The bean counters should take heed: You cannot shrink into prosperity
What you need to know:
- Kenya has profound economic problems that can only be addressed through massive renewal of production and high spending on infrastructure.
- The more rapidly the economy grows, the more you are able to deal with the ballooning wages.
If you asked me to comment on the difference between the economic strategies of former presidents Moi and Kibaki, I would say the following:
First, economic management under Moi, especially towards the end of his rule, was carried out by an elite who approached strategy with the mentality of accountants.
With the support and patronage of the International Monetary Fund and the World Bank, and stewarded by the then Head of Public Service, Dr Richard Leakey, President Moi implemented the most comprehensive civil service retrenchment programme in the history of this country.
When you approach economic management with the mentality of an accountant, your obsession is on making income and expenditure balance out.
You are obsessed with fiscal discipline and with maintaining macroeconomic stability – keeping inflation low, a stable exchange rate and delivering market-determined interest rates.
"FORCED TO LEND"
In the case of companies, what you will observe is that where a firm finds it difficult to deliver on growth, the bean counters will propose job cuts and postponement of capex (capital expenditures).
But is it really possible to shrink into greatness? As we all know, the economic strategies followed by the Moi regime did not deliver growth.
Simply put, Kibaki’s approach was about growing the economy at all costs. He borrowed massively and almost tripled the budget for roads, primary education and energy in his very first budget.
And, one of the most dramatic decisions made by the Kibaki administration in the very early stages through Finance minister David Mwiraria, was to reduce the cash ratio by a massive margin.
As it turned out, the impact of the massive reduction in the Cash Ratio was a dramatic fall in the Treasury Bill rate. At one point, this rate tumbled to below one per cent.
Commercial banks suddenly found themselves in a position where they could no longer profitably buy Treasury Bills.
Banks were forced to learn to lend money to the common man. For the first time, commercial banks started hawking loans to the people.
Kibakinomics was about low interest rates and maintaining high public spending on infrastructure. The economy grew rapidly, hitting the level of seven per cent in 2007.
As I saw Finance minister Henry Rotich and his Devolution counterpart Anne Waiguru reel out statistics about the rising wage bill during the conference on the subject on Monday, I smelt the return of bean counters to the helm of economic policy-making.
Without doubt, the public wage bill has grown unsustainably. We are in the middle of a recurrent costs crisis, with the wage bill beginning to crowd out essential government services.
MASSIVE RETRENCHMENT
But where I disagree is when I heard speakers at the Monday conference trying to present massive retrenchment in the civil service as the economic game-changer for the medium term.
Kenya has profound economic problems that can only be addressed through massive renewal of production and high spending on infrastructure.
Indeed, if we can keep the economy growing at the 10 per cent of GDP level set in Vision 2030, we would not be whining so much about the wage bill.
That Monday conference was more or less a campaign to prepare the public to the inevitability of future jobs cuts in the civil service.
The more rapidly the economy grows, the more you are able to deal with the ballooning wages. The worrisome thing is that the momentum to roll-out of the major investments in infrastructure appears to be waning.
These days, you hardly hear about Konza digital city. Which of the Lapsset projects is being rolled out? Where are the major investments in security we have been planning?
How far way is the Greenfields airport project? What happened to the Grand falls hydro-electric project on River Tana?
Yes, the wage bill doesn’t look pretty. But we must consistently put the focus on growing the top line.
It is not possible to shrink into prosperity.
