Thursday, March 13, 2014

IS KENYA ON THE BRINK OF BANKRUPTCY?

Four years ago Greece, the birthplace of Western democracy and the Olympics Games was declared bankrupt. Three decades of official corruption had brought the country, located at the crossroads of Europe, Western Asia and Africa, to its knees.

By 2010 many of the country's industries had collapsed. The rich were no longer paying taxes. Consequently, the country could no longer meet its debt obligations. Unemployment left millions of people destitute and exorbitant food prices drove people into violent street demonstrations.

The "cradle of all Western civilisations" had to enter into a major bail-out arrangement with the European Union to stay afloat, but it had to sell most of its treasured wealth including idyllic islands. Today, the effects of that meltdown are evident through increased number of beggars and homeless people all over the country.

In the last ten years, two other countries, Argentina and Iceland have gone into a state of ruination for almost similar reasons.

Last year, the once rich city of Detroit, Michigan, in the United States, filed for bankruptcy becoming the largest municipality in the country's history to declare a financial emergency.

For decades, Detroit, known for its giant auto manufacturing plants, had been borrowing money to pay debts. Government corruption was rampant. The tax base had shrunk due to declining population and reduced income tax revenue. The city's computer systems were too obsolete to detect fraudulent activities and again, people were not paying property taxes.

These examples confirm that nations and governments can, in fact, go bankrupt.

Today, in cafes and evening barazas, Kenyans are asking if their country is on the brink of economic collapse. Recent cases of high-level corruption -  namely the Standard Gauge Railway and the Laptop Project scandals - among others -  together with other worrying issues such as the ongoing wage bill crisis, high budget deficits, increased levels of borrowing, skyrocketing food prices and escalating unemployment are fueling speculation that all is not well.

As stated by President Uhuru Kenyatta and Deputy President William Ruto, the country is living beyond its means. Seventy-four percent of the country's revenue goes into paying salaries while only a paltry 26 percent is reserved for development. If this is how we are going to operate in the next decade and half, the 2030 Vision intended to propel the country into a middle level industrial economy will be a mirage.

However, all is not lost especially if you listen to two leading economists, Mwangi S. Kimenyi of the Africa Growth Initiative and Josephine Kibe, a Senior Fellow at the Global Economy Development organisation. In a recent report, the two laud Kenya for its strong private sector, relative political stability, market friendly policies and a strong human capital as some of the positives that make Kenya's economy relatively unshakable.

Kenya has the largest economy in East Africa with a gross domestic product that represents 40 percent of the region's GDP. Its Stock Exchange is among the best in Africa with strong domestic and foreign participation. This year, according to the two distinguished experts, Kenya is likely to grow at 5.8-6 percent up from 4.6 in 2012. Its foreign exchange reserves are strong and the national currency, the shilling, is relatively stable. Inflation continues to hover at single digit.

So, is Kenya likely to go the way of Greece, Argentina and Iceland? I doubt it.

However, the Jubilee Government has a very limited window of opportunity to prove that it is serious in eradicating high level corruption which now seems to be getting out of hand. Billions of shillings are lost every year to crafty crooks operating right under the nose of the Executive. Kenyans no longer think this is funny.

While the current wage bill crisis is mutating into a political and economic emergency, the growing insecurity is threatening our stability. The government must deal with labour strikes; find a more workable solution to youth unemployment; reduce inequalities; improve health care and rein in insatiable greed from politicians. In addition, it must expand its tax base to increase revenue.

If necessary, as it has been suggested by some, it should lead the nation into reviewing the Constitution with the intention of reducing the number of elected and nominated leaders and cutting down on Commissions and money guzzling government parastatals.

The sooner the Jubilee Administration moves in on these initiatives, the safer the country is from a possible economic meltdown.

And that is my say.