Fixing the economy: Solution is expenditure reduction

 

Last week, we explored various ideas on how we can jumpstart the economy in a peri/post Covid-19 environment.

This week, we shall continue with this discourse with a view to ensuring we experiment with the best of ideas to make Kenya a successful first world economy in due course.

I believe this is possible if we think of how to turn things around. One of the suggestions that came from you as a reader was that it’s possible to have Indian and Pakistani artisans train our local Jua Kali craftpersons with transferable skills that would make them spur innovations through cottage industries.

There are so many of them across the country and if we are to zero rate or even subsidise the welding machines and such other foundry and modelling equipment, it would lead to great products that can employ many Kenyans.

Most importantly, each of the 47 counties has at least one produce or raw material that can be processed or value added, for example granite in Vihiga.

The government can create a conditional grant to the counties that can be matched up through own source revenue and private sector partnerships to create at least one industry per county.

These 47 products can then be marketed across the country and to the African market to leverage on the new free trade area and the East African Community.

It’s critical to note that for the first time, Kenya has experienced a deficit in its balance of payments in trading with its neighbours, something that needn’t happen if we are to maintain our lead as the commercial hub of East and Central Africa.

One of the biggest challenges that many start-ups face is the myriads of documents that are required in order to set up a business. It’s very possible to have a single business permit or at least consolidate as many of these processes together.

Too much small time corruption in processing of these documents leads to the frustration of many brilliant ideas especially by our young people, yet with about 1-10 million, very many of these ideas can grow to build a very productive sector of our economy. Is it possible to implement a policy that anything that is produced in Kenya shouldn’t be imported not unless certain official quotas are sanctioned by government to breach the gap?

Issues to do with bulk production and cost can easily be addressed through subsidies and non-tariff barriers.

Further, there are 16 million people who live below the poverty line in Kenya according to the Kenya National Bureau of Statistics (2020). A further survey by Knight Frank (2021) reveals that it takes a net worth of Sh2.2 million ($20,000) to join Kenya’s top one per cent.

This depicts serious inequality, with more than three quarters of those who are formally employed in public and private sectors earning Sh50,000 and below (KNBS). Kenya has only about 90 dollar billionaires within a $100 billion economy.

Although taxing the rich may be popular with voters, the best approach is to go the Chinese way whereby you reduce the number of those below the poverty line literary and methodically through measures such as social transfers and cottage industries that are linked to external markets. China is doing very well in this regard.

In terms of fiscal discipline, it’s instructive to note that the national deficit is a big challenge, standing at 8.9 per cent. However, it’s not only imaginative but also its roll over to the next financial year overburdens subsequent budgets and grossly interferes with procurement plans and revenue projections, thus leading to pending bills.

In this regard, we can thus conclude that the real problem we need to address is expenditure reduction rather than how to meet the deficit. It’s not a matter of how one can afford new set of cloths, but rather putting up with the old ones a little longer, even mending them, as you pay off old debts from friends and relatives.

Moreover, it’s important for government to continue with its policy of stopping all new projects for the next three years until the situation stabilises, as the ongoing ones get completed.

In this regard, there is a serious need to have a centralised database system of all the 8,000 or so government projects at the national and county governments for ease of monitoring, evaluation to assess the real cost and ensuring efficiency and value for money.

Other measures that will help in matters fiscal discipline include anchoring the capping of the debt ceiling in legislation rather than through the PFM regulations, and separating the National Treasury from the Ministry of Finance and Planning.

This will help create a ‘treasury system’ to help structure and monitor public revenue and investment, at national and county treasuries as well similar to UK’s Chancellor of the Exchequer or US treasury.

In brief, if Covid-19 has made a ‘lean’ person thin, let’s cut our cloth according to size.

True to God and country.  BY THE STAR