Kenya's economy will remain inefficient without reforms that encourage competition
What you need to know:
- Kenya’s growth prospects will be confined to the three to five per cent range for the foreseeable future unless a new set of big, bold and smart domestic reforms are allowed to shift the economy towards new, more efficient industries.
- Primarily, regulatory institutions which have developed cozy relationships with incumbent firms would have to emphasize competition between firms.
- All of the main cereals consumed in Kenya, together with sugar, are cheaper not only within the member countries of the East African Community, but also in countries with comparable incomes and economy sizes.
- Curiously enough, immigration policy is decidedly biased against younger immigrants in the misguided belief that they would take jobs away from Kenya’s youth.
Recently, while examining the economic imperatives for this country, the regulatory policy team of the Institute of Economic Affairs concluded that the country has reached the limits of the growth and welfare gains driven by the large-scale policy changes that commenced in the mid 1990s.
These changes led to the deregulation of many sectors including energy, telecommunications, media and banking, as well as limited agricultural sector reforms.
The implication is that despite enormous efforts, Kenya’s growth prospects will be confined to the three to five per cent range for the foreseeable future unless a new set of big, bold and smart domestic reforms are allowed to shift the economy towards new, more efficient industries.
Primarily, regulatory institutions which have developed cozy relationships with incumbent firms would have to emphasise competition between firms. The Competition Authority of Kenya will have to be more prominent in reducing the role of monopolies and cartels in the economy.
The idea that a second-generation of economic policy reforms is required is hardly debatable for those who observe Kenya’s economy.
BIG VOICES IN LOBBIES
What is less likely to meet widespread approval is the distillation of the complex economic policy environment into the prescriptive language that invigorates economic competition between domestic firms on one hand and between these same domestic firms and firms based outside the country on the other.
As expected, new entrants and smaller firms are bound to be more supportive of economic competition than established firms with a big voice in business lobbies.
Needless to mention, this strength, access to the bureaucracy and united voice is useful for selected individual firms, but traps the economy in an environment of high costs, inefficiency, and a reduction in the variety of goods and services available to consumers.
Regular surveys disclose that many households in Kenya are concerned with the costs of living. This, together with the data from the Kenya National Bureau of Statistics, proves that households at the median income level spend nearly 40 per cent of all income on food.
THE POOR PAY A PREMIUM
The basic food items are sugar, which is protected from direct competition from imports, maize, where a majority of the large scale farmers receive subsidised fertilizer, and wheat and rice in which the country is not self-sufficient, but protected by import tariffs of more than ten per cent.
All of the main cereals consumed in Kenya together with sugar are cheaper not only within the member countries of the East African Community, but also in countries with comparable incomes and economy sizes.
This result shows that the Kenyan households comprised mostly of very poor people pay a premium for food because of economic nationalism that forestalls competition for these basic products.
In sum, competition in the agriculture commodities markets in Kenya is a poverty-fighting policy tool.
AGAINST YOUNGER IMMIGRANTS
It is important to ask whether regulatory reforms that put competition front and centre would help to increase employment opportunities. Competiton, being a dynamic process that generates efficiency and shifts the relative positions of firms and industries, would benefit Kenya’s small and medium-sized firms, where a majority of Kenyan jobs reside.
This cluster of firms should encourage competition and the expansion and linkages with larger firms would spiral into new jobs.
Among the new industries that could be developed are those supported by or springing from information technology. Curiously enough, immigration policy is decidedly biased against younger immigrants in the misguided belief that they would take jobs away from Kenya’s youth.
What this illustrates is how the beneficial effects of competition is blunted by nativist logic of Kenya’s immigration policies. Again, the countries with the most valuable firms in the technology industry show that competition is a necessity.
POOR QUALITY NOTEBOOKS
The quality of a large number of products and services produced in the country could also improve by allowing for external competition.
Here, more open markets would ensure that the variety of goods in the country is improved because liberalisation of trade would allow for new products to compete in Kenya’s markets.
Speaking to students who visit Kenya has led me to the realisation that the quality of writing paper and notebooks in Kenya is shockingly poor.
Considering that Kenya has millions of children in school and with a growing college population, this may be an opportunity for either new investment or competition from entrepreneurs who can supply better quality services.
Increased employment opportunities, a reduced cost of living and overall economic growth can all be reached by activating economic competition in Kenya.
Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame
