The economy has grown, yes, but is it sustainable?

Story by JAINDI KISERO
Publication Date: 5/30/2007

THOSE WHO SAY THAT THE Government has fudged growth figures in the current Economic Survey are wrong. Even the harshest critic of President Kibaki’s administration must accept that the economy has been on the mend in the last three years.

On the other hand, I also believe that it is only healthy to uphold the tradition of treating official Government statistics with a dose of scepticism.

It was Benjamin Disraeli, the former British prime minister, who allegedly uttered that most memorable of quotes: “There are three kind of lies: lies, damn lies and statistics.”

What is the Gross Domestic Product (GDP) and how accurate is it as a measure of a people’s well-being?

Simply stated, GDP is the sum of all goods and services produced within an economy — the aggregate of all wealth created in a country.

While calculating GDP, you have to aggregate all the goods and services produced in an economy — from the number of haircuts done, the number of cabbages sold, the number of bus tickets — to the volume and quality of banking services.

It is mainly a quantitative measure that ignores other variables of well-being such as inequality, insecurity, environmental degradation and human rights violations.

Quantitative growth is not the same thing as qualitative development.

In Kenya, high GDP growth happens in tandem with high inflation, pervasive unemployment and rising crime. The Gross National Product may increase, but it will not necessarily lead to an increase in the Gross National Happiness.

Enough theory. Very significant trends have emerged from the statistics published in the 2007 Economic Survey, which deserve to be highlighted.

First, agriculture is gradually being supplanted from its traditional role as the main engine and most important contributor to economic growth.

Consider the following: in 2005, agriculture contributed 30.3 per cent of all the wealth created in the economy. Last year, according to the survey, the sector’s contribution to the GDP dwindled to a mere 22.4 per cent.

It is also noteworthy that, though the agricultural sector actually slowed down from 6.9 per cent in 2005 to 5.4 per cent last year, the economy still registered positive growth.

These trends are confounding, indeed, because Kenya’s boom and bust cycles have traditionally followed the performance of the agricultural sector.

The trends would suggest that we are gradually moving to a post-material economy where the service sector will be creating more wealth in the economy than brick and mortar.

EQUALLY SIGNIFICANT IS THE FACT that consumer spending soared, pushing growth in the wholesale and retail sectors from 5.5 per cent in 2005 to 10.9 per cent, allowing the sector to emerge as a major contributor of growth.

Two hypotheses may explain the growing importance of consumer spending in our GDP statistics.

First, with the introduction of Electronic Tax Registers, collection of statistics improved tremendously. Secondly, consumer spending on beverages, clothing and footwear rose exponentially.

The question, however, is: Where did all the money for these shopping sprees come from in view of the downward performance of the agricultural sector?

My guess is that we are dealing here with spin-offs from the expansionary spending, which the Government has engaged in over the last three years — on free primary education, salaries for teachers, Members of Parliament and judges, and devolved funds, including the Constituency Development Fund, Local Government Transfer Fund, and the constituency bursary fund.

The Government has also spent massively on reviving parastatals like the Agricultural Finance Corporation, the Kenya Meat Commission, and the Kenya Co-operative Creameries, and on restructuring some large corporations such as the Kenya Railways and Telkom Kenya.

But is this growth pattern sustainable? This is an open-ended question. Economic growth can only be sustainable if it is based on investment in physical and human capital, and where it is paid for by savings and forgone consumption.

Growth is also sustainable if it is based on technological advances, increased productivity and efficiency.

In an economy such as ours where most of the problems are on the supply side — poor infrastructure, lack of long-term credit, inefficient commodity marketing and inadequate land — it is foolhardy to rely on consumer spending as your source of growth. You have to address the supply side first.

Which brings me to the issue of the quality of our national statistics. The Central Bureau of Statistics has been enduring chronic under-funding for years. For a long time, surveys were conducted but not analysed. ‘‘The Economic Survey’’ and the ‘‘Statistical Abstract’’ — the two most important reports from the bureau — had no release calendars.

Key statistical reports the bureau used to produce, including the ‘‘Statistical Digest” the ‘‘Annual Trade Statistics” and the “Annual Education Statistics” are no longer produced.

Housing surveys and industrial surveys are only produced when there is donor funding. If we want accurate growth statistics, we must be prepared to spend money on them.

Vision 2030 merits everyone's support


Publication Date: 5/30/2007

Alongside the release of the latest uplifting figures in the annual economic survey came news that the Government intends to commit a massive Sh500 billion investment in six key sectors over five years as part of the development plan aimed at catapulting Kenya into the ranks of the middle-income countries by the year 2030.

Vision 2030 is no doubt an ambitious project that deserves the support of all.

It is a project that must be pursued as a vision for all Kenya, not one tied to an initiative that can only be identified with the Government of the day or the political party that happens to be in control at any given time.

The year 2030 is quite a while away. It is given that in 23 years, there will be a lot of changes in our political leadership. Tenancy at State House will no doubt have changed a number of times, as will what we commonly refer to as the ruling party.

The make-up of the Legislative and Executive branches will also have undergone major transformations as the cycle of time forces the old to give way to the new.

To make headway, Vision 2030 will depend on the kind of support it gets from successive generations of leadership.

So it is important that as it gets going, it is not identified as a Kibaki or a Narc Government project, but a national and multi-partisan effort in which all sides of the leadership spectrum must be incorporated.

The onus is on this Government to bring on board all shades of opinion in order to both enrich the vision and to ensure that it survives the changes expected on the political scene.

As the President said during the presentation of the development strategy, Vision 2030 was not for the Government, but was supposed to be owned by all Kenyans.

That resolve to let Kenyans have ownership of the process must be seen in more than mere words.

In due course, Vision 2030 will be tabled in Parliament as a Sessional Paper, and it would be a pity if some opposed it merely because they saw it as a Government project.

High food and energy prices raise inflation

Story by NATION Reporter
Publication Date: 5/29/2007

The rising cost of food and energy has cast a long shadow on economic growth, wiping out gains made, especially by the low-income earners.

The two items, which consistently grew by a double-digit figure all year through, have been used by economic growth critics to rubbish claims that the economy is doing better than it was years ago.

Blamed on a severe shortage of rainfall in 2005 and the first quarter of 2006, as well as rising world crude oil prices, the cost of living went up to hit an all-time high of 19.1 per cent in March 2006, in terms of month-on-month inflation. The overall annual inflation rate increased from 10.3 per cent in 2005 to 14.5 per cent in 2006. According to the Government data, the rate of inflation on the two remained the highest through out the year.

“Inflation for these two categories has remained above 10 per cent in 2006 thereby contributing to the upward trend in overall inflation since the beginning of 2006,” analysis by the Government says.

All the other categories captured by the index returned a single-digit rate over the year, except alcohol and tobacco whose inflation rose to 10 per cent in March 2006, before reverting to the single digit level. With almost half of the country population said to be on the low-income bracket, views dismissing the growth resonated well with the majority. And the concern is well captured by researchers: “The rise in the inflation rate was more pronounced in the Nairobi lower income group where inflation rate increased from 11.7 per cent in 2005 to 19.6 per cent in 2006.”

Central to this debate has been the price of sugar, which almost tripled in December, and is the most quoted as the clearest sign of the failure of the economic recovery to address inequalities.

The group, whose experience could mirror those of the rest of low-income earners in the country, is normally hardest-hit by rising food and energy prices, as a large share of its income is spent on food.

Blair set for farewell trip to Africa

Story by Reuters
Publication Date: 5/29/2007

British Prime Minister Tony Blair makes a farewell trip to Africa this week, after using his decade in power to try to rally the world’s richest countries to help ease the plight of the world’s poorest.

The governments of Sierra Leone and South Africa have announced Mr Blair will visit this week on one of his last overseas trips before he resigns on June 27 and hands over power to finance minister Gordon Brown.

In Sierra Leone he is expected to be praised for sending British troops to the country in 2000 to help shore up the United Nations peacekeeping operation there and hasten the end of a civil war marked by atrocities against civilians.

The South African government said Mr Blair would hold talks with President Thabo Mbeki and deliver a major policy speech on Africa during a visit on Thursday and Friday.

Visit is significant

The visit is significant because it takes place on the eve of the Group of Eight Summit scheduled for Germany during which Chancellor Angela Merkel has vowed to press rich nations to fulfil aid pledges to Africa under a 2005 Blair initiative.

The British-hosted G8 summit in July of that year produced Blair’s most vaunted achievements on Africa. Under Britain’s presidency, the leading industrialised countries promised to double aid to Africa by 2010 and wipe out more than $40 billion of poor nations’ debt.

“By setting up the Africa Commission and using his presidency of the European Union and G8 in 2005 as leverage, Tony Blair helped to create an unprecedented global focus on Africa and poverty,” Barbara Stocking, director of aid agency Oxfam, said in a statement this month.

Mr Blair famously declared in October 2001: “The state of Africa is a scar on the conscience of the world. But if the world as a community focused on it, we could heal it.”