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Wednesday, February 20, 2008

Just How Broke Is The Kenyan Government?

When this crisis was just beginning and long before Kenyans and the international community knew who Mwai Kibaki really was, we tried to predict the outcome of this mess with a friend and we both agreed that the deadlock would not be broken by war or anything else.

It would all hinge on money.

If the Kibaki administration managed to keep the money flowing in and the bills paid, then it was going to be a long, long fight.

What we did not agree on with my friend (who is a financial expert and understands Kenya well) was just how vulnerable the Kenyan economy was. In his view it was going to take a lot to bring the folks at the Treasury down to their knees. He emphasized to me that the Kenyan economy was NOT the Zimbabwean economy. If truth be told, he has mostly been right. However a number of extraordinary factors have quickly combined to completely change the scenario.

Despite Finance Minister Amos Kimunya’s brave face and cocky statements to the effect that the economy would hardly be scathed even after the devastating post-election violence that has swept across the country, the reality is different.

We are not all financial experts so let’s keep this simple.

Imagine that Kenya is an individual who receives money but has numerous bills to pay. Survival hinges on receiving enough money to be able to pay their bills on time. Before we start looking at where the money is coming from it is important to note that this chap called Kenya hardly saves any money and in recent times has been a huge spender. That combination can be deadly.

This guy Kenya has been receiving most of his cash from tourism. In recent years tourists have been flooding the country in unprecedented numbers. We all know that that source of income has been wiped out. Probably the most telling sign that things are really bad was the cancellation of all Paris flights by Kenya Airways two days ago. While it is true that France does not give Kenya many tourists, one needs to understand how airlines like Kenya Airways work. Usually the idea is to juggle routes in such a way as to keep the income stream that is flowing in, as high as possible. Cancellation of one destination does not affect just that country. It will have a trickle down effect on virtually the entire European network and beyond because of issues like flight connections. If truth be told the managers at KQ must already be in a cold sweat.

The other major source that puts cash in Kenya’s pocket is the collection of taxes. Not only have numerous businesses not transacted much since December last year, but there are certain lucrative areas of tax collection that have been shut down. As you read this the Rift Valley, Kenya’s rich bread basket has virtually shut down. Again the effect of this cannot be limited to the Rift Valley alone. The businesses there had suppliers from all over the country some of whom will now have to close shop.

Spending on the other hand has gone through the roof since December 30th or thereabouts. Keeping some semblance of law and order has required the largest deployment of policemen and the military in the history of Kenya. The bill is a top secret but I can tell you that it is colossally HUGE.

The picture is pretty grim, but what this guy called Kenya is trying to do is put on a brave face and pretend that all is well. This is critical because as long as the Mboga woman whom you owe a big debt sees you driving in every day, then her confidence will still be in place because all people who keep cars on the road have a lot of money, or so she thinks. You don’t want her to see you catch the matatu as your car remains parked outside your compound. That would cause her to lose confidence and demand immediate payment and that would mean no more vegetables on your dinner table.

This is precisely the reason why Kenya has been at pains to paint an image of business as usual.

However as you read this, the government has ruthlessly cut down on all spending except that of very essential items. The idea is to keep wage and salary bills paid for as long as possible. But already all the signs are there that it is only a matter of time before some department of government has their salary delayed.

The reason why all this should worry Kenyans a lot is because the hard-line stance and the way PNU folks are talking does NOT make sense at all when you consider the cash situation. The facts suggest that Mwai Kibaki should have greatly softened in his stand by now. So what does he know that we DO NOT know?

How will the country survive the next few weeks and months?

It is frightening evidence that Mwai Kibaki may just be playing the most dangerous card of all. What I call the Samson option. You all know the Samson story in the bible. When surrounded by enemies on all sides and with his eyes gorged out, Samson felt his strength returning and asking God for the anointing one last time, he was guided to the pillars of the building and sued his strength to bring it all down, destroying himself and all his enemies with him.

God forbid that the slogan amongst insiders in State house is NOT; No Kibaki, No Kenya.


Anonymous said...

That the post election violence has strained the economy is in no doubt. However, Kenya's economy is resillient enough to bounce back to its pre election position in a relatively short time as soon as the supply routes are opened up.

In a financial market that is well developed as Kenya's, the economic downturn of this violence could be reversed quite fast if the statistics are anything to go by. Despite the earlier threat posed by inflation where opportunistic traders hiked prices of airtime, foodstuff, bus fares etc, its impact did not affect the annual average in January by much. The annual average inflation rate as of January 2008 stood at 10.51% compared to 9.8% in December. However its the month on month inflation that was cause to worry which stood at 18.22% up from 12%.

At such a crucial time monetary and fiscal prudence is called for by those tasked with this responsibility. The intervention by the CBK to save the weakening of the Shilling was a wise move given the reduced dollar flows. While I do not concur with your thoughts about the government being broke- an unlikely situation-it would be in order for the government to focus on priority projects instead of further inducing inflation.

Anonymous said...

Supply routes have opened up but the supply chain has been disrupted due to displacement of traders.

Anonymous said...

Indeed this guy called Kenya is faced with a financial crunch that he may have to contend with even as he maintains a brave face for sake of family and friends. Who wouldn’t want to keep up the airs when he knows that going into financial ruin will definitely affect not just his family and friends but neighbours as well some of whom keep running to him to solve their marital problems?

Mr. Kenya knows how to blow his own trumpet. We've all heard him say that he doesn't depend on anyone to feed his family. Pushed, he will admit that “well, he does receive some 5% assistance” to run his family but hastens to add that this ka-5% supplements the purchase of a bigger tin of margarine instead of “blueband ya kadogo”

What he has failed to tell his wife and kids is that he doesn’t have to pay most of his workers! Over half of those taking care of his healthy are paid for by friends, school fees is equally subsidised. He may be paying his personal assistants but who has been clothing and equipping his security personnel? In fact, this fellow is full of great ideas but for them to see the light of day, friends must chip in! and that includes when he sets up a program to take of his children when they fight.

Yes. Without the 5% life for Kenya will be “normal” for a while… till he fails to pay school fees,...

Anonymous said...

The weak shilling due to tourism troubles has created an agricultural export boom but only in PNU zones since they're investor-friendly. If you don't believe me, just ask any agricultural exporter in a PNU zone about Jan '08 sales compared to Jan '07 sales. There's no greater time in Kenya to own a cow so long as it's in a PNU zone.


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