you are engaged in scapegoating.
The underlying and long-term problem is the weak balance of trade position we have been in for a long time.
We have a big middle class that is hooked to importing cars, kitchenware, roofing materials, and suits from Dubai, Singapore, Turkey, and Japan.
Are we, as a society, ready to impose taxation to penalise importation of goods of ostentation?
When shall we start investing heavily in mass commuter transport systems to restrain the appetite of the middle class for small secondhand cars that only serve to clog the streets of our cities with endless traffic jams?