Kenya's economy is headed for a collapse unless the politicians get out of trying to run the economy!
Price Controls: These are always short-term and hardly work except under rare circumstances.
Food Prices: The farmers (producers) have little incentive to produce unless they get a fair price. Since the GoK restricts the purchase price of maize to KES 1,750 per bag, the farmers will stop producing.
Fuel Prices: In the case of remote locations, many firms will withdraw leaving the market open to black-market gouging. Since the GoK refuses to refund VAT among other duties/levies on time to the Oil Marketers, the costs will either be passed on to the consumers or the Oil Marketers will close up shop.
Subsidies: These are politically popular but ultimately hurt the consumers. How?
- Taxes will be raised (except for the MPs) to fund the extra spending
- Deficit will grow which means that GoK has to raise taxes or take on additional debt.
- Interest rates will rise to match the deficit (gov't borrowing) which crowds out the private sector.
- Corruption will increase as politically-connected firms/persons will "eat" the subsidies e.g. firm/person buys subsidized maize from NCPB & re-sells it back to NCPB at higher prices (a feedback loop).
- Subsidies create inefficiencies that are very difficult to root out.
- Kenya shilling will depreciate rapidly which will create imported inflation since Kenya is a net importer. Subsidies create an unfair playing field.
- Creating a larger gov't bureaucracy (bureaukrazy) will create additional avenues for corruption & inefficiencies.
Inflation: Folks will buy forex, gold and property (read: Why I don't invest in property in African countries) to hedge against inflation BUT this starves the REAL economy of investable funds e.g. investments in factories, farms, etc.
Remittances: The diasporan 'investing' cash will disappear as will any FDI if GoK can't guarantee a stable economic environment. There are always opportunities for a few rent-seekers but the economy as a whole will suffer.
Brain Drain: Kenya will experience a brain drain to other African countries, Middle East & of course... Europe & the USA even with the increasing level of unemployment there. Why? These economies still believe (for now) in keeping away from nationalization.
I have discussed in previous blog entries what measures need to be taken to right the economy. They may not be popular but need to be implemented. If Kenya loses its private sector, then Kenya is in huge trouble.
- When banks withdraw lending to businesses since its more profitable (& less risky) to invest in Treasury Bills & Bonds.
- When most Kenyan businesses become traders not manufacturers/producers.
- When Kenyan businesses compete against government subsidized businesses (e.g. Oil Marketers compete against a subsidized NOCK).
- When farmers decide its more lucrative NOT to farm since there are gov't handouts.
- Kenya has almost zero 'natural resources' that can produce income without much work e.g. oil. This means we need to work harder & smarter.
Kenya was unfortunate to have presidents like the jomo 'the land grabber' kenyatta (or as he is better known... crooked wa ngengi), dan 'steal all I see' moi and myriad other politicians whose sole interest was their own enrichment. Singapore had a brilliant benevolent dictator (Lee Kuan Yew) who transformed Singapore into a bastion of prosperity & stability in S.E. Asia.
Most of the current political class needs to be PURGED. They are thieves, idiots & greedy bastards. Most have been implicated in scams or have stolen fortunes. How do we expect them to lead us in these trying times?
Kenyans are also to blame. They vote for tribes NOT character. They have the world's highest population growth rate. They sway to the winds created as the politicians blow hot air. They want freebies without considering the after-effects.
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