The essential Kibaki

 

Mobile telephony did wonders to the economy. [Fle, Standard]

In a column this past week, my friend Jaindi Kisero referred to Kibaki as a Keynesian economist. 

He termed Kibaki’s economic policies (2003-2013) as Kibakinomics and argued favourably that they worked well, delivering high economic growth.

 He further suggested that those policies were derived from the command and control stance of yesteryear and that in practical terms, they involved a combination of massive borrowing and investment in infrastructure.

I like the term Kibakinomics. One could even say I am a student of this brand of economics. The term surfaces from time to time. 

I first used it in a guest column in a leading daily in mid-2007, when I argued that Kibakinomics should not be confused with trickle-down economics. 

I agree with most of Jaindi’s conclusions but disagree with some of the analysis. 

Did an earlier Kibaki, when commerce and later finance minister, preside over a command and control regime? Yes, somewhat. But it was also the economic regime in most of the capitalist world.

In the 70s and 80s, prices were controlled. Primarily out of the view that small economies may not have large enough markets for competitive price discovery. 

The government played an active role in creating a capitalist class and businesses. 

So, we can all agree that the development finance institutions (DFIs) such as ICDC, Development Finance Company of Kenya, Kenya Industrial Estates, Small Enterprise Finance Company, and Industrial Development Bank were part of the architecture to promote industry in Kenya. 

The Africanisation program sought to create an African capitalist class, but most did not go past retail trade to wholesale and manufacturing. Frustrated at this slow pace, a case was made by the Ndegwa Commission to allow civil servants to do business. 

A key reason was that as elite, they had knowledge and wages which could support business loans. This seemingly excellent idea had serious unintended consequences because it created conflicts of interest and compromised governance.

Many countries did have price controls in the decades before the 70s. But the oil crisis of the early 70s led to a period of rapid inflation, despite price controls. 

Policy prescriptions of the Keynesian tradition were not working, not just in small economies like Kenya but larger, more advanced ones.

The upshot was the view that the economy needed less government. So, deregulation, privatisation, price decontrol and structural adjustment. These soon became a mantra in the capitalist west, reaching our shores at the close of the 80s.

In the 1990s, Kibaki is in the opposition, becoming its leader in 1998. His 1992 and 1997 manifestos focused on revitalising the private sector and agriculture to create jobs.

 In 1997, he promised to create 500,000 new jobs based on a strategy to bring back oil crop production.

The Washington consensus is emerging in the latter part of that decade. It presumed that the Ricardian free trade is always best for everyone. 

But evidence shows, however, that when a manufacturing nation is engaged in free trade with an exporter of raw materials, the latter is always worse off. 

Essentially if you are an exporter of raw materials, you can end up specializing in being poor.

I would characterise Kibaki as a pragmatic economist. He did not stick to the policy prescriptions on any one tradition. 

What then are highlights of Kibakinomics? Robust tax collection, low-interest rates, major improvements in the ease of doing business, sustained investments in infrastructure, human capital, increased decentralization and liberalism.

When the constituency development fund (CDF) was started in 2004, the total allocation was 1.26 billion. This rose steadily to 23 billion by 2012.

 Let us examine each briefly.

Everyone agrees that Kibaki was very successful in tax collection. The question is why? Tax collection is in part about trust, but also about widening the tax bracket. 

When Kibaki assumed office, citizens trusted that the regime would put their taxes to good use and began to pay voluntarily. 

In addition, the administration straightened Kenya Revenue Authority (KRA), and began to widen the bracket, bringing in more taxpayers.

 The results were quite dramatic. In 2002, the total tax collection was 185.33 billion. This increased to 716.8 billion by 2012, and 811.9 billion by 2013.

How did Kibaki bring about a low-interest rate regime? By bringing down the cash reserve ratio, and restructuring the debt maturities – basically replacing higher-cost short-term instruments with longer-term bonds.

On the ease of doing business, the regime eliminated more than 450 licences in one fell swoop around 2005. The guillotine, as it was called, required any government agency that was issuing licenses to show its purpose. 

This general easing of the business operating environment resulted in rapid growth in the number of new business registrations, rising from 18,155 annually in 2002, to 85,660, ten years later.

Much has been said about the sustained investments in infrastructure, not only to revamp the then dilapidated network but importantly, to grow it. Financing and implementation arrangements were equally important. The growth in tax collection enabled the regime to finance infrastructure spending mainly from domestic sources.

The Kibaki regime gave meaning and teeth to decentralization. The previous efforts such as Moi’s District Focus for Rural Development remained just on paper. 

Under Kibaki, decentralization was funded! When the constituency development fund (CDF) was started in 2004, the total allocation was 1.26 billion. This rose steadily to 23 billion by 2012. This gave citizens the ability to fix issues at the local level.

But it is the growth of ICT, the explosion of mobile telephony, the spectacular growth of mobile money, the listing of Ken Gen, and KQ that best highlight Kibaki’s liberal credentials.

These efforts resulted in rapid increases in real wages, which rose from Sh8,726 in 2002, to a high of Sh33,143 in 2008. Thereafter, of course, they declined to 26,340 in 2012, before rising slowly to 31,812 in 2019. Agriculture has the lowest wages while financial and insurance activities have the highest.

Jaindi asks the question - how come massive borrowing and infrastructure spending produced magic growth for Kibaki, but did it not work for UhuRuto? 

But the more precise question is why similar growth in overall GDP was not producing the same increments in real wages and real personal incomes. 

At issue is whether the use of leverage, a well-understood concept in financing, is resulting in the crowding out of the private sector.

One key policy that has not received as much attention is investment in human capital. Scaling up training through the revamped school of government, better pay, and performance contracting. This attracted accolades from among other the United Nations.

Finally, Kibaki will be remembered for providing both the civil service and the citizens with a clear vision. 

What is vision 2030? Broadly, it is to be a middle income (US$15,000 per person per year), democratic, industrialising country, with a high quality of life by the year 2030. The road map to get there involved working on various pillars and enablers. 

No nation on earth has ever become a middle income one, without industrialising. Our choice is therefore quite straightforward. Industrialise or stay poor. 

In looking at the August general election, this must be the core consideration in making our choices.

Industrialisation is a most critical step in creating high quality, well-paying jobs. It is also, however, the area that requires the most courage from a leader.

Students of history will know that rich nations made every possible effort to become industrialized, including of course active protection of their industries. 

In antiquity, nations used rather draconian measures such as the Navigation Act of 1651 to protect their industries. In modern times, such measures may not look very democratic.

 Therefore, new more urbane sounding measures have been applied, key among them is the application of standards. 

Sometimes it seems we do the opposite. Last year Kenya Bureau of Standards (KEBs) threw a word I had never heard before at us. Homologation. I was astonished that it was the reason not to approve the Nyahururu produced tuk-tuk, BJ50. What does it mean? 

That SagakTech would have to prove that their tuk-tuks will meet US and UK standards. But we are producing the tuk-tuks for ourselves, not for European markets! we protested. 

This week we were outraged when police in Nakuru arrested a woman for manufacturing without a licence. Pray who issues the licences? The citizen or government?

For us to industrialise we must have the courage to do those things that make sense for our development, not to pander to other nations.

We must believe in ourselves! And on this, I agree with Jaindi. One of Kibaki’s most enduring lessons; Belief in ourselves.

Fare thee well, father of modern Kenya!

- Muriithi is the Governor of Laikipia County.