In Summary
My heart sinks every time I am on Uhuru
Highway. Vendors peddle every type of convenience electronic gadget, all
made in China.
From Gikomba to Diamond Plaza,
merchandising is the buzzword. Kenya Airway’s Guangzhou route is
booming, thanks to Kenyans travelling to buy products for their
consumption-only customers. At high-profile China-Kenya meetings we read
speeches that do not address the growing trade imbalance.
In
one of my speeches, I remember urging China to commit to prevail on its
citizens to each drink a cup of Kenyan coffee for ten days a year as
part of a strategy to resolve our trade imbalance. If they did, and if
the cost were one dollar, Kenya would raise more than $13 billion,
slightly more than our national budget.
Indeed,
the Chinese take a lot of our coffee, but we get very little out of
it. Fifty years after independence we have not mastered the coffee value
chain. It is perhaps our weakest link to prosperity.
We
are a consumer economy. The contribution of manufacturing to the Gross
Domestic Product (GDP) has never gone past 15 per cent for more than 30
years. Agriculture has remained at sub-30 per cent of GDP for
ages. Tourism, which used to be a leading contributor to GDP, is under
threat.
POOR SAVINGS
Retail,
however, has expanded tremendously, and very little that is in our
supermarkets is produced locally. We are guided by consumer spending,
which is rising as a percentage of GDP as opposed to its other major
components (gross private domestic investment, government spending, and
imports netted against exports).
Ordinarily, when you
borrow to spend, the logical decision is to become thrifty and save
more, but this has not happened in Kenya in the past few years. We are
now so dependent on consumer spending that any pullback will send waves
through the economy.
Consumer spending in Kenya as a
percentage of Gross Domestic Product. SOURCE: Data (The World Bank)
Graph (www.tradingeconomics.com)
The
fear that depressed demand will force companies to cut back on labour
leading to greater unemployment is always in the mind of bureaucrats. We
would rather spend even if it is just a few privileged people. This,
however, does not help increase the savings rate — the percentage of
after-tax income that people do not spend — which has fallen from a high
of 18 per cent (expressed as a percentage of Gross National Income) in
2004 to about 13 per cent in 2011.
In
terms of savings, all other East African countries are doing better
than Kenya. Perhaps the best lesson about savings is China. They are
capable of loaning several countries and winning businesses because they
built insurmountable savings.
Savings and economic
growth are closely related with each other. Numerous studies, whether of
low-income or high-income groups, show the relationship between the
savings at domestic level and economic growth.
INCREASING TAXES
The
economic growth of a country can be referred to as the economy's
capacity to increase the production of services and goods in comparison
with a previous time period. Without productivity or expansion of the
economy for greater revenue, governments resort to increasing taxes to
plug consumption holes like salaries and others social services. This
leads to a chicken-and-egg allegory.
In the 60s and
70s, farmers could easily earn from their produce and meet their
commitments. Land was plentiful and farm sizes were large. Agricultural
extension officers ensured crop rotation for farmers to enable greater
yields, and productivity was high. The majority of the farmers could
harvest between 30 and 40 bags of maize per acre, but all this has
faded. You will count yourself lucky if a maize plantation yields 10 to
20 bags per acre.
Productivity among peasant farmers is
as low as fewer than five bags per acre for maize. Food insecurity has
soared as we look to other countries to purchase maize for
consumption. Year after year, we forget to produce more than we consume.
Instead
of commercialising research outputs, knowledge workers at universities
joined unions to push for more salaries (greater consumption without
corresponding production) as their research production lies idle in
laboratories. Some of the research outputs are what we import into the
country.
Most universities globally make additional
revenues from research partnerships with private enterprises. Although
state funding is essential to making university affordable, it is time
we started building sustainability models and stopped overreliance on
state funding. Some universities like Egerton are in such strategic
locations as to produce enough outputs to cover their operational
expenditure.
STEEL PRODUCTION PLANT
We
are now culturally inclined towards consumption. Production, which
enhances resource availability, and in turn brings peace in our
fractious society, takes a back seat. Our political class has taken this
cue, and they too are big into consumption. Besides their fat salaries,
they frustrate investment that would lead to greater productivity.
For
example, instead of Nyanza leaders seeking to produce steel from iron
ore in Homa Hills for the standard gauge railway, they frustrate the
very investment that would utilize their resource. All they needed was
to negotiate in such a manner that China would build a steel production
plant in Homa Bay. This would have led to even building an energy plant
and created more jobs.
In Kitui it is the same
story. We could save this country from deforestation if Kitui leaders
were inclined towards production and started mining coal for use as a
domestic source of energy to replace charcoal.
What we
need in Kenya today is to change course from a consumer economy to a
production economy, where we put more emphasis on investment in
physical, human, and knowledge capital, and less on consumption as the
yardstick of success.
In my view, we can compete
effectively with China if we have the collective determination to do
so. China is beginning to move up the ladder in manufacturing into
high-value products. It is the perfect chance for Kenya and other
African countries to seize the emerging opportunity to manufacture
low-end products.
RAISE OUR CURIOSITY
This
is where we can build the confidence to fight it out with the rest of
the world. In thinking creatively to exploit opportunity we are virgins,
but Africa must take up its fair share of the global productive
burden.
The goal of a consumer society is to provide
consumers with low prices and wide variety from far-flung sources, with
less concern about jobs and wages. We could change the thinking of
people if we put a little more thought and leverage the body of
knowledge we have around to exploit opportunities that exist.
We
must, for example, constantly raise our curiosity on natural resources,
exploit emerging windows of opportunity such as the overheating
manufacturing sector in China. Without expanding opportunities and
becoming more productive, we encourage higher taxes that catalyse income
disparities.
As Wendell Berry said, “To be interested in food but not in food production is clearly absurd.”
Dr
Ndemo is a senior lecturer at the University of Nairobi's Business
School, Lower Kabete campus. He is a former permanent secretary in the
Ministry of Information and Communication. Twitter:@bantigito
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