Economic growth is about mind, not matter

Apr 13, 2003 Strategy, Success, Sunday Nation

100 days is a ridiculously short period in which to start evaluating the performance of a new government. I guess it’s a nice round number, and gets public attention. But it is absurd to expect any real outcomes in just three months. Have new jobs been created, is inflation coming down, has forest cover increased? Is the crime rate falling, is road coverage increasing? Those questions are irrelevant at this time.

What we should be looking at is the government’s progress in putting in place the building blocks that will deliver these desirable outcomes over many, many years. I have said it before: rebuilding an economy is a task of immense proportions. It requires a thoughtful, systematic and sustained programme of actions over a long period of time. It is not the stuff of headline-grabbing declarations and eye-catching tours.

The Narc government wants to achieve 7 per cent growth per annum, and to create 500,000 new jobs. Wow. Can it be done? Of course it can. We must never limit our ambitions by overdosing on the medicine called realism. Aim for the stars, they say, and you may just land on the moon. Where we are today is merely the starting-point to where we could be. Ambition never hurts.

Delivering these targets, however, requires that we examine the fundamentals of our economy with great care. The growth we desire will not be delivered by having coffee with donors, or by making grand promises to workers. It will not come from putting a bit of money into agriculture here, or by dabbling with tourism there. Our strategy for the economy must be about fundamentals; we must get to the heart of the matter.

First and foremost: we must accept that we cannot deliver this type of growth by focusing our attentions solely on our nation of 30 million. We have to be part of the global market place; we must have a winning proposition in selling our wares to the billions of customers out there.

What is this winning proposition? India and China, for example, are currently the low-cost producers of the world. It is estimated that for a wide range of products, capital costs in India are just 30-35 per cent of what they are in Europe. And India is also the ‘back-office’ of the world now: a huge number of multi-national corporations are using India to do all their data processing, programming and analysis. It is also the world’s ‘call centre’: when a customer in London calls her bank in the UK, the chances are that she will be put through to an Indian operator in Delhi, who will call up the customer’s history and details on a computer screen, and assist the customer in addressing her issue – usually without the Briton ever knowing she was dealing with an Indian in India!

How is this feasible? Only because on average Indian wages are a fraction of those of the UK. And because India’s embracing of information and communications technology (ICT) means that such arrangements are technologically possible. The figures involved are eye-popping: India hopes, by 2008, to be raking in US$ 25 billion annually from this work, and to have created a million jobs.

Can we position ourselves as a low-cost producer today? Sadly, no. Despite having a per capita income lower than India’s, we are far from being internationally competitive on cost. Whilst more than half of Kenyans languish in abject poverty, those in meaningful employment continually agitate for better pay. They do this because they perceive their cost of living to be inexorably rising. The previous government’s financial shenanigans and lack of fiscal discipline caused prices to spiral throughout the 1980s and 1990s. Corruption and inefficiency are the other parts of the equation here: the costs of doing business are notoriously high in Kenya. And so we find ourselves in this strange place where we are poor and impoverished, yet cannot keep our costs down.

Being a low-cost economy, however, is not the only positioning that can lead to international success. Take South Korea. For many years it was a low-cost champion, providing cheap cars and electrical goods to the world. Now, as its standards of living and wages have risen to near-Western levels, it has to raise its game. Particularly in the face of a sustained assault by China on its traditional low-price market segments.

How is it doing this? By focusing on adding value to its products, and moving the arena of competition away from price, to attributes. Your Samsung phones and LG fridges are no longer cheap, but they are certainly attractive. Here’s a telling example reported recently by the Far East Economic Review: many previously flourishing South Korean shoe manufacturers have been forced out of business by Chinese low-wage competition. But a firm called Digital Shoes is fighting back. It has eschewed the “noisy world of sewing machines; instead ranks of computers and flat-screen monitors (display) individual customer foot measurements sent directly from a shop assistant’s computer”. The customer receives personalised shoes in three days. The company is competing on value, not price.

The strategies of Indian and South Korean companies may be very different, but they have a common foundation: these countries have whole-heartedly embraced knowledge as the key factor of production in the 21st century. They are not relying on the fertility of their land, nor on the abundance of their mineral resources. Instead, the emphasis is on education, training, skills and know-how. It is on building a capacity to invent and innovate. It is about mind, not matter.

This investment process was commenced decades ago in these countries, and the fruits are apparent today. The Narc government’s emphasis on herding our little children into the schools in their multitudes is, therefore, a very good thing. But it is the quality of their education that will make the difference. Numbers alone are not an achievement. We must be willing to spend on teachers, computers and laboratories just as determinedly and just as quickly. This is where our true priority lies.

The government, however, is only part of the picture. We, as individuals, have to accept the supremacy of building the capacity of the mind as the key source of competitive advantage. We must instil the discipline of sheer, grinding hard work in acquiring knowledge over our entire lives. We must embed these values into our families. We must make our own personal investments in books, computers and knowledge resources. We must accept that income must be forgone today for a gain tomorrow.

To do this, we must forever forget the example of our former leaders, who showed that you needed neither education nor hard work in order to acquire wealth. Patronage was the key source of advantage then, the key investment to make. It allowed the most feeble-minded, illiterate and dissolute amongst us to enjoy overnight success. And it crippled our competitiveness for a generation.

We must collectively erase that memory from our minds, and start to build a new knowledge economy for Kenya. Then, perhaps 1,000 or even 10,000 days later, we can begin to measure some results.