UK, Japan have entered recession; here's what it means for Kenyans

You may not lose your sleep over the recession in the UK or Japan, but you could scratch your head. [iStockphoto]

The word "recession" is rarely used in Kenya. Instead, the term "bad economy" or "uchumi mbaya" is more commonly heard. Perhaps our policymakers, from the Central Bank of Kenya to the Kenya National Bureau of Statistics (KNBS), prefer to use other terms. However, enough data is available to identify recessions.

During a recession, the economy contracts, and the value of goods and services produced and consumed decreases. One outcome of this is joblessness. When we have such a contraction for two consecutive quarters, it is considered a recession. Using this definition, Kenya has experienced many recessions. Data from KNBS, IMF, Africa Development, and other sources seem to indicate that Kenya's economic growth will be robust for the next four years, remaining above 5 percent. This suggests that a recession is unlikely unless unforeseen events like COVID-19 occur.

Many people ask, if there is no recession, where is the money? It could be that the economy is growing unequally, with some people making more money while others are not. Growth is often marked by inequality, especially in a capitalist country. Political leaders address this inequality through welfare measures, such as stipends for those over 70 years old.

Last year, this inequality was highlighted by the popularity of the "hustler-dynasty" narrative. Political leaders cleverly spun this narrative by promising that bottom-up economics would create wealth at the bottom of the pyramid, where the majority of people are. This is in contrast to the traditional "trickle-down" economics approach, which relies on wealth creation by the captains of industry. It is a bold experiment and a departure from traditional economic policies.

If you ask, lots of Kenyans will suggest we are always in a recession. They constantly experience symptoms like joblessness, and slow business activities for those in entrepreneurship. What would hordes of men and women who flood the city seeking jobs in the morning say about a recession?  We see them on Thika Road, Waiyaki Way and Langata Road. You can guess where they come from. 

Inequality and wide class fissures moderate upward mobility and partly explain the feeling we are always in a recession. Innovations and government intervention can keep off recessions. Innovations create new ideas, products, or services that stimulate economic growth. Think of Mpesa or the mobile phones before that.  Fiscal and monetary policies like cutting taxes or lowering interest rates can coax an economy out of recession. 

Enough on our economy. Japan and the UK are technically in a recession. These countries keep data and declaring a recession is normal, despite the political implications. 

The causes of recession in both countries are diverse. In Japan, subdued consumption because of inflation and stagnant wages explain the recession. Capital investment has also slowed. That made Japan slip into the world fourth fourth-largest economy after Germany, China, and USA.

In UK, there is less spending too, doctors have been striking and school enrollment has fallen. Did the 100 percent transition to high school in Kenya stimulate our economy? 

In both countries, a fall in spending leads to a recession. To a layman, it sounds strange that spending is good for the economy, especially when we are encouraged to save. But even that saving becomes spending when borrowed, either for consumption or investment. Banks help link lenders with savers, at a cost (interest rate).

Spending creates demand for goods and services and by extension leads to economic growth. In Japan, over 50 percent of GDP comes from consumption. In the UK, it’s over 60 percent. This explains why consumption is so sensitive. What percentage of our GDP comes from consumption?

Where do we go from here?

In both countries, economics drive politics; that’s common in developed countries. Here it’s the other way around, but we are improving. Economics was an issue in polls last year and remains in the headlines. This is one of the symptoms that Kenya is developing.

Stimulus packages, close to what we had during COVID-19, will be rolled out in both countries. For Japan, it’s tricky because the interest rates are negative. This is an interesting phenomenon where you are charged for keeping money in the bank, which encourages you to spend. More government spending and capital expenditure could do the trick. How about more exports? In the UK, a combination of both fiscal and monetary policies should work. Be sure that both governments will come up with well-publicized measures to get the economy out of the recession. Cutting interest rates and taxes is expected. Does our failure to do that mean we are not in a recession?

We are watching to see the effectiveness of these policies. We could learn a trick or two. Both countries are our trading partners, and we shall feel some ripples like reduced investment, trade, or foreign aid and donations. Let’s add tourists.

You may not have visited Japan or the UK, but whatever happens there will be felt here. We are interconnected through trade. The UK is one of the key importers, far behind Uganda. You may not lose your sleep over the recession in the UK or Japan, but you could scratch your head.

Economic data shows Kenya is not in recession. It is in our feelings, emotions, and we must add the pockets. Does our large informal sector mask the realities of a recession? One way out of an emotional recession is to inject the nation with a dose of optimism. That would spur consumption and investment, enhancing economic growth and putting money in our pockets. Who will open the floodgates of optimism?