Monday, December 20, 2010

Economic History

After independence, Kenya promoted rapid economic growth through public investment, encouragement of smallholder agricultural production, and incentives for private (often foreign) industrial investment. Gross domestic product (GDP) grew at an annual average of 6.6% from 1963 to 1973. Agricultural production grew by 4.7% annually during the same period, stimulated by redistributing estates, diffusing new crop strains, and opening new areas to cultivation. Between 1974 and 1990, however, Kenya's economic performance declined. Kenya's inward-looking policy of import substitution and rising oil prices made Kenya's manufacturing sector uncompetitive. The government began a massive intrusion in the private sector. Lack of export incentives, tight import controls, and foreign exchange controls made the domestic environment for investment even less attractive.

From 1991 to 1993, Kenya had its worst economic performance since independence. Growth in GDP stagnated, and agricultural production shrank at an annual rate of 3.9%. Inflation reached a record 100% in August 1993, and the government's budget deficit was over 10% of GDP. As a result of these combined problems, bilateral and multilateral donors suspended program aid to Kenya in 1991.

In 1993, the Government of Kenya began a major program of economic reform and liberalization. A new minister of finance and a new governor of the central bank undertook a series of economic measures with the assistance of the World Bank and the International Monetary Fund (IMF). As part of this program, the government eliminated price controls and import licensing, removed foreign exchange controls, privatized a range of publicly owned companies, reduced the number of civil servants, and introduced conservative fiscal and monetary policies. From 1994-96, Kenya's real GDP growth rate averaged just over 4% a year.

In 1997, however, the economy entered a period of slowing or stagnant growth, due in part to adverse weather conditions and reduced economic activity prior to general elections in December 1997. In July 1997, the Government of Kenya refused to meet commitments made earlier to the IMF on governance reforms.^{[citation needed]}As a result, the IMF suspended lending for three years, and the World Bank also put a $90 million structural adjustment credit on hold.

The Government of Kenya took positive steps on reform, including the 1999 establishment of the Kenyan Anti-Corruption Authority, and measures to improve the transparency of government procurements and reduce the government payroll. In July 2000, the IMF signed a $150 million Poverty Reduction and Growth Facility, and the World Bank followed suit shortly after with a $157 million Economic and Public Sector Reform credit. Western nations are known to use economic aid as a tool for advancing their own political and economic agendas.

This is a chart of trend of gross domestic product of Kenya at market prices estimated by the International Monetary Fund with figures in millions of Kenyan Shillings.

Year	Gross Domestic Product	US Dollar Exchange
1980	74,940	7.42 Shillings
1985	143,715	16.43 Shillings
1990	278,502	22.86 Shillings
1995	614,267	50.42 Shillings
2000	967,838	78.58 Shillings
2005	1,449,408	75.55 Shillings

Gross Domestic Product (GDP)

In 2006 Kenya’s GDP was about US$17.39 billion. Per capita GDP averages somewhat more than US$450 annually. Adjusted in purchasing power parity (PPP) terms, per capita GDP in 2006 was about US$1,200. The country’s real GDP growth picked up to 2.3 percent in early 2004 and to nearly 6 percent in 2005 and 2006, compared with a sluggish 1.4 percent in 2003 and throughout President Daniel arap Moi’s last term (1997–2002). Real GDP is expected to continue to improve, largely because of expansions in tourism, telecommunications, transport, and construction and a recovery in agriculture. The Kenya Central Bank forecast for 2007 is between 5 and 6 percent GDP growth. GDP composition by sector, according to 2004 estimates, was as follows: agriculture, 25.7 percent; manufacturing, 14.0 percent; trade, restaurants, and hotels, 13.8 percent; transport and communications, 6.9 percent; government services, 15.6 percent; and other, 24.0 percent.^[2]

Kenya's 2010 Economic Performance and Outlook for 2011: In 2010, Kenya has seen the return of higher growth projected at 4.9 percent, and may now be at a tipping point for robust growth. Five factors are creating a positive momentum: the new constitution, EAC integration, ICT innovations, strong macroeconomic management, and recent investments in infrastructure. Services, the driver of previous years' growth, have moderated while agriculture and industry are rebounding after two weak years. ICT has been the main driver of Kenya's economic growth over the last decade, growing on average by 20 percent annualy, and propelling the combined transport and communications sector into the economy's second largest (after agriculture). Since 2000, Kenya's economy grew at an average of 3.7 percent. Without ICT, growth in 2010 would have been a lackluster 2.8 percent--similar to the population growth rate--and income per capita would have stagnated. Over the last three decades Kenya has experienced only two short episodes when economic growth exceeded five percent and was sustained for at least three consecutive years: 1986-88 and 2004-2007. Economic growth in 2011-12 could range between 5.3 and 6.0 percent if no shocks occur. Public sector investments in infrastructure will help to stimulate this growth. However, the timely implementation of the constitutional reforms would also be necessary to help boost business confidence. (ref; Kenya Economic Update, December 2010, www.worldbank.org/kenya.keu)

Industries

Agriculture

Main article: Agriculture in Kenya

Forestry and fishing

Resource degradation has reduced output from forestry. In 2004 roundwood removals came to 22,162,000 cubic meters. Fisheries are of local importance around Lake Victoria and have potential on Lake Turkana. Kenya’s total catch reported in 2004 was 128,000 metric tons. However, output from fishing has been declining because of ecological disruption. Pollution, overfishing, and the use of unauthorized fishing equipment have led to falling catches and have endangered local fish species.^[2]

Mining and minerals

Kenya has no significant mineral endowment. The mining and quarrying sector makes a negligible contribution to the economy, accounting for less than 1 percent of gross domestic product, the majority contributed by the soda ash operation at Lake Magadi in south-central Kenya. Thanks largely to rising soda ash output, Kenya’s mineral production in 2005 reached more than 1 million tons. One of Kenya’s largest foreign-investment projects in recent years is the planned expansion of Magadi Soda. Apart from soda ash, the chief minerals produced are limestone, gold, salt, and fluorspar.^[2]

All unextracted minerals are government property, according to the Mining Act. The Department of Mines and Geology, under the Ministry of Environment and Natural Resources, controls exploration and exploitation of such minerals.^[2]

Industry and manufacturing

Although Kenya is the most industrially developed country in East Africa, manufacturing still accounts for only 14 percent of gross domestic product (GDP). This level of manufacturing GDP represents only a slight increase since independence. Expansion of the sector after independence, initially rapid, has stagnated since the 1980s, hampered by shortages in hydroelectric power, high energy costs, dilapidated transport infrastructure, and the dumping of cheap imports. Industrial activity, concentrated around the three largest urban centers, Nairobi, Mombasa, and Kisumu, is dominated by food-processing industries such as grain milling, beer production, and sugarcane crushing, and the fabrication of consumer goods, e.g., vehicles from kits. Kenya also has an oil refinery that processes imported crude petroleum into petroleum products, mainly for the domestic market. In addition, a substantial and expanding informal sector engages in small-scale manufacturing of household goods, motor-vehicle parts, and farm implements. About half of the investment in the industrial sector is foreign, with the United Kingdom providing half. The United States is the second largest investor.^[2]

Kenya’s inclusion among the beneficiaries of the U.S. Government’s African Growth and Opportunity Act (AGOA) has given a boost to manufacturing in recent years. Since AGOA took effect in 2000, Kenya’s clothing sales to the United States increased from US$44 million to US$270 million (2006). Other initiatives to strengthen manufacturing have been the new government’s favorable tax measures, including the removal of duty on capital equipment and other raw materials.^[2]

Energy

The largest share of Kenya’s electricity supply comes from hydroelectric stations at dams along the upper Tana River, as well as the Turkwel Gorge Dam in the west. A petroleum-fired plant on the coast, geothermal facilities at Olkaria (near Nairobi), and electricity imported from Uganda make up the rest of the supply. Kenya’s installed capacity stood at 1,142 megawatts a year between 2001 and 2003. The state-owned Kenya Electricity Generating Company (KenGen), established in 1997 under the name of Kenya Power Company, handles the generation of electricity, while the Kenya Power and Lighting Company (KPLC), which is slated for privatization, handles transmission and distribution. Shortfalls of electricity occur periodically, when drought reduces water flow. In 1997 and 2000, for example, drought prompted severe power rationing, with economically damaging 12-hour blackouts. Frequent outages, as well as high cost, remain serious obstacles to economic activity. Tax and other concessions are planned to encourage investment in hydroelectricity and in geothermal energy, in which Kenya is a pioneer. The government plans to open two new power stations in 2008, Sondu Miriu (hydroelectric) and Olkaria IV (geothermal), but power demand growth is strong, and demand is still expected to outpace supply during periods of drought.^[2]

Kenya has yet to find hydrocarbon reserves on its territory, despite several decades of intermittent exploration. Although Australia continues the search off Kenya’s shore, Kenya currently imports all crude petroleum requirements. Petroleum accounts for 20 to 25 percent of the national import bill. Kenya Petroleum Refineries—a 50:50 joint venture between the government and several oil majors—operates the country’s sole oil refinery in Mombasa, which currently meets 60 percent of local demand for petroleum products. In 2004 oil consumption was estimated at 55,000 barrels (8,700 m³) a day. Most of the Mombasa refinery’s production is transported via Kenya’s Mombasa–Nairobi pipeline.^[2]

Tourism

Tourists on a safari in Kenya

Kenya’s services sector, which contributes about 63 percent of GDP, is dominated by tourism. The tourism sector has exhibited steady growth in most years since independence and by the late 1980s had become the country’s principal source of foreign exchange. In the late 1990s, tourism relinquished this position to tea exports, because of a terrorism-related downturn. The downturn followed the 1998 bombing of the U.S Embassy in Nairobi and later negative travel advisories from Western governments. Tourists, the largest number from Germany and the United Kingdom, are attracted mainly to the coastal beaches and the game reserves, notably, the expansive Tsavo National Park (20,808 square kilometers) in the southeast. The government and tourist industry organizations have taken steps to address the security problem and to reverse negative publicity. Such steps include establishing a tourist police and launching marketing campaigns in key tourist origin markets. Tourism has seen a substantial revival over the past several years and is the major contributor to the pick-up in the country’s economic growth.^[2]

Tourism is now Kenya's largest foreign exchange earning sector, followed by flowers, tea, and coffee. In 2006 tourism generated US$803 million, up from US$699 million the previous year.^[2]

Financial Services

Kenya is East and Central Africa's hub for Financial services. The Nairobi Stock Exchange (NSE) is ranked 4th in Africa in terms of Market capitalization.

The Kenya banking system is supervised by the Central Bank of Kenya (CBK). As of late July 2004, the system consisted of 43 commercial banks (down from 48 in 2001), several non-bank financial institutions, including mortgage companies, four savings and loan associations, and several score foreign-exchange bureaus. Two of the four largest banks, the Kenya Commercial Bank (KCB) and the National Bank of Kenya (NBK), are partially government-owned, and the other two are majority foreign-owned (Barclays Bank and Standard Chartered). Most of the many smaller banks are family-owned and -operated.^[2]

Labor

In 2006 Kenya’s labor force was estimated to include about 12 million workers, almost 75 percent in agriculture. The number employed outside small-scale agriculture and pastoralism was about 6 million. In 2004 about 15 percent of the labor force was officially classified as unemployed. Other estimates place Kenya’s unemployment much higher, even up to 40 percent.^[2]

Currency, exchange rate, and inflation

The exchange rate of the Kenya shilling between 2003 and 2010 has averaged at about KSh74-78 to US$1.

As at April 2010 Kenya's inflation rate is 3.65%.

Government budget

In 2006 Kenya’s revenues totaled US$4.448 billion, while its estimated expenditures totaled US$5.377 billion. Government budget balance as a percentage of gross domestic product⎯a low –5.5 percent in 2004⎯had improved to –2.1 percent in 2006.^[2]

Foreign economic relations

Since independence, Kenya, a nonaligned country, has seen both substantial foreign investment and significant amounts of development aid, some from Russia, some from China and others from the West. Between 60 and 70 percent of industry is still owned from abroad.^{[citation needed]} Kenya's development assistance has come from increasingly diverse sources in recent years with China taking a increasingly higher prominent role than the west. The share of funding provided by the United Kingdom has fallen significantly, while that of multilateral agencies, particularly the World Bank and the European Development Fund, has increased. The most active investors currently are the Chinese.

Kenya is active within regional trade blocs such as the Common Market for Eastern and Southern Africa East African Community (EAC), a partnership of Kenya, Uganda, and Tanzania. The aim of the EAC is to create a common market of the three states modeled on the European Union.^[2] Among the early steps toward integration is the customs union which has eliminated duties on goods and non-tariff trade barriers among the members. (COMESA) and the

Kenyan exports in 2006

Kenya’s chief exports are horticultural products and tea. In 2005 the combined value of these commodities was US$1,150 million, about 10 times the value of Kenya’s third most valuable export, coffee. Kenya’s other significant exports are petroleum products, sold to near neighbors, fish, cement, pyrethrum, and sisal. The leading imports are crude petroleum, chemicals, manufactured goods, machinery, and transportation equipment. Africa is Kenya's largest export market, followed by the European Union. The major destinations for exports are the United Kingdom (UK), Tanzania, Uganda, and the Netherlands. Major suppliers are the UK, United Arab Emirates, Japan, and India. Kenya’s main exports to the United States are garments traded under the terms of the African Growth and Opportunity Act (AGOA). Despite AGOA, Kenya’s apparel industry is struggling to hold its ground against Asian competition and runs a trade deficit with the United States.^[2]

Kenya typically has a substantial trade deficit. The trade balance fluctuates widely because Kenya’s main exports are primary commodities subject to the effects of both world prices and weather. In 2005 Kenya’s income from exports was about US$3.2 billion. The payment for imports was about US$5.7 billion, yielding a trade deficit of about US$2.5 billion.^[2]

In 2006 Kenya had a current account deficit of US$1.5 billion. This figure was a significant increase over 2005, when the current account had a deficit of US$495 million. In 2006 the current account balance as a percentage of gross domestic product was –4.2.^[2]

In 2006 Kenya’s external debt totaled US$6.7 billion. The debt is forecast to be a manageable 30 percent of gross domestic product in 2007.^[2]

Kenyan policies on foreign investment generally have been favorable since independence, with occasional tightening of restrictions to promote the Africanization of enterprises. Foreign investors have been guaranteed ownership and the right to remit dividends, royalties, and capital. In the 1970s, the government disallowed foreign investment unless there was also some government participation in the ownership of an enterprise. Notwithstanding some restrictions, between 60 and 70 percent of industry is still owned from abroad, a significant portion of which can be traced to fraudulent asset transfers by the colonial Britain during transition to independence. This denied Kenyans the opportunity to progress economically - relegating most of them to poverty and creating conditions that would lead to dependency on foreign aid.^[2]

Criticism and Challenges

The economy’s heavy dependence on rain-fed agriculture and the tourism sector leaves it vulnerable to cycles of boom and bust. The agricultural sector employs nearly 75 percent of the country’s 38 million people. Half of the sector’s output remains subsistence production.^[2]

Kenya’s economic performance has been hampered by numerous interacting factors: heavy dependence on a few agricultural exports that are vulnerable to world price fluctuations, population growth that has outstripped economic growth, prolonged drought that has necessitated power rationing, deteriorating infrastructure, and extreme disparities of wealth that have limited the opportunities of most to develop their skills and knowledge. Poor governance and corruption also have had a negative impact on growth, making it expensive to do business in Kenya. According to Transparency International, Kenya ranks among the world’s half-dozen most corrupt countries. Bribery and fraud cost Kenya as much as US$1 billion a year. Kenyans, 23 percent living on less than US$1 per day, pay some 16 bribes a month—two in every three encounters with public officials. Another large drag on Kenya’s economy is the burden of human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS).^[2] Prospects significantly improved under the Kibaki government, whose policy aims include budgetary reforms and debt restraint.

Kenya's economic policies have been subjected to criticism by western donors - especially when the policies do not ultimately benefit the West. There is debate as to the validity of, and motivations behind, such criticism.

Despite early disillusionment of western donors with the government, the economy has seen a broad-based expansion, led by strong performance in tourism and telecommunications, and acceptable post-drought results in agriculture, especially the vital tea sector.^[2] Kenya's economy grew by more than 7% in 2007 and its foreign debt was greatly reduced.^[2] Western donors are now adopting a less peternalistic attitude towards their relations with African nations. However there is still significant improvement to be done.

"Kenya is too poor for public servants to earn more than leader of the world’s fourth largest economy."

Britain is the fourth largest economy in the world. It had an annual GDP per capita in 2005 of $30,900 in purchasing power parity (PPP) terms. Kenya is one of the poorest countries on earth. In the same year, it had an annual GDP per capita of $1,200 in PPP terms. Britain pays its Prime Minister Sh22 million per year. Kenya pays the Director of the Kenya Anti-Corruption Commission (Kacc) Sh30 million per year. And we pay our President Sh24 million per year. Kenyan ministers, their assistants and MPs, are among the highest paid anywhere in the world.
All this is happening even as we beg for money from other nations and our people die from hunger, HIV/Aids and widespread poverty. The people who really deserve pay rises, such as teachers, doctors, nurses and civil servants, get token increases after years of pleading. If there is another definition of lunacy, I would be happy to know it.
These public officials also have some of the best pension, medical, insurance and car packages on the globe. As if that is not enough, these people hardly pay any taxes, yet we have foolishly vested in them the power to determine our taxes, set their own salaries and manage state affairs.
If you want to know the devil in this scheme of things, look no further than the behaviour of MPs when a pay rise is in the air. Suddenly, the virulent enmity between ODM, NAK, Ford Kenya disappears and ardent adversaries become comrades in a heinous conspiracy.
The American revolution was partly sparked by the Boston tea party where merchants and the general public protested ‘taxation without representation’. Now since Kenyan MPs have proven that they are more interested in their own welfare that general good, I put it to them that they can no longer credibly claim to represent us.
They therefore should not be setting our taxes and drawing salaries from State coffers. The whole lot has lost credibility.
Perhaps we would not be so angry if the high pay to these public officials was matched by performance. I am afraid that the performance of these people is wanting, to say the least. If Justice Ringera succeeded in getting corrupt ministers into court as the country expects of him, perhaps he would deserve half his salary.
But the man is adept at catching only the small fish despite mounting evidence that ministers are engaged in graft. The Auditor General’s and parliamentary reports have enough information for even a rookie lawyer to get these people convicted. Perhaps we do not need the Kacc. We could simply rely on the theft laws to convict corrupt officials without the unhelpful presence of Kacc.
How about the ministers and MPs? What have they done to deserve such exalted positions and pay? And what have we done to deserve the burden of these 222 men and women? Parliament is ever lacking in quorum and ministers routinely skip question sessions.
When they do appear, they give half-baked answers to half-cooked questions. We only see them in full swing when they are flying around the country and driving the latest car models at our expense on missions merely designed to keep them in power.
I can bet there is no man or woman in this Parliament who honestly fights for the poor majority of Kenya. If there was any, s/he would have come out by now and refused to take the hefty salary or donated most of it to a worthy cause.
Kenyans must simply reject and reverse these hefty pay packages as soon as possible before the country is further bankrupted by these gluttons.
Let us do everything within our legal powers to stop this madness. We could hold protests as allowed under the law and ask individual MPs to sign a declaration rejecting the latest pay rise and accepting a reduction in their salaries and packages.
We must demand that henceforth, an independent body with representatives of ordinary citizens, organised civil society, religious bodies and the private sector, determines the salaries of the president, ministers, MPs and all senior public officials.
And all these officials must pay tax on all remuneration (salary and benefits) like the rest of us. If they refuse to pay taxes on the entire remuneration, then all of us should also not pay tax. Let us petition the President to support all these moves.
Donors should not agree to give any money to the Kenyan Government until these pay packages are reviewed downwards. And in the forthcoming elections, let us vote out all elected officials who refuse to support these changes.

kenyan politicians not considering the common kenyan citizen but their own interest

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Kenya's Politicians Look to Withdraw from ICC as Suspects Named

Michael Onyiego | Nairobi 16 December 2010

Photo: AP

Francis Muthaura, one of the accused, speaks to journalists in Nairobi, Kenya, 15 Dec 2010

The Kenyan parliament is considering a motion that would remove the country from the Rome Statute and end its obligations to the International Criminal Court.
There is a wave of discontent rising within the Kenyan legislature against Prosecutor Luis Moreno-Ocampo and the International Criminal Court.

A day after the announcement that six-prominent Kenyans are marked to face charges at The Hague, Kenya's Parliament discussed a motion that would see it withdraw its signature from the Rome Statute and disavow the authority of the international court.

The motion was put forward by Isaac Ruto, a member of Kenya's Orange Democratic Movement Party, who is seen as a close ally of suspended Higher Education Minister William Ruto, one of the suspects named by the prosecutor.

Isaac Ruto told VOA the motion had significant support in the parliament, and a member of Speaker Kenneth Marende's staff said he thought the vote could go either way.

The "Hague Six", as the suspects are being called, include three members of ODM and three members of PNU, Kenya's two leading political parties. That fact has led many politicians, including Cabinet Minister Njeru Githae to dismiss the prosecutor's cases as politically motivated. "We think Ocampo has politicized this issue. We think there is a game here being played, where some candidates are being knocked off to give room for other candidates in 2012," Githae said.

According to Article 127 of the Rome Statute a country must wait at least one-year after submitting a written request to the Secretary General of the United Nations, before leaving the court.

Proponents of withdrawal from the ICC are framing the matter as an issue of sovereignty. There has been a recent push in Kenya to establish an independent court to try the 2008 chaos suspects, and many feel a local trial would be better for the country.

Kenya tried in 2009 to establish a Truth, Justice and Reconciliation Commission to delve into the violence, but controversy surrounding the body's chairman crippled the commission, and indefinitely stalled its work.

Some within parliament believe the push for local trials is simply aimed at dodging indictment. MP Martha Karua reminded the house of the strong support for the ICC investigation with the passage of the International Crimes Act in 2008. She warned opponents, to some laughter, that they would not be able to withdraw from Kenya's legal system if indicted locally.

The motion has been delayed on procedural grounds. There is disagreement regarding whether a motion can legally repeal an international treaty.

Justice Minister Mutula Kilonzo called the motion unconstitutional. Under Kenya's new constitution, any international treaty signed previously becomes part of Kenyan Law. Some in Parliament believe it would take an amendment to the constitution withdraw from the ICC.

economic vision

America has crossed the threshold into the 21st century as the most prosperous and powerful nation on the planet. Gazing toward the vast frontier of the global economy, we see a rapidly changing landscape shaped by forces beyond the control of any individual or nation. Space Age technology, global finance, global markets and transnational corporations are impelling us toward an uncertain future.

We as a nation have benefited from modern technology. It has contributed to our economic success in the world. It has lengthened our life spans and shrunk to fractions of a second the transmission of a message or billions of dollars across the planet. The global economy has brought the American consumer a year-round cornucopia of goods from every corner of the world. Competitive forces continue to drive down the price of personal computers, video recorders, and cellular phone systems, putting unimaginably powerful tools of information and communication in the hands of the average citizen. Choice abounds.

But Americans have also seen harbingers of troubles to come: the disappearance of entire sectors of labor as robots, artificial intelligence, and advanced office machines enter the work place. Globalization has encouraged the flight of jobs and capital to lower-wage regions of the world. Blue-collar workers and middle management alike have become targets for corporate downsizing. Today, six Ph.D. computer scientists from India can be hired over the Internet for the price of a comparable American. Thousands of jobs have been lost to a computer chip. Even in the midst of our prosperity most of us feel powerless to control our own futures or unable to find meaning in our current condition.

There is an economic fault line running throughout America and the world which today’s economic gurus seem unable to explain or remedy: the widening wealth and income gap between a tiny rich elite and multitudes of poor in every country (including the United States), and between developed and developing nations. Surrounded by global communications, the global economy, and our global environment, we cannot help but feel the tremors inside and outside our borders. With the growing economic imbalances come bloody conflicts, widespread starvation, international crime and corruption, depletion of the planet’s non-replenishable resources, unconscionable destruction of the environment and systematic suppression of human potential and life-enhancing technology.

Seeing through the chaos of our rapidly changing world, one post-scarcity visionary of the 20th Century, lawyer-economist Louis Kelso, understood the power of technology either to liberate or dehumanize people. Popularly known as the inventor of the employee stock ownership plan (ESOP), Kelso observed that modern capital tools and their phenomenal power to "do more with less" have offered people an escape from scarcity to shared abundance.

As a lawyer Kelso also saw that the design of our "invisible" institutional environment and social tools determines the quality of people’s relationship to technology. Intangibles, such as our laws and financial systems, determine which people will be included or excluded from sharing of access to equal economic opportunity, power and capital incomes.

Access to capital ownership, asserted Kelso, is as fundamental a human right as the right to the fruits of one’s labor. Furthermore, Kelso argued, the democratization of capital credit is the "social key" to universalizing access to future ownership of productive wealth, so that every person, as an owner, could eventually gain income independence through the profits from one’s capital.

Kelso’s Economics of Ownership and Justice

At the heart of what Kelso called "binary economics" is a simple but revolutionary proposition. Kelso stated that people could legitimately create economic value through two (thus binary) factors of production:

Labor (which Kelso defined as all forms of economic work by people, including manual, intellectual, creative, and entrepreneurial work, and so-called "human capital"), and
Capital (defined by Kelso as anything non-human contributing the production of marketable goods and services, including tools, machines, land, structures, system improvements, and patents).

Capital, in Kelsonian terms, does not merely "enhance" labor’s ability to produce economic goods. (It wasn’t Bill Gates’ labor that accounted for the increase in his wealth in one year’s time from $50 billion to $90 billion; his capital would have kept producing even if Bill Gates were in a coma.) According to Kelso, capital (increasingly the source of economic growth) should increasingly become the source of added property incomes for every person.

Kelso based his ideal market system on the three basic principles of economic justice:

Participation, the input principle. If both labor and capital are responsible for production, then equality of opportunity demands that the right to property (and access to the means of acquiring and possessing property) must, in justice, be extended to all.
Distribution, the out-take principle. Property rights require that income be distributed based on what one contributes to production—one’s labor, one’s capital, or both. Assuming that capital ownership is spread broadly, the free and open market under Kelso’s system becomes the most democratic and efficient means for determining just prices, just wages and just profits. If both sales revenues and all labor costs are set by globally competitive market forces, then profits (the revenues left over after all labor costs are subtracted) represent a market-based return to capital.
Limitation, the feedback principle (which some Kelsonians call the principle of "Harmony" or "Social Justice"). This principle restores balance between "participation" (input) and "distribution" (out-take) and puts limits on monopolistic accumulations of capital and other abuses of property.

Kelsonian Macroeconomic Reforms

Democratized access to money, capital credit and credit insurance would become instruments of inclusion, not exclusion, and the means for "procreative" financing of whatever capital the economy needs to move toward prosperous lives for all members of society. Kelso’s monetary, tax and other "Capital Homesteading" reforms would allow us to finance sustainable growth through techniques that offer more universal access to future ownership. (See "The Federal Reserve Discount Window," Journal of Employee Ownership Law and Finance, Winter 1998, and "A New Look at Prices and Money: The Kelsonian Binary Model for Achieving Rapid Growth Without Inflation," The Journal of Socio-Economics, Volume 30, 2001, authored by Norman G. Kurland.)

Kelsonian Microeconomic Reforms

Justice-Based Management (JBM) [originally termed "Value-Based Management" or "VBM"] is a Kelsonian system for building and sustaining an ownership culture within the enterprise. Applying principles of economic justice, the philosophy of servant leadership and Kelsonian financing techniques, JBM was conceived as the new management system for the 21st century.

JBM systematically anchors capital and builds ownership into successive generations of employees. JBM also re-orients the operational and governance systems of today’s enterprises from the present top-down, risk-averse and conflict-prone patterns of the wage system, to a system of participatory ownership where risk, rewards and responsibilities are shared among many co-owners. JBM would enable all workers to become reconciled with the realities of global competition. With their labor incomes supplemented by capital incomes, workers could shift a growing portion of their incomes from automatic fixed wage increases (which also increase cost pressures on their company) to more equitable sharing of bottom-line profits.

The role of the labor unions will also evolve as unions move from the economics of conflict to the economics of co-ownership. Unions will regain their original role as a democratic society’s most important institution for advancing economic justice by organizing all non-owners, not just workers, to help get them their fair share of the growing capital pie.

A Capital Homestead Act for America

How can we realize Louis Kelso’s vision for America and the rest of the world? A 21st century counterpart to Abraham Lincoln’s Homestead Act (which was limited to a finite land frontier) would provide every citizen and family with access to future capital and profits in a frontier without boundaries. The Capital Homestead Act is a comprehensive legislative program of Kelsonian tax, monetary, and fiscal reforms to make every citizen a stakeholder in the unlimited technological frontier. (See Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security, by Norman G. Kurland, Dawn K. Brohawn, and Michael D. Greaney, published by Economic Justice Media, 2004; available as a free PDF document from www.cesj.org.)

Facilitated by capital credit and loan default insurance available under "Capital Homesteading" reforms, each citizen will begin to accumulate dividend-yielding shares in (1) the company he works for through an ESOP, (2) the companies he regularly buys from through consumer stock ownership plans (CSOP), (3) a community investment corporation (CIC) to link him to the profits from local land planning and development, and (4) a diversified portfolio of blue-chip growth and other companies he invests in through a Capital Homestead Account (CHA).

A Glimpse of the Future

Envisioning a Kelsonian future where every American has a viable capital ownership stake in a growing economy, we predict:

America’s moral leadership will be restored as we set an example for the rest of the world on how to achieve genuine economic democracy and justice for all.
Wealth, economic power and income gaps between the rich and poor will shrink, without present owners being deprived of their property rights.
Sharing profits and control of technology, all people will become empowered, not victimized, by technological change.
Market gluts and "overproduction" will be eliminated, as overall supply is matched by the simultaneous creation of mass purchasing power.
Enthusiastic and productive worker-owners will produce goods and services of the highest quality at lower cost within corporations operating with more democratic accountability, efficiency and equity.
Politicians will become more accountable to more economically empowered and independent citizens, who will be less dependent economically on government welfare, subsidies and income redistribution.
Personal, family and community life will strengthen as more people gain greater control over their economic destinies.
The environment will become healthier as "Capital Homesteading" enables Americans to fund green technologies and non-polluting, "hydrogen age" energy sources that in the past lacked financing for their commercialization.
The quality of education and work will radically improve, as technology reduces the need for economic toil, and as more people gain the time and means to engage in lifetime learning and non-paid "leisure work," enabling them to work creatively for their personal, as well as the common, good and the advance of civilization.
A flourishing and peaceful world society will be built upon the decentralization of economic power, and, as in the first American Revolution, the power of government will again subordinate itself to the sovereignty of each human person.

In the 20th century, many lived lives of quiet desperation, struggling from paycheck-to-paycheck, or from hand-to-mouth, with no ownership stake in society’s wealth-producing assets. Most 20th century Americans were limited to a choice between the wage-systems of capitalism and the wage-systems of socialism. Many lost hope that they and their descendants would ever share in the American Dream.

Just as Lincoln provided opportunities for propertyless people in 19th century America to gain a piece of the world’s shrinking land frontier, 21st century Americans will gain their ownership share in the limitless technological growth frontier. In the 21st century, Americans will be given a new choice, a "just third way" opened up by Louis Kelso, an alternative model of development that transcends both Wall Street capitalism and all forms of socialism. Choosing this road will lead America back to its revolutionary roots to a more participatory, unified and empowering "Second American Revolution" and a more just, free and efficient market economy. America will then again serve as "the last best hope of mankind."

ECONOMY OF AFRICA

Africa’s economy: Aid and growth

OECD Observer

The recent history of the world’s second largest continent has been plagued by internal conflict, famine and disease. But recent economic prospects for Africa are looking more favourable than they have for a number of years.

Although 2004 was a tough year for Africa, with the humanitarian crisis in the Darfur region of Sudan, strife in Zimbabwe and conflict in Côte d’Ivoire, the continent nonetheless managed to post a 5% increase in economic activity. The rise represents an eight year high for growth across Africa. A closer look suggests this might not be just a one-off.
The latest African Economic Outlook from the OECD Development Centre, which looks at prospects for 29 countries, accounting for some 90% of output, points to a number of factors to explain the region’s strong performance. Higher prices for oil and metals played a significant part, while a notable increase in official development aid as well as improved economic stability also helped. This is hardly just luck.
Take inflation, which reached historical lows of 7.9% in 2004, despite higher oil prices. Generally better weather conditions were a boon on the supply side, but there are other reasons. The CFA countries (Communauté Financière Africaine)–a dozen or so Francophone countries from Chad to Gabon whose franc is pegged to the euro–profited from low inflation worldwide and a cushion against higher dollar-denominated commodity prices.
Those with floating exchange rates also managed well, reaping the benefits of generally prudent monetary policies and the weaker dollar, the new report says. Even in southern Africa, where inflation stayed in double figures, price rises still slowed to around 11% from 16% a year earlier, though Zimbabwe and Angola remained above 20%.
So, where is the growth coming from? For the second year in a row, activity was particularly strong in oil-producing countries, as new oil fields came on stream in Angola, Chad and Equatorial Guinea. Metal prices have also soared. Agricultural production has picked up after the drought that affected some eastern, central and southern African countries in 2003, and the locust infestation that afflicted west and north African countries in 2004 has been contained.
Central Africa led the way in growth terms with an estimated real GDP increase of 14.4% in 2004, though this should slow to trend levels of about 4-6% in 2005-2006. Equatorial Guinea and Congo profited from higher oil prices and increased production capacity.
East Africa recorded the second highest real GDP growth. After struggling with devastating crop failure in 2003, Ethiopia returned to growth in 2004. Activity in this region is forecast to remain robust in the coming two years, although Mauritius and Madagascar will face strong competition in the textile sector from China with the end of the Multi-Fibre Accord, the report says.
North Africa is expected to continue strong in 2005-2006, led by Egypt, though oil-producing Algeria is facing capacity problems.
Despite the general rise in economic activity, West Africa recorded a sharp slowdown in growth last year. Although prospects are more robust for 2005 and 2006, there are risks. The area remains plagued by the continued political turmoil in Côte d’Ivoire, one of the region’s key economies. Nigeria, Africa’s most populous country and largest oil producer, saw growth slow to 3.7% as capacity constraints and labour unrest took their toll.
Southern Africa is another region affected by turmoil, with Zimbabwe in crisis, but growth has been robust, thanks to high prices for South African and Angolan commodities. Oil is not the only source of this increased activity; metal prices jumped 16% in 2004, buoyed by strong demand in China for everything from Zambian copper to gold from South Africa, the world’s leading producer.
The general rise in global commodity prices has had a positive impact on the trade balances of many African countries, although oil prices have hurt importers. Exporters of oil and metal ore have been the real winners. For most other countries, gains from higher-priced commodity exports have been roughly equivalent to losses from more expensive oil. Prices of some commodities have fallen though, such as cocoa in 2003-2004 and cotton in 2004, affecting the trade balances of west African countries like Mali and Benin. This volatility is a reminder of Africa’s dependency on the commodity markets, which can threaten even oil and metal producers.
The African Economic Outlook is quite upbeat about overall growth prospects, posting a solid average of around 5% for 2005-2006. The forecast relies on a buoyant global economy though, as well as fewer regional conflicts and good weather conditions. None of these can be assured of course, but as the report suggests, struggling to gain market access makes matters worse.
The report urges sharper reductions in harmful agricultural subsidies from importers, and the elimination of trade barriers that squeeze African goods out of global markets. It calls for real progress in talks on trade for development, in particular the Doha round, and the accompanying need for policies that will make it easier for the continent to cope with swings in commodity prices and the challenges posed by globalisation. Development aid is one of those policies.

Aid ache

The fact is, despite recent good growth, Africa remains a desperately poor continent. Poverty and disease are widespread, and sub-Saharan Africa has the world’s highest illiteracy. Conflict is also a threat.
Incomes remain terribly low–even in South Africa, GDP per head in current exchange rates is less than $4,000 a year. In many other countries, incomes are not only far lower or negligible, but have fallen back in real terms. Assessing progress by looking at income per head is misleading in Africa, the African Economic Outlook warns. To halve the monetary poverty in Zimbabwe means to reduce poverty from 36% of the population in 1990 to 18% in 2015, but in Morocco from 2% to 1%.
There is a growing sense that barring great effort, the Millennium Development Goals will simply not be reached by 2015. Progress means tackling the basics, like hunger, which affected some 28% of the population in 2000-2002, and combating diseases like AIDS, tuberculosis and malaria. Solving these requires finance.
The recent international commitment to raise more aid will be a boon, but as the African Economic Outlook points out, global aid levels have already increased in recent years and Africa has been the main beneficiary. The launch of NEPAD (the New Partnership for African Development) and debt relief initiatives for poor countries have all helped (see references). According to the OECD’s Development Assistance Committee, total official development aid rose by 7% in real terms in 2002, and a further 5% in 2003 to its highest level ever (in nominal and real terms) at US$69 billion. On the other hand, this is only catching up, for while aid per capita for Africa has increased since 2000, it has fallen since 1990.
Based on donors’ commitments, substantial growth in official development aid is expected to continue until at least 2006. However, the only countries meeting the longstanding UN target of 0.7% of gross national income are Denmark, Luxembourg, the Netherlands, Norway and Sweden. Ireland aims to reach it by 2007, Finland by 2010, and France in 2012. If these commitments are met, aid will reach US$100 billion by 2010.
With the 2015 deadline to reach the goals, pressure is building to find new effective ways to finance development. Some innovative proposals have been floated, from taxes on speculative international capital flows–the so-called Tobin tax–through taxes on weapons dealing to the UK government’s suggestion to set up an International Finance Facility, a bond issue that proponents think could boost aid to as much as $100 billion per year in 2010-2015. All of these proposals are outlined in the African Economic Outlook and in previous editions of this magazine (see references). Apart from questions about their feasibility, they all suffer from a basic problem: finding agreement in good time.
The bottom line in all these approaches is that African growth notwithstanding, reliable and effective aid is essential for African countries, to help deal with basics as well as commit to long-term development plans.
This raises one of the thorniest issues of all: can African institutions handle the aid and will it get through to the people that need it most? Politically, there are some encouraging signs, according to the African Economic Outlook. Despite black spots like Zimbabwe, democracy is flourishing, with more political parties and freer elections. South Africa, Namibia, Uganda and a few others also stand out for the independence and integrity of their judiciaries. Elsewhere, there are worrying signs with recent declines in the quality of policing, the judiciary and the prison system. Citizen influence and rights need to be greatly improved, the report warns.
Meanwhile, the capacity of institutions to deal with aid is a problem, particularly as corruption, “the bane” of Africa, has increased since 2000. Improving governance will be a challenge for all international initiatives focusing on Africa, whether those led by the UN, the G8 or the UK’s Commission for Africa (see next article).
As for the business environment, there are several challenges, though a key one is how to fill in what the African Economic Outlook calls the “missing middle”, between large global firms and the informal sector. SMEs are starting to grow in some countries, but there is a lot more work to do on this front.
In sum, assuming the economies of Africa can continue to grow, how can the connections be made so that a virtuous circle of change might finally be triggered? Without pressure to improve institutions, to invest aid to meet the MDGs, and encouraging more small business activity, then recent growth, however positive, may end up being for nought. Rory J. Clarke
Africa's prospects
Average economic growth rates of African regions, %

Region	1996-2000	2003	2004(e)	2005(p)	2006(p)
Central Africa	3.9	5.0	14.4	4.1	5.5
East Africa	4.1	2.3	6.8	5.2	5.1
North Africa	4.3	5.1	4.6	4.8	5.2
Southern Africa	3.1	2.6	4.0	4.6	5.2
West Africa	3.6	7.0	3.4	4.9	4.8
Total	3.8	4.4	5.1	4.7	5.2

Note : Due to lack of data, these aggregates do not include Liberia and Somalia.