THE ECONOMY UNDER THE FIRST NYAYO DECADE

(1978 – 1988)

THE NINE CIRCLES OF HELL

‘Inferno’ is the first part of a three-part poem by Dante Alighieri titled ‘The Divine Comedy’, written in the 14^th Century (and considered one of the best works of Literature. It is followed by ‘Purgatorio’ and ‘Paradiso’.

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In ‘Inferno’, there are nine circles of hell, which represent a gradual descent into increasing levels of punishment – from the first circle (containing virtuous non-Christians) to the ninth/worst circle (containing traitors such as Judas and Cain)

REMBRANDT’S PAINTING OF ‘THE STORM IN THE SEA OF GALILEE’

I know you don’t care, but it was painted by Rembrandt in the year 1633, then bought in 1869, after which it was stored in a Museum in Boston, where it was eventually stolen in 1990.

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To this date, it is still missing, and nobody knows where it is.

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Don’t tell them I told you this, but I have it… in this slideshow.

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Moi thrusting his fimbo in the air

(BIG PAUSE!!!)

The KANU Manifesto of 1979 – 1983.

Well, we never got ‘Amani’ and ‘Mapenzi’, but at least we got ‘Umoja’, and it still has the best matatus to date!

Policies in the KANU Manifesto

1. Retaining a capitalist-orientated mixed economy.
2. Guaranteeing private property ownership.
3. Encouraging foreign investment through legislative provision for repatriation of profits.
4. Enhanced the expansion of agricultural exports.
5. Emphasized industries to shift their focus from import substitution to production for export.

1. Steep oil prices between 1973 – 1979.

• The 70’s were infamous for the oil shocks caused by the Yom-Kippur War/Ramadhan War (walikuwa tu njaa) between Israel and a coalition of Arab States (Egypt and Syria actually) in 1973, and the Iranian Revolution later on in 1979. These 2 periods of unrest, happening at the heart of the OPEC, made oil a scarce commodity for the rest of the world, subsequently raising its price, and so the ripple effect was that industries started facing challenges during production.
• The steep rise in the price of oil was first felt in late 1973. The value of fuel imports rose from a modest K£ 16 million in 1973 to K£ 67 million and K£ 87 million in 1974 and 1975 respectively. This led to a significant deterioration in the country’s balance of trade. Import prices rose more swiftly than those of exports; thus more exports were needed to pay for the same quantity of imports. At the same time, in the wake of the prevailing global recession, there was a credit squeeze caused by decline in the flow of external hinds needed to finance re5 sidual deficits in the balance of payments. Consequently, the rate of economic growth attained in 1974 was only 3.1 per cent

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2. Collapse of the East African Community in 1977

• This led to closure of our borders with Tanzania, for a while. Tanzania, which had accounted for nearly 10 per cent of Kenya’s exports in 1975 at over K£ 20 million recorded a mere K£ 1,800 in 1978. This loss of our trade partner saw our GDP growth rate drop from 6.5% to 4.7%.

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3. Collapse in the global prices of our main exports

• The main exports were maize, tea and coffee. Their prices plunged because most countries in the Industrialized North were facing a recession, and so they adopted restrictive policies towards importation.

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4. National drought, from 1979-1980 and 1984

• This drought would have been manageable, but the blame lay squarely on the parastatals tasked with the logistics of each product. Kenya was a self-sufficient nation, especially in regards to maize. But with time, it seems the parastatals reduced the prices and the quantities being purchased. The government, through the parastatals, had cut the credit it offered to the large-scale farmers, and for this reason, they reduced the area they had planted with maize. Thus, the storage reserves weren’t full when the drought hit, and so the government was caught flat-footed, and they had to import grains. These food imports led to a decline in the government spending in industries. Remember, industries were facing a high cost of production due to the rise in global oil prices, yet here they were being neglected.
• Maize production fell by 35 per cent, wheat by 43 per cent and both dairy and beef herds were drastically reduced. Only in coffee, sisal and sugarcane were modest increases in production recorded.

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These external constraints I’ve mentioned, pushed Moi’s government to table 4 strategies, namely;

1. Sessional Paper No 4 of 1980 on Economic Prospects & Policies – which mentioned the development programs to be adopted in response to the rise in oil prices. This was mainly to industries.
2. Sessional Paper No 4 of 1981 on National Food Policy – It highlighted the policies that would help us attain self-sufficiency in food production following the drought of 1979-1980.
3. Sessional Paper No 4 of 1982 on Development Prospects & Policies – This one mentioned the Structural Adjustment Policies (SAP) to be adopted.
4. Sessional Paper No 1 of 1986 on Economic Management for Renewed Growth – It contained further attempts to re-orientate priorities and policies through SAP.

The intention of SAPs (Structural Adjustment Programmes) is usually clear. SAPs are a response to the crisis and conditions imposed by donors, in order to try as best as possible to pay debts owed. They are never measures to envision transformation of industries by innovative initiatives, as people may think. So, even if it entails taxing away everything, then that will be the case.

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1. Devaluation of the local currency

• The reasoning behind this is that, if you lower your currency, then you’ll have effectively made exports cheap, and imports expensive, and so as a result, foreign countries will be encouraged to purchase more of your products, while you decrease the quantity of goods you’re importing. The end result is that you may have a positive Balance of Trade.

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2. Reduction of government expenditure on social services and employment.

• For example, if the government used to allocate 18% of the budget to education, then they’ll have to cut that to 15%, and hope that by saving that 3%, they’ll be able to help the economy recover. That’s how the quality of education went down in the 80s, and currently as we speak, the government is also reducing its allocation to Universities, so the same might happen with the quality of education over there.

3. Privatization of State-Owned Enterprises

• This has been the topic of debate lately, with people saying that the handing over of a couple of service-provision organizations to private ownership.

Well, even after all this, the economy still didn’t get back on its feet. The government expenditure increased from 24.7% in 1976/1977 to 35.5% in 1980/1981. The government still had a lot to mitigate. The inflation rate got to 22% by 1982, due to devaluation of the currency and the budget deficits the government was running. That was the year when a mutiny took place.

With the Sessional Paper No 1 of 1986, the government tried to re-orientate SAPs to the industrial sector. Copy pasted from Reaganomics, they were:

1. Reduction of direct government involvement through privatization and removal of price controls.
2. Reduction of industrial protection through import liberalization. The ISI (Import Substitution Industrialization) policies were finally removed.
3. Export promotion through export guarantee schemes.
4. Removal of qualitative restrictions on exports.

Unfortunately, these ones didn’t work either. A couple of companies were closed down, and others went into receivership. These include:

1. Kenya Furfural Company
2. Ken Ren Chemicals & Fertilizers
3. Kenya Fibre Corporation
4. Nile Investments
5. Mathupaper
6. Unisack
7. J.K Industries

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As a by-effect of this failure in industrialization, Jua Kali rose. It was easy for them to flourish, because there was ready labor, provided by the unemployed who hadn’t been absorbed by the industries. There was also easy entry and exit into the market, as no regulations were put in place. The capital required to run these businesses were also low, since they used simple technology and depended on local resources.

Going on to 1985, the nation was hit with a Banking Crisis. Many lending institutions such as Rural Urban Credit Financing had been allowed to open up, without regulation for that matter, and within a year, they had already caused chaos that caused the all to collapse. This was due to:

1. Lack of government control
2. Failure to maintain a safe ratio between the deposits they have and the liabilities they have, hence they became under-capitalized.
3. Poor lending policies such as unsecured loans and some even loaned to family members of the directors, who weren’t actually expected to repay.

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Well, when you thought things couldn’t get any worse, it seems that they decided to surprise you. The subsequent years were years of doom, according to statistics. The GNP per capita had fallen from $420 in 1980 to $330 in 1987. The GDP growth rate, on the other hand, had fallen from 6.9% p.a in 1965-1980 to 3.8% in 1980-1987. The value of the shilling against the dollar fell by 159% between 1979 to 1988. Since independence to 1979, $1 was trading for ksh7, but as of 1988, $1 started trading for ksh 18.

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Self-sufficiency in maize was achieved by the late 80s, and there was also a coffee boom, but that’s all we could write home about. The Balance of Payments were still negative. There were double-digit inflation rates. Public debt even rose higher.

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We had reduced the welfare of the citizens for nothing. Kenya became worse off than before. The SAPs seemed to have just ruined our nation, and that’s how Moi’s 1^st decade in office ended. The economy had sunk deeper than the Edmund Fitzgerald.

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THE END OF HISTORY!

Gerrit?