EDITORIAL: Fall in value of corporate deals a worrying trend

If companies can then demonstrate that they are looking at high growth potential, investments will flood back into the economy. FILE PHOTO | NMG 

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The fall in the value of corporate deals in Kenya this year does not paint an optimistic picture of the private sector, the headline growth of the economy notwithstanding.

Foreign investments in particular are key in growing the economy, bringing in new expertise and capital into a country as well as showing the wider world that a country is competitive.

Thus the falling investments belie this notion about Kenya’s economy. For some time, Kenyans have complained that they are not feeling the impact of the growing economy, which expanded by 6.3 percent last year and is expected to do so by 5.8 percent this year largely driven by government spending.

Only last week, Central Bank of Kenya governor Patrick Njoroge faulted the structure of Kenya’s economy for delivering economic growth without creating jobs or an increase in incomes, particularly, arguing that increased infrastructure spending has not spread wealth among working Kenyans.

The falling investments are therefore just the latest in a worrying trend of negatives in local businesses. We have seen numerous listed firms issuing profit warnings in the past two years, with some going into administration due to financial distress. Given that it accounts for the lion’s share of the job market, good performance of the private sector is a critical ingredient of a healthy economy.

As a result of its recent problems, thousands of Kenyans have lost their jobs, bringing home the reality of the consequences of failure to enable businesses to thrive. What is imperative now is to make sure that we remedy the underlying problems that have afflicted our economy.

Principal among the solutions is to make sure that enabling investments by the State are going into areas that have a high multiplier effect in job creation.

It is only by putting money into people’s pockets that we can raise consumer spending which will in turn drive the revival of the fortunes of the private sector.

If companies can then demonstrate that they are looking at high growth potential, investments will flood back into the economy.

One such investment area is agriculture, which remains the biggest employer across Kenya, and accounting for a third of GDP.

The sector’s supply chain is massive, meaning a few shillings can create value of a far larger impact than the face value of the money. This is therefore a call on authorities to put money into mutually beneficial sectors, rather than investing in vanity projects that help only a moneyed elite.