Politics and Economics Don't Mix

How much influence does the President (any President) really have on the economy? The answer according to most experts is "very little". And yet, we voters seem to have this opinion that politics and the economy go hand in hand. I point this out because of four widely circulated graphs being passed around the Internet. Here they are: I am going to go on the assumption that these graphs are based on actual data and are accurate up to that point. I do not believe anyone would make up a graph that lies, especially, when the actual figures are so easy to be found. The first obvious math mistake with this one is that it is a zoom graph in that it does not start at 0%, so the drastic changes shown here are not as drastic as displayed. The second misleading part of the graph, is the instantaneous growth of unemployment in Bush's first year. The two biggest factors in unemployment that year was the dot com bust (which started while Clinton was still in office) and the 9/11 disaster and other terrorist acts which Bush had to react to. The recent unemployment problem is more Clinton's legacy than Bush's. That being said, the fact that unemployment has not gone down over the past 3 years since 9/11 is going to be a big issue in the Presidential campaign. This one is a head scratcher. Why should each president start out at zero? Why isn't the fact that Clinton was in office for 8 years while the other two were in only four taken into account? Then of course the interpretation of this graph follows the interpretation of the first one. What kind of influence does the President have over the economy? A President's influence comes in two forms: monetary policy and tax policy. Both of these can "push" the economy up or down, but economic momentum tends to go where it wants regardless of who is in office. A president's influence on most specific economic factors, such as the Dow Jones average, is practically non-existent. If a President has near God like control of the economy as the candidates want us to believe, then why would a President ever want the economy to go bad? The Communists had near total control of the economy, and every communist country has ended up with a economic disaster on their hands. Now here is a statistic that the President actually has some control over, although Congress ultimately has more control over the budget than the President does. Obviously the economy overall has more influence as well. Incomes have been going down the last four years, which means income taxes and consumer taxes collected has gone down. Almost every state in the country has had budget problems the last few years, and this includes states controlled by Republicans and Democrats both. Add to that the fact that spending continues to rise despite the complete lack of inflation, and the result is record setting deficits. Of the four charts, this is the most useful one, even though it should be pointed out which years Democrats controlled congress (89 - 94) and which years Republicans did (95 to present). What all four charts are guilty of is selective endpoint picking, and selective statistic picking. If you added the Carter and Reagan administrations to these charts, things would look a bit different. Also there is no doubt that the Republicans could make similar charts using completely different economic stats, that make Clinton look bad. The economy was already starting to Falter even before the Bush vs. Gore election of 2000, and many of us knew that whoever took office was going to be facing a recession. Now there are signs that the economy is beginning to rebound, even though the job market continues to be a sore spot. Whoever wins this year (and it is going to be close again I can tell) is probably going to preside over a good economy regardless of what they actually do in office. The bottom line is, we should not pick a President based on economic factors, even though that is most likely how most people will vote this year. Pick you candidate base on what economic programs they want to implement, or what social issues they support. The economy is going to do what it is going to do regardless of who is in office.

Ray of hope as coffee is poised for comeback

Recent overtures by the Government and development partners towards the beleaguered coffee sector should be applauded.
Coffee was once the primary cash crop, and earned the country the prestigious title of world best producer of coffee. But its popularity fell in the 1990s, with production plummeting from 130,000 metric tonnes in the 1980s to 40,000 tonnes last year. Coffee is now only the fourth-largest earner after tourism, tea and horticulture.
The chief reason for this drop was decreasing coffee acreage, which is being lost to other high value crops, like horticulture, and real estate development in areas adjacent to Nairobi.
The decline was mostly brought about by mismanagement in the sector, which forced farmers to make do with paltry earnings. The low earnings, coupled with the high cost of inputs drove farmers to abandoning it for more lucrative crops, like horticulture and food crops.
But there is a ray of hope for the dying sector as the European Union said yesterday that it had increased funding to the sector. Under the plan, farmers will receive about Sh500 million in the next four years to improve production and quality.
Certification project
This follows another plan to boost quality control in coffee production, strengthen competitiveness of the crop and increase farmers’ earnings launched in July.
This plan would see the EU work and Kenya-based DCDM jointly fund a Sh370 million certification project aimed at increasing output and boost earnings by 25 per cent.
Moreover, Government recently introduced a hybrid plant resistant to coffee berry disease and to coffee leaf rust.
It is also high-yielding and suitable for planting at twice the normal density.
All these will help revive the floundering sector, and boost falling production.

Are Wars Good for the Economy?

One of the more enduring myths in Western society is that wars are somehow good for the economy. Many people see a great deal of evidence to support this myth, after all World War II came directly after the Great Depression. This faulty belief stems from a misunderstanding of the economic way of thinking.

The standard "a war gives the economy a boost" argument goes as follows: Let's suppose that the economy is in the low end of the business cycle, so we're in a recession or just a period of low economic growth. The unemployment rate is high, people may be making less purchases than they were a year or two ago, and overall output is flat. But then the country decides to prepare for war! The government needs to equip its soldiers with the extra gear and munitions needed in order to win the war. Corporations win contracts to supply boots, and bombs and vehicles to the army. Many of these companies will have to hire extra workers in order to meet this increased production. If the preparations for war are large enough, large numbers of workers will be hired reducing the unemployment rate. Other workers may need to be hired to cover reservists in private sector jobs who get sent overseas. With the unemployment rate down we have more people spending again and people who had jobs before will be less worried about losing their job in the future so they'll spend more than they did. This extra spending will help the retail sector, who will need to hire extra employees causing unemployment to drop even further. A spiral of positive economic activity is created by the government preparing for war, if you believe the story. The flawed logic of the story is an example of something economists call The Broken Window Fallacy.

Rejecting ICC comes at a high cost to Kenya

Armed youth burn property in Nairobi during the 2008 post election violence. MPs passed a motion last week asking the government to withdraw from the Rome Statue.  

The push by Parliament to pull the country out of the Rome Statute could cause severe economic, political and financial consequences, a former UN official has warned.

Separately, Amnesty International said Kenya has no choice but to cooperate with the International Criminal Court.

While stating that Kenya has the sovereign right to pull out of the Rome Statute, Mr Salim Lone, a former UN communication official and Prime Minister Raila Odinga’s consultant, said the government would lose the good relations it currently enjoys with its development partners.

Last week, MPs passed a motion by Chepalungu’s Isaac Ruto asking the government to withdraw from the ICC process. Vice President Kalonzo described the motion during debate as ‘‘government business.’’

Parliament now expects the president to write to the United Nations informing it of the withdrawal.
But such a move, Mr Lone said yesterday, could cause severe penalties for the country.

Although the UN will not automatically withdraw funding for its programmes, the country’s credit rating will drop because political tensions are likely to rise as withdrawing from ICC will be taken as a move designed to defend impunity.

A lower credit rating will make it difficult for Kenya to access loans and investors will avoid the country for other lucrative destinations.

“Withdrawing from ICC is our sovereign right. But such a step would seriously undermine our long and beneficial engagement with the international community and the United Nations,’’ Mr Lone said on phone from London.

The loss of international goodwill, he added, was likely to be accompanied by tough economic, political and social consequences that will affect Kenyans. The UN funds projects that include the fight against HIV/Aids, Millennium Development Goals and good governance.

And Amnesty said the motion by Parliament “shall not discharge Kenya from the obligations arising from the statute, neither would it have an effect on the investigations”.

It called on the Kenyan government to reject the motion.
“The decision to withdraw from the ICC process would not, in any form, prejudice any matter that is for consideration by the court.”

Justice minister Mutula Kilonzo and a bishop also urged President Kibaki to ignore Parliament’s resolution saying it is bad for Kenya’s image.

Good relations with the international community, which among other things determines the countries credit rating, is a virtue that all developing countries are keenly interested in and have spent millions of dollars to maintain.

For instance, following the 2008 election violence, the government hired CLS and Associates, a top Washington public relations firm at a cost of Sh136 million ($1.7 million) to work on its image for a period of two years.

Kenya was also forced to engage foreign PR firms to spruce up its image during the reign of former President Daniel arap Moi when the county was under fire over dictatorship and corruption.

The current threat to take Kenya down the same road was executed last week after MPs, miffed by ICC Prosecutor Luis Moreno-Ocampo’s move to name six leaders he believes bear the most responsibility for the post-election chaos, voted for a motion urging the government to repeal the International Crimes Act and severe its links with The Hague.

The ICC prosecutor, on December 15, said he had notified the Pre-Trial Chamber at The Hague of his intention to open two cases against deputy PM Uhuru Kenyatta, Industrialisation minister Henry Kosgey, Eldoret North MP William Ruto, Head of Civil Service Francis Muthaura, former Police Commissioner Hussein Ali and journalist Joshua arap Sang.

However, Kenyans can take solace in words of Mr Odinga who has faulted MPs for passing the motion before they adjourned for their Christmas vacation describing it as a futile effort.

The ICC, he said, will come for the Ocampo Six regardless of whether Kenya was a state party to the Rome Statute or not.

“Withdrawal from the Rome statute will not solve the problem at hand, there are other ways of sorting these issues one of which is to reconcile the country through truth and justice” he said.

The PM said the ICC took over the case after MPs rejected, attempts by the government to establish a local tribunal to try the suspects when they rejected Bills on the special court.

Speaking at the weekend, Mr Kilonzo urged President Kibaki not to endorse the resolution to pull out of the ICC warning that it would leave a scar on his legacy.

By passing the motion, Mr Kilonzo said, Kenyan MPs had told the world that Parliament behaved with impunity, an act which was likely to convince the ICC prosecutor to apply for arrest warrants against the six individuals instead of the summonses he had sought.

“This means these guys will be indicted because Parliament is saying that Kenya can withdraw from the Rome Statute if only to protect a few individuals. We are telling the world that we don’t want to be a member of the only club that brings justice to victims of war crimes, genocide and crimes against humanity,” he said.

Last week, 13 envoys drawn from the European Union, Nordic countries and the Korean Peninsula warned withdrawal from the ICC amounted to Kenya undermining the institution that had been created to deliver justice to victims of crimes against humanity.

In Mombasa, Holy Ghost Cathedral Bishop Bonface Lele urged the President to think seriously of the repercussions that would befall the country if removed from international circuits.

“Were it not for the intervention of our international brothers and sisters during the post election violence, Kenya would have turned into smoke and ashes,” he reminded the political class.

Politics, Economy, Society

This year, the time has come. In the past years, before Christmas I promised myself to share some of my wealth with the ones in need. I know, it is a but hypocritical, it is done only around Christmas, because everyone else does it and later people forget for the rest of the year. In the past years my low income was a lame excuse to confine to a few zlotys, this year I decided it was high time to endow some foundations and charities. I began to earn some “real” money, next year my earnings will be really decent, so apart from paying taxes which are aimed at redistributing wealth, I should help my fellow men off my own bat.

In the past days, when I had some free time (scarce commodity) I have pondered upon this issue. The topic triggers a lot of questions, concerning legitimacy, percentage of income that should be shared with others, discretion, moral duty and many more.

Virtually everyone agrees the disadvantaged should be given aid. Opinions how to do it wisely vary. In socialists’ view, the state should be solely responsible for redistributing wealth. The richer should under constraint pay not only higher taxes, but should also give to the state apparatus a higher percent of their income. Liberals, in turn, claim it should be the civil society that takes over function of helping the poor. People, as they say, can set up foundations and charity organisations and endowing them should be a moral duty.

Both approaches have substantial downsides. The statist one assumes the state is omnipotent and will allocate the collected resources effectively. This is impossible – the whole bureaucratic apparatus costs too much and will never be effective – once we had such system in which the state oversaw everything and it failed. The liberal one carries a naïve assumption people will be ready to share their wealth with the worse-off, which is overtly false. Most people are greedy and even if they do it, they will give out only a tiny percent of their earnings. Here there is a fix for it. In many Anglo-Saxon societies donating large sum to charities is a benchmark of one’s social status. There is some bit of pressure from society. But if it was not about boasting about the endowment on a party, would they be ready to give their money away that eagerly? I realise it is better that giving no money at all; no matter if the well-off outbid one another who donates more, the disadvantaged benefit from this. My take on the issue is similar to my view of CSR – most companies do it to maintain a good image, not because they care about those parentless children. Mechanics of the endowment is identical – people do it because they care about their prestige, benevolence is just a side effect.

And I have also realised that even if I was most open-handed I could afford, my contributions would still be hypocritical. I could not sympathise with beneficiaries of my help, just because I have never experienced homelessness, famine, shortage of money, severe illness or any other kind of misery. No big tragedy has affected me yet, my family have, thank God, never been destitute. But on the other hand, as I have also never experienced luxuries, I feel I am in between. Much above me are those whose opulence would dazzle me, much below are those whose poverty is beyond my comprehension. Probably the bigger the gap is, the harder it is to take in a fellow man’s woe.

In addition, giving money is taking the path of least resistance. I may have fewer banknotes in my wallet, by bank account may be credited and the strain is over. Good deed is done, conscience is clear. It is not that simple, as long as I still avert experiencing misery.

Also a man’s wealth determines his problems. For people who struggle to make ends meet, the problem might be if they will not run out of cash to buy bread for children. For those a bit better off, who surely can afford to stock up on bread and smoked hams, the problem might be paying for a child’s school trip abroad. The richer you are, the further from scraping along your problems are. A reason to complain for my colleagues might be that they can afford only a suit for 1,000 PLN rather than five times more expensive one. Or, as this year, that the Christmas bonus was not an equivalent of new compact car’s value, as it was in the years of prosperity (2006 or 2007).

Yesterday I had a Christmas party in my office. It was thrown in an empty unfinished sizeable room in our office building in the very centre of Warsaw. Looking outside the windows could you see Palace of Culture, hotels, busy streets full of well-off people running pre-Christmas errands in haste. Food and drink was in abundance, everyone was pleased to get together… I wonder if I was the only one who thought about families who cannot make ends meet during the party. Once again the Band Aid’s song reverberated in my head…

It's Christmas time

There's no need to be afraid

At Christmas time, we let in light and we banish shade

And in our world of plenty we can spread a smile of joy

Throw your arms around the world at Christmas time

But say a prayer

Pray for the other ones

At Christmas time it's hard, but when you're having fun

There's a world outside your window

And it's a world of dread and fear

Where the only water flowing is the bitter sting of tears

And the Christmas bells that ring there

Are the clanging chimes of doom

Well tonight thank God it's them instead of you

And there won't be snow in Africa this Christmas time

The greatest gift they'll get this year is life

Where nothing ever grows

No rain nor rivers flow

Do they know it's Christmas time at all

Here's to you raise a glass for everyone

Spare a thought this Yuletide for the deprived

If the table was turned would you survive

Here's to them underneath that burning sun

You ain't gotta feel guilt, just selfless

Give a little help to the helpless

Do they know it's Christmas time at all

Feed the world, feed the world, feed the world

Feed the world, feed the world

Let them know it's Christmas time again

Does anyone hear “the clanging chimes of doom”?
Is anyone thankful “tonight thank God it's them instead of you”?

But Polish bankers are not as spoilt as their counterparts from the City or Wall Street. Here the banking system is totally different (in Poland investment banking is just fledging and will never develop for good after Mr Crisis spelled the death of it) – there is no such depravity, earnings and bonuses are not sky-high and expectations are different. More about one depiction of London’s bankers circle in the New Year’s Day post!

IT and the Economy: A Focus on Priorities

Nothing focuses the attention of colleges and universities on true priorities like an economic crisis. When plummeting state appropriations, student fees, endowment income, and other sources threaten an institution, how does it distinguish between "must-haves" and "nice-to-haves"? When powerful constituencies like parents and students, legislators, the faculty, and alumni demand that their concerns be addressed, what chance does information technology have?
At Bowdoin College, I saw this challenge from two perspectives: as a CFO in nominal charge of the budget process and as the senior officer with oversight of IT. When I became the president at Guilford College, where IT was managed by the CFO and an academic dean, I transferred this shared arrangement — never my preferred organization for coordination and accountability — to a single report to me. IT has also been a recurring theme in the management education sessions I have taught at the Harvard Institutes for Higher Education since 1983. In the early years, most participants did not own a computer, and the Internet had not been invented.
From my perspective, in an economic downturn, both IT and the institution are best served when the following conditions are present:

• The institution uses a strategic plan to decide the relative importance of IT and other functions. How vital is IT to institutional success? A strategic plan lowers the crisis-management aspects of a tight budget and allows reductions and reallocations to occur purposefully. An IT-specific plan in the absence of an institutional strategic plan seldom protects IT resources. To maintain enrollment, IT may even be viewed as providing a competitive advantage that is crucial for student recruitment and retention and may be given extra funding. A wireless campus, online student registration and bill paying, and a virtual community for social networking appeal to a growing segment of undergraduates. Remote access to databases has forced more than a few libraries to offer plush chairs and even Starbucks coffee to lure students back to the reading rooms and stacks.
• The institution focuses assessments of its cost-effectiveness on curriculum and student learning outcomes, in which IT has great potential. Outcomes evaluation is essential for a "brand promise" — or, how students will be transformed by graduating from College A or University B. It is also a sine qua non for reaffirmation of accreditation in most regions. Colleges and universities can view the instructional opportunities of IT on three levels. Level I involves the use of productivity tools like Microsoft Word and Excel for research and writing. Level II centers on how we teach and use technology to allow asynchronous learning at the student's own pace and often outside the traditional classroom. Level III concentrates on changing what we teach. In accounting, for example, technology has allowed a shift away from rote memorization of debits and credits to a greater focus on what the numbers mean and how to act on them. Most institutions do very well with Level I, are improving with Level II, and struggle with Level III.
• The institution evaluates different ways to provide programs and services, including in IT. Economics often focus attention on the costs of doing business. Measuring and controlling college and university costs can be as important to a balanced budget as securing new revenue. Doing so is also significant to families and the media. Institutions should consider outsourcing opportunities (remembering at all times that the function can be outsourced but that institutional involvement and oversight cannot), should renegotiate with technology and service providers, and should eliminate meaningless steps in processes. In fact, process redesign is essential for any real cost savings with technology; it makes no sense to install a new student records system if the registrar continues to use paper forms to enroll students. Ohio State University redesigned its core statistics by reducing time in class and substituting a variety of online components relevant to specific majors. Campus officials estimated that the change reduced the cost of offering the course by 31 percent and opened up 150 new slots. In Colorado, the Governor's Office of Information Technology consolidated the executive branch's individual cell phone plans and claimed annual savings of approximately $600,000.
• The institution is aware that the financial effects of spending on IT may be different from the effects of spending in other programs and services. IT, buildings and grounds, and other departments that buy equipment and erect long-term physical assets spread their costs over the years of useful life via depreciation. This has a slight effect on the financial statements and budget for any one year while still depleting cash rapidly. For example, a computer system purchased for $100,000 with five years of useful life would have $20,000 in depreciation capitalized and added to the budget and financial statements each year. However, as soon as the system is purchased, $100,000 in cash is disbursed and is no longer available to pay bills.
• The institution thinks creatively about fund-raising. The rule of thumb is that unrestricted gifts are best because they can be used for anything. Restricted gifts are welcomed if they support the institution's mission. A liberal arts college generally would not accept a restricted gift to open a medical school. There are other options, however. An unrestricted gift can be used for a specific project so that the donor can see results. At Guilford College, we applied two unrestricted gifts to expanding the wireless network, and we kept the donors informed on how we were using their money. At Bowdoin College, we worked with a donor to identify the "college's greatest need," which led to an $18 million endowment for IT. Another idea is to take a large project and divide it into more fundable segments, for example, installing wireless in a residence hall or on the quad. When it comes to IT, most of the donors, faculty, and fund-raisers need to be educated about the possibilities and about how much a new system, equipment, and software will improve specific aspects of education.
• The institution builds long-term relationships rather than waiting for a budget crisis. Administrative departments have to show faculty, students, and others how much their services matter in order to turn these members of the campus community into allies in tough times. University art museums need to be more oriented to academic support and community needs. IT departments should contact specific departments, courses, and faculty members and explore new linkages. Why does IT matter? Inviting faculty to "play" with new software in an open lab — adjacent to the help desk — can show the possibilities and importance of IT, especially to more senior faculty. Administrative systems can also facilitate strategic decision-making in the business office through sophisticated modeling of alternative financial scenarios. However, as the historian Daniel J. Boorstin warned: "Technology is so much fun but we can drown in our technology. The fog of information can drive out knowledge." At Guilford, a very successful student-outreach program is Café Bauman (IT is located in Bauman Hall), with facilities open all night during final exams. The program offers not only computers and printers but also social space and refreshments. Students tell me that the pizza is a special favorite.
• The institution knows the importance of communication and transparency. Fiscal problems bring uncertainty and anxiety that are made worse if information is not readily available and reliable. The campus home page and website can relay news about economic circumstances, campus responses, and future expectations. Pages devoted to financial analysis and the strategic plan are useful. This serves not only employees and students but also trustees, alumni, legislators, parents, and others off campus. A community bulletin board or chat room allows people to vent as well as get reassurance. At Guilford College, we have found the "parent pipeline" to be a good source of concerns even if often overstated. Feedback — acquired from tools like SurveyMonkey.com — can be used to improve proposed actions to deal with the crisis. Another tactic is the "zoning ordinance" approach, in which draft policies and expected budget cuts are posted on the web — usually in a password-protected space — for comment over a specified time period before being finalized.

The annual EDUCAUSE Current Issues Survey has perennially identified funding as the first or second most-significant strategic issue in IT. With the current economic downturn, "Funding IT" is again the number-one issue in the just-released 2009 survey. In considering this issue, IT leaders may want to ask the following critical questions:

• Do key members of the institution understand the strategic value of IT to enhance teaching, learning, research, and service?
• Have institutional leaders specified expectations for IT availability, currency, and performance?
• Which IT projects should be reconsidered or deferred, and which are essential for enrollment and competitive advantage?

Economic crises are always hard to understand and to survive. Still, they offer opportunities. Reforms and improvements that would be impossible to implement during prosperous times suddenly become feasible when budgets are under stress. This is as true in IT as it is in every other facet of college and university operations. A focus on true priorities can lead not only to understanding but also to survival.

INFORMATION TECHNOLOGY AND THE NEW ECONOMY

    The superior performance of the U.S. economy in the late 1990s has led many commentators to speculate that a "New Economy" has emerged in which heavy investment in information technology (IT) has led to an era of sustained economic growth. Although the recent economic slowdown has dampened some of the enthusiasm for the idea of a New Economy, a fundamental question remains: can the output growth experienced in the late 90's, which was significantly higher than that observed in previous decades, be traced back to IT?
     This paper addresses this question by looking at the behavior of labor productivity, a key measure of economic well-being that grew at a significantly faster rate in the late '90s. The New Economy hypothesis to be examined is whether investment in IT caused the acceleration in productivity. The evidence suggests a growing consensus on two conclusions:

Information technology is an important factor in the recent acceleration in productivity growth.

Both the production and the use of IT contributed to the productivity revival.

Seen in this perspective, the idea of the New Economy is not as fanciful as some recent skeptics would claim.
     While forecasting productivity growth is a chancy and often unsuccessful enterprise, there is some reason to believe that the acceleration in labor productivity could persist for several more years. This guarded optimism is informed by a recurrent theme in the literature that investments in IT manifest themselves in higher productivity with a lag of a few years. Thus, the enormous investments made by U.S. firms in IT in the late 90's could possibly show up in productivity numbers well into the first decade of the 21st century.
     The rest of the paper is organized as follows: section I introduces some general concepts of productivity analysis, section II explains growth accounting, the standard framework for understanding productivity growth, section III applies this framework to the question of IT's impact on productivity, section IV looks at this question with methods other than growth accounting, and section V concludes.

I. PRODUCTIVITY

     In its simplest form, productivity is the amount of output that can be produced with a given amount of input. Labor productivity, then, measures the amount of output produced with a given amount of labor. At the aggregate level this means GDP divided by the total number of hours worked in the economy. This definition highlights why labor productivity is considered such an important measure of the long-term performance of the economy: growth in labor productivity increases the amount of goods and services available for consumption without a corresponding increase in the amount of time spent working. For this reason productivity growth often proxies for the change in the standard of living--the variable that, in the final analysis, most people really care about.
     To measure growth in labor productivity involves calculating the ratio of the change in real (inflation-adjusted) GDP to the change in hours worked. While determining hours worked presents relatively few measurement problems, calculating the change in real GDP has been a research topic at the center of the New Economy debate. Nominal GDP, which is easily measured, is the product of the price index and the quantity of goods and services sold in the economy. Thus, the percent change in nominal GDP is approximately equal to the percent change in prices (inflation) plus the percent change in quantities (real GDP growth). The problem is how to attribute changes in nominal GDP between changes in prices and changes in quantities. If the type and quality of goods consumed changes very little from year-to-year, as could be expected in an industrial "Old Economy" era, then measuring changes in quantities should be trivial. If, on the other hand, the type and quality of goods available changes rapidly, as is the case with many IT-related New Economy products, then making accurate quality-adjustments to the change in quantities becomes crucial in gaining a true idea of what's going on in the economy. For example, although the price of desktop computers has not changed greatly over the past decade, the quality and power of those computers has soared. To incorporate this observation, the price per unit of computing power, rather than per computer, should have plummeted over this period. In fact, the two agencies responsible for constructing the productivity numbers, the Bureau of Labor Statistics and the Bureau of Economic Analysis, have recognized this problem and have exerted considerable effort in order to insure their numbers accurately reflect the rapid pace of change caused by technological innovation. Despite these efforts, the measurement issues surrounding the New Economy have left lingering debate.
     The annual labor productivity growth rates for the past 50 years are presented in Chart 1 (see below). One noteworthy aspect of this series is its procyclical variability. While the relation between the business cycle and productivity has been a topic of intense controversy in recent decades, one feature of this correlation deserves mention. In the presence of fixed costs of hiring and firing workers, economic theory suggests that labor productivity should be procyclical. This idea, known as the 'labor hoarding' theory of procyclical productivity, holds that because firms cannot costlessly adjust the amount of labor input used in response to shifts in output, we can expect aggregate hours to change less than one-for-one in response to changes in aggregate output. Sudden contractions or expansions in output (recessions or recoveries) usually generate drops or jumps in measured labor productivity because firms don't meet these contractions or expansions with immediate and proportional increases or decreases in employment.¹
     The procylicality of productivity has two points of relevance for the present discussion. First, this feature of the data indicates why the contraction in labor productivity in the first quarter of 2001 should not necessarily be seen as the death knell of the productivity revival, but rather as a cyclical adjustment. Second, some had claimed that the productivity revival in the late '90s was, in large measure, a reflection of the procyclicality of the productivity series. This view, however, has been subjected to the critique that the cyclical aspect of productivity is usually felt at the beginning of a recovery whereas the productivity revival picked up steam several years into the expansion of the '90s.

Chart 1
     The productivity growth rates of the recent past can be divided into two sub-periods: 1973-1995, the era of the "productivity slowdown", and 1995-1999², the New Economy. Though measurement methodologies differ from study to study, the estimates of average annual growth in aggregate labor productivity for these periods tend to cluster around one and one-half percent for the earlier period and two and one-half percent for the latter period.
     This one percentage point difference may not appear terribly important. Yet if permanent, this difference would mean living standards doubling every 28 years rather than every 46 years. Consequently, understanding the determinants of productivity growth has been a major project of contemporary economics.
     Nevertheless, both the productivity slowdown and its more recent revival have been somewhat of a puzzle to economists. The deceleration in productivity growth in the 70's and 80's has attracted many candidate causes: among others, high energy prices, increased labor and environmental regulations, and monetary instability. The productivity revival, on the other hand, has focused attention on one possible explanation--the increased prevalence of IT in the American economy. In order to quantify the impact of IT on labor productivity, economists commonly use a decomposition known as growth accounting.

II. GROWTH ACCOUNTING

     The cornerstone of growth accounting is the decomposition of labor productivity growth into a weighted sum of effective capital growth and effective labor growth plus a residual term known as total factor productivity (TFP).³ Or,

where uppercase delta refers to change and a is a parameter.⁴ Effective capital growth, k, refers to the growth in the aggregate flow of capital services minus the growth in aggregate hours worked. Growth in effective capital, also know as capital deepening, has a positive effect on labor productivity because a larger amount of capital per worker should increase the output of that worker. As we will see, capital deepening can be measured for different classes of capital, in particular for deepening of IT capital. Growth in effective labor, l, captures the effect of changes in labor quality.⁵
     The residual in the growth accounting equation, TFP, is commonly equated with technological change. TFP represents all the increase in output that cannot be accounted for by an increase in any other input. In this sense it is a costless expansion of the economy's set of possible production bundles. It is sometimes said that TFP is "a measure of our ignorance" in that any productivity increase we cannot attribute to a growth in an input factor we lump in with TFP.⁶ This is a valid criticism and because of this we should be mindful that TFP can pick up increases in productivity due to process innovations or efficiencies generated by organizational changes. Despite its limitations, growth accounting is a useful framework and remains the starting point for the analysis of economic growth.

III. PRODUCTIVITY AND IT

     Information technology can affect aggregate labor productivity through two channels: the production of IT and the use of IT. Few question that IT production has exhibited phenomenal productivity growth. This is probably best illustrated in the case of semiconductors. In the 1960's Gordon Moore, the founder of Intel, predicted that microprocessor power would double every 18 months. The prediction was accurate enough that it became known as Moore's Law. Even accounting for R&D expenditures, the technological progress of the IT manufacturing sector has been remarkable and has contributed to the acceleration in labor productivity. In growth accounting terms, this contribution should appear as an increase in the TFP of IT-producing industries.
     The second avenue through which information technology has the potential to increase labor productivity is though its use. The rhetoric of the New Economy proponents often focuses on the efficiencies that will accrue to firms engaged in activities other than the production of IT but which nevertheless successfully integrate the use of IT into their existing operations. Firms that use IT could expect productivity gains for two reasons. First, the rapid decline in the price of computing power has spurred huge investments in IT. This investment, like any other form of capital spending, should raise the productive capacity of those firms that undertake it. Second, IT has the potential to allow firms to implement efficiency-enhancing changes in the way they do business. These two effects would show up in a growth accounting equation as a capital deepening in IT-using firms and an increase in TFP of IT-using firms. Table 1 summarizes where we would expect the productivity contributions from the use and production of IT to appear in a growth accounting exercise.

Table 1
     The possible effect of IT use on TFP has attracted considerable attention. It is in this sense that IT could be considered a General Purpose Technology (GPT). As defined by Helpman (1998) a GPT is a "drastic innovation [that] has the potential for pervasive use in a wide range of sectors in ways that drastically change their mode of operation." Similarly, Bresnahan and Trajtenberg (1995) speak of GPT's as "'enabling technologies' opening up new opportunities rather than offering complete, final solutions." A classic example of a GPT is electricity. Around the turn of the century American industry underwent radical change due to the widespread utilization of electricity. Firms invested heavily in electric machinery as the price of electivity relative to other forms of power fell. If these firms didn't change their production process they could still expect an increase in productivity due to this capital deepening. However, as David (1990) points out, the switch from steam to electric power also allowed firms to change the floor plans of their factories in a way that increased efficiency. Thus, firms did change their production process' and hence experienced a second productivity 'kick' from using electricity.
     The distinction between production and use of IT has been critical in the debate concerning the impact of IT upon productivity. In a series of papers, Gordon (1999, 2000) has argued that IT's contribution to the acceleration in productivity experienced in the late '90s has been solely through the more efficient production of IT. The use of IT, Gordon claims, has not added to the uptick in productivity. In a certain sense, this distinction is immaterial: nobody denies that productivity did accelerate in the period under question. In another sense, Gordon's interpretation, if true, would have certain implications about the sustainability of the New Economy. The narrow concentration of productivity growth in one sector would make the economy's continued health vulnerable to disruptions in that sector. Furthermore, the efficiency gains in IT production, particularly semiconductors, will eventually run into physical constraints; Moore's Law cannot hold indefinitely. Gordon's reading of the facts, however, has been controversial and as we will see shortly, several studies have found the use of IT to have made a substantial contribution to the productivity revival.
     The growth accounting equation has been applied to the two sub-periods mentioned above by a number of economists in order to clarify how and why the pickup in productivity occurred. Growth accounting exercises can produce different results for the same period because there are several choices to be made as to how to measure the aggregate flow of capital and labor services. Three of the most recognized studies include one government survey, BLS (2000) and two academic works, Jorgenson and Stiroh (1999) and Oliner and Sichel (2000). Their findings are presented in Table 2.

Table 2
     All three surveys decompose the approximately one percentage point acceleration in productivity growth into the standard categories of capital deepening, increased labor quality, and TFP. Furthermore, these studies separate capital deepening into IT-capital deepening and all other forms of capital deepening. In all three cases IT-capital is defined as computer hardware, software, and communications equipment. The two academic studies disaggregate TFP into IT-producing and non-IT-producing sectors.
     The results of these studies reveals that IT-related capital deepening contributed between one-third to one-half a percentage point to the acceleration in productivity in the late nineties. This indicates that a large part of why workers became more productive after 1995 is that they had more high-technology equipment with which to perform their jobs. Growth in investment in all other forms of capital, machinery, structures, etc., slowed during the late '90s and contributed less to productivity in this period than during the "productivity slowdown". The increase in labor quality was relatively similar across both time periods and thus did not contribute much to the productivity revival. TFP, on the other hand, did accelerate appreciably in the later period, adding between two-thirds to nine-tenths of a percentage point to the relative change in the rate of productivity growth.
     It appears, then, that the productivity revival is concentrated in IT-capital deepening and a pickup in TFP. Jorgenson and Stiroh and Oliner and Sichel both find that TFP acceleration in IT-producing industries added about a quarter percentage point to the productivity revival. The increase in TFP in other industries accounted for about a half of a percentage point. This acceleration in TFP in non-IT-producing industries could be due to the use of IT or it could be due to a number of other factors--the coarseness of the growth accounting framework is ill-suited to localize the causes of TFP growth. Among the contributions of IT to TFP, the evidence suggests that it is unlikely that the Internet has yet to contribute substantially to productivity growth. One possible avenue through which the Internet could make the economy more productive is through the cost efficiencies attained through business-to-business e-commerce. Nevertheless the magnitude of these transactions has not been large enough to have much impact on the aggregate numbers. It is possible that valuing the services provided by the Internet as a final, consumer good has suffered from the measurement issues discussed above, in which case the Internet has made some very modest contribution to productivity.⁷
     The results of both these studies suggest that the productivity acceleration was not entirely due to higher productivity in the manufacture of semiconductors and other IT equipment. Rather, these industries probably contributed around one quarter of the one percentage point difference between productivity growth during 1973-1995 versus productivity growth during 1995-1999. By identifying IT-capital deepening, these studies also put a lower bound on the contribution from the use of IT of around one-third of a percentage point. The contribution from IT use could be even greater if some or all of the increase in TFP in non-IT-producing industries can be attributed to IT use.

IV. OTHER ANALYSES

     Growth accounting is a blunt tool that can leave many questions answered unsatisfactorily.⁸ In order to get a better idea of how investment in IT has affected productivity, many authors have conducted the analysis at the level of the firm or the industry.
     Two studies which are representative of this literature are Stiroh (2001) and Brynjolfsson and Hitt (2000). Stiroh's study looks at productivity in the late 90's in 61 different industry groups sorted by level of investment in IT. In order to control for endogeneity, he measures industry IT investment undertaken before 1995.⁹ His main finding is that industries that had invested heavily in IT experienced more rapid productivity growth than other industries. This result is consistent with the New Economy story that the increased use of IT is making American business more productive. After comparing industry groups, Stiroh concludes that the aggregate productivity revival is entirely due to industries that produce IT or intensively use IT; industries that do not intensively use IT contributed essentially nothing to the productivity revival. While industry productivity is compared to lagged IT investment for econometric reasons, the incidental finding of this paper is that unlike other forms of capital, outlays for IT affects productivity several years after the investment is made.
     In order to estimate the effect of investment in IT on firm productivity, Brynjolfsson and Hitt track the amount of computer investment undertaken by a sample of 600 firms over an eight year period. They find that over the short-term, the marginal cost of computer investment is equal to its marginal revenue--a result that suggests that over the short-term IT investment contributes to productivity solely though the capital deepening mechanism. Interestingly, they find that over the longer-term (seven years) marginal revenue rose to between two to five dollars for every dollar invested in computers. The authors interpret this finding as suggestive evidence of the existence of productive complementarities between computer investment and organizational restructuring.
     Both of the above papers uncover evidence that investment in IT affects productivity with a lag of a few years. This finding is consonant with the theory that rapid capital investment entails large "adjustment costs". According to the IT version of this story, adjustment costs are equated with the time and resources spent by employees in learning how to properly utilize the newly available IT capital as well as the time and resources spent in organizational learning as firms reconfigure their operations. Along these lines, several studies have postulated that the productivity slowdown and subsequent revival are intimately linked by adjustment costs. Greenwood and Yorukoglu (1997) claim that investment in IT, which experienced rapid growth in 1970's caused the productivity slowdown as unmeasured adjustment costs made output growth look artificially small. The productivity revival, they claim, represents the efficiency gains from IT investment finally outpacing the associated adjustment costs. This theory would seem to provide a direct reply to the 'Solow paradox'. Writing in 1987, Robert Solow famously remarked "We see the computer age everywhere except in the productivity statistics." According to the adjustment cost view, the slow growth in productivity experienced at the time of Solow's remark reflect the large unmeasured costs of adapting to the computer age during the 1970's and 1980's--costs that were finally outweighed by the benefits by the late 1990's.¹⁰
     The finding that IT investment affects productivity with a lag would seem to bode well for future productivity growth. Aggregate investment in IT continued at a brisk pace well into the late 1990's. If the pattern of lagged dependence of productivity on IT continues, we could expect productivity to continue its healthy growth. Caution, however, is warranted when predicting productivity numbers. As Taylor (2001) observes,

     From a macroeconomic perspective the New Economy isn't really new. After all, productivity growth rates averaged about 3.0 percent per year in the 1950' and 1960's. …But the stagflation of the 1970's--resulting from a combination of unlucky economic events and ill-conceived public policy--arrived nonetheless.

     It is sometimes said that from an economic perspective technological progress is like manna from heaven, a gift whose source is not well understood. Because of this, it is unlikely that a policymaker can affect the arrival rate of this gift in the short run. Public policy can, however, create an environment that allows society to fully capture the benefits of technological advancements. The rapid pace of change in the high tech sector requires labor and capital markets that are fluid and dynamic. Excessive regulation could harm the ability of industry to quickly and effectively respond to new opportunities opened up by technological breakthroughs. Moreover, the inherent volatility of enterprise in a sector of the economy undergoing rapid technological change demands a tax structure that creates the appropriate incentives for entrepreneurs and investors to accept this added risk. The likely existence of "spillover effects" from the development of IT implies that the benefits from entrepreneurial activity in this sector flow throughout the economy. Thus, creating incentives for IT entrepreneurial activity is akin to encouraging the private provision of a public good.

V. CONCLUSION

     A consensus has emerged regarding the acceleration in productivity that occurred in the late 1990's. Two points that have found widespread agreement are:

Information technology contributed significantly to the productivity revival. At least half of the one-percentage point increase in labor productivity growth is attributable to IT. In all likelihood the contribution from IT is even greater than this conservative estimate.

Both the production and use of IT has had an impact on the productivity revival.

These results imply that the New Economy thesis, when applied to the historical experience, has a sound empirical foundation.

E-commerce dealers turn to mobile phone

Kenyans’ resistance to use of plastic money has seen providers of cash-less payment systems leapfrog credit cards to use of mobile phone based e-commerce.

Companies that have e-payment platforms such as I&M Bank, JamboPay, PesaPal and I-pay say the uptake of cards for electronic commerce has been slow, even after the law was changed last year to introduce online transactions.

This has forced the players to integrate their systems to mobile phone operators’ platforms to tap more customers.

There are an estimated 13 million Kenyans with access to money transfer services compared to 2.2 million Visa debit card holders and 111,000 credit card holders as at end of 2009.

“E-payments in most countries, especially in the West, evolved from cash to cards to mobile but Kenya almost shot from cash to mobile in a decade,” said Danson Muchemi, business development director at JamboPay.

Agosta Liko, the chief executive of Pesapal, said the firm had to factor in the high use of mobile phones in Kenya while setting up their e-payment system.

“We have started from zero and are designing it as per market needs. This is unlike in other countries whose systems were designed as per Visa specifications.”

Faith Nyoike of I-pay said mobile payments have helped to localise the concept of e-payment, which has for a long time been viewed as a reserve for high income earners.

Credit cards

“People have always been scared of credit cards, the fact that they have confidence in mobile payments makes it easier to pull them to online payment and e-commerce.”

JamboPay, which deals with both mobile payments and card based payments, said the uptake and returns from mobile payments has been higher than card supported transactions.

Mr Muchemi said Visa credit and debit cards payments are popular for conference, events booking, and in the hotel and tourism industry.

A major limitation for mobile phone based transactions, however, is that they are not yet in use in international payments.

This is because most countries are still lagging behind on mobile payments.

Local commercial banks have been slow to adopt online payment services. I & M Bank is the only lender with a license from Visa International for facilitating online payments.

Firm prices promise good coffee year

Coffee earnings grew by 27 per cent over the first eight months of the year supported by firm prices, signaling a good run for farmers.

Provisional data by the Kenya National Bureau of Statistics (KNBS) shows earnings from the commodity to August stood at about Sh10 billion compared to the Sh7.35 billion over a similar period last year.

The performance is attributed to strong prices in international outlets.

Related Stories

* Nestle hopes Nescafe sachet is right mix for mass market
* Dependence on commodities hurts Comesa countries

“The international markets have been up for much of this year and the prices have been good locally too,” Daniel Mbithi, an official at the Nairobi Coffee Exchange (NCE) said.

Latest projections by the International Coffee Organisation (ICO) showed producers worldwide were headed for higher earnings this year due to adverse weather conditions and a rise in production costs, which have cut global supplies.

The shortage is reflected by the fact that opening stocks in producing countries for the 2010/11 crop year are expected to fall below 12 million bags, the lowest level in recorded history.

The effects of the market conditions have been reflected in the local scene because pricing at the NCE largely tracks leading international outlets such as the New York Futures Market.

Besides, the Kenya Meteorological department expects dry weather in the country in the coming months — a situation that could further affect coffee stocks.

In a forecast for the final quarter for 2010, the department predicts depressed rainfall conditions across most parts of the country.

“Unfortunately, only a few will enjoy the bounty locally because production has not been good in terms of numbers,” Mr Mbithi said.

Some growers, unhappy about widespread mismanagement in the once vibrant sub-sector, have given up on coffee production and taken on the now lucrative real estate business.

Several coffee farms mainly in Central Kenya have been cleared to pave way for property development investment viewed to have bigger returns.

Last month, the Coffee Board said earnings grew by more than a half to Sh16 billion in the 2009 crop year driven by strong pricing locally and abroad, helping to offset the impact of adverse weather on output.

Production dropped from 50,000 tonnes in the 2008/2009 season to 40,000 tonnes, but farmers’ earnings were boosted by prices of Sh70 per kilogramme of cherry on average.

“Prices were firmly supported by positive global fundamentals,” Ms Loise Njeru, the managing director of Coffee Board of Kenya (CBK), told a media briefing in Nairobi.

Overview of Kenya today

The area that now comprises Kenya came under British domination in the 1890s, though it was not declared an official Crown colony until 1920. Under British hegemony (complete domination), a racially stratified economy was created, with European settlers controlling a large segment of the fertile land and managing nascent industries, while the African indigenous population worked as laborers on cash-crop plantations and in factories. Indians, occupying a status somewhere between the Europeans and Africans, formed a petty-capitalist class of artisans, clerks, and merchants. By and large, the colonial economy was characterized by settler control of farming lands (settler-economy), with tea and coffee acting as the major export crops designated for sale in European markets abroad.
Following the emergence of various nationalist movements throughout the 1950s, in addition to a series of rebellions (the Mau Mau) against British rule, Kenya was granted independence in December 1963. Under the subsequent rule of the Kenya African National Union (KANU), headed by President Jomo Kenyatta, Kenya experienced significant economic growth throughout the 1960s. Although KANU, a self-proclaimed African socialist party, pursued various socialistic policies— including government control of agricultural marketing boards, state ownership of certain industries, and import-substitution —the economy under Kenyatta was more or less mixed.
In 1980, a growing balance of payments deficit caused by declining terms of trade (international prices for agricultural commodities greatly outweighed by prices for capital goods ) and high international oil prices, compelled Kenya to borrow heavily from the World Bank. The latter issued a second large-scale loan to Kenya in 1982, with both the first and second loans being subjected to numerous conditionalities (requirements). Such conditionalities centered on increasing the role of the private sector in the economy while concomitantly decreasing the role of the government. In particular, the conditionalities—collectively labeled Structural Adjustment Packages (SAPs)—emphasized trade liberalization and gradual dissolution of government marketing boards that controlled purchasing and selling of agricultural commodities.
Kenya's slow progress towards implementing agricultural conditionalities, in addition to the widespread use of public resources by government and parastatal officials for private gain (corruption), prompted many bilateral donors and the major international financial institutions to severely criticize KANU throughout the early 1990s. Inefficient and corrupt parastatals were singled out as being particularly draining to the country's treasury, and thus a major factor behind deficit and debt problems. Economic performance in the 1990s declined severely, and the average annual GDP growth rate, which stood at 6.5 percent between 1960 to 1980, fell to 2 percent between 1990 to 1999. In August 1993, inflation temporarily reached a record high of 100 percent. Five years later, in 1998, the unemployment rate soared to 50 percent.
Both the IMF and the World Bank suspended structural adjustment programs in 1997, as a result of KANU's failure to implement governance conditionalities designed primarily to curb corruption and promote sound economic policy. In July 2000, however, Kenya signed a long-awaited 3-year Poverty Reduction and Growth Facility (PRGF) with the IMF, a development that is expected to normalize relations with the World Bank and various bilateral donors. The PRGF, a direct relative of the SAPs, sets out some of the most detailed conditions ever agreed to by a national government.
The Kenyan economy continues to be dominated by agriculture, with tea, coffee, horticultural products, and petroleum products acting as the country's major exports. Export partners, in turn, include Uganda, Tanzania, the UK, Egypt, and Germany. Tourism is the second largest contributor to foreign exchange, while agriculture is the first. Kenya's major imports include machinery and transportation equipment, petroleum products, and iron and steel, most of which are imported from the UK, the United Arab Emirates, the United States, Japan, Germany, and India. Due, in large part, to the uneven terms of trade between Kenya's agricultural exports and higher value-added imports, the country runs a significant balance of trade deficit. This means that Kenya must borrow heavily to finance imports, hence the various SAPs. In 1998, Kenya's total external debt stood at US$7 billion. In addition to commercial loans, the country also receives large amounts of economic aid from various international organizations and bilateral donors. In 1997, for instance, Kenya received a total of US$457 million in aid.
A severe drought from 1999 to 2000 compounded Kenya's problems, causing water and energy rationing and reducing agricultural output. As a result, GDP contracted by 0.2% in 2000. The IMF, which had resumed loans in 2000 to help Kenya through the drought, again halted lending in 2001 when the government failed to institute several anticorruption measures. Despite the return of strong rains in 2001, weak commodity prices, endemic corruption, and low investment limited Kenya's economic growth to 1.2%. Growth lagged at 1.1% in 2002 because of erratic rains, low investor confidence, meager donor support, and political infighting up to the elections. In the key December 2002 elections, Daniel Arap MOI's 24-year-old reign ended, and a new opposition government took on the formidable economic problems facing the nation. After some early progress in rooting out corruption and encouraging donor support, the KIBAKI government was rocked by high-level graft scandals in 2005 and 2006. In 2006, the World Bank and IMF delayed loans pending action by the government on corruption. The international financial institutions and donors have since resumed lending, despite little action on the government's part to deal with corruption. Post-election violence in early 2008, coupled with the effects of the global financial crisis on remittance and exports, reduced estimated GDP growth below 2% in 2008 and 2009.
GDP (purchasing power parity):
$63.52 billion (2009 est.)

$62.39 billion (2008 est.)

$61.35 billion (2007 est.)
GDP (official exchange rate):
$30.21 billion (2009 est.)
GDP - real growth rate:
1.8% (2009 est.)

1.7% (2008 est.)

7% (2007 est.)
GDP - per capita (PPP):
$1,600 (2009 est.)

$1,600 (2008 est.)

$1,700 (2007 est.)
GDP - composition by sector:
agriculture: 21.4%
industry: 16.3%
services: 62.3% (2009 est.)
Labor force:
17.47 million (2009 est.)
Labor force - by occupation:
agriculture: 75%
Unemployment rate:
40% (2008 est.)

40% (2001 est.)
Population below poverty line:
50% (2000 est.)
Household income or consumption by percentage share:
lowest 10%: 1.8%
highest 10%: 37.8% (2005)
Distribution of family income - Gini index:
42.5 (2008)

44.9 (1997)
Investment (gross fixed):
21.5% of GDP (2009 est.)
Budget:
revenues: $6.858 billion
expenditures: $8.759 billion (2009 est.)
Public debt:
54.1% of GDP (2009 est.)

60.1% of GDP (2008 est.)
Inflation rate (consumer prices):
20.5% (2009 est.)

26.2% (2008 est.)
Central bank discount rate:
NA% (31 December 2008)
Commercial bank prime lending rate:
14.02% (31 December 2008)

13.34% (31 December 2007)
Stock of money:
$6.068 billion (31 December 2008)

$5.912 billion (31 December 2007)
Stock of quasi money:
$5.468 billion (31 December 2008)

$6.464 billion (31 December 2007)
Stock of domestic credit:
$10.83 billion (31 December 2008)

$10.67 billion (31 December 2007)
Market value of publicly traded shares:
$10.92 billion (31 December 2008)

$13.39 billion (31 December 2007)

$11.38 billion (31 December 2006)
Agriculture - products:
tea, coffee, corn, wheat, sugarcane, fruit, vegetables; dairy products, beef, pork, poultry, eggs

Industries:
small-scale consumer goods (plastic, furniture, batteries, textiles, clothing, soap, cigarettes, flour), agricultural products, horticulture, oil refining; aluminum, steel, lead; cement, commercial ship repair, tourism
Industrial production growth rate:
2% (2009 est.)
Electricity - production:
5.223 billion kWh (2008 est.)
Electricity - consumption:
4.863 billion kWh (2008 est.)


Electricity - exports:
58.3 million kWh (2007 est.)


Electricity - imports:
22.5 million kWh (2007 est.)


Oil - production:
0 bbl/day (2008 est.)


Oil - consumption:
75,000 bbl/day (2008 est.)


Oil - exports:
7,270 bbl/day (2007 est.)


Oil - imports:
80,530 bbl/day (2007 est.)


Oil - proved reserves:
0 bbl (1 January 2009 est.)


Natural gas - production:
0 cu m (2008 est.)


Natural gas - consumption:
0 cu m (2008 est.)


Natural gas - exports:
0 cu m (2008 est.)


Natural gas - imports:
0 cu m (2008 est.)


Natural gas - proved reserves:
0 cu m (1 January 2009 est.)


Current account balance:
$-1.859 billion (2009 est.)

$-1.978 billion (2008 est.)

Exports:
$4.479 billion (2009 est.)

$5.04 billion (2008 est.)

Exports - commodities:
tea, horticultural products, coffee, petroleum products, fish, cement
Exports - partners:
UK 10%, Netherlands 9.2%, Uganda 9%, Tanzania 8.7%, US 6.3%, Pakistan 5.6% (2008)
Imports:
$9.031 billion (2009 est.)

$10.69 billion (2008 est.)

Imports - commodities:
machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics
Imports - partners:
India 14.1%, UAE 11.5%, China 10%, Saudi Arabia 8%, South Africa 5.7%, Japan 5.1% (2008)
Reserves of foreign exchange and gold:
$2.601 billion (31 December 2009 est.)

$2.879 billion (31 December 2008 est.)

Debt - external:
$7.729 billion (31 December 2009 est.)

$7.855 billion (31 December 2008 est.)

Stock of direct foreign investment - at home:
$2.053 billion (31 December 2009 est.)

$2.541 billion (31 December 2008 est.)

Stock of direct foreign investment - abroad:
$42 million (31 December 2009 est.)

$12.4 million (31 December 2008 est.)

Exchange rates:
Kenyan shillings (KES) per US dollar - 78.042 (2009), 68.358 (2008), 68.309 (2007), 72.101 (2006), 75.554 (2005)

Global targets, local ingenuity

In ten years, the living conditions of the poor have been improving—but not necessarily because of the UN’s goals

EVEN at 70, Jiyem, an Indonesian grandmother, gets up in the small hours to cook and collect firewood for her impoverished household. Her three-year-old grandson is malnourished. Nobody in her family has ever finished primary school. Her ramshackle house lacks electricity; the toilet is a hole in the ground; the family drinks dirty water. Asked about her notion of well-being by researchers from Oxford University, Jiyem said, “I cannot picture what well-being means.”
The sort of deprivation Jiyem describes remains widespread. The United Nations reckons that in 2008 over a quarter of children in the developing world were underweight, a sixth of people lacked access to safe drinking water, and just under half used insanitary toilets or none at all. But while these figures are disquieting, a smaller fraction of people were affected than was the case two decades ago. So such data also indicate the world’s progress towards meeting the Millennium Development Goals (MDGs), a set of targets adopted by world leaders at the UN ten years ago.

The leaders gave themselves 15 years to reach the goalposts set in 2000. Two-thirds of that time is up. This week they returned to the UN for another meeting. Few, if any, of them have close experience of poverty. So the MDG exercise has at least made them spend three days discussing matters they might prefer to ignore. It has also helped to shift the debate away from how much is being spent on development towards how much is being achieved.
But few go as far as Ban Ki-Moon, the UN secretary-general, who recently called the goals “a milestone in international co-operation” that had helped “hundreds of millions of people around the world.” Talking up the MDGs is, of course, part of Mr Ban’s job. And there has indeed been progress on many fronts (see table 2). But it is hard to assign much credit to the exercise itself.
Take the goal of halving the poverty rate from its 1990 level by 2015. The World Bank reckons that in 1990 46% of the developing world’s population fell below the internationally accepted poverty line of $1.25 a day at purchasing-power parity. By 2005 the rate had fallen to 27% and, despite a slowdown in progress in the past couple of years, it is now probably lower still. A global halving by 2015 seems well within reach. Yet this “victory” is mainly due to a drop in China’s poverty rate from 60% in 1990 to 16% in 2005. Because China and India accounted for over 62% of the planet’s poor in 1990, changes to the world’s poverty rate depend heavily on their performance. A global goal is therefore a poor way to give the governments of smaller countries an incentive to tackle poverty.

Alison Evans of Britain’s Overseas Development Institute (ODI) reckons that the MDGs have come to be seen as applying to each developing country. But it is hard to track performance at country level: 28 of the poorest countries have recorded poverty rates for only one year between 1990 and 2008, according to a tally by researchers at the Centre for Global Development, a think-tank in Washington, DC. This makes any judgments about their progress mere guesswork. (This caveat does not apply with equal force to the global target, because China and India have enough data to make their progress measurable.)
The ODI reckons that 15 poor countries have already met the goal of halving the poverty rate. And perennial pessimists about Africa’s prospects may be surprised to know that the list of the top ten countries ranked by the average annual decline in the poverty rate includes six in Africa: the Gambia, Mali, Senegal, Ethiopia, the Central African Republic and Guinea.
But lack of data aside, there is something odd about setting uniform targets such as “cutting child mortality by two-thirds”, which means that some countries must do much more to avoid being classed as failures than others. Niger is a case in point. Between 1990 and 2007 it cut the number of children per 1,000 who died before their fifth birthday from 304 to 176. This was the biggest absolute reduction of any country in the world. But Niger is still judged “off-track” to meet its target, because continuing at the current rate will still result in a reduction of slightly below two-thirds. Its government may well find the MDG exercise mildly discouraging.

Money’s limits

The goal-setting exercise has further pitfalls. Too often, the goals are reduced to working out how much money is needed to meet a particular target and then berating governments for not spending enough. Yet the countries that have made most progress in cutting poverty have largely done so not by spending public money, but by encouraging faster economic growth. China is the most obvious example. The best performers in Africa, too, are those that have managed to speed up growth. As Shanta Devarajan, the World Bank’s chief economist for Africa, points out, growth does not just make more money available for social spending. It also increases the demand for such things as schooling, and thus helps meet other development goals. Yet the goals, as drawn up, made no mention of economic growth.
Of course, as India’s dismal record on child malnutrition demonstrates (see article), growth by itself does not solve all the problems of the poor. It is also clear that while money helps, how it is spent and what it is spent on are enormously important. For instance, campaigners often ask for more to be spent on primary education. But throughout the developing world teachers on the public payroll are often absent from school. Teacher-absenteeism rates are around 20% in rural Kenya, 27% in Uganda and 14% in Ecuador. In Rajasthan in northern India, nurses who were supposed to be staffing primary health clinics were found to be at work only 12% of the time over an 18-month period.
In any case, money that is allocated for such services rarely reaches its intended recipients. A study found that 70% of the money allocated for drugs and supplies by the Ugandan government in 2000 was lost to “leakage”; in Ghana, 80% was siphoned off. Montek Ahluwalia, of India’s Planning Commission, said last year that he reckoned only 16% of the resources earmarked for the poor under the country’s subsidised food distribution scheme ever reached them. Money needs to be spent, therefore, not merely on building more schools or hiring more teachers, but on getting them to do what they are paid for, and preventing resources from disappearing somewhere between the central government and their supposed destination.
The good news is that policy experiments carried out by governments, NGOs, academics and international institutions are slowly building up a body of evidence about methods that work. A large-scale evaluation in Andhra Pradesh in southern India has shown, for example, that performance pay for teachers is three times as effective at raising pupils’ test scores as the equivalent amount spent on school supplies. In Rajasthan, teachers were paid only on showing a date-stamped photograph to prove they had been in class on a given day. This led not just to a massive decline in absenteeism, but also to better pupil performance.
And in Uganda the government, appalled that money meant for schools was not reaching them, took to publicising how much was being allotted, using radio and newspapers. Leakage was dramatically reduced. The World Bank hopes to bring such innovations to the notice of other governments during the summit, if it can. For if the drive against poverty is to succeed, it will owe more to such ideas and their wider use than to targets set at UN-sponsored summits.