The economy is utterly ruined unless political temperatures are lowered

Tuesday March 13 2012



Until we get our politics right, this economy will not take off. We don’t even know when the elections will be held. Yet political temperatures are right now at fever point.

We had all hoped that the transition to the post-Kibaki Kenya would herald an era of new politics.

When we changed the Constitution by introducing things such as devolution and constitutional checks and balances, the hope was that the premium which the political class in Kenya place on political power would come down.

Our experience had taught us that where you have a system in which the political class places a high premium on capturing political power, politics becomes a struggle with few restraining rules.

We had hoped that since the incumbent was not going to participate in the elections, the stakes on holding political office would be lower this time round.

We were dead wrong. All indications are that we are going to into another do-or-die election. The issues surrounding the International Criminal |Court have pushed the stakes even higher.
As before, this is going to be politics without principles. Politics in this country is not about disagreements over competing visions.

What does this emerging scenario portend for the prospects of the economy in the medium term? First, the most critical economic risk this country faces is the uncertainty over the Kibaki succession.

Until we jump this hurdle, investors and creditors will remain on a wait-and-see mode. Very little forward movement will take place on the economic front. The extravagant predictions I hear government officials mouth all the time will turn out to be worthless.

Investors abhor uncertainty and risky political environments. It is very unlikely that we will enjoy stable macro-economic conditions in such a situation.

As experience has amply demonstrated, do-or-die elections tend to promote fiscal laxity. The teachers will be given their long-delayed salary increments. The striking nurses will all be paid better salaries.

All politically-inspired infrastructure projects will be funded. The public wage bill will balloon unsustainably, leaving little money for operations and management, and eating up what should go to the development budget.

Do-or-die elections are what created the Goldenberg scandal. In that election, the incumbents-, fearing that they were about to be dethroned, raided the Central Bank and looted billions of shillings.

There emerged what came to be known as political banks – conduits for stolen money from the Central Bank.

We witnessed sensational cases of cheque-kiting between Post Bank Credit, Trade Bank and Exchange Bank where billions of shillings were laundered out of the Treasury and the Central Bank to fund the elections.

The National Social Security Fund was turned into a source of largesse, used to fund kickback-motivated projects to raise funds for the elections.

Treasury bonds worth billions of shilling were issued out to politically-connected road contractors to pay questionable pending bills arising from shady court awards.

We must appeal to the key players in this coming elections to bring political temperatures down. For the country to transit to a post-Kibaki Kenya smoothly, the stakes must be deliberately lowered.

We need to create an environment that permits bargaining between opponents, and tolerance. The new Constitution has offered us the best chance to make a major break with the past.

Presently, macro-economic conditions are beginning to look up. Inflation is trending downward, and the exchange rate has become more stable.

I expected the shilling to strengthen even further when the government finally closes $600 million borrowing deal it has been negotiating with a syndicate of international banks.

Still, this is an economy facing too many risks. Although we are not categorised among the highly-indebted countries, we have a large stock of domestic debt. We are faced with rising public sector wage bill, a large current account deficit, and an unprecedented high budget deficit.

We are confronted with a presidential election which may aggravate factionalism and ethnic loyalty and erode the credibility of Kenya in the eyes of the international community.

We must bring political temperatures down.