Why increased local demand can fuel growth of the economy

Irene Nanayu The market is ruled by forces of demand and supply. And in a free market, these forces balance out each other through the setting of prices for goods and services by competing actors. Yet, whenever a government has tried to intervene too strongly in this sensitive balance, it led to dire and tragic consequences for its people. Thus, most governments try to foster growth without intervening too much in the workings of the free market. Even economists are split over what exactly drives economic growth. The Austrian, and later on, the Chicago School, believe that supply is the driving force behind economic growth and development. The key advocate of the opposing view has been the British economist John Maynard Keynes, who coined the phrase “demand-side economics”. He argues that economic growth is at its strongest when the demand for goods and services is high. This causes high spending by consumers, allowing businesses to expand, invest and employ more people, creating even higher demand, thus the  ‘multiplier effect’. Keynes’ theories were partly based on his observations of the economic troubles globally in the 1920s. Governments that incentivised a growing demand by spending money through welfare projects weathered the depression better than those that didn’t. Yet, this should only be considered in emergency situations, though Kenya is far from experiencing such an economic depression. Kenya’s growth has been positive over the past decade. The country’s demand keeps growing even without massive government intervention. The recently published Purchasing Manager Index (PMI) is proof of sound economic policies. The numbers from the PMI show that even after the budget has been presented, the economy continues to grow at a faster pace. Local job-creators agree that their outlook for the coming years is positive, and thus will continue to invest in our economy.  President Kenyatta’s focus on reviving the local manufacturing industry plays a role. Good infrastructure not only aids the growth of domestic trade but also improves economic ties with our peers. Intra-African trade is also projected to grow, thanks to the African Free Trade Agreement. While the full scale of results of economic reforms takes time to come into effect, we can already see their first blossom all over Kenya. -Irene Nanayu is a marketing expert