Ruto’s mumbo-jumbo on economy exposed ruling elite as out of touch
By Patrick Muinde | April 21st 2021
In the several articles I have done on these pages, I have rarely focused on particular individual views on the economy. I have always endeavoured to be guided by official data, evidence and sound economic logic.
Today, I’ll deviate to analyse key issues raised by the Deputy President of the Republic of Kenya William Ruto on Citizen TV a few days ago. The reasons that warrant this critical review are threefold: One, he acknowledged to have been a key and/or among key architects of major economic initiatives of the current regime. Two, he truly believes he is the strongest contender for the presidency by the virtue of his current position and his many years in government. Three, he is our second in command, and we, the lesser mortals, are called to accord due respect to those in positions of authority.
From the live interview and an analytical review of the audio records on YouTube, the economic titbits dwelled mainly on leadership, fiscal policy, mobilisation of savings, our public debt-driven growth dogma and the “hustler-nomics” philosophy. To give credit, so far he is the only candidate who was able to isolate specific issues about the economy that we can hang-on. But let us delve into the meat of it now.
Admission of liability
On the leadership question, there was a subtle admission that there have been gaffes and misfiring in the handling of the economy. This mirrors a similar acknowledgement by the Head of State when he wondered publicly why Kenyans were broke despite the government’s mega infrastructure projects. Official data implies a robust economic growth of an average of about 5.4 per cent for the eight years of the Jubilee administration.
The fillers of the leadership failures in the management of the economy are evidential with the runaway plunder of public resources. It has been widely acknowledged in Executive, political and diplomatic circles that the country loses something between Sh600 billion and Sh850 billion annually to corruption.
In the corridors of justice (investigatory up to prosecution and conviction), the wheels have been slow to unearth the ghosts behind this plunder, bring them to account and recover the loot.
Similarly, under Jubilee’s administration, big multinationals, including Colgate Palmolive, Cadbury’s, Unilever, have shifted their manufacturing operations to other countries in the region. They have often cited the cost of energy and uncertain operating environment as the reason. While these issues came up during the interview, the DP remained cagey on his responsibility as the second-in-command, and what he would do differently should he take the reins of power next year.
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Fiscal policy focuses on government expenditure programmes and taxation to drive economic growth. Without prejudice, the Jubilee administration has been disastrous on this, to say the least. Their major flaw in the preoccupation with infrastructure projects as a means to grow the economy has been on two parameters. One, the projects are largely vendor-driven without a clear linkage to priorities envisioned in long-term plans like the Vision 2030. Two, their pet model has been foreign debt-foreign contractor and supplies type. There is no supporting evidence to demonstrate the funds ever leave to cities from which they were borrowed to get into our economic system.
With hindsight, that model is perfect for cartels to get their cuts deposited in some foreign havens. On the other hand, the huge appetite for debt without consequent transmission into the economy has forced foreign lenders to push for very counter-productive taxes. The VAT on petroleum products, digital taxes and the now suspended turnover tax were forced due to debt instruments signed in the Jubilee era.
In the Keynesians economics theory, infrastructure projects are sure bets to inject sufficient money into the economy and thereby stimulate consumption. However, the idea of Keynesian economics only works with local contractors and not foreign ones. The local contractors mostly with resources mobilised within the domestic economy. This is what creates employment, expands disposable income for households and supports government tax base. On this, the DP failed to demonstrate a grasp of the substance of an effective fiscal policy.
The third point on savings mobilisation to drive investment was flawed also. The idea of using NSSF as the vehicle seemed to suggest he is out of touch with the ‘real hustlers’ and lacked in policy and strategy.
Pensions and Retirements benefits institutions are key drivers of savings mobilisation in any functional economy. But with the haemorrhage of public resources in our State agencies, which saver will trust them? Even with the little, the DP mocked consistently, has NSSF been transparent and accountable?
But the angle of savings mobilisation exposes a major weakness in our economic growth model.
Data from the Bretton Woods Institutions show our former economic peers in Asia have a very huge Gross Savings Rate. For instance, Singapore savings rate were 45.8 per cent in December 2019; China closed at 44.2 per cent. Japan’s quarterly average from 1980 to 2020 was 30.1 per cent; USA’s, from 1947 to 2020 was 20.6; while South Africa’s quarterly average from 1960 to 2020 was 19.9 per cent. Rwanda average was 12.66 per cent at December 2019, while Ethiopia averaged over 30 per cent from 2011 to 2020.
Kenya’s Gross Savings Rate was a dismal 5.4 per cent as at December 2019. This demonstrates inability of the economy to mobilise resources domestically to drive growth. With all indications that the market value of our public debt is more than our GDP at the moment, the country will need a true reset to default on matters economic management.
This brings me to the fourth point on public debt. Often, renown political analysts (including President Uhuru Kenyatta) have insinuated that our public debt dilemma can be compared to those of economic giants like USA and Japan.
These comparatives ignore what in international economics we call “Impossible Trinity”. No country can have a fixed foreign exchange rate, free capital movement and an independent monetary policy. For instance, the USA is possibly the only country that has absolute control of their monetary policy because they left the other two on free float.
Kenya has a managed foreign exchange rate and a net importer of almost everything from electronics, processed consumables, clothing and construction materials. It is also an open secret that invisible forces demand huge bribes from investors seeking to put up shop here. It is thus unthinkable how senior officials and policy analysts ever try to draw such comparatives.
A few questions
On the final point of hustler-nomics, Ruto seemed to extol dumping and counterfeits into the local market. Here, I can only ask a few questions: Which responsible government in the world does not exercise certain forms of protectionist policies to nurture and grow their own industries? Dumping and counterfeits are by themselves illicit trades across-borders, how will this shove the government revenue base? How will the over 17 million hustlers he implied to operate within the economy be moved into the formal system to pay their dues to the State also?
In sum total, Ruto gave us points to critique and evaluate his views on the economy. It is, however, my humble submission that he will do a lot better to find a brilliant economist devoid of sycophancy to help him navigate the rough economic terrain ahead. And so must the others who desire to lead this great nation come August 9, 2022.
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