Any government would be keen to announce the good tidings of its economy – whether real, anticipated or simply fabricated, but it is Uhuru Kenyatta’s government mastery of telling fables that is astounding.
Every speech the president reads sounds like the depiction of a Disneyworld Nirvana that can only exits in a fantasy movie. But you can’t blame government propaganda machine, as propaganda is a powerful tool for political expediency.
For now, however, the only independent numbers that the Kenyatta government can trumpet are the GDP growth numbers; a most misleading indicator. Our case is worse because, while World Bank reported our economy grew by 5.7 per cent up from 5.5 per cent in 2017, it is on record that this growth was driven by public expenditure, with no contribution from the private sector.
A few months ago, it was almost blasphemous to attack the ‘Handshake’, but as it stands now, even the optimists have no choice but to join the skeptics in wondering what value it was to deliver. As an armchair analyst, it was easy to be seduced to draw a naïve comparison between the 2007/2008 Kibaki-Raila ceasefire and the 2018 ‘Handshake’. Unfortunately, political temperatures have not gone down a year later, neither has the economy rebounded.
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One of the surest economic barometers in a non- mineral economy such as Kenya is the financial services sector. All the other sectors in the body-construct of the economy swivel around financial services.
Over the past few months, several things pertinent to our financial services sector reveal the troubled waters of Kenya’s economy and attractiveness as an investment destination.
All Tier 3 and microfinance banks are making losses. And while this has worsened in the last 12 months, this was a problem precipitated in Uhuru Kenyatta’s first term.
When Kiambu Town MP Jude Jomo brought amendments to the Banking Act that saw interest rates capped, Uhuru Kenyatta signed it into law despite warnings from Treasury and the Central Bank of Kenya. President Mwai Kibaki must be a very disappointed man. One of Kibaki’s legacies was to open up credit to Kenyans and making Kenya a real free market economy.
It was in Kibaki’s tenure that banks opened their doors to the poor. The ripple effect of this was an upsurge of micro, small and medium enterprises (MSMEs). The MSMEs in Kenya like in other developing economies have become a major boon to alleviating unemployment.
By prolonging interests rate caps, the Kenyan government is denying these MSMEs their lifeline which is credit as availed by commercial banks. From a purely political perspective, it was understandable why Uhuru Kenyatta agreed to sign the interest cap bill into law. However weak a premise it is, he was just winding up his first term and was looking for a second term, and the way the bill was marketed to the public was that it was a Robin Hood silver bullet to cut banks to size.
I say it was a weak premise because while the bill promised cheaper credit, it meant that banks would raise their risk profiling of borrowers, locking out MSMEs from the creditworthiness band.
Kenyatta chose the easier route by signing the bill into law instead of explaining why such a law was dangerous to the economy. Three years later, the chickens have come home to roost, with a blue-collar economy once thriving and an alternative source of employment, plummeting to levels that have seen more auctioneers’ adverts than job advertisements in newspapers.
When one goes through newspaper pages and there are more auctioneers’ adverts than any other adverts, that’s an indicator of a badly injured economy. This means that the financial services sector, around which other facets of the economy pivot, is in a mess. It means that banks are reporting less profits, and their balance sheets have been hit by unprecedented cases of bad debts.
Impairment of loan portfolios is a symptom of nonperforming economic fundamentals, chief among them the monetary policy where Central Bank’s options are largely limited by interest rate caps.
The reason optimists and skeptics have met at a middle ground on the ineptitude of the handshake is that in times like this, one would have thought the political climate is ripe to undo the credit mess that has ruined our blue-collar economy.
Mr Karugu is a strategy and analytics consultant based in [email protected]