How to eliminate current account deficits

Our leaders would do well if they take advantage of the continued narrowing of the current account deficit to step up measures that eliminate it altogether.

This will lead to a trade surplus. It would silence critics who accuse the State of piling debt that could be unsustainable in the event the global economy goes on a free-fall. The leadership knows what Kenya needs to do to increase exports. The tragedy, though, is that it is taking time to go beyond formulating policy.

Yet, a survey of countries that industrialised and pulled the majority of their people from poverty are those whose governments prioritised the mix of products to be produced for the export markets. It took a stake in the companies producing them.

China is one of these countries. It aims to eliminate poverty by next year. All the major manufacturing firms in China have a high degree of State ownership.

SEE ALSO :Senate slows State bid to grow debt to Sh9tr

There is no reason, for example, for the State to shy away from investing in firms producing apparel and other products covered by the African Growth and Opportunity Act (Agoa) signed with the US in 2000.

Industrialisation bonds

Indications are that Kenya exports only a tiny fraction of goods allowed into the US market under Agoa. Also, the majority of the firms exporting these products hardly use local raw materials preferring to import them.

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The complaints raised by the workers in these firms also increases doubts about the level of benefits the country derives from these investments.

Kenya would be better served were it to invest in this sub-sector with the aim of selling off its ownership to locals through listing.

SEE ALSO :Borrowing spree as State adds Sh150b in three months

Treasury could borrow the cash required to set up industries through the issuance of special industrialisation bonds.

Industrialised nations identified sectors and industries attractive to foreign investors. That way, they avoided the laissez-faire investment, where foreign investors are allowed into sectors that generate cash quickly which they then repatriate just as fast.

The result is the loss of foreign exchange. These investments increase the number of people who slide into absolute poverty annually. Arguments that these firms pay taxes and promote sports are untenable when weighed against harm caused.

[Mbatau wa Ngai] [email protected]   

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