A review of anomalies that doomed the year 2016

While 2016 will surely go down in history as the year of corruption; it was also the year of economic paradox namely robust growth sans prosperity.

But perhaps its most poignant event will be the special sessions of Parliament that culminated in the Jubilee administration’s unilateral amendment of a bipartisan election laws that were agreed a few months ago. This column ends the year contemplating these anomalies.

THE GROWTH PARADOX
After four years of robust growth, few people if any are “feeling it”.

A record number of listed companies have declared profit warnings.

A listed company is required to report a profit warning if its profits for the reporting period are more than 25 less than the preceding reporting period.

This trend has been going on for a while.

When economy is growing year after year, companies’ earnings should not be falling.

Credit expansion has declined from 20s to below five per cent per year, figures we have not seen since Moi times.

Robust growth and slow credit is possible, for instance, during a commodity boom, but this is not the case.

I have explained this paradox many times, but the frequency with which the question is asked is in fact increasing.

Perhaps its a question of technical jargon. Here is another go.

Think of the economy as one household, let us call it the Bakari household economy.

The Bakaris spent Sh1.5 million this year, up from Sh1 million last year.

The national account statistician would record that the Bakari economy grew by 50 per cent in nominal terms (that is, before adjusting for inflation).

SOURCE OF MONEY

The statistician would then adjust for inflation by applying 2015 prices to the Bakari household’s 2016 purchases.

If the 2016 purchases would have cost Sh1.2m in 2015, the statistician will record that the Bakari “GDP” grew five per cent in “real” terms.

The Bakari GDP growth does not tell us what the Bakari household bought.

If the Bakari household is a typical Kenyan one, some of the purchases will be on farm purchases for example tools, fertilizers, some on consumer durables for instance furniture and electronics and of course food and expenditure on social events such as weddings and funerals.

It also does not tell us how the purchases were finance, that is, whether it is from income, from debt or selling assets.

For instance, it could be that Mr Bakari took a Sacco loan and splurged the money on consumer durables and social events.

In effect, all that a headline economic growth number tells us is that our purchases have been increasing by five per cent annually.

It does not tell us what those purchases are, or how we have financed them.

But we do know that the big ticket item is a railway line still under construction, borrowed from China.

Other items include medical equipment that is either yet to be installed or lying idle.

We don’t have enough qualified people to operate it.

KIBAKI ERA
A budget deficit of eight per cent as well as a current account (external trade) deficit of the same magnitude tells us that the growth is debt financed and further that the debt has financed imports as opposed to domestic production.

Compare with the Narc regime’s economic recovery.

It was driven by expansion of production.

Industries long dead like KCC roared back to life, beach hotels long closed were re-opened and refurbished.

With free primary education, purchasing power at the bottom of the pyramid increased as money that would otherwise have been spent on education became available to be spent on luxuries like tea with milk and sugar and meat once or twice a week.

The decade long tight monetary policy was loosened, further stimulating the economy.

Booming business in turn boosted government revenue. By 2006, the government was running a budget surplus.

The Narc era economic recovery is thus akin to a household which has gained an additional income source, for example a promotion, or one of the children has graduated and secured a good job, and can now afford meat every other day.

Jubilee era growth is like a household that has splurged a loan on flashy clothes, sofa sets and a big flat screen TV which impresses the neighbours but the household is back to black tea, meat is now off the menu.

The children are wondering why they are more prosperous and hungry at the same time.

CORRUPTION
We have in the course of the year established that the Jubilee administration is the most corrupt government in our history.

But we now find ourselves contending with a narrative that the opposition is not an alternative.

What kind of society would lack alternatives to the most corrupt and inept administration in its history?

Where does such a society go from there?

This narrative is testament to the hypnotic power of tribalism.

We vote for our own no matter what.

The opposition is not a government in waiting but other tribes lurking in the dark, longing to annihilate us.

The idea that political alternative necessarily means different or new people is a fallacy.

One of the most bizarre moments in my political life was walking into the Serena Hotel’s ballroom for a cocktail to celebrate the formation of Narc, and scanning the room to see Kanu stalwarts George Saitoti, Joseph Kamotho and William Ntimama mingling and laughing heartily with their erstwhile mortal political enemies.

THE WORST ERA

It was the strangest and most confusing feeling.

I stayed only a few minutes and went home quite depressed.

I had the privilege of working with Saitoti thereafter and I have to say he turned out to be one of the most committed and progressive ministers in the Narc government.

“If the opposition is not an alternative” had obtained in 2002, Narc could not have been an alternative to Kanu because even its presidential candidate was a long time Kanu stalwart who once compared felling Kanu with trying to cut down a mugumo tree with a razor blade.

Yet it is undeniable that Narc’s election was a watershed in our political history.

More fundamentally, the narrative glosses over the fact that we have a very clearly defined ideological cleavage in this country that goes back to the Kanu-KPU fallout shortly after independence.

Opposition in Kenya means opposing the Kanu establishment.

It means standing up for political equality and social justice.

Jubilee, as I have said many times, is Kanu 2.0.

It combines the worst of Jomo Kenyatta and Moi regimes.

Jomo’s was tempered by sensible economic management, and Moi’s by political inclusivity.

Jubilee is as incompetent as Moi’s, as exclusionary as Jomo’s and greedier than both combined. The opposition is, always was the alternative.

ELECTIONS
The coming General Election, our sixth of the multiparty era marks 25 years of multiparty politics.

We’ve been a multiparty state for as long as we were a one party state.

As things stand, it promises to be very uncivilised. The perennial question looms. Will it be violent?

As this column has observed before, the three elections with an incumbent president defending have precipitated large scale violence, while the two with retiring presidents 2003 and 2013 did not.

But the 2013, though devoid of large scale violence, was the most toxic election of them all.

That makes for only one successful election out of five— a 20 per cent success rate is not flattering.

To be optimistic, you need religious hope and/or psychology of denial.

Twenty five years on, we find ourselves confronting an establishment that seems incapable of understanding that one cannot dictate rules of a game.

Rules and refereeing are mutually agreed on by all the players.

Children who bend rules quickly learn that — they find themselves without playmates.

DIVERGENT ACTIONS
Albert Hirschman’s 1970 classic Exit, Voice and Loyalty: Responses to Declines in Firms, Organizations, and States speaks to our situation.

Hirschman uses the example of parents faced with deteriorating standards of their local public school.

There are three courses of action open to them, to take children out (exit), to intervene, that is, organise to demand change (voice) or do nothing (loyalty).

That is obvious enough. The insights are about who is likely to do what.

For wealthy parents for whom school fees is no big deal, exit is the most attractive option.

They will withdraw their children and enrol them in private schools, even start one if there are none.

Voice will be the course of action for parents who value education but for whom private school fees would be a sacrifice, hence a last resort.

But if the school authorities are unresponsive, they too will exit.

Loyalty is the course of action for indifferent parents who do not value education much.

Those who could do most to improve the school are the ones that quit.

When the “voice” group also exits, the school will settle down to mediocrity.

This illustration provides an insight into why governments are hostile to the Bridge Academies — giving poor people an exit option from public education is a bigger political challenge to the governments than it appears.

Voice is the course of action for those who have a lot at stake and exit is costly.

In the State context, this would be owners of capital, and the middle class, the bourgeoise if you like.

LET'S WAIT AND SEE

We have three distinct owners of capital, foreign, Asian and African.

Foreign capital lacks political locus standi. Asian capital participates from the periphery if at all.

For both multinational and Asian capital, exit is the rational response to political dysfunction.

African capital prefers a corruptible state as it is still largely in the primitive accumulation phase of capitalist development.

Loyalty is its preferred course.

The middle class lacks critical mass for effective voice and economic hardship will only erode and disempower it more.

Its options are put up, or leave.

After the opposition was outlawed in 1969 it took two decades and the fortuitous intervention of the end of the cold war to restore democracy.

But for the global wind of change, it would have taken at least another decade for the decay of the State to precipitate political change.

It is also conceivable that Moi would still be at the helm — Mugabe is.

We have seven months.

[email protected], @DavidNdii