Does rebasing make economic sense?

Economists love their jargon. Last week, they treated us to a new one - debasing. In layperson’s language, debasing simply means recalculating the gross domestic product (GDP) of a country. Innovations spawn new goods and services, which affect the size of the economy. Two decades ago, we had neither M-Pesa nor mobile banking.

We never had oil and other activities. That increases the size of the economy. However, the term debasing historically had negative connotations. It meant making coins less valuable by melting them down and adding less precious metal to make new ones. After including the new services and goods in the calculation of GDP, our economy has ‘expanded’ by 25 per cent, lifting Kenya into the league of the top ten economies in Africa. Is that good or bad for our 50-year-old country?

Let us point out that the Kenyan economy is bigger than what was reported, there are many economic activities that are not captured by our statistics from domestic workers to underground businesses that make lots of money. You know them... To policy makers, debasing will help in planning; we have better and more accurate information. It is like visiting a city where you know the street names but you later discover buildings are numbered. It is much easier to navigate.

Nigerian case

We now know our economy better; we know which sectors are booming and which ones are declining. In the Nigerian case, the importance or contribution of oil to the economy declined after debasing. In Kenya, agricultural contribution to the economy declined. Did the credit market know when it kept contribution to agriculture low? In Canada, agriculture’s contribution to the economy is less than two per cent and no one goes hungry.

An interesting effect is that if the GDP goes up, the percentage of your debts as part of GDP goes down, which gives the Government more room for economic decisions from taxation to borrowing more money. Investors are attracted to a bigger and richer economy. Have you noted how high-end hotels and other business are setting up shop in Kenya?

Some argue that debasing gives us bragging rights, and the feel good effect can lead to better economic performance. Did we all not celebrate if we improved our ranking in national exams? At international meetings and negotiations, we can now stand tall.

Kenya followed Nigeria and Ghana in debasing their economy. When I visited Ghana two years ago and travelled to their countryside I remember suggesting that there was no way Ghana could be classified as more developed than Kenya. Debasing confirmed that.

Economists will quickly add that the market had already factored in the information on the size of our economy; that is why there was no dramatic rise in share prices or exchange rates. That is why bus fares were the same the next day and there were no extra sufurias of ugali. Debasing is like disclosing that you have been keeping money under your mattress. That does not make you richer. Now we know how to classify you; you’re richer because of new information not because you have more money. Your creditors and debtors now know how to treat you.

The downside

In a debased economy, creditors might now demand a higher interest rate because they know we have “grown up” economically. They will not treat us with kid’s gloves. However, is that not what we all aspired for? The Government might now find that it will access some loans at a higher interest rate. But in the long run, the confidence in the bigger economy could lead to lower interests rates. You can get a mortgage in Canada at three per cent or less.

Another downside is that we may now relax because we attained middle-income status 16 years before 2030. We just need to use the MS Word function and replace middle income with developed in Vision 2030. It will be unfair to current and future generations if Kenya will not be a developed county 66 years after uhuru. The debasing of the economy should give us a chance to refocus our energy on the critical sectors that can catapult us to a higher economic status.

Remember we developed Vision 2030 when we had not discovered oil. Riding on oil, our innovation espoused by M-Pesa and the youthfulness of our leaders, there is no reason we cannot achieve developed status by 2030.

We should rewrite Vision 2030 to reflect this reality. Did Singapore not become a developed country in less than 50 years? We should however, go beyond debasing. We must sort our politics and stop spending too much energy on side issues that do not add value to the economy. Too many Kenyans want to share the national wealth without producing anything.

We must be more inclusive in our quest to be developed. Think of the amount of money that goes to metal grills for doors and windows to keep out thieves and criminals from our homes. Does it bother us that one of the fastest growing industries in Kenya is private security? We use to have Securicor and a few others. Now there are hundreds of such firms.

We shall not attain developed country status while we still live in the shadow of fear. After debasing our economy, let us now focus on what debases our lives. Nova Scotia, a Canadian province with a population of 940, 000 people gets 1.8 million tourists. If we emulate Nova Scotia, we should get 80 million tourists!

The writer is at the University of Toronto on an intellectual

pilgrimage. xniraki@gmail.com