The perils of State-induced economic uncertainty

 

Economic uncertainty has been a constant companion for many Kenyans in the last two years.

Two events espouse this uncertainty. One is the dropping of the Finance Bill, 2024, and now the Kenya Electricity Transmission Company (Ketraco) and the Jomo Kenyatta International Airport (JKIA) contracts, dubbed the Adani deals by the mainstream media, for the development of the power distribution network and the upgrading of the country’s biggest airport, respectively.

You could add a new Treasury Cabinet Secretary and the advertisement of Principal Secretary positions.

While we all celebrated the firing of the Cabinet before some of them were reinstated, albeit in different dockets, such policy reversals create economic uncertainty.

Yet, economic growth hates uncertainty unless it results from innovations like Starlink or Artificial Intelligence (AI). 

Think of a dhow in the sea where the wind direction keeps changing. Where will it go? Such dhows have characterised the East Coast for centuries.

They use wind power to transport goods and people. By the way, why can’t I take a ship or ferry from Mombasa to Malindi, like Vasco da Gama?

Why is uncertainty such a big enemy of economic progress? Let’s start with an investor’s perspective. They mobilise resources, either from savings or borrowing with expected returns. They often make some assumptions about risks and uncertainty in their decisions. 

Abrupt changes throw them off. Withdrawal of the Finance Bill created uncertainty in taxation and interest rates.

When investors are not sure of such metrics, they postpone their decisions or in extreme cases leave. Think of someone starting a kiosk.

They must factor in licences, the price of their inputs and the selling prices to avoid a loss. Producers want to make sure they cover their costs. Everyone is looking for certainty along the supply chain.

The Adani deals cancellation was celebrated. But that created uncertainty on the expansion of JKIA and power transmission.

It also feeds into the rumour mill. How long will it take to get new deals on the two projects and many others? Who will be the new contractors?

How will they be selected? Will genuine investors be “Adanised?” The rumour mill says it was the American influence that led to the cancellation.

Others say the Adani deal was a red herring. Could such deals, become more costly as bidders factor in the risks of cancellation?

Could bribes go up, since it was a factor in the cancellation, according to American media reports? Uncertainty jerks up interest rates, which is costly to taxpayers and investors. 

On the demand or consumer side, uncertainty is loathed. Can we cover our costs? How much do we need to borrow, and what consumption can we postpone?

Certainty makes it easy to plan for even a little money. Ever wondered why primary school teachers own assets that look incompatible with their status?

Let’s be blunt, most businessmen love uncertainty. They can raise the prices and make money if the demand is not responsive to prices.

Think of pharmaceutical products or foodstuffs. One explanation for the rise in the cost of living after the 2022 polls was economic uncertainty. It is still reverberating.

Uncertainty, from a political point of view, is good.  When your political enemies can’t predict your next move, you have the upper hand.

Do you recall late President Moi telling us that election day was his secret weapon? I am persuaded that the current economic uncertainty is unintended and a matter of concern. 

The availability of information creates uncertainty as we try to filter what is true, fake, exaggerated, propaganda or plain lies.

Consultations, integrity, trust, facing reality and letting institution do their work reduce uncertainty.

Once uncertainty trickles down to the economy, it has unintended consequences.

Think of uncertainty over the tariffs newly elected American President Donald Trump will impose on imports.

How should exporters react? Think of uncertainty over Germany’s next government and its new policies and the uncertainty over the next phase of the Ukrainian war. 

Which major policy decisions in Kenya have been keeping us awake at night? Funding university education, perhaps?

Whether it is in courtship, in our homes, in the workplace, or institutions, we love the elusive certainty. There should be more certainty in every arm of the government.

MPs should be predictable in the laws they make and how they vote, while the Judiciary should create more certainty in resolving cases. 

Why do minor cases take years to resolve, yet a presidential petition takes only three weeks? Major decisions by the executive should create certainty.

After all, one of the traditional roles of the government is to create certainty through policies and ensure security and property rights.

Is correcting market failures not part of creating certainty? Are we creating more uncertainty by focusing on 2027 and the polls thereof?

One of the big debates should be drawing a border between uncertainty and indecision.

Before signing off, there is a bright spot in uncertainty.

Remember the uncertainty emanating from quantum mechanics a century ago and Heisenberg’suncertainty principle?

Remember how uncertainty unsettled Albert Einstein, of all geniuses? We have created certainty out of that uncertainty through quantum computing, the next frontier besides AI.

This development creates uncertainty on whether we should celebrate uncertainty.