Our Economy Needs Fast Radical Surgery
Recently, a man walked up to me one morning and asked me if I could give him some menial job. He said his children had not taken breakfast and he did not have any money. He looked destitute and in need of urgent help. Several days after this incident, a woman stopped me and told me that her children were hungry and had no clue where the next meal would come from. She asked me if I could buy her flour to cook uji for the children. These incidents graphically illustrate the severe economic situation Kenyans are going through.
A cocktail of factors have conspired to make the lives of Kenyans unbearable. Prices of essential commodities started on an upward trend several months ago and indications are that this may not relax soon. The prices of fuel, unga, milk and, bread have shot through the roof and are now beyond the reach of so many poor Kenyans. But with the cost of petrol selling at about Sh120 per litre in Nairobi, even the middle class are not spared the agony of a poorly performing economy.
The weak shilling has pushed the situation off the rail. There was a time the currency was rapidly losing its value, one wondered what virus was eating into it. It did touch hitherto unimaginable Sh107 to a dollar several months ago. Although it has stabilised a bit at about 89 to the dollar, the situation is far from calm.
Experts have attempted to shed light on why the shilling is ailing. They have pointed fingers at out consumption habits; that we like consuming what we do not produce. This means we import more than we export and therefore traders need a lot of dollars. And because of the high demand, the dollar’s value has been climbing up as fast as the shilling slides.
Now, thanks to the poor performing shilling, the interests rates are sky high and apparently they do not seem to have peaked. The effect of this is dilapidating given that credit is the lifeline of the economy. Few would dare borrow to start a business or to expand the existing ones in such a situation we are currently in.
And any business that has already taken a loan for expansion or any other purpose has to burn midnight oil rethinking its strategy. It does make any business sense when you are compelled to repay loans at double the rate previously agreed on. The first casualty of this grim situation are workers as companies “review their strategies and re-engineer their operations”, which in essence means sending employees packing.
To make the shilling stable and hold its own against the dollar, Kenyans have been advised to buy Kenya and stop obsession with imports. Yes, patriotism is a good thing but what about the quality of these products? Kenyans will not buy products just to bolster the shilling, tame inflation or boost the economy. They want quality products no matter where they come from.
To wean Kenyans off the imports, we must give them local quality products. We need to ensure our products can compete in standard with the best not only in the region but in the world. The only way to do this is through innovation, and to achieve this is not rocket science – we have to create a competitive environment for investment.
The starting point, and economists have said it many times, is to drastically reduce the cost of doing business. We have one of the highest costs of power in the world because we rely too much on hydroelectricity. When the rains are not falling, we are adversely affected since we resort to the expensive thermal power. The importance of power to production cannot be overemphasised, that is why its high cost has a ripple effect in virtually all sectors of the economy.
Therefore, the escalating cost of electricity must be tamed if we want to make this country a choice destination for investors. We risk getting permanently marooned in stormy economic waters if we do not address the high cost of power. We also need to urgently address the cancer of corruption which, needless to say, has had a devastating effect in the economy.
The shortage of sugar has been blamed on greed by cartels which hoard the commodity creating an artificial shortage and hence pushing the prices up. Fingers have also been pointed at avaricious businesspeople who, in concert with corrupt government top officials, manipulate the market to create a sugar shortage so that they are allowed to import it and mint millions in the process. As long as corruption thrives, cartels will have a field day and Kenyans will pay the price. Kenyans will not only be forced to dig deeper into their pockets they will also bear the brunt of the far-reaching consequences of a weak shilling.
We also need to get the basics on our agriculture right. Is it not surprising that we are now talking about importing sugar, wheat, rice and maize and yet we claim that agriculture is the mainstay of our economy? All of these are staple foods that we should by now be effortlessly producing. Importing these items hit poor Kenyans where it hurts most.
Developing and nurturing a close a link between research in universities and the economy should also be a top priority. Research, especially in sciences and technology, is a key driver of any economy. No country has ever achieved economic prosperity without putting science and technology at the centre stage. There is need not only to aggressively fund research but also translate the research findings into concrete products.
Generally, we need to get the fundamentals of our economy right and this should inform the manifestoes of those in the race for State House in the 2012 general election.