The Economy and Protests

Though the losing side officially accepted the loss during last year's election, they didn't actually accept it. However rather than complaining too much about that they preferred to to complain about other issues instead. There was a time earlier this year where there were protests twice a week, mostly focused on issues related to the cost of living challenges (of which there may not be any easy solution) and other political related issues. In the end some sort of deal was reached with a joint committee set-up to talk about the political issues.

Without much coming out of those discussions and frequent complaints by both sides, and then a new budget increasing a lot of taxes (and thus worsening the cost of living challenges), last week the protests returned. The Budget was already approved in Parliament, but is now in Court pending resolution of some aspects of it. The majority of Kenyans acknowledge the need for taxes because of government debt but are angry at the poor public services that they get in return along with wastage or corruption. The government doesn't seem to have much to stay about the issue of wastage or corruption (indeed last week the independent body that sets government salaries recommended a generous pay rise even if the President stated something to the effect that top government leaders would not take the pay rise; and the courts decided the government could not hire 50 very highly paid, and arguably unnecessary, people as Assistant Ministers) and just tries to focus the conversation on how it is trying to help through various programs. 

The protests last week were supposed to be more national than usual; and as usual they present an opportunity for unscrupulous people to take advantage of them and commit crimes. The police then try to deal with those people whilst allowing the peaceful protests to continue but they usually struggle with the balance. It always seems that the vehicle carrying the leader of the protests gets attacked, though it is never clear by who! Nairobi tends to be much quieter during the protests with more people working from home and others afraid to go to certain areas for fear of being caught up in the violence. Thankfully our school stays open.

One of the causes last year of the increased cost of living was the drought that affected agricultural production (and other global issues like the war in Ukraine); another has been the weakening exchange rate of the Kenya Shilling which makes imports much more expensive. Some of the causes of the exchange rate rise is out of Kenya's control, but some aspects are related to the large debts that are payable in foreign currency, and unfortunately as the exchange rate weakens the debts and their interest payments increase in a spiral that then further weakens the exchange rate.

The good news is the drought is over and the rains earlier this year were quite good. Kenya is slowly increasing its exports of some high value agricultural products which should generate more foreign currency, and there is some relief from some short-term loans from the IMF or World Bank. But the cost of importing petrol is a major issue and one that could be solved if there was a fast transition to electric vehicles. 

Though there has been some progress this year with some buses going electric and some motorbikes, changes to passenger vehicles will be hard as almost all are imported second-hand vehicles that stay in the market for a long time, and there is not a good charging infrastructure set up yet. Still if progress could be made with buses (that have planned routes making infrastructure easier, and have investment groups behind them that could invest in replacing the buses bearing in mind the savings from not buying petrol) that could be a good start. I don't think many people will be importing second hand EVs soon, but the government could at least consider removing taxes for either new or second-hand EV imports. Who knows, with petrol prices high, the free market might just surprise.

At least on the digital side, there is fast progress with 5G network roll-out (the second operator, Airtel, launched last week following Safaricom's launch last year and the competition is spurring Safaricom on), more and more companies getting into the fixed network space, progress with government digitisation, and still an active software and cloud scene in Kenya.

I am not sure what quick fixes there is to addressing the cost of living and exchange rate challenges, apart from some possible postponement of debt repayments. Maybe Kenya will have to hope for changes in the US economic environment that affects the strength of the dollar, or speed up progress to trade more in other currencies. Longer-term of course improvements in growth rates, exports, and employment will help, if government programs can achieve that, and if government taxes don't stifle growth too much! In the meantime, will the protests continue?