Plaudits for Kenya's economy should not mask bigger battles ahead
What you need to know:
- Among the catalysts of the economy’s growth are the private sector, largely, and the country’s resilience to global economic shocks.
- For the first time in several years the horizon looks clearer, attractive and positive. There seems to be light and the end of the tunnel. We hope it is not an on-coming train.
- The government also needs to deal with David Ndii’s three brilliant dichotomies - liberal-illiberal, the corrupt-clean and the competent-incompetent - and score at least two out of three.
Kenya’s economic growth has attracted the world’s attention. Things seem to be moving and it’s getting exciting!
Reuben Muhindi, one of the cleverest and youngest financial analysts I know, told me that “2014 Africa Attractiveness”, conducted by Ernst & Young, ranked Kenya among the three most attractive investment destinations in sub-Saharan Africa together with South Africa and Nigeria.
These three economies, Kenya, Nigeria and South Africa, account for over 40 per cent of the total Foreign Direct Investment (FDI) projects in the continent, according to this survey. Angola was fourth.
The survey also ranked Nairobi as the third most attractive city after Johannesburg and Cape Town. It highlighted important factors that cities needed to consider to attract foreign investment: infrastructure (77 per cent), consumer base (73 per cent), local labour cost and productivity (73 per cent) and a skilled workforce (73 per cent).
It is amazing that economic growth and development is triggered by a burgeoning African middle class characterised by growing levels of discretionary income, growth in local entrepreneurship and investment infrastructure.
Just a few weeks ago, Bloomberg Business released another survey. Kenya was projected to be the third-fastest growing economy in the world in 2015, behind China and the Philippines.
This survey of 57 countries projected Kenya’s economy to grow at 6 per cent or even better this year. Ironically, this tremendous growth comes as the economy faces challenges in the tourism sector, unemployment and poverty.
Nigeria, the only other African country on the list, is projected to grow at 4.9 per cent this year.
Earlier this year, the US multinational bank Citi had also painted a positive economic outlook for Kenya’s growth. According to Citi, this growth could be sustained by investment in infrastructure, fiscal discipline and political stability.
The report highlighted the need to create an enabling business environment. It also expressed some concerns, stating, “…there are also some important nagging doubts. These are partially political, but perhaps more crucially economic. In recent years Kenya has run significant twin deficits. And it is clear in 2014 that the government is still struggling to achieve fiscal consolidation, while at the same time, current account has widened significantly.”
Among the catalysts of the economy’s growth are the private sector, largely, and the country’s resilience to global economic shocks.
'LUCKY SEVEN'
According to Citi, “the bigger battle may prove to be economic” as there’s the need to maintain economic discipline to sustain this growth. It’s not easy to achieve this in the midst of serious political problems that remain a great concern in the country.
Citi’s investment arm asserted that the country’s capital market growth prospects remained bullish compared to other frontier markets in 2015, but raised the concern on expensive valuations on stocks in the financial sector. The growth prospects are supported by a stable currency and a reducing current account deficit.
Last month’s Fortune Magazine ranked Kenya as one of the seven top investment destinations to watch in emerging markets. These economies dubbed the “Lucky Seven” which also include Indonesia, Mexico, India, Colombia, Poland and Malaysia are tipped to challenge the BRICS as new frontiers for long-term investment with India, one of the BRICS nations, remaining as a capital destination.
China’s economy has slowed down, hitting a 24-year low of 7.4 per cent in 2014, Brazil is on the brink of recession, while a drop in crude prices has taken a toll on Russia.
The report rated Kenya highest in terms of sound regulatory framework in sub-Saharan Africa. This has significantly attracted foreign investors.
According to Fortune, “Few countries offer greater promise than Kenya,” and it takes note of the government investment in infrastructure development, the power sector and the improving macro-economic stability.
The report cites the ruling coalition’s dominance in both Houses as a key factor as to why the country is likely to continue on its upward trend. It also attributes withdraw of charges against President Kenyatta as a catalyst of renewed investor confidence.
HAPHAZARDLY BORROWED
The country has embarked on a program to address the challenge on the ease of doing business by having the Ministry of Industrialization and Enterprise Development in cooperation with other government agencies, lead the Business Climate Reform Agenda.
Reducing the cost of doing business coupled with a stable macro-economic environment is expected to boost investors’ confidence.
For the first time in several years, the horizon looks clearer, attractive and positive. There seems to be light at the end of the tunnel. We hope it is not an on-coming train.
Reuben has hard, objective facts at hand as an aspiring economist. But it is also clear that this growth requires consistent policies on infrastructure and power sector investment, increased ease of doing business with a sound regulatory framework, sustained consumer demand which is a characteristic of a bulging middle class, education investment, growth of discretionary income, resilience to external macro-economic shocks and improved macro-economic stability.
A huge chunk of this fast economic growth is pegged to government expenditure. If the money government is spending has been haphazardly borrowed and there is no organised growth plan we are simply shooting down our future generation’s growth and happiness.
We have enough brilliant economists to keep us on the right track. Nonetheless, there is “collateral damage” and this needs to be kept on check.
THE BABY IS GROWING
The current account deficit is worrying as well as the debt levels, wealth inequalities, inordinate consumerism and depreciation of the shilling, unemployment rates, insecurity, political instability and unpredictability, fiscal indiscipline and, finally, corruption.
The government needs to tackle corruption. Investors need to see some sort of commitment, which means people being tried and if found guilty, jailed.
The government also needs to deal with David Ndii’s three brilliant dichotomies — liberal-illiberal, the corrupt-clean and the competent-incompetent — and score at least two out of three.
Private development is moving at lightning speed. Buildings and huge enterprises are popping up everywhere. The baby is growing, and we can’t wait to buy new clothes.
If we want to ensure sustainable growth we need to harmonise our laws and policies. Lawyers have been detached from understanding economics for too long.
Yesterday, Sarah Ombija showed me a 1916 quotation from Justice Brandeis: “a lawyer who has not studied economics is very apt to become … a public enemy.”
Our infrastructure needs to catch up with our economic growth. The deviation of public funds into private pockets is causing an infernal imbalance.
Public utilities, roads, sidewalks and services remain maimed, small and insufficient…and traffic in the city remains, in Mr Bean’s words, informal as well as infernal.
Dr Franceschi is the dean of Strathmore Law School. [email protected], Twitter: @lgfranceschi
