To attract investors, Kenya has much to do

Oct 19, 2003 Life & Society, Sunday Nation

The president and his entourage have been on a trip to the USA and UK to re-establish strong ties, build bridges, demonstrate commitment, renew partnerships etc. A taxi driver told me that this sort of thing is characterised slightly differently in Central Province. It’s called “looking for money here and there”.

This government does indeed need to look for money here, there and everywhere. Its entire economic strategy hinges on getting foreigners to foot the bill for substantial expenditures to come. If there’s one thing that unites everyone in this government (and it may be the only thing), it’s the realisation that our economy lacks the wherewithal to finance itself. External support is needed. We need grants and soft loans from donors, and we need direct investments by foreign corporations in productive capacity.

The president and his merry men spend much of their time in this pursuit. They meet diplomats, knock on donors’ doors, hold seminars to impress investors and generally do the necessary rounds. The recent trip was designed to bring home the booty – get firm commitments that the money would indeed start to flow.

I have little doubt that the aid money will start coming in. It may not be as much as was earmarked by the cabinet; it may not come as quickly as was hoped. But come it will. The Americans’ willingness to make Mr. Kibaki’s trip a full state visit, and to fete the president in a lavish banquet, spoke volumes. The Americans have their own agenda. Mr. Bush’s expansionist policies have thrown up a whole new set of needs. The Americans need friendly states around the world. They need support in UN debates. They need military bases in strategic places. They need help in keeping the peace in countries they have invaded. They need assistance in monitoring and jailing Islamist terrorists around the world.

Pakistan recently received US$ 3 billion in grants from the US precisely because it has been so willing to help out in all these areas. Like Pakistan, we are desperate. So the money will come. How much of our souls we have had to sell to get it will remain shrouded in secrecy. But if we hear of an American military base being set up somewhere remote, and if we see Kenyan soldiers being sent quietly to Iraq, and we notice the anti-terrorist bill being passed with much of its odious content intact, then we will know that we paid dearly for that stroll on the White House lawn.

But this is also a government of businessmen, and businessmen know that aid alone will not suffice. Private investment is not only needed in this country, it may be a more desirable long-term remedy. Private investment, when successful, is self-perpetuating and does not require demeaning concessions to be made to foreign powers every year. Foreign investors bring much needed technology and know-how into the country. They provide employment directly. They can be used to boost development in otherwise moribund regions of the country.

The government knows this, and Mr. Kibaki was keen to spend time with foreign businessmen during his trip, to impress upon them the wonderful bounty that awaits them in this land of opportunity. On this front, however, we have serious problems. I do not foresee any avalanche in foreign investment in the near future, at least of the type we need. The reasons for this are quite simple.

Any businessman contemplating a major investment looks at an equation of risk and return. He puts his capital where it earns a return better than that coming from competing alternatives. He also wants to be in an environment where earnings are not volatile, where his investment is secure, where political evolution is predictable. Business people look unemotionally at spreadsheets to make their decisions. So what would the spreadsheet for investment in Kenya look like?

Let’s look at the returns part first. Once upon a time, Kenya was known as the land of the golden profit margin. Costs were wonderfully low and the business environment was conducive. Raw materials could be extracted at little cost. The country could be used as a springboard for markets in Africa, the Indian Ocean and the Middle East. Those were the years when foreign investment flowed in without any effort on our part.

No more. Our labour costs are now considerably higher than countries such as India, China and many Eastern European countries. A Kenyan executive comes at a cost not dissimilar to that of a counterpart in the west. Our power and transportation costs are amongst the highest in the world. It costs more to transport things within Kenya than it does to bring them here from faraway corners of the world. Any business venture has to factor in the additional costs of providing security, power back-ups, connectivity and waste disposal – things they take for granted back home. The cost of doing business has gone inexorably upward in the past decade. The carrot Kenya uses to entice foreign capital used to be large and luscious. It is now small and sickly.

And the risk? Here we have an even more serious situation. Can any investor see beyond a two-year political horizon in this country? Do we have any reasonable guarantee of political stability in the medium term? I’m sorry, but we do not. I repeat: business people are a hard-nosed bunch. They see beyond the soft and seductive noises made by our diplomats and ministers in investor seminars. They look at the high-decibel disarray in Narc and see only one thing: no certainty about the future. And they decide to delay that multi-million dollar investment, or put it elsewhere. Wouldn’t you?

Even where an investor is prepared to make a political bet that all will be well, there is a further risk to worry about: the threat to life and limb. Do we imagine that investors don’t know the security risk of living in this country? Do we think expatriate managers come happily to the land of the car-jacking and the gun-happy criminal?

This is the harsh reality: we are a country of low and uncertain returns, and high and very probable risk. This government seems to imagine that we are in the Kenya of the 1970s, when a few well-spoken words and smoothly oiled connections would bring the investors streaming in. This misconception is making it play down some very pressing needs.

If we are serious about becoming an investor-friendly country in today’s world, we need to have a workforce trained in technological and industrial skills. We need secure property rights and reliable rule of law. We need supporting infrastructure: digital telecommunications connections; cheap and reliable power. We need to be able to give the credible assurance that you do not take your life into your hands the minute you step onto our streets.

In other words, all our ministers have a great deal to do. Today, we are up against Dubai, South Africa, Mauritius and Botswana as a destination for capital. We need to muzzle all the barking dogs and get on with it.