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With 2020 a bad year, Kenya needs robust recovery strategy

By XN Iraki | December 6th 2020 at 00:14:00 GMT +0300

Madaraka market in Mavoko sub-county, Machakos. [David Njaaga, Standard]

What will be Kenya’s economic growth rate this year? The Central Bank seems more optimistic than the Kenya Bureau of Standards (KEBS) but the difference is not that significant to bother us.

A neutral measure of Kenya’s economic performance would be the number of active WhatsApp harambees. The more they are, the poorer the economic performance. I am sure you are in such a harambee group as you read this.

The economy did badly this year like all global economies. The two national institutions should be happy there is some growth, no matter how minimal. It could have been worse.

They should thank God. Good rains saved the economy from the worst. The partial closure of the economy, which was not as drastic as in some parts of the world left the economy humming. It’s another question how to deal with a new surge in Covid-19 cases.

We can’t forget the resilience of the Kenya people. Left on his own, the average Kenyan decided to go on with economic activities, creating demand for goods and services.

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Most Kenyans decided they are essential workers who must work. Within a month, they had to get out of their hideouts, economic reality demanded so.

The weakest link in the economy is politics. Despite all the threats of the Covid-19 to the economy and lives, politicians can’t stop their business. Have our politicians checked out how their peers reacted in times of crisis like war or economic depression? Give credit, a stimulus package was splashed. But more can be done.

My advice, the economy is not yet out of the doldrums. I request Treasury to delay reinstating the old taxes for a year. The low taxes will act as an economic stimulus; money is more efficiently utilised in private hands than in public coffers.

Lower taxes will make Kenyans happy and consume more leading to higher tax revenues. Keeping taxes low is not voodoo economics, just try it!

Someone once told me that politics does not follow the normal rules, expected from a rational human being. Covid-19 seems to have confirmed that. Now, I know why I can’t make a great politician - I am too human.

If I had time, I would spend the rest of my academic life trying to understand the minds of politicians. But as President Moi who interacted with politicians longer once put it, “it’s difficult to understand the African mind.” Why should I embark on a project likely to fail?

The Covid-19 brought out the reality of Kenyan politics and the economy. One would have thought that with a crisis such as Covid-19, we would forget our differences and confront the crisis head-on, try and salvage our economy.

Curiously, politicians had come together earlier through the Building Bridges Initiative (BBI). Is there something in BBI that matters more than a threat to our lives and the economy from Covid-19? My head is spinning…

Let me leave out politics and its intrigues, for now, a behavioural scientist or an idler can take up the challenge. Long before Covid-19, we had accumulated lots of debt and citizens were getting concerned. We set a ceiling of Sh9 trillion. But it’s now nearer than we thought with the economic slowdown.

 I have nothing against debt as long as it’s put into the right use. Think of it, with low-interest rates courtesy of Covid-19, would debt not be a source of “cheap money”?

Amidst our debt, the International Monetarily Fund (IMF) and World Bank have come in. If you are young enough like me, you can recall the 1980s and early 1990s when two institutions made our politicians shake in their boots.

The two demanded structural changes in our economy. They advocated more private sector driven economy. Taxes went up and subsidies were reduced. Exchange controls were dispensed with.

We started paying for university education, medical and other services that used to be “free”. It was a bitter pill. It mirrored what happened in Russia as it shifted from command system to market economy.

Price controls were relaxed and the price of basic commodities from sugar to unga went up but shortages ended.

One of the bitterest pills was a retrenchment, where State staff had to be let go. If the IMF repeats that demand with our counties and their employees, it could be some drama.

In the private sector, bad economic times usually lead to job losses. It’s hard in the public sector for political reasons.

The return of Bretton Woods Institutions is a sign that we need to turn around our economy, with or without Covid-19. It is another question who will bell the cat.

Beyond more borrowing, can we reduce waste? Are there services that are replicated at the two levels of the government? Are there jobs that can be combined?

Can counties share some services? Can we start driving Vitz instead of V8? Can we reduce the “ceremonies” in governments and the costs thereof? What of graft? The economic pains will now force governments to act.

Be sure, some heads will roll as negotiations with IMF and World Bank go on. The alternative is higher taxes. With fewer jobs, tax revenues will go down. A big dilemma for the State is retracting Covid-19 tax reliefs.

The State does not have the flexibility of the private sector. But with Covid-19, we have to make hard decisions. One wishes we had made them when there was no crisis. Is this our moment of truth?

I do not envy politicians but they must turn around the economy before 2022 when voters could punish them. Squeezed between voters who have become enlightened and lenders who must safeguard their money, the government does not have lots of option.

They have to make hard decisions. Faced with such a crisis, Kenya has no choice but to become a modern nation.

- The writer is an associate professor at the University of Nairobi. [email protected]


KEBS Kenya Economy Economic Recovery
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