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We need new sessional paper to spur growth

Sunday September 30 2018

PRODUCTION

Rosemary Muthoni shows yarn produced at Makena Textile Workshop in Meru. PHOTO | FILE | NATION MEDIA GROUP 

KEN GICHINGA
By KEN GICHINGA
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September has been a difficult month for many Kenyans and will go down in history as a major turning point.

Something in the Kenyan psyche snapped after the government’s decision to effect Value Added Tax on petroleum products among other levies despite earlier assurances by MPs that the proposals would be postponed for two more years.

The feeling of being blindsided triggered a nasty public debate about the economic destination of Kenya, a debate that reached its climax during the controversial parliamentary vote on the Finance Bill, 2018.

Judging by the public mood, the debate has now evolved into a broader national conversation about the general direction of Kenya’s economy.

It well might be that time has come for the country to develop a new sessional paper that will seek to define the structural flaw in Kenya’s economic model and subsequently propose remedies.

ECONOMY

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The problem statement is clear: Kenya’s economy has been oriented towards consumption and now needs to be steered towards production.

Statistics support this shocking reality: 85 percent of commercial bank loan accounts are classified under “personal and household consumption” while only one percent of loan accounts are attributed to agriculture — the backbone of the economy.

Admittedly, weaning off an economy from its addiction to consumption and directing it towards production is a Herculean task that will take years.

A meaningful first step needs to take into consideration what economists refer to as the four factors of production: land, labour, capital and the entrepreneur.

A responsible land management policy needs to be at the heart of Kenya’s economic revival.

Indeed, the vast acreage of idle fertile land is proof of how far we have veered away from the path of true progress.

LAND RECORDS

This is in stark contrast to a country such as Israel which is 27 times smaller than Kenya and is largely arid, but still outperforms our country in terms of productivity.

The same can be said about Ireland, a small nation of about five million people but has the productive capacity to feed 50 million people!

It is encouraging that the Kenyan government has begun the digitisation of land records. The benefits of this initiative will be felt across multiple fronts.

For one, it will reduce ownership disputes and allow more energy to be channelled towards production in the real economy.

Digitisation also facilitates efficient land valuations and administration of rates, a big revenue earner for both county and national governments.

Land value tax is often considered perfect because it is non-distortionary and raises enough revenue.

CREDIT

Upon creating an efficient process of collecting land rates, the government will have enough finances to execute its mandate without having to borrow.

Commercial banks will have no business lending to the government and will focus their strategy towards lending to the real economy at lower interest rates.

The business community will thrive from having cheaper access to credit and we shall witness the rise of capital formation, the second factor of production.

The butcher will buy more freezers and the baker will afford more ovens and the overall economy will produce more.

The necessary outcome of a thriving business environment will be the rapid expansion of enterprises, which will absorb the youthful labour force — essentially the third factor of production. This will address youth unemployment.

As more young people get absorbed into the growing businesses, they will acquire vital skills and exposure.

Many will eventually find a calling to innovatively apply those skills and experiences into launching their own ventures.

By addressing these four factors of production in a well-crafted sessional paper, Kenya will be ready for a genuine economic take-off.

Mr Gichinga is Chief Economist at Mentoria Consulting; [email protected]

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