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The economics of national elections

POLITICS
By Patrick Muinde | July 10th 2021

Voters queue at Ziwa la Ng'ombe Primary School in Mombasa County, August 8, 2017. [Gideon Maundu, Standard]

In exactly 13 months’ time, Kenyans will be heading to the ballot to decide whom to entrust with the management of the economy. In many ways, what is usually on the ballot is never the individual candidates or the political vehicles they use to propel them into power. It still baffles me how we fail to appreciate this as a citizenry when it comes to exercising the power of the ballot.

For some strange reason, millions of voters do not connect their vote with their socio-economic welfare thereafter. Worse still, after six decades of self-rule and a fairly educated populace, Sh50 becomes a pricey commodity in the election year. Seasoned and fake professionals get commodified with free and insignificant political goodies. Even decorated professors, captains of industry and good neighbours retreat to ‘mtu yetu’ mantra and rationalise it as a democratic right. Yet, the outcomes of the electoral process have an enduring impact on our individual and collective livelihood across generations.

The exercise of sovereign will, and democratic rights and freedoms comes with responsibilities and far-reaching consequences. Beyond the marked ballots lie our individual and collective social and economic fortunes for the entire term of those that we elect into office. The simple reason is the fact that no single economy can grow beyond the vision and aspirations of its leaders.

If those we vote into office have no foresight, then we can rest assured that, ultimately, we are all doomed, individually and collectively. Political institutions and leaders dictate economic policy. The ideas of those in power shape the quality and character of the business environment, government-spending programmes, fiscal policies, and social welfare programmes.

Beyond the marked ballots lie our individual and collective social and economic fortunes. [Courtesy]

In a functional economic system, events like a national election would ordinarily show a seasonal spike in consumption data. This is because campaigns involve extra spending in campaign-related materials, temporary employment opportunities, and individual and party campaign branding and advertising, among others. Other macroeconomic indicators like the stock market would be expected to respond to investor expectations guided by the economic agenda of the various candidates.

On the contrary, economic analysis of the country’s gross domestic product growth rates indicates significant negative impacts in every election year since the 1992 elections.

Using World Bank data, comparative GDP growth rates among Singapore, Malaysia, Vietnam and Ghana demonstrate the economy responding to internal economic shocks. Prior to this, the economy seemed well aligned with the global economic system by responding to the oil crisis of the 1970s.

On the contrary, our former peers-Singapore and Malaysia-have only been responding to external economic shocks like the oil crisis in the 1970s, the Malaysian recession of 1985, the Asian financial crisis of 1998, a recession of developed economies in 2000/01, and the global financial meltdown in 2007/08.

The question that we must ask ourselves is why does the economy not respond to election spending as expected?

For instance, the last General Election cost the country at least Sh49.9 billion before the repeat of the presidential poll. The unit cost was estimated at $25.4, one of the highest in the world. In comparative terms, in 2016, Rwanda spent less than a dollar per voter, Ghana spent $12, while Tanzania, with a larger population than Kenya, spent $300 million on the 2015 polls.

Why does the economy not respond to election spending as expected? [Courtesy]

This expenditure, in addition to individual candidates’ and political party spending, are ideally injected into the economic system within a short period of time alongside normal economic activities. A plausible reason why this does not seem to reflect on the economic data could be that campaign funds are spent outside the economic system. Alternatively, much more is siphoned from the economy. Coincidentally, we have had major corruption scandals around each election cycle.

Some of these scandals have had devastating impacts on the economy. They include the Goldenberg scandal around the 1992 elections, Anglo Leasing after the 2002 elections, and the NYS I & II scandals after the 2013 polls and towards the 2017 elections. The Ministry of Health container scandal was also not too far from an election. For instance, at the peak of the Goldenberg madness, the 91-day Treasury Bill rate jumped from 17.86 per cent in February 1993 to peak at 84.67 per cent in July the same year.

The Treasury Bill rates remained over 40 per cent up to December 1993 and between 33.55-24.13 per cent between January-August 1994, before dipping to 17.39 in September 1994. What this means is that anybody with money during this window could buy the Bills from Central Bank and earn a decent return of between 24-85 per cent risk-free and with a single drop of sweat.

So the wealthy and politically connected of that era must have made an intergenerational fortune. Besides, no sane bank manager would offer loans or other credit facilities to businesses and individual borrowers, unless they were willing to pay maybe over 90 per cent interest rates. This is the classical crowding out of the private sector from the loan market. The impact is dire because in functional economies, it is the private sector that drives economic growth, employment creation and government revenues.

Globally, it is widely acknowledged that democracy is an expensive affair. For instance, data from OpenSecrets indicate last year’s US presidential and congressional elections cost parties about $14.4 billion. This is more than twice the cost in 2016 at less than $7 billion and almost three times the 2008 campaign expenditure when Barack Obama personified a small-donor campaign funding system. But unlike our local circumstances, the US and other developed economies have fairly open and transparent institutions that guide campaign funding and expenditures.

Economic analysis of the country’s gross domestic product growth rates indicates significant negative impacts. [Courtesy]

As somebody once said, our peculiar habits seem to exponent our cost of democracy. We are among the few jurisdictions where presidential candidates would not trust key electoral materials, equipment and ballot papers to be procured locally. Other candidates have extended the joke too far by importing low-quality campaign T-shirts, caps and other branding materials from outside the local economy. Yet those candidates are in the race to lead the very same economy they distrust.

It would appear our vendor-driven foreign-contracts-infrastructure-projects model is engineered long before our leaders assume the instruments of power to manage the economy. It does not help that our high-stakes ethnic mobilisation approach to national elections has a significant signalling effect to would-be investors, both local and foreigners. Regular post-election flare-ups have not only cost the country precious innocent lives, but investors have also paid dearly.

The fact that we have had to dismantle and reconstitute the electoral management body after every election is telling. Whether it is by design or an error of omission, time has come when candidates for top positions in the land must mind the welfare of the people they seek to lead. The tightening of the flow of global capital across nations and the competitiveness of 21st century economies cannot tolerate our political shenanigans. Our neighbours to the south and the north seem determined to steal the bragging rights of the region’s economic powerhouse from us.

As we dash to the finish line on August 9, 2022, these grim realities must not escape us.

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