Why Kenya's 6.3% GDP growth is voodoo

[Nefertiti]

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Ndii slices and dices it again for the lesser mortals buffled by the #GoKdelivers pie-in-the-sky figures - while they can't afford unga and basics. It's a literal redux of my argument here- - borrow & build is only good when you are rock-bottom like Kibaki/NARC term - after Moi era of westage - and still you must be very frugal, very economical, very efficient. Hii ya Jubilee ni upuzi - when you import everything - capital,labor, technology, materials - it's like living on credit and claiming to be prosperous. If the cylinders are roaring so swell - why are companies making losses? Where are the jobs? What matters is Gross NET Product - what did Kenya actually produce and at what cost?




Published 4 days ago on May 7, 2019 By David Ndii




https://www.theeastafricanreview.info/op-eds/2019/05/07/real-or-portal-growth-why-businesses-are-going-bust-and-people-are-struggling-to-make-ends-meet-as-the-numbers-say-the-economy-is-roaring-like-an-asian-tiger/

The comments are telling -

actually going on and are being misled by the #GoKDelivers portal numbers. Hopefully, people take their time to read your content instead of pointlessly @'ing you on Twitter.

[RV Pundit]

The usual nonsense from NASA economist. Please if you find someone else like his former prof Paul Colier at Oxford or someone at least objective kindly alert us.

Otherwise, this goes directly to the dustbin named Dr Ndii.

Which business are going bust - when Safaricom is about to become a billion dollar gross profit a year company?.They just made gross profit of 900M dollars. Their revenues are already at 2.5B dollars.

When banks last year made a record 150B kshs profit - banks assets have more than tripled under Jubilee.

When new sectors like digital lending - are nearly overtaking bank loans?  Mshwari alone have lend 2.3B dollars..there are 50 such micro-lending.

Safaricom's Fuliza (overdraft) are already nearly crossing 1B dollars - few months since it was launched.

Tech companies alone attracted nearly half a billion dollars last year in FDI.

Exports through AGOA rose to 700M - from usual 400M - a 25% annual increment.

Exports of tea, macademia, avacados and such - increased significantly last year.

Tourism is finally recovered and is back on the growth trajectory - visitors and earning grew by another 25% if I am not wrong.

Diaspora are sending more and more dollars home....

Are those infrastructure?

[Nefertiti]

Of course he has the NASA touch but he has a point. It's mostly the financial sector that has a fake boom - as consumerism fuels the exorbitant Fuliza or M-Shwari. Mobile loans are not a viable or sustainable capital - it more like theft - 90% interest. Fuliza is shylock business. Actually it worse.

Pundit if these were billions minted from genuine reasonable interest on lending I would agree there's growth. Say like Sacco 12% p.a.  As it is now it's just karata on gullible Kenyans.

[RV Pundit]

This is the new economy - new digital economy - interest rates will come down eventually with better data and more competition - but definitely fact is billions of dollars are now available to kenyans at the touch of a button. These loans people are willing to pay high interest - because it serves a huge needs - instead of pawning your TV or Cooker or goat or calling 10 relatives like it used to happen - you can just fuliza or mshwari - get emergency loans in few minutes.Equity are now dispensing 90% of all loans digitally - they are now dumping t-bills (lending to gov) - for SME - because they it much cheaper to do that - with their tech infrastructure.

Don't get me started on betting - that is another sector of the economy that is growing very fast - I hope Ruto with his Christianity doesn't stymie it - because we know economies such as Las Vegas or Macau China are built on top of that. Treasury is getting alot of billions dollars from betting companies - pretty much make up for companies struggling in other sectors.

We are in the midst of a new revolution - powered by M-pesa. It not only in finance - but all sectors - agriculture even - look at Safaricom's digifarm - it piloting in Meru - simple USSD app - that gives farm input vouchers - look at Twiga Foods - they haven't scaled yet - but they are using technology including M-pesa to solve market access - Look at Unilver's Duka lending - they use m-pesa to lend shops/dukas goods - which they repay daily.

Look at all the digital taxis - probably about 10,000 new decent jobs have been credited - complete with credit and behavioral data - that can help these people access loans, health insurances and name it.

I mean we already knows bodas bodas derided as they are ; already created so many jobs, eased transportation in rural and urban areas - and has made life easier.

All these reflect in the economy.

I tell you Kenya is in a cusp of a big revolution.

Of course he has the NASA touch but he has a point. It's mostly the financial sector that has a fake boom - as consumerism fuels the exorbitant Fuliza or M-Shwari. Mobile loans are not a viable or sustainable capital - it more like theft - 90% interest. Fuliza is shylock business.

Pundit if these were billions minted from genuine reasonable interest on lending I would agree there's growth. Say like Sacco 12% p.a.  As it is now it's just karata on gullible Kenyans.

[Nefertiti]

I agree technology is a big leverage - that has disrupted industries. Say a young man now doesn't to own expensive matatu to get a piece of the transport pie. But Safaricom or Equity's billions are not indicative of growth - because they are exorbitant. It shows consumerism from ease of access to cash.

[Nefertiti]

See how Pundit struggles to finger any genuine growth outside the M-Pesa ecosystem.

[RV Pundit]

There is a lot of growth outside m-Pesa & related tech (a confluence of finance & intermediation with telecommunication) - infrastructure expansion is greater than ever - we are building more roads, rails, ports, power lines, power stations than ever.

we are doing great in real estate - we are building more houses, malls, hotels, offices, and institutions than ever before!

Devolution is also helping drive gov expenditure (compared to national gov that generally get hobbled by judicial disputes - see Big 4 housing agenda now - the year has ended and judiciary has blocked deduction) - we see counties all over doing great stuff - from Turkana to Mandera to Makueni - there is some huge visible progress.

The economy has also generally benefitted from very low oil prices - I mean Kibaki regime pretty much had to contend with oil at 140 dollars a barrel - now we have been enjoying about half that.

We are seeing a rebound in the tourism sector - now firmly at 2M tourists - and the sector is looking up.

Agriculture the mainstay of the economy isn't doing badly either - horticulture (33% annual growth that Ndii ignored) is now easily approaching 2B dollars a year - as well as tea - and the dairy sector continues to see double-digit growth. We have issues with maize, sugar-cane, and coffee - that Ndii uses to drive his NASA point - but generally, the agricultural sector is doing great.

Manufacturing has generally kept pace with economy - at around 10% - with agro-processing not doing badly - EPZ are also not doing badly - yes a lot needs to be done - to get this sector to grow to 15% of GDP in the medium term - and at least 20% of the GDP in the long term - including lowering electricity cost - and sorting out teething problem at SGR.

Within the social sector - we continue to make a huge investment in the education sector (both at individual and gov level), we are seeing sustained population decline (demographic dividends will start to kick in soon nationwide), we are seeing more health care investment - HIV, Malaria a& TB pretty much under control & people are living longer. Generally, the quality of life in Kenya is improving. Poverty has gone down 10% the last decade - and I believe with devolution - we see even greater dent against poverty in the ASAL regions - Turkana, Manderas, Wajirs.

Despite corruption and red tape - Jubilee are nailing the ease of doing business - from being ranked around 120 to now 61 (always in the most improved) - only 3 African countries have better ease of doing business than Kenya now - Rwanda, Mauritius and I think Morocco. Jubilee are targetting position 50(corruption notwithstanding). This Gov has achieved it by leveraging technology - digitizing gov services, all the huduma centers, and namely everything has become more transparent and accountable - thanks to stuff like E-Citizen.

See how Pundit struggles to finger any genuine growth outside the M-Pesa ecosystem.

[Nefertiti]

This is the hard infrastructure debt-led "growth" contended by myself, Ndii and other experts. At 90% import of everything - capital, labor, technology, materials - it's unsustainable - living on credit and thinking you're rich is delusional. Rotich is merely flipping bonds - like McDonald's buggers  - as debtor after debtor come calling. Next thing Kenya will be demoted in credit rating.

There is a lot of growth outside m-Pesa & related tech (a confluence of finance & intermediation with telecommunication) - infrastructure expansion is greater than ever - we are building more roads, rails, ports, power lines, power stations than ever.

[Nefertiti]

Are we really doing "well"? Real estate is going bust - Two-Re I went there 2017 and beyond 1st floor it was empty. Haunted hallways - the construction boom is not efficient - just like SGR - cause they are expensive without sufficient demand. It's worse at Upper Hill - with all the corporate HQs concentrated there. So as the trucks continue to haul cargo along the roads - giving the SGR a wide berth - so do the tenants in Nairobi and other places. Most last-mile connections are yet to flip the switch on. Hard infrastructure must be pared with utility - we can forgive GoK whose incompetence we are accustomed to - but these Centums, Britams and private investors are quite buffling - with such poor choices. Centum posted reduced margins - with profit warnings - Britam made BILLIONS in losses - despite all the technology, integration, optimizations and what not. Their "IT transformation" - or some crap like it - was all over the media a year or so ago - as they continue to hawk antiques - motor or life insurance to millennials. You asked what companies were going bust? KQ is another one - minting BILLIONS in losses year after year - despite going digital and poaching MJ on board - Mr M-Pesa himself.

we are doing great in real estate - we are building more houses, malls, hotels, offices, and institutions than ever before!

[Nefertiti]

Manufacturing needs 3 or 4 big inputs - which Jubilee and even Kibaki have not nailed.

Transport - SGR is more costly than roads so nothing there. Most goods are still on the trucks.

Labor - with all the unions - new Katiba rights, Labor court - there is very little GoK can do to beat China, Vietnam, Bangladesh or Ethiopia. Jubilee has zero strategy here.

Power - this remains more costly per kWh than before all the last-miles. It's about COST - not just new power plants or transformers.

So for manufacturing zero. Hakuna kitu. Big 4 pillar is just hollow with no discernible strategy - what is Uhuru doing that Kibaki did not do? Ease of doing business is a buzzword like GDP - where are the new investors or FDI - from the index 130-to-60 achievement?

Manufacturing has generally kept pace with economy - at around 10% - with agro-processing not doing badly - EPZ are also not doing badly - yes a lot needs to be done - to get this sector to grow to 15% of GDP in the medium term - and at least 20% of the GDP in the long term - including lowering electricity cost - and sorting out teething problem at SGR.

[Nefertiti]

Sema horticulture - flowers - which sell for a dime a dozen. Then come back 100X as perfume. Can you really see any "growth" worth praise? Until you have value-added processing - of simple fragrances or insecticide - I don't see meaningful growth.

Milk farmers are crying as Uganda floods the shelves. Sugar, maize, coffee - these deadwood sectors - what has Jubilee done about them?

Nope, agric has not performed anything of note. Just waiting for God's rain - as drought and the ASAL spreads.

Agriculture the mainstay of the economy isn't doing badly either - horticulture (33% annual growth that Ndii ignored) is now easily approaching 2B dollars a year - as well as tea - and the dairy sector continues to see double-digit growth. We have issues with maize, sugar-cane, and coffee - that Ndii uses to drive his NASA point - but generally, the agricultural sector is doing great.

[RV Pundit]

You're inventing your facts.

Kenya growth is broad-based. From all sectors.

We don't import 90% of everything. We import about 18-20B worth of goods - about 20% of GDP - mostly consisting of machinery & equipment (20%), Vehicles (10%),iron & steel (10%),petroleum and related products(10%) - the rest of our imports are cereals,plastics, pharmaceuticals & paper.We don't import labour of course - we have less than 10K expats - we export labour and earn remittance (about 2.5-3B now)- and we would love to import capital(FDI).

Our trade deficit is a concern but Kshs has been strong because of in-flows (we have now about 8B forex reserves - about 5.5month cover when we only need 4 months. We are seeing reduce export to regions (EAC) - and we need to get Africa Free Trade - & new regions like Ethiopia & Somalia - to compensate for Ug & TZ who are doing good in import-substitution wise.

Our debt/gdp ratio is approaching the limit (nearly 60%) but we are far from debt crisis; debt refinancing happens everywhere every day including in US or China gov. We are taking steps - and we are seeing a narrowing of fiscal deficit (we are not borrowing more than we should which explain we refused to take the China loan).

Kenya macro-economics couldn't be any greater. The economic growth rate of 6.3%. Inflation of 4% is great. The interest rate in single digit (at most 13%). Narrowing fiscal deficit and taxes/gov revenues have tripled the last 10yrs. Trade deficit -exports are rising but yes imports are huge concerns.

Overally Kenya needs to continue investing in huge infrastructure - but avoid take a lot of debts - and think about public-private investment (like it has been done on power sector) - and think about re-cycling it's assets like Safaricom into Infrastructure.

This is the hard infrastructure debt-led "growth" contended by myself, Ndii and other experts. At 90% import of everything - capital, labor, technology, materials - it's unsustainable - living on credit and thinking you're rich is delusional. Rotich is merely flipping bonds - like McDonald's buggers  - as debtor after debtor come calling. Next thing Kenya will be demoted in credit rating.

There is a lot of growth outside m-Pesa & related tech (a confluence of finance & intermediation with telecommunication) - infrastructure expansion is greater than ever - we are building more roads, rails, ports, power lines, power stations than ever.

[RV Pundit]

I wish you could quote real empirical evidence beyond your own anecdotal stories walking around malls and upper hill. We have [Hass, Cytons and Knight Frank with good real estate data. I don't recall reading anything alarming from them lately.

Maybe you should start from Hass Index
http://hassconsult.co.ke/real-estate/hass-index
http://hassconsult.co.ke/images/Q12019Residential.pdf

I think you're confusing the oversupply in certain sectors of real estate sectors - esp in the upper end - with real estate sector. The bottom has not been scratched. This is where Uhuru's Big 4 housing comes in. Already we have some 25B dollars worth of commitments in the lower sector - I am talking low and lower-middle class housing (1-3M worth of housing).

Real estate has kind of cooled off (cement sales are leveled out) because of credit freeze thanks to interest capping and of course, everyone is waiting for Uhuru big 4 housing to start. The judiciary has not helped things - Jubilee had projected to raise 70B from taxes - and kick start this. Uhuru has to bring the hammer down on Judiciary or nothing gets done here.

Uhuru estimates in 5yrs - real estate will double - from 7% of GDP to something close to 15% - as Chinese investors come to town and build huge cheap houses - to fill the gap in low end of the market. We don't need have slums when Chinese can deliver very cheap social housing. We need to reign on informal housing sector where folks are building unsafe and inhabitable buildings in Eastlands & all over....instead of big chinese contractors like Edermann seizing the market and gifting the economy with economies of scale needed to deliver affordable and safe houses.

Often ignored part of the China economic model - is that construction for long time made 50% of China GDP - kenya needs to make sure construction (real estate and related) - moves from less 10% to 30% -  young generations should not be doing farming - they should be in mjengo - build houses, doing electrical wiring, plumbing, painting and all the many jobs - we have so many slums - people are squeezing in really tiny houses - and we have fintech, china construction machine and the money - to borrow from china.

Are we really doing "well"? Real estate is going bust - Two-Re I went there 2017 and beyond 1st floor it was empty. Haunted hallways - the construction boom is not efficient - just like SGR - cause they are expensive without sufficient demand. It's worse at Upper Hill - with all the corporate HQs concentrated there. So as the trucks continue to haul cargo along the roads - giving the SGR a wide berth - so do the tenants in Nairobi and other places. Most last-mile connections are yet to flip the switch on. Hard infrastructure must be pared with utility - we can forgive GoK whose incompetence we are accustomed to - but these Centums, Britams and private investors are quite buffling - with such poor choices. Centum posted reduced margins - with profit warnings - Britam made BILLIONS in losses - despite all the technology, integration, optimizations and what not. Their "IT transformation" - or some crap like it - was all over the media a year or so ago - as they continue to hawk antiques - motor or life insurance to millennials. You asked what companies were going bust? KQ is another one - minting BILLIONS in losses year after year - despite going digital and poaching MJ on board - Mr M-Pesa himself.

we are doing great in real estate - we are building more houses, malls, hotels, offices, and institutions than ever before!

[RV Pundit]

Yes Manufacturing is the toughest - but SGR is the start - esp if we build SEZs around it. SGR will become cheaper once we used it for it's purpose - to transport bulk non-containerized goods - I am talking clinker, iron & steel, cereals, such - and we now have excess electricity - that needs to be sold for cheap for industries.

Labor cost is acceptable if we improve worker productivity - and this where TIVET comes in - where companies are getting workforce with the right skills- therefore Jubilee huge investment in TIVET instead of universities - will mean companies can literally locate anyway - and get workforce who knows how to operate say CTC machine.

Manufacturing needs 3 or 4 big inputs - which Jubilee and even Kibaki have not nailed.

Transport - SGR is more costly than roads so nothing there. Most goods are still on the trucks.

Labor - with all the unions - new Katiba rights, Labor court - there is very little GoK can do to beat China, Vietnam, Bangladesh or Ethiopia. Jubilee has zero strategy here.

Power - this remains more costly per kWh than before all the last-miles. It's about COST - not just new power plants or transformers.

So for manufacturing zero. Hakuna kitu. Big 4 pillar is just hollow with no discernible strategy - what is Uhuru doing that Kibaki did not do? Ease of doing business is a buzzword like GDP - where are the new investors or FDI - from the index 130-to-60 achievement?

Manufacturing has generally kept pace with economy - at around 10% - with agro-processing not doing badly - EPZ are also not doing badly - yes a lot needs to be done - to get this sector to grow to 15% of GDP in the medium term - and at least 20% of the GDP in the long term - including lowering electricity cost - and sorting out teething problem at SGR.

[RV Pundit]

We are transitioning from low-value crops (Uganda & TZ can have them) into high-value crops (horticulture, dairy & etc) - and then when Ruto become PORK - we will move the value chain - by enforcing value-addition. But first we have to discourage the planting of small-holder planting of maize, beans and such nonsense - by bitting the bullet - and allowing those products to be imported duty free - and have Galanas doing large scale planting of them - and then force our farmers to engage in high-value crops - and for those sectors that are already mature (like Tea) -force them to do value-addition - like we did for Macadamia. No Kenya tea should be sold in bulk. Sri Lanka did this - and they earn twice from their tea. We can double our tea earnings by simpling - decreeing they be packed and branded in Mombasa before shipping.

Sema horticulture - flowers - which sell for a dime a dozen. Then come back 100X as perfume. Can you really see any "growth" worth praise? Until you have value-added processing - of simple fragrances or insecticide - I don't see meaningful growth.

Milk farmers are crying as Uganda floods the shelves. Sugar, maize, coffee - these deadwood sectors - what has Jubilee done about them?

Nope, agric has not performed anything of note. Just waiting for God's rain - as drought and the ASAL spreads.

[Nefertiti]

[RV Pundit]

That is uhuru-wanjigi tiff - they need to sort it out. Uhuru acted in anger after Wanjigi refused to budge in SGR deal...so he went ahead and cancelled Wanjigi-Raila-NARA-Chinese contract. I think kenya should enter into negotiated talk with Chinese and give them the deal.

We have to be careful with the so-called graft fight when dealing with INTERNATIONAL contracts  - if we mishandled the Italians - we could end up paying a lot of billions of dollars. Probably good reason to let DCI handle what they can chew.

We already paid some of the anglo-leasing deals because of put pen-to-paper. Raila and Wajingi already ate their down-payments and are probably with Chinese in asking for 22B kshs.

[Nefertiti]

China has denied Kenya loan - Uhuru and Raila went all the way there - Kenya did not "refuse" to take the loan.

90% import - of inputs in hard infrastructure - which explains why many are asking where are the jobs from the 6.3% growth? Imported capital - DEBT not FDI lol - labor, technology and materials. Literally when you say 5B SGR - that is solid income to China - not a single drop in Kenya- except maybe the kickbacks. It's why we are "inefficient" - can't build nothing for ourselves. Most other fast leapfrog countries - do their own infra - own capital, expertise, technology, materials- which is why they have minimal debt despite the rapid growth. No local enterprises have materialized as solid employers or taxpayers due to SGR - so no new incomes - yet we have massive debt per head.

[Nefertiti]

Pundit if this was private sector-led growth - there would be lots of new jobs, supply chains - new incomes and taxes - what you call sustainable growth. There would be no massive foreign debt - in fact debt would be minimal - private enterprise is much more efficient than GoK any day.

[RV Pundit]

Where is the evidence China refused to lend us a loan? As far as I could glean we didn't agree on the loan terms - China wanted a collatoral put-down. Imported capital - yes we are taking in debt - but also attracting a lot of FDI - esp around Fintech.

Poor SGR!. We have debated you to death - it is doing very well at operation level- as it did during the construction phase - it's operation is off to a great start. It lifting many boats - from Mombasa ports, Shipping companies are now happily docking in Mombasa knowing the port is super-efficient and using it for transshipment to small ports around, to passengers enjoying their ride every day and tonnes of cargo being transported. I am not sure what more you need to see - Kiosk around SGR or Stations? Industrials SEZ will come  - now that focus has shifted from construction to operations. Definitely it has made transport more competitive because truck owners have to compete with SGR.

People are talking about "feeling" the 6.3% growth or lack of jobs - but where is the evidence? where is the empirical data from our labour market that shows they are no new jobs being created. This what the likes of Ndii should be using their PHD and donor connection to come up with such data...like they did with the Corruption Perception Index(CPI).

We need to become a country that argue based on DATA/EVIDENCE. Not just parroting like you're doing here - just unhelpful rant.

China has denied Kenya loan - Uhuru and Raila went all the way there - Kenya did not "refuse" to take the loan.

90% import - of inputs in hard infrastructure - which explains why many are asking where are the jobs from the 6.3% growth? Imported capital - DEBT not FDI lol - labor, technology and materials. Literally when you say 5B SGR - that is solid income to China - not a single drop in Kenya- except maybe the kickbacks. It's why we are "inefficient" - can't build nothing for ourselves. Most other fast leapfrog countries - do their own infra - own capital, expertise, technology, materials- which is why they have minimal debt despite the rapid growth. No local enterprises have materialized as solid employers or taxpayers due to SGR - so no new incomes - yet we have massive debt per head.