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Political Fallacies Shouldn’t Drive Economic Behaviour

[vc_row][vc_column width=”2/3″][vc_column_text]In my previous life, I was an executive director on the board of Barclays Bank of Kenya. Being the first female in that position in the bank’s ninety-year history was a testimony to the bank’s progressive shift at the time to a more gender inclusive and younger board. Right outside the 8th floor boardroom at Barclays Plaza, was a toilet facility: for gentlemen only. The ladies toilet was a hop, skip and a jump further down the corridor where the staff bathroom facilities were. Now, a fallacy can be created here: that Barclays Kenya never envisaged a day that women would ever be on their board, and therefore contrived to only have a gentleman’s commode available that was contiguous to the board room. The more likely story is that when the building was constructed, the toilet facility was tucked on as an afterthought, as that boardroom was being partitioned. Back then, it was primarily men on the board and therefore it made perfect sense that it would become a gentlemen’s facility. With the passage of time it was never deemed necessary to add a ladies toilet probably because the female directors on the board never raised it as a mission critical board agenda item. Why do I give this story? I narrate it as it demonstrates how urban legends are created: That women were never imagined to ever join the boardroom and the lack of a toilet is evidence of such myopic thinking. Which is absolutely untrue.

Last week I had an early morning meeting in Upperhill, Nairobi’s rapidly trending “must have” corporate address. I turned onto Hospital Road and the rising sunrays in the salmon colored sky glinted off the steel and glass edifices of several new buildings. Upperhill is a testimony to unplanned gentrification, with a road infrastructure that is struggling to catch up to the real estate capital that has been heavily invested there.

That real estate capital is a further testimony to the fallacy that is often being perpetuated that Kenya is walking an economic tightrope, with certain doom waiting at the bottom of the political circus. The buildings didn’t drop out of a Jupiter sky. They were deliberately constructed by owners of capital that see further past the building’s balance sheet depreciation. I was a little stumped. A building is a large and long-term investment. It is a loud and vociferous “we are here to stay” statement. And there are several of those statements in that square mile or so that forms Nairobi’s emerging financial district. So I asked one of the corporate titans located in Uppherhill as to why there was such growth and development in the area, when the print, television and social media paint such a gloomy picture of the country’s future. His response was reflective of corporate Kenya: Social media in Kenya is an effective pressure valve, it allows for steam to be released regularly to reduce the compressive forces of political dissatisfaction. As a business driver there would be greater fear if voices of dissent had no outlet, as that would mean that the country would be snowballing into a cataclysmic event whose trigger could not be determined, as happened with Tunisia’s Mohamed Bouazizi’s self immolation in December 2010 in protest of police corruption and ill treatment that sparked off the Arab spring. Owners of capital detest the inability to predict or calculate political risk. Kenya’s political risk is seemingly one that can be calculated and absorbed in the cost of doing business in the financial capital of the greater East African region.

Italy provides a classic example of political risk divorcing itself from economic growth. By the time Silvio Berlusconi was taking on the Prime Minister’s office in April 2005 for his third tumultuous shot at greatness, he was forming the 60th government that Italy had had in the 60 years since it had become a republic in 1946. Past Italian governments hardly lasted more than a year on average. Yet Italy remains the 9th largest economy in the world, as well as a card-carrying member of the European Union and the G7 economic powerhouse. How is this possible, when we in Africa have been conditioned to believe that central (and now county) governments are the singular premise on which great economies are grown?

According to a report from Focus Economics, Italy’s economic structure relies mainly on services and manufacturing. The services sector accounts for almost three quarters of total GDP employing around 65% of the country’s total workforce. Within the service sector, the most important contributors are the wholesale, retail sales and transportation sectors. Industry accounts for a quarter of Italy’s total production employing around 30% of the total workforce. Manufacturing is the most important sub-sector within the industry sector. The country’s manufacturing is specialized in high-quality goods and is mainly run by small- and medium-sized enterprises. Most of them are family-owned enterprises. Agriculture contributes the remaining share of total GDP and it employs around 4.0% of the total workforce.
The Focus Economics reports adds that after World War II, Italy experienced a shift in its economic structure. It transformed itself from an agricultural country to one of the most industrialized economies in the world. The force behind the post-war economic miracle was the development of small- and medium-sized companies in export-related industries. In the following decades, the economy has had both ups and downs. It is also noteworthy that Italy is the last Eurozone member on Transparency International’s corruption index at number 69 next to Greece, Romania and Bulgaria. The Italian Court of Auditors estimates corruption to amount to about 40% of public procurement value.
We can and we are already growing into a regional economic powerhouse, if we leave politics to the politicians and simply focus on growing our SME base ourselves. Our stable shilling in recent volatile times also demonstrates our economic resilience. The Italian model substantiates that economic growth, in spite of political turbulence and corruption, is not such a fallacy.

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Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

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Greek Crisis Explained

Once upon a time, there lived a government that ruled a country called Kulahappy. Kulahappy’s government had no problem spending money, actually lots of it. You see, in the government’s mind, the people had to be taken care of and it instituted a fairly generous public pension and healthcare system. The public pension system was open to all working citizens of the country and productive citizens were allowed to take early retirement and jump into the merry pension bandwagon. The people were very happy, especially since the government of Kulahappy was not in the habit of taxing them very much. Everything was humming along very well until a global financial crisis occurred.

Suddenly Kulahappy and other countries had difficulties borrowing money in the international markets as everyone turned off the lending taps while trying to assess who was a good or bad credit. Kulahappy’s government then decided to let out a secret that it had been hiding for several years: they had a massive budget deficit and were spending way faster than they were able to collect in taxes. It was so large that they couldn’t possibly fund it by issuing more government bonds in the domestic market. They needed external help. But international private lenders had had enough of Kulahappy’s antics and were struggling to sell off the existing government bonds faster than you could say Athens. With no takers, Kulahappy had to turn to the Union of neighboring countries with its hat in hand and ask for help.

The Union rapped Kulahappy’s delinquent knuckles very hard and said they would only lend if Kulahappy started taxing its citizens more and cut down on its public spending. What? Kulahappy was being asked to act like a grown up and it didn’t like this one bit. Its back was against a wall and, with its piddling options, started making pension and healthcare cuts while slowly trying to increase the tax brackets. The Union released the funds, 107 billion units of relief, which was the biggest debt-restructuring program in the history of the world and life went on. But the citizens were not a happy lot at all. Pension cuts led to social unrest while the underlying economic factors of production were not improving, in fact the economy contracted by 25% over the next four years. Youth unemployment began to rise, there were more poor people on the streets and before you could say Tsipras is your daddy, the government was thrown out and a new one was voted in.

The new government was made up bad boys. These boys were so tough that they told the Union exactly where it could go and stuff its face with German sausage. You see, the new boys had managed to convince the electorate that the Union-inspired austerity measures were bringing the Kulahappyians to their non-taxpaying knees and that the Union was the cause of all their problems. The new government told the Union that, quite frankly, it wanted a 50% debt write off and it wanted any discussions about budget cuts thrown into the pit latrine of history. Did I mention that the debt that was being requested to be written off was the biggest emergency loan given to a country in the history of mankind? These boys were gamblers par excellence, taking a bet that it would be suicidal for other Union members to try and force a Kulahappy exit. In their rose tinted glasses view, they were all joined at the hip for better or for worse, in richness and in poverty and only a communal seppuku ceremony would separate all parties concerned. The disgraced Kulahappyians and their thoroughly annoyed Union cousins lived unhappily ever after.

The Greeks are having a tad bit of “kula happy” fever. They have the European Union members over a barrel as everyone probably wants them out but the legal process for exiting the monetary union was not put in place as it was never envisaged that a free-wheeling, sun kissed, tax avoiding member would fall into the kind of trouble that Greece has done. The Greeks are better suited as African Union members since we can totally relate to their habits of runaway spending and tough talking governments.

But their mastery of political doublespeak is what should make them card carrying members of Africa’s political elite. Prime Minister Tsipras and his team have some serious gumption to stand in front of its lenders, the International Monetary Fund and flip them a proverbial finger by saying they have to go to the people and get their mandate as to whether to implement the austerity program. Tsipras has put the monkey on the back of his austerity weary citizens: “Say no to the austerity, so that we can bring the lenders back to the negotiating table on the basis that the people have spoken. Say yes, and we’re up the creek without a paddle. Chaos panic and disorder will become our mainstay and, by the way, I’m out of here because I can’t see a way out of the quandary this government is in.”

Good people, we need to keep a careful watch over what’s going on in Greece. We can’t shrug our shoulders every time the media highlights yet another profligate abuse of financial discretion by the Senate or the National Assembly. Each and every penny of government spending comes from us, at least that which is not funded by borrowing. If ever the music stops, and the government is unable to finance its budget deficit externally for whatever reason (political turmoil, default of existing debt etc.) the trickle down effect of a government that stops spending are too frightening to dream about. The economic contagion of a broke government inevitably leads to social unrest in an already fragmented country. But I guess no one wants to hear doomsday news like that. Neither did the Greeks five years ago.

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Twitter: @carolmusyoka

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Sights and Sounds of Poland

A few weeks ago, I was the guest of the Government of Poland at the European Economic Congress held in the southeastern Polish industrial city of Katowice. I arrived on a cold and blustery spring mid morning into Warsaw’s Chopin International Airport. Surprise number one: the world-renowned composer and piano virtuoso Francois Frédéric François Chopin was actually born in 1810 as Fryderyk Franciszek Chopin in Warsaw and became a musical child prodigy before moving to Paris at the age of 18. Poland, his country of birth never forgot him and has awarded him the national honor of naming its gateway into the country after him. (Eleven years after receiving the Nobel Peace Prize in 2004, there is no visible memorial that Wangari Maathai originated in Kenya. None whatsoever)

City of Katowice
City of Katowice
Image from https://upload.wikimedia.org

I must say that I was ecstatic when I bumped into a former work colleague who had undertaken his university studies in Poland and was also part of the entourage. It meant that I had a familiar guide who, I erroneously thought, would help me navigate 100% polish speaking territory. Surprise number two: I didn’t need a Kenyan polish speaking guide to move around. All the signs in the airport were in both Polish and English. Now, in this part of the sun kissed African world, mention Poland and it immediately conjures up images of a grey, undisputed card carrying member of the former Soviet driven Eastern bloc. But Poland’s long and tortuous road to becoming a jewel in Europe’s crown began over 40 years ago. And it is this journey that convinced me that many African countries have hope for economic transformation within a single generation.

In the 1970s, Edward Gierek, the First Secretary of the Polish United Workers’ Party racked up an unsustainable debt to the West. Coupled with an unproductive and centrally planned economy, the country was unable to handle the debt payments leading into an economic crisis. Basic goods started disappearing from store shelves. As one fairly young speaker at the Congress stated when he heard an African contributor lamenting about poor economic policies in his country, “In Poland in the eighties, if one found people standing in a line, one would join the queue and only find out what was being sold at the end of the queue. We have now transformed into the 6th largest GDP in the European Union. You can do it as Africans too!” The African contributor slunk back into his seat quietly.

Anyway, back to Poland’s interesting history. By the 1980s, the economic crisis had grown spurring multiple protests. An independent trade union known as Solidarność (or Solidarity in English) became the main force behind the protests with many workers as well as intellectuals joining it. At its height the trade union had well over 10 million members. In the face of social opposition and a deepening economic crisis, the troubled communists began the famous Round Table Talks that resulted in the first democratic elections in the Eastern Bloc taking place in 1989 in Poland.

Warsaw at night
Image from http://viahansadmc.com

If you are a purveyor of conspiracy theories, you would greatly enjoy a book by Gordon Thomas called “Gideon’s Spies: The Secret History of the Mossad.” In the fairly well written book, the writer reveals a number of Mossad operations and discoveries, a key one of which is who ordered the miraculously bungled assassination attempt of Pope John Paul II, himself of Polish descent. According to Thomas, Mehmet Ali Ağca – the Turkish assassin who shot the Pope in May 1981 – was actually recruited and funded by the Soviet Union, as the Pope’s influential office was thought to spur the influence and efficacy of the Solidarity movement on the world stage.

But I digress. In the 1990s, a free market replaced the centrally planned economy, privatization of state entities was embarked upon and the Warsaw Stock Exchange was launched. Surprise number three: While Poland joined the European Union in 2004, it still remains outside of the monetary union and operates its own currency, the Zloty, meaning that the cost of living is much lower than other countries in the Eurozone and they are therefore able to place themselves as an attractive destination due to competitive labor costs.

Consequently, Poland enjoys the benefits of European Union such as access to a single market with no trade (or physical) barriers as well as access to EU funding. Poland has a population similar to Kenya’s at 38.5 million people, 60% who live in cities and 50% who are under the age of 38. 16 million are professionally active and the government ensured that English is now a mandatory subject in primary and high school leading to a population that attracts world class companies looking to set up strategic businesses such as IBM, LG, Procter & Gamble, Siemens and Samsung Electronics to name a few. It’s ability to attract the highest level of foreign direct investment in Central Europe as well as its large and rapidly developing domestic market meant that it was the only EU country that did not experience a single quarter of GDP decline at the height of the 2008 global financial crisis.


Image from https://i.gocollette.com

The Poles were quick to admit that while they were slow to the “doing business with Africa” party, they were in it to win it particularly in the agri-business field. At the Congress, every nook and cranny was filled with cafés giving out specialized coffee drinks. The Polish are enormous coffee drinkers and one Café owner had expressed interest to a Kenyan colleague in sourcing good coffee beans. Patryk, my Polish handler, noted with some humor that he had never seen so many black Polish speakers gathered in one room. Clearly the Polish policy of granting university scholarships in the eighties and nineties was reaping rewards. The Poles want to do business in Africa but, as one of the Kenyan panelists advised them, they need to get high-level Polish government dignitaries to be the face of this agenda. Africa is ready.

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Twitter: @carolmusyoka