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How soon will the economy recover after petition?

By XN Iraki | November 26th 2017 at 12:00:00 GMT +0300

(Photo: Courtesy)

The biggest cost to the economy was like an iceberg, invisible. It was the money that was never spent in either consumption or investment to create demand and keep the economy humming.

Economic analysts should thank the Supreme Court of Kenya (SCOK) for giving them a free experiment to test the resilience our economy.

While it is a free experiment to academics, it was costly to entrepreneurs. We saw empty shelves, layoffs, firms give profit warnings and shareholders lose wealth through the stock exchange. We are not factoring the psychological pains of investors some who could have been hospitalised.

The question in everyone’s lips is when and how the economy will recover. It is a hard question but we shall attempt to answer it, boldly and objectively.

The first lesson from this experiment is that 60 days can be a long time in economics. It became long not because time dilated as predicted by Albert Einstein but the period of political campaigns and intrigues was actually five years.

By August 8, 2017, Kenyans were tired of politics and wanted a rest. It was extended by another two months. The hangover from five years and prospects of yet another election made the 60 days appear much longer. The fact that this petition and nullification of elections had no precedence made the days appear even longer.

Now the storm is over to quote rapper R Kelley. What we are not sure is if the sun will shine economically. We can look at post petition economic recovery in both short run and long run. First, the economic slump was not as bad as we are made to believe. Kenya Private Sector Alliance (Kepsa) projected a loss of Sh700 billion in 4 months around the election time. That is about 25 percent of 2017-2018 national budget. It is debatable if the loss was that high. How did they calculate it?

Keep economy humming

There is no doubt the economy has slowed down going by the empty malls and other sluggish economic activities. Data from KNBS will soon confirm that. Luckily, the economy was just recovering after a long drought which mitigated the effect of petition. Barbers have told me less people are going for haircuts. Parking lots that used to be full were left half empty. Bars got fewer patrons. The car sellers even reduced prices to seduce us to buy cars.

The biggest cost to the economy was like an iceberg, invisible. It was the money that was never spent in either consumption or investment to create demand and keep the economy humming. I would like to hear from bankers if there were less withdrawals and loans, holding interest rate cap constant. Economic analysts keep reminding us that the GDP is equal to money in circulation multiplied by speed of circulation. That speed reduced during the petition period leading to economic slowdown.

The petition verdict made the future look clearer though we can’t rule out another surprise. If those who had hoarded their money can now spend their money either through consumption or investment, we can feel a change.

There is another reason why recovery in the short run might be faster. Christmas is almost at the corner and spending goes up buoying the economy. Already decorations adorning many buildings are up. We are even imitating America with Black Mondays and Fridays.

The post election recovery in the long run can be accentuated by more money coming from remittances and foreign investors. They are already doing that with the stock exchange reversing the losses that characterised the bourse after the presidential polls nullification.

In the long run, the recovery could take a bit longer, big investors turn round time is longer than for hustlers. A billion plus project postponed takes time to restart and for its effects to trickle down. Some of the decisions made by investors and even governments will not be felt till next year, there is always a lag.

Investors will not make their decisions just because the petition was decided; they could wait a bit longer. If they have confidence that the political stalemate has been sorted, they will react faster. We could say that NASA decisions after the petition still matter to the economy.

We should not forget that economic performance of trading partners affect our long term recovery. If they do well, they create demand for our goods and services which pulls up the economy. The key partners include United Kingdom, Uganda, Netherlands, Tanzania, and United States. This ranking is by exports. Notice how important our two neighbours are to our economy.

Economic recovery will be faster at lower levels of the economy dominated by SMEs who make their decisions in short time spans. But for the big players the decisions take longer.

When asked one waiter in a high-end restaurant whether more customers have returned after polls petition, her answer was, “Yes, but not as we expected.”  This is a clear indicator that we rarely react instantly to political or legal decisions like petitions.

The same question was asked to a manager in a 3-star hotel, the answer was “we shall test over the weekend.” The only sure measure of short term recovery is the stock index which went up. Some cranks have even suggested we could have taken video clips on some streets before and after petition in different parts of the country and compare the number of smiling faces.

We must face a simple fact; the recovery will be varied across the counties depending on their political inclination. The post petition confidence is not the same throughout the country.

Investing more

In fact, Uhuruto’s greatest hurdle to economic recovery is making every Kenyan feel part of the economy and play his role. They must ensure that one of their economic legacies is more economic inclusiveness. They must ensure that Kenya does not enter an iceage where economic classes are frozen and it’s impossible to shift from one class to the other.

The rising economic tide must raise all the boats. Economic recovery is not just about you and me spending or investing more. The governments, both county and national must play their roles too.

The writer teaches at the University of Nairobi.

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