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Better investment climate is 2006 priority

Jan 15, 2006 Management, Sunday Nation

This column looked at the basic building blocks of a new economic agenda for Kenya last week, and concluded that three fundamental pillars of economic growth must be rebuilt: institutions, knowledge and values. Effective, corruption-free institutions allow us to conduct the affairs of the land in a supportive environment. Knowledge gives us the fundamental weaponry with which to build and manage innovative economic growth. And values give us a common set of passionately held beliefs that keep the fabric of the nation intact and provide an ethical bulwark for the economy.

All three require decades of endeavour. If we begin today, we will be working on these three pillars for the sake of our children. They will be the true beneficiaries. Institutions, knowledge and values give us a long-term agenda for economic take-off. If achieved, this agenda will deliver the kind of sustained growth we have seen other economies pull off in recent history.

But it is not enough to do everything for the future. In the long run, as John Maynard Keynes famously remarked, we are all dead. We must also have an action agenda in the here and now. We need a plan in 2006 – a plan that will deliver year-on-year progress, and allow us to achieve some of those all-so-important ‘quick wins’ – small but important achievements that inject positive energy into our revival process.

For me, there are two items whose urgency is such that it may burn a hole in the page you are reading: the need to create the correct investment climate in the country; and the need to spread the benefits of growth and development more widely. Growth comes from investment – in means of production, in businesses new and old, in expansions and enhancements. But crucially, growth faces an artificial ceiling when it is confined to a few sectors and players. We must encourage people to invest, and we must ensure that many participate in the development that follows.

Investment, first. From firms to farmers, multinationals to micro-entrepreneurs, giant corporations to modest ventures: we need investments in our future. Private players are the lifeblood of the economy. They get up every morning burning with self-induced motivation, and spend every day thinking about their ventures and doing real things that yield real results. This amazing energy and activity cannot be gainsaid. These entrepreneurial hordes toil in their own self-interest; yet their hard slog produces benefits for all: jobs, purchasing power, tax revenue, goods and services, new capital for the country. The only work of government is to provide a sensible framework of incentives for these people, and then get out of the way.

Getting out of the way is Step 1 for the government in 2006. Let us outgrow the immature culture of seeing businesses only as a tax cow to be milked, and a happy hunting ground for all manner of self-styled guardians to enforce ludicrous and even imaginary regulations. This year let us produce (and publish) a clear and accepted set of regulations and by-laws pertaining to business; let us ensure strict and transparent compliance against this minimalist set; and then let us leave our entrepreneurs alone, for everyone’s sake.

Step 2 is to do something meaningful about the security situation. Threat to life is the biggest disincentive in the economy. It prevents people from committing the funds and effort that they would otherwise plough into the country. Rampant crime sends its victims careening out of the country, seeking pastures where personal physical danger is not a part of everyday life. Even for those who stay, it affects all sorts of daily decisions, distorting spending and causing investments to be delayed or aborted.

If the current famine is a national emergency, why isn’t the security situation? We have been in a state of siege from armed criminals for years now. We have lost countless lives and incalculable millions in terminated investment. When will this situation actually be regarded as an emergency? Police reforms must be accelerated in 2006, coupled with a yearlong, sustained crackdown on violent crime. We must now take a multi-disciplinary approach to this problem: a multi-sectoral task force, involving all the law enforcement agencies and arms of government, as well as management professionals from the private sector, is long overdue. Crucially, this should not just be one of those strategy committees loaded with elderly worthies who meet seasonally and exchange irrelevant views. It must be an action-oriented body that assembles a plan of action, sets targets and measures progress month by month, and is empowered to recommend far-reaching changes to the way we approach violent crime.

Step 3 in the investment agenda is to focus on a small but critical set of infrastructural initiatives. Roads: let us, for now, just deliver two things: the seemingly mythical Mombasa-Busia Highway, which will act as the country’s main commercial artery when completed; and build and upgrade a network of rural feeder roads that allows produce to come to market (and goods to go the other way). All other road initiatives, I would respectfully suggest, can wait. These two will have the biggest economic impact; it makes sense to prioritise them. But the way forward is through private-sector partnerships, to allow us to move away from the government-overseen waste and graft that has plagued this sector for 40 years. The national highway is certainly viable as a concessioned enterprise run by a reputable operator. I think we’ll find Kenyans more than happy to pay reasonable road charges if in return they get a well-maintained national highway.

Telecommunications: why do we have such limited competition in this sector? Why do we not have a second fixed-line operator and a third mobile firm? Because of the power of vested interests that insinuate themselves in the tendering process and derail any outcome not going their way. This is costing the country dear. We need to have 21st century connectivity: broadband, wireless, fibre-optics, the works. We need to have intensive competition by a large number of players in this sector, taking a variety of competitive positions. That is the only way we can deliver high-quality services at internationally benchmarked prices.

Power: the coming flotation of Kengen is a welcome event in 2006. Let the authorities spread the shares as widely as possible, so that more people have a say in the running of this vital organisation. And let competition in the sector be extended and promoted: we need a strategic mix of power sources if we are to achieve the goal of affordable power for a wide range of Kenyans, not complacent monopolies.

That’s it for 2006 as far as the investment climate is concerned: streamline business regulation; make a sustained attack on violent crime; and focus on three key infrastructural deliverables. But do all these things, and do them well. That’s what prioritisation means. The rest can wait.

That is only half the picture, though. In 2006 we not only need to create a climate for growth, we must also address the issue of equity and widespread participation. That’s a topic in itself. To be discussed next week, as the conclusion to this 3-part series on the economy.

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