Mythical Economic Boom In Kenya

[adongo12345]

By Adongo Ogony

Koigi wa Wamwere is furious that Kenyans are not jumping with happiness about the reported 5.8 per cent economic growth in the country and the alleged 458,900 jobs created curiously enough in the informal (jua kali) sector. I wonder how they count the Jua Kali jobs, but that is another story.

In an article appearing in Sunday Times June 4, 2006 entitled “Opposition’s stand on economic growth hypocritical” Koigi laments that nasty opposition parties in Kenya are not giving his beloved Kibaki government kudos for bringing prosperity and hope to the nation.

According to Ndugu Koigi

“There is the opposition whose political fortunes are threatened by any and all government success. For those who plan to ride to power on the back of government failures, any government success reported is a real nightmare that they would rather not see, hear or talk about. ………When there is growth, they deny it as cooked up figures or voodoo economics”

No Comrade Koigi, it is not the opposition that is the problem with our alleged economic boom. It is the reality of life for the Kenyans that turns the economic growth numbers on their heads.

A 5.8 per cent economic growth rate in any country is quite remarkable, but within the Kenyan context it actually means very little. Lets start with the obvious facts that have perplexed even the experts. Credible reports, one from Action Aid and another by the Danish Association of International Cooperation both indicate an alarming growth in poverty levels in the country even as the economy grows.

In 2002 according to the government’s own statistics 56 per cent of Kenyans were living in absolute poverty. That is horrible enough but despite the booming economy, that number has increased to 58 per cent by 2006. In other words close to two thirds of Kenyans are living in absolute poverty. That is the number of people who can barely feed themselves. How do we explain this phenomenon?

We have a booming growth in the economy and a booming growth in poverty. This is what should worry and concern people like Koigi who have always claimed to champion the interests of the poor. Any country in the world where two thirds of the population are starving is in real trouble particularly when a small segment of the same population, in our case including politicians who have become instant millionaires, live in absolute opulence. This is a recipe for chaos and social strife.

Further more in an article entitled “Poverty soars amid accelerated economic growth” (The Standard May 30, 2006), the author indicates that in 2001, the bottom 10 percent of the population (the dirt poor) controlled 2.8 per cent of the economy. That is pretty bad, isn’t it? Guess what, by March 2006, the year of our great economic boom, that same 10 per cent at the bottom of our economy now control a minuscule less that 1 per cent of the economy. In practical terms this segment of the population are basically living outside the national economy. Some progress indeed.

Even scarier is the fact that poverty by regions is worsening. For example in Nyanza province 42 per cent of the population was living in absolute poverty in 1997. Today 62 per cent of people in Nyanza live in absolute poverty. In other words in just one decade 20 per cent of the population have fallen off the economic wagon into the mud of poverty. This is frightening. The same trend is in other areas like North Eastern and Coast Provinces even in Western Province. If we don’t stop the trend the consequences could be catastrophic for these regions.

Now lets see what is happening to the crème de la crème of our country. I am referring to the filthy rich who run and control not just our economy but also the politics of the land. Don’t forget that two of the richest people in Kenya are the former president Daniel Arap Moi and the present president Mwai Kibaki.

In 2002 the richest 10 per cent of the Kenyan population controlled 35 per cent of the national economy. By 2006 that same ten per cent of the super rich now control 42 per cent of the economy. They have increased their hold in the economy by 7 per cent in just four years. You don’t need a Phd in economics to see where that reported economic boom in Kenya is going. It is flowing into the pockets and bank accounts of the rich. Will it ever trickle down to the working poor?

Well we have been waiting for forty years and there are no signs of the trickle down miracle and looking at the national and global economic patterns things are going to get worse.Never mind that reports also indicate that the Kenyan middle class has shrank by 10 per cent between 2000 and 2006. In other words folks who thought that had climbed out of poverty and joined the middle class have dropped back into absolute poverty. Talk about shock therapy.

Dr. Samuel Nyandemo, the chairman of Economics Department at the University of Nairobi had some very sensible explanation as to why the poor in Kenya are getting poorer and the rich even richer. Dr.Nyandemo says one of the reasons the boom in the economy is not getting to the poor and the middle class can be explained by looking at the sectors in the economy that are registering growth.

“Tourism, horticulture and mobile telephone companies are the growth sectors with foreigners and a small fraction of locals as the major beneficiaries” Dr. Nyandemo told the Financial Standard

Horticulture for example accounted for 23 per cent total export earnings in the agricultural sector, which puts it ahead of our traditional powerhouses in that sector, coffee and tea. We all know who runs horticulture in Kenya. A part from foreign companies, it is the Saitotis, the Muites and other local elites who own the flower firms and other forms of horticultural farming. The regular wapumbavus have no stake in this sector except as farm hands and casual workers.

My point basically is that yes there is economic growth in the country and indications are we are headed for even bigger growth margins, but anybody sitting there waiting for any of this boom to address the desperate needs of the 60 per cent of Kenyans living in absolute poverty is daydreaming. That is what folks like Koigi and his friend president Kibaki have to begin to address.

Reciting growth figures and statistics at rallies and official government functions will not feed the working poor who are the majority of the population. The political implications are obvious, but I doubt if the other group, the dreaded opposition that Koigi talks about have any solutions. We will see.

In the meantime these are some of the things the government, not necessarily the Kibaki government could do to start addressing the problems in our economy.

Smart economies will always try to stimulate as much growth as possible in emerging areas of growth. In our case horticulture is one of them. We know the capital investment required for this industry puts ordinary Kenyan farmers out of the picture. The government could offer great help here.

Why don’t we take some of the additional revenue from the national revenue and use it in supporting cooperative horticultural farming where small scale farmers pull their resources together and are given soft loans and other technical supports including infrastructure and marketing that will enable them to set up successful community based flower farms and other such initiatives. Must this booming sector of our economy continue to be monopolized by foreigners and their nyaparas, the local elites?

Secondly, I think we should rethink our national infrastructure development plan. It has been a flop under the Kibaki regime. Narc came in blazing tearing down illegal structures in bypass roads and all sorts of hullabaloo but nothing has happened. Even after the ministry of roads was yanked from Raila and given to Nyachae as a reward for his loyalty to Kibaki, nothing really significant has happened in this very crucial sector. We need to rethink the whole thing.

We know the roads we want to build but let’s rethink how we want to build them. We need labour intensive community based construction plans for our roads. In other words we should only award tenders for road construction to companies that can demonstrate that they will use local labour (and a lot of it) in doing the work. The debate whether we should use cement based construction methods should be focused on the durability of such roads, the use of local materials and the volume of labour involved.

The bottom line is that we need to put money in the pockets of local folks so they can spend it in their communities and help spur the local economy. Hopefully it will take less than ten years to actually start construction on some of these roads.

Third, in areas like Nyanza , Western and Coast Province to mention only a few, water harvesting has to be a priority for the government. Water harvesting does not require the huge mega dams that most people think of. We could do it by using small-scale earth dams consistent with the existing water systems in every community. All we need are the technical designers, huge tractors and local labour.

Such water dams could be used for both small-scale agriculture by the local communities and for domestic water use. We also need reliable flood control mecanism in flood prone areas. The d**e system in Budalangi constructed and maintained by the Kenya National Youth Service has been a tremendous success. We need the same in Nyando and other areas. We should not only use members of the Youth Services but also engage the services of Kenya Armed Forces, which has some of the best engineers in the country. These people should not just be building boreholes for the likes of Murungaru, they should be doing it across the country. They have the resources and the training. We are not going into any war for a while, why not use the resources within our armed forces for such development efforts.

Last but not least I think we need to look back in our traditional economic base, agriculture and find where things are going wrong. Lets talk about cotton. What happened to this product whose demand word wide is still quite great? I mean everybody still wants a 100 per cent cotton T-shirt and other wear.

Why can’t Kenya produce cotton anymore? Why do we need to import semi-processed cotton to produce stuff at the EPZ when we could be having a booming cotton sector in the nation? The answer is simple, the folks running the government don’t give a d**n about crops like cotton that are hardly produced in the areas they deem important to their political project.

The fish industry is another disaster. This is a multi billion industry in the nation and yet the average fishing folks in Nyanza or at the coast can barely make enough to feed themselves. Who is controlling this industry and how can we empower the local populations to have any significant stake in this industry? Where are the infrastructure and the resources to help the millions of Kenyans who are presently scrapping a living in the fish chain. Where is the imagination and creativity of our government to deal with the problems.

The same applies to livestock. North Eastern Province for example could be a powerhouse in beef production with a little technical support and resource development from the government, but the government would rather solicit international donors for food aid to the area than develop concrete plans to empower the local economy.

We should also evaluate how we spend the CDF money. We need it and I am glad it will be increased but we need to figure out how best to use this money at the local level. This is the greatest achievement of the 9th parliament, which has very little to show, but I am not so sure that using it to pay bursaries and build schools however important these things are is really going to add value to the communities. We need to define national, regional and local priorities to determine the areas to invest this money, but that will be the subject of another article.

I am sure there are a million other things our government could do to create an enabling environment for ordinary Kenyans to improve their lot and enhance their quality of life but that is never going to happen when politicians are preoccupied with enriching themselves to obscene levels ati so they can give handouts to the poor in their constituencies. Kenyans need better economic opportunities and not endless handouts to buy salt and mafuta taa.

One last thing, we need a national energy plan. No country in the world has ever developed without power and sustainable energy sources. Many Kenyans are stuck in the medieval ages living in literal caves (mud huts) and using the most primitive forms of subsistence agriculture with the trusted jembe and hoe. We can’t go very far with that stuff.

I expect people like Koigi to sometimes lift their heads above the party politics and address real issues affecting the lives of millions of working poor in Kenya, but then again the Koigis of today have become the Kariuki Chotaras of yesteryears. What else is new.

The writer is a human rights activist.

[roughrider]

Adongo

This has been a vexing question – A controversial bit of it is how we measure ‘progress’ in a society. Economists will disagree with statisticians. We disagree that GDP and per capita GDP are proper ways of describing development. On my fingertips I have 10 strong reasons why. I have even had this discussion with Nyandemo, for example. So we need to applaud that your article in some ways touches on this point.

But you also say that ‘we should put money into pockets’ and you give a laundry list of what needs to happen in terms of creating social overhead capital…. and I agree with most of them.

What I urge as the ‘final solution’ to economic inequity is in fact a strategic change in the structure of the economy. We need to push for ‘economic devolution’. Historically we created centers of production in places which coincided with the perceived ‘high potential areas’ while ignoring what was labeled as ‘low potential areas’ or reserves. That distinction persists today. Poverty statistics will show that poverty runs along those very lines and is therefore manmade. Contemporary economic thought has debunked this myth and shown it to be a false dichotomy.

But we need experts to elaborate and design these things – sample what Moi says ‘let us create a new province around Marsabit’... he is talking like the layman he is. He is thinking about a traditional province with DO’s and chiefs. That is utter nonsense and it is not the ‘economic devolution’ we want. What we need is a decentralization of the economic systems to localities. We must have economic plans and projects designed, financed and implemented by and within localities.

[kamalet]

Early this year, a young gentleman employed in the sales and marketing department of a food processing multi-national, saw an opportunity of getting into the food processing business. He wanted to deal in packaging pickled foods, did his research and decided he could make money. Unfortunately, he was short of money and through some contacts, approached an organisation I am involved in for funding. On evaluation, he had little to show in security for the 1 million shillings he needed, so we decided to go into the business as a joint venture. 5 months later, he has now employed 6 people in Murang'a to grow the food crops for pickling, and is on average packing 3000 jars of pickled foods for sale in the local market. He now wants to go international and he thinks that with additional funding he can make it, by growing the acreage for production which translates in additional employement. The organisation I am involved in has over the last 3 years generated money through investments in the money markets and the stock exchange.

I was looking at a proposal from a fellow in Mwanza Tanzania who is looking for a market to sell 100 tons of fish every month in Kenya. This fish he buys from small co-operatives around the Mwanza shores of L. Victoria.

I give the above examples to illustrate how poverty alleviation need not be the role of the government or even the larger multi-nationals. You do not need the government to form a fishing co-operative in Nyanza or grow cotton as smallholders - a bit of brains surely is all that is needed!

But what about the fuzzy maths of Kenya's 5.8% economic growth? Perhaps people may need some training in economics to know that this never translates to 5.8% increase in incomes going into people's pockets. In Uganda where the growth has been above 6% over the last 8 years cannot show for greater wealth of Ugandans! My reading of such growth tells me that there are increased opportunities for wealth creation on account of such expansion and I should take advantage of the situation.

So in tandem with Koigi, let us give credit where it is due!

[adongo12345]

I like the feedback.

Kamale:

Congratulations to the pickle guy. I am happy for him. That creativity and grabbing opportunities that come along is how things get done. The reality though is that for every one guy who gets an opportunity like that guy there are thousand others going down the drain and it is not because they are lazy.

RR.

I agree with you that our whole economic structure is actually unworkable in the long run. Let me give you an example.

I read a book recently by some guy named Davis, I forget his other name. The book is called "Planet Slums" and it addresses the dilemma of poverty in urban slums specifically in Africa. The author did specific studies in South African cities and the ghetos.

The author's analysis is that the African cities are practically doomed because the urban poor who are the majority in these cities don't have a chance in hell of getting anywhere.

The author asserts that when urban slums first emerged in Europe during the industrial revolution most of the slum dwellers were actually waged factory workers who were earning peanuts and could not afford anything better. So these were people working steel industries, manufacturing firms in places like Manchester City, Liverpool and London to name a few places in England. They were also being terribly exploited.

Now as the economies of these countries grew and the manufacturing industires got bigger, the workers also organized themselves and formed unions to fight for better wages and living conditions. (Don't forget that these economies also had the privilege of ripping off the colonies like Kenya to improve their bottom line. We don't have that privillege, do we?)

The point here is that over time the slum dwellers became key partners as workers in the economic development of their countries. The slum conditions began to change over the decades as the workers and later their families moved up the economic scale.

Now in a place like Kenya where we are told close to 60% of Nairobi residents for example live in poverty in the slums, we know most of them are not employed anywhere. These are not industrial workers hoping to improve their lot sometime in future.

Yes there are a few folks doing gigs at the industrial area for peanuts, but that is as far as they will go. The majority of the slum dwellers in Nairobi, Kisumu etc are unemployed and will remain so probably for the rest of their lives. They survive within the informal sector selling anything they can put their hands on. These people will live and die in the slums and even if Kenya was to register 20% economic growth rate it will barely register in their world. Now when you consider that this population group constitutes the majority of people living in the urban centres in our country you can see the magnitude of the problem.

What I am trying to suggest here is that we cannot reproduce Europe or America in Africa. Fanon told us as much. The conditions are massively different and I have only talked about the urban poor. Rural poverty is another can of worms altogether.

In my view urban poverty may already be out of our reach. However rural poverty is within our reach to solve and I agree with RR that we have to devolve our national resources to empower the local communities. Our country has great potential. Look at the fish industry, it is a crime that Kshs 10 billion a year industry cannot benefit the people who actually do the fishing.

Adongo

[politicalmaniac]

Adongo this is deep, deep indeed.
It warants a second and third reading by every sane minded kenyan, what a sobering, disturbing but brialliant critique. We need to assess just how bad things are before we can make them better.

We have been wondering the same in our informal discussions of political going ons. How to explain the huge disconect between this "growth rate" and the actual quality of life for the Kenyan populace?

I pity wakina Raila who are determined to rule after kickback1. They weill inherit a mess of monumental proportions and may actually, at the end of the day, look inept and out of their league simply because the task at hand will require decades to unravel.

[kamalet]

Adongo,

I do not think failing to use one's brains is laziness as we know it! I think it is a case of a simple lack of initiative on the part of the thousand odd ones that get left out.

Our politicians do not help out at all since they would prefer to continuously dish handouts to the young people in the form of footballs and uniforms instead of empowering the youth financially so that they can buy themselves the uniforms and balls. That is why I hold the view that our leaders are in a conspiracy to perpetuate poverty amongst their people!!

Currently there is an Investment Club boom in the country and I have given talks to several groups intending to start such groups. These clubs are moving away from the "chama" or "merry-go-round" business models of the past, and seeing opportunities in putting their money in the financial markets.

The expansion of the economy opens up opportunities for Kenyans to make money and that I am still convinced is the way that we shall start seeing the economic growth translating into wealth going into our pockets!

[maina]

roughrider said:

Adongo

This has been a vexing question – A controversial bit of it is how we measure ‘progress’ in a society. Economists will disagree with statisticians. We disagree that GDP and per capita GDP are proper ways of describing development. On my fingertips I have 10 strong reasons why. I have even had this discussion with Nyandemo, for example. So we need to applaud that your article in some ways touches on this point.

But you also say that ‘we should put money into pockets’ and you give a laundry list of what needs to happen in terms of creating social overhead capital…. and I agree with most of them.

What I urge as the ‘final solution’ to economic inequity is in fact a strategic change in the structure of the economy. We need to push for ‘economic devolution’. Historically we created centers of production in places which coincided with the perceived ‘high potential areas’ while ignoring what was labeled as ‘low potential areas’ or reserves. That distinction persists today. Poverty statistics will show that poverty runs along those very lines and is therefore manmade. Contemporary economic thought has debunked this myth and shown it to be a false dichotomy.

But we need experts to elaborate and design these things – sample what Moi says ‘let us create a new province around Marsabit’... he is talking like the layman he is. He is thinking about a traditional province with DO’s and chiefs. That is utter nonsense and it is not the ‘economic devolution’ we want. What we need is a decentralization of the economic systems to localities. We must have economic plans and projects designed, financed and implemented by and within localities.

Adongo,
Not everything has to blow up! Roughrider has put it aptly, although he has a propensity to trifle when matters concerning devolution and distribution of national resources spring up. Nonetheless, there is surely nothing wrong with creating another province around Marsabit? Actually, it would foster economic growth!

Being inclined to Statistical concepts and reasoning, I can never heed/support "economic assumptions". I also will never advocate/boost marxist arguments or any of their elements like Roughrider is doing. What Kenya needs is a new constitution - a relevant constitution to serve conservative Kenya resulting in self-preservation - not foreign and adopted abstractions that are shuck and hypthetical! Roughrider, reality is reality, illusions and visions do not constitute reality. That's a fact, and you should know that!

Maina

-unedited-

[adongo12345]

Kamale

I was going to ask you a few things regarding two issues, one is the food processing industry and the other about those investment clubs.

Lets start with the investment clubs. Generally I think it is a great idea and I know even out here in Canada there are groups coming together pulling resources and investing in stocks and other things. In fact I see a potential for say a Canadian based investment group raising a pool of funds to be available to local investors in Kenya. One fact in their advantage would be the interest rates on loans. Canada today boasts one of the lowest interest rates anywhere in the world.

I think your joint venture with the pickle guy should give as a perfect example of how capitalism works. These are just my speculations.

The dude comes up with a bright idea of processing and packaging food in Muran'ga. He has no cash and he needs Kshs 1 million to get things going. He come to your investment group to help him get a loan. He has no property and nobody is going to take a risk on his project unless they also will partake in the profits if the project works. So you agree on a joint venture. Now I am sure you guys are not hiding gunias of cash under the mattress somewhere, so you end up negotiating for a bank loan using your good credit rating and bingo a business project is born.

What is the result. The business turns out good, thank god for everybody. Now the dude has to give you guys your cut of the profits and banks too have to get their cut in the form of interest payments. Chances are the 10 - 15 per cent is needed in returns to keep everybody happy. This means the business needs about 15% profit just to keep it running(I am being very conservative). This arrangement could go on for ever. The bank has to make some money, you have to make some money before this guys gets anything forget the six employees who must make as little as possible to enable everybody else to get there cut. Yes it is better for those six employees that they have a job, but my guess is they probably can barely feed themselves.

Now lets look at the alternative. The dude has a brilliant idea. A sensible government tells him talk to us we have for example Young Entrepreneurs Development Fund(YEDF) or something like that. They look at the project and determine it is viable. They avail funds to this brave guy willing to venture into the unknown help to mentor him and support him and bingo a new business is born. What is the difference? The YEDF should be charging something like 2 - 3 per cent interest just to help administer the fund.(Compare that to the 15% needed by private funders) This kind of fund can be established using money from the government, donor funds, contributions from the private sector or even through special levies established primarily for the purpose of assisting first time investors with viable projects to get off the ground. Off course it will not work for everybody. The commercial banks and other venture entrepreneurs will still do their thing, but you get my drift.

Anyway that is my economics 101 which I am going to try selling to Kibaki and my friend Raila. May be you could help.

Now to the food processing thing. I believe it has huge potential in Kenya. A part from not producing enough food, we waste an awful amount of what we produce. It is terrible.

In my home town Bondo and the surrounding areas we are blessed with land that can grow just about any fruit. Mangoes are everywhere and so are papayas oranges, bananas, mapera na mwingineo. You go down there when the mangoes are in season and people will be throwing them literally in the streets. You can buy a sack for 5 bucks. Two months later, not a single mango to eat and worse still even as we throw away mangoes and other fruits we drink some crazy colouring called juice manufactured in a ware house in Thika. The stuff has zero nutrition value. It is basically sweetened water of very dubious quality.

Why on earth can't we turn the mangoes into juice. Mango juice is quite expensive anywhere in the world. In fact in a place like Bondo and many other areas the fruit trees are basically organically grown. We take care of these trees, plant more of them and process the fruits into juice and other dry products and add a whole lot of value to these products.

So ndugu Kamale I might be talking to you to help me set up a food processing plant in Bondo pretty soon.

Anyhow talking about drying food products as means of food preservation and even packaging and marketing reminds me of the ancient art the Luos have often used of drying meat into aliya. That thing tastes good if it is cooked well with the right ingredients. Dried fish is even better. When I visited Nairobi I was very impressed with the revival of traditional foods like aliya.

My point is that the beginning of the economic survival for our country lies in adding value to our products right at the source and finding ways of getting good returns to those who are at the end of the food chain( the farmer, the fisher etc)

The good thing is they don't teach this stuff in economics classes at the premier universities in the world so we have to open new ground. It is going to be tough, but also very interesting.

Adongo

[kamalet]

Adongo,

Thanks.

Perhaps I should point out that the government through the new Youth Ministry will be launching a 5 billion shilling Youth Enterprise Development Fund to deal with exactly the issues that our pickled food friend had. The modalities are being worked out and I understand that this fund will be managed by the private sector with several commercial banks already running in to be part of the fund.

The intention is to facilitate funds for those that may not have capital or security to borrow but have the right ideas to run a business. So what is important will be generating a good business idea and the funds will be made available in the form of a unsecured loan. There will be education and monitoring processes to ensure that you do not just take the money and run. Currently the target group will be university graduates and diploma holders who would like to venture into business.

On the food processing bit, our pickling friend has just ventured into Sun Dried Tomatoes as part of the funded joint venture, and the business is picking up now.

Actually walking into supermarkets in Nairobi today, I keep getting surprised at the innovation of Kenyans. I am amazed to see bottled crushed garlic made in Kenya alongside imported varieties from Thailand, and I keep saying to myself that perhaps Kenyans are starting to see the point of processing their own foods and packing them instead of relying on imports.

Something that needs to be done is to convert these from cottage industries to full fledged industries that exploit economies of scale. That is one of the things that should be done about the mangoes in Bondo. Just how did the Biltong industry grow in South Africa? Professionalism that could be added to the Aliya industry in Kenya. Move away from subsistence production to making money!

Give me a shout when you get into the venture and we can progress.....! Anything that makes me money makes me smile!

[aeichener]

Hm. The supermarket shelves, yes... I remember them very well.

Can you tell me why packaged Macadamia nuts are *more* expensive in Kenya than in Europe, yet farmers only receive a pittance for their products?

And why really good Kenyan white wine (from Yatta) is gathering dust in the bottom row, never to be bought at its 680 KSh, while the worst imports of Spain's, Portugal's and Germany's junk-quality overflows eagerly sell for the double price?

And why Kenya, a country that by grace of nature is able to produce world-quality orthodox teas (from Aberdares and Mount Kenya) on the same level as Darjeeling and Assam, and that even has proper production facilities for orthodox teas, forks out baseline CTC stuff container-wise, that is only good for colouring hot water dark, with ever low bonus payments for the farmers, and tea-plucker wages remaining continuously low ?

Alexander

[aeichener]

As to the tea, it boggles my mind and makes me angry every day. So many wananchi depend on it, and yet NOTHING is being done, while it would be so simple.

Give me three months and a moderate loan, and I will show you world class teas. It is so easy, just a few steps. Retail sales price would be about 30 Euros per kilogram here. Now compare that to the revenue which farmer and pickers receive today.

Alexander