Tale of two economists: Kenya's moneymen set for clash of ideas

Treasury CS Prof Njuguna Ndung’u (left) and CBK Governor Dr Patrick Njoroge. [File, Standard]

Days after the former National Treasury Cabinet Secretary Henry Rotich and his Principal Secretary Dr Kamau Thugge were hounded out of office on allegations of misappropriating public funds, the Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge, went for the jugular. 

In a rare bare-knuckle attack on Rotich’s tenure, Dr Njoroge described Treasury’s budget-making process as “abracadabra,” where revenue numbers were randomly included in the budget books “from thin air.”

Dr Njoroge, who at some point accused some government officials of emasculating CBK to the extent that it couldn’t act as it is supposed to under the standard framework, might just find himself in another clash of ideas with the new National Treasury Cabinet Secretary Prof Njuguna Ndung’u.

Prof Ndung’u, who was Dr Njoroge’s predecessor, has replaced Ukur Yatani as the head of the Exchequer.

Dr Njoroge is in charge of the country’s monetary policy. And among his roles is ensuring that there is price stability in the economy by using such tools as the Central Bank Rate (CBR), CBK’s benchmark lending rate, to increase or reduce interest rates charged by commercial banks.

Fiscal policy

Prof Ndung’u, on the other hand, will be in charge of the fiscal policy - taxation and government spending.

Economists agree that there is a need for a symbiotic relationship between CBK and the National Treasury.

After all, CBK is also the banker and fiscal agent for the government.

But as has been the case in several countries amid recession fears, the fiscal and monetary policies have largely been at odds with each other.

In Kenya, for example, the new government of President William Ruto has signalled that it wants cheap money for the hustlers - mama mboga (greengrocers), boda boda operators and jua Kali artisans. However, following a surge in the prices of goods and services in the economy, CBK’s Monetary Policy Committee has been tightening the supply of money by increasing the CBR.

This has, in turn, seen banks increase their interest rates.

This is likely to accentuate the differences between Dr Njoroge and Prof Ndung’u. From the surface, it looks like the two are cut from the same cloth.

They are agemates. Dr Njoroge is 61 years old, while Prof Ndung’u is 62. They both went to the University of Nairobi, where they studied economics.

But as the World War II British Prime Minister Winston Churchill once said, if you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.

Luxurious house

But their personalities are different, and so are their worldviews.

Central Bank of Kenya Governor Patrick Ngugi Njoroge. [File, Standard]

A member of the Catholic Church’s Opus Dei sect, Dr Njoroge is an avowed celibate, who says he has no known property in Kenya and turned down a luxurious house in Muthaiga.

Prof Ndung’u, on the other hand, is married with children. Recently, while being vetted, the former lecturer at the University of Nairobi put his net worth at Sh950 million.

Though described as a science and utilises a lot of mathematical formulas, experts agree that Economics is not an exact science like physics or chemistry.

Expectedly, Dr Njoroge and Prof Ndung’u have different interpretations of how to run CBK, and by extension, the economy.

These divergent views have already started playing out. When he was being vetted by the National Assembly, Prof Ndung’u accused his successor at the CBK, without naming him, of high-handedness.

The former associate lecturer at the University of Nairobi told legislators that on his watch, no bank collapsed.

“But that does not mean there were no problems. There were problems, but we had to develop interventions to save the market,” said Prof Ndung’u during the confirmation hearing by the Appointment Committee of the National Assembly, noting that during his tenure, several mergers were done with an aim of preventing any collapse.

“Market situations change, and the regulator must know what to do. A regulator is not someone who is waving an axe in the market, he is a person who is trying to understand, help develop, regulate and protect the market.”  

Dr Njoroge’s time at CBK’s corner office has seen three banks - Dubai Bank, Imperial Bank and Chase Bank - collapse.  MPs too, at some point, were baying for his head following the implementation of know-your-customer rules that obligated banks to question the source or purpose of funds every time a customer deposited or withdrew more than Sh1 million.

They complained that the directive had seen transactions in the economy reduce. Certainly, there is no love lost between bankers and Dr Njoroge. Most of them can’t wait for his exit next year. Some even wish for his early exit.

He has been hard on banks. And like a good referee, he is said to have tried to maintain an arms-length relationship with lenders.

And rightly so. Unlike some of his predecessors, Dr Njoroge, sources say, is not the kind to play golf with the chief executive of banks in the evening. Instead, he spends his evenings in a communal house in Nairobi’s Loresho estate. He has cracked down on speculators in the forex market, a situation that some reckon might have helped the local currency to stabilise, albeit with the downside of reducing liquidity in the market.

President William Ruto (right) chats with Treasury CS Njuguna Ndung'u during a past meeting. [DPPS]

If banks hate Dr Njoroge, digital lenders loathe him.

Most of them will never forgive him after he made them lose hundreds of millions of shillings after he denied them access to the Central Reference Bureaus (CRBs), a move that saw many borrowers refuse to pay their loans.

Some accuse Dr Njoroge of overregulation. This overregulation, they fear, is crippling innovation. Strathmore University Academic and Research Director, Dr Jim Mcfie, said over-regulation will kill the industry that is operating at this critical time where there is full transformation to technology.

“You should not just keep people out because of anti-money laundering and not financing crime. This can happen very few times in our history in Kenya. All the legislation is there, so let us be open to innovation,” said Mr Mcfie.

On the other end, Prof Ndung’u has sought to portray himself as pro-innovation, particularly when he was the CBK boss. He boasted of how he mid-wifed M-Pesa, a revolutionary mobile money transfer service owned by Safaricom, at a time when there were grumbles against it, including from banks.

Market fundamentalist

If Dr Njoroge, who worked at the International Monetary Fund (IMF) before, is for stricter regulation, Prof Ndung’u comes off as one who is for fewer regulations. The latter is somewhat a market fundamentalist, who believes in minimal intervention.

His hands-off approach, some critics say, saw him preside over the highest increase in prices of basic commodities in the economy in 2011 even as the shilling slumped against the dollar.

A poll by Reuters ranked him (Prof Ndung’u) as the worst CBK Governor in sub-Saharan Africa. The plunge in the shilling and hike in prices saw MPs attempt to sack him through a censure motion. He survived narrowly.

But, his non-interventionist approach might also have contributed to the double-digit growth in credit to the private sector. But interest rates, during his time, never came down leading to the controversial decision by the National Assembly to introduce interest rate controls in 2016. 

Some also reckon Prof Ndung’u was cosy with banks.  His name was dragged into the Imperial Bank saga, with his wife said to have received gifts from the lender’s former managing director Abdulmalek Janmohamed, the court was told.

Prof Ndung’u, however, dismissed the claims as false.