BY XN IRAKI
The year ended with unexpected good news: falling oil prices, which is likely to reduce inflation since oil is an input in the production of most goods and services. Some could argue this was not entirely good news because it will become uneconomical to exploit newly discovered oil in Turkana and other parts of the country. We may be better off leaving the oil underground — which might be a good idea, because it’s ours and will one day be needed, never mind the popularity of electric cars.
The sudden drop in oil prices can be explained either through supply or demand. OPEC has not cut production, and this has put downward pressure on prices. But a better explanation is on the demand side. One of the leading oil consumers, USA, has reduced its appetite for imported oil. This was explicitly stated by George Bush in 2006, as well as earlier presidents from Nixon to Carter, and re-emphasised by President Obama in 2011. New technology like fracking — using pressurised water and other chemicals to fracture rocks and allow oil or shale gas to be pumped to the surface, often where it was inaccessible — has increased the amount of oil available in the US and therefore reduced import demand. The bad economic times have also reduced the demand for oil in Europe and China. Cars are getting more efficient (compare carburetor and VVti cars) and there is a shift to other types of fuels, like wind and solar.
So, why are Kenya’s economic prospects bright? The falling oil prices act as an economic stimulus. The money saved through lower fuel costs is unlikely to be kept in the bank or under the mattress — we spend it, and that creates demands for goods and services, leading to economic growth and jobs. The cost of electric power is falling, too, thanks to more investments in this sector. Wind farms and geothermal wells are putting Kenya on another pedestal in power innovations. These falling prices act like a tax cut; they put more money in our pockets and increase spending and create demand for goods and services. Lower energy costs will keep the economy humming.
I believe the economic tipping point will come when a critical number of homes and institutions get connected to the grid. There is nothing more liberating than electric power; it even changes our thinking and relationships. We can access more information through the Internet and other sources. Our economic prospects are further brightened by political cooling after the elections in 2013. The political protagonists might as well realise it’s better to wait until 2017. Expect subdued political activities until 2016, when politics will heat up. Some could argue that President Uhuru Kenyatta’s acquittal from the ICC might be another stimulus, and now bolder decisions can be taken. The uncertainties over devolution could clear as governors go through the learning curve and realities of governance start sinking in.
Food is in plenty in most regions, leading to a further downward slide in prices. Not that falling prices should always be good news. Some countries like Japan worry about deflation, which could lead to fall in demand and slowdown in economic activity. Inflation is like spices — too much is bad, too little is bad. That is why inflation-targeting is becoming popular with central banks, to ensure it is at an optimal level. A small rise in inflation motivates producers because of an expected rise in profits.
The rise in domestic tourism shows that we have a resilient nation that will not just sit back and mourn, but can take corrective measures.
In 2015, expect our economic growth to rise. I expect it to hit at least 6 per cent by December, and it might eclipse the 7 per cent attained during the Kibaki era. I hope that this growth will trickle down to the grassroots. Every time I visit the countryside, I see the economic detritus of bad policy decisions in idling, drinking and hopelessness. This good economic news is buoyed further by the roll out of big Government projects, which will bring more people into the formal economy. Add deeper East African integration and the prospects of peace in Somalia and South Sudan, and there is no reason why our economic prospects this year and beyond would not be bright.
But the biggest economic stimulus will be confidence in ourselves, seeing possibilities and believing in them. From the villages to the glittering cities, we must start believing in possibilities. Who thought Americans would one day be almost self-reliant on oil Terrorism should not blunt Kenya’s creativity and innovativeness. Even terrorists and gangsters seem to enjoy freedom in Kenya. Tipping point When I talk to Kenyans, both at high levels and the grassroots, I am always dismayed by our level of scepticism. It’s time to shed that mentality.
With oil and our ingenuity, things can only get better. We are a nation that should never run away from responsibilities and opportunities. The experience of the last 51 years shows we are at the tipping point to stake our position in the world. Within the next 10 years, if we mute the political contest among elites and pseudo-elites, we shall realise rebasing was more than just statistics. Graft, often associated with small thinking, should be addressed, too. I see no reason why Kenya cannot become the Swahili Tiger and pounce on opportunities within and beyond our borders in my lifetime.
The writer is a lecturer, University of Nairobi.
This Post was first published here: http://www.standardmedia.co.ke/business/article/2000146821/kenya-s-economic-prospects-bright-in-2015