Adopt bottom-up economic model

 

During Madaraka Day celebrations in Kisumu, President Uhuru Kenyatta missed an opportunity to allay mwananchi’s anxiety regarding the poverty, 2022 elections, unemployment, taxes, corruption and Covid-19 pandemic ailing Kenya. 

Neither did he mention the impending debt crisis, even though we know “things are thick”. The government is insolvent and must keep borrowing — to pay those who are asking for their money, like the Chinese. And it is not the President who need acknowledge this reality; that’s immaterial. He owes the nation an explanation on how he will get us out of this mess.

Those who drafted the President’s speech filled it with hollow phrases — such as “consequences of choice”, “economic acceleration”, “the paradox of choices”, “the pursuit of perfection”, “ethnic majoritarianism” and “liberation momentum”. 

The President lauded his accomplishments and sought to project himself as delivering better economic performance to Kenyans than his three predecessors combined. While a play on words, as seen in the speech, may be forgiven or overlooked, those behind the disappointing self-aggrandizement deserve stunning rebuke.

Speaking of “economic acceleration” as increasing the speed of achieving national, county and individual levels, the President juxtaposed his performance with his predecessors’. Citing gross national product (GDP), he declared that he had doubled what the colonisers and the first three administrations cobbled together in some 128 years. He further observed that, 50 years since Independence, the economy had grown to just Sh4.5 trillion, yet his economic prowess had raised it to Sh10.3 trillion. All in just under eight years!

Indeed, the economy has more than doubled, yet it has not delivered tangible gains — including jobs, markets and new opportunities to a majority of Kenyans. On the contrary, corruption and shady deals have ballooned the national debt to near bankruptcy. By his own admission — and under the President’s watch, and by his own revelation — corruption costs the government Sh2 billion per day. Ever borrowing to pay off the Chinese and others is an admission that the economy is weak and that the government lacks the means and will power to fight corruption. 

And it is not simply that it is more convenient to borrow; failure to wage a meaningful war on corruption raises questions about the government’s priorities and could even suggest state capture and overt support for corruption.

Bad idea

It was a bad idea for the President to stake his performance on the doubling of the size of the economy. His economic acceleration claim raises several serious questions. What we are experiencing is not economic acceleration, for there has been no significant changes in productivity. For most Kenyans, personal and household wealth and/or incomes, which rose substantially during the Mwai Kibaki era, have either stagnated or shrunk.

His claim of doubling of the economy is nothing but an indicator that has no real value. The economy has doubled not because of increased output but uncontrolled borrowing and expenditure. And not all debts are beneficial in the long run. Bad debts, for example, have eventually left families, individuals and firms worse off. This is likely where we are headed as a people.

Here is an important economics question: Can the economy expand amid widespread corruption? The answer is ‘yes’. Stealing and diverting public resources, including tax revenue and project funds, does not necessarily lead to an economic contraction, as illustrated below.

Assume President Kenyatta’s government has borrowed, in the past eight years, Sh6 trillion from external partners such as the World Bank, IMF and China. Assume also that powerbrokers and corrupt government officials have stolen half of that — Sh3 trillion. Total external borrowing (inflows) would increase the country’s overall GDP by at least Sh6 trillion. This is a net addition to our national value/output. 

Whatever amount is stolen has no consequence to the total size of the economy — unless these funds are spirited to offshore accounts (outflows). In the long run though, GDP would go down, once we start repaying these loans (outflows).

Inadvertently, the President’s speech demonstrated, inadvertently, the failure of top-down economic model. Eight years of heavy borrowing and expenditure has only benefited a handful of well-connected individuals and their families and associates, who have landed lucrative contracts, including procurement deals. Borrowed resources have been misspent on projects promoted by these individuals. 

The President has failed to bring economic relief to the ordinary mwananchi, a situation that is fuelling a push for the bottom-up economic model.    BY DAILY NATION