Who will stop this new economic meltdown?

Who will weather this economic downturn? All is not well in our economy and investors are begrudgingly accepting the idea that future returns from their investments might be significantly lower than in recent years.

Successful businesses are those with a constant supply of customers. However, the customers are inflation-battered and have been forced to reduce their consumption.

If you doubt the economic downturn, then visit eateries and entertainment joints in major towns. The number of customers at these joints are an indication of the erosion in the citizens’ spending power. Some established joints have closed down and many, if you talk to the owners are not able to cover their operating costs - they are not breaking even. The workers go for months without pay, and many are going home.

Some of these food joints have no customers because many Kenyans have become jobless due to high inflation.

The worst is that many families cannot afford two meals a day, with some having to do with one meal every two days. Next time there is a census, the quality of food and the number of meals taken should be included in the survey. Indeed, a labour intensive nation whose majority are hungry cannot develop. We need to tailor economic policies to first feed the nation and then ensure their comfort and dignity. Unknown to many of us, dignity is a security issue.

Human dignity

A nation in which a majority of the citizenry is undignified is insecure, corruptible and violent. The violence we are witnessing in the society could be related to the lack of dignity, fear and greed. It is encouraging that the Senate is debating a bill on dignity - the Preservation of Human Dignity and Enforcement and Social Rights Bill (Senate Bills No. 27 of 2018). We also need to know the number of beggars, their level of begging and the rate at which it is increasing as well as making a distinction between begging and help.

A research report concluded that “for centuries, begging has been associated with escaping labour and this has been treated by ruling authorities as acceptable ‘deserving’ of alms. Begging must be distinguished from ‘ordinary’ economic activity. Unfortunately, there are no jobs for the youth, which has pushed them to undignified activities.” The older workers are retiring while the youth, many of them with degrees, including in engineering, are jobless.

The labour market is also getting thinner and so are the disposable incomes. The result is a decline in our quality of life. Our economic planners must change this by putting in place policies that reduce poverty and promote prosperity. The problem with the Government is lack of coordination. An example was when the Treasury introduced a 16 per cent VAT on books, after which the Ministry of Education offered the same books for free to public schools! If you do not believe that the economy is in the decline, then look at what is happening at Nairobi Securities Exchange (NSE).

Financial market

We have no reason to believe that the goings-on at NSE is not a true reflection of the state of our economy. In any case, a well-functioning financial market is a key to high economic growth.

This is because the NSE as a financial market facilitates channelling of funds from one person or business without investment opportunities, to one who has investment opportunity but lack funds.

The implication is that activities at the NSE impact economic efficiency.

The main indicator of performance at NSE is the stock index. Stock market indexes are frequently used to monitor the behaviour of a group of stocks, but it is specifically used to measure the change in the wealth of shareholders of firms listed at NSE.

Major indexes include the NSE-25-Share Index, NSE All-Share Indexes and NSE 20-Share index. All the three confirm the economic decline which has been massive between April 2018 and September 2018. The recent tax increases are likely to worsen bourse activities. Tax is inflationary. It will increase the cost of living, widening the gap between the rich and the poor. If it causes the prices of the goods and services to rise, it will make exports less competitive globally and impact negatively on the balance of trade. Should that happen, then we’d have to devalue our currency to make our exports attractive.

-The writer teaches at the University of Nairobi

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