Tuesday, January 25, 2011

Inequality

APART from being famous and influential, Hu Jintao, David Cameron, Warren Buffett and Dominique Strauss-Kahn do not obviously have a lot in common. So it tells you something about the breadth of global concerns about inequality that China’s president, Britain’s prime minister, America’s second-richest man and the head of the International Monetary Fund have all worried, loudly and publicly, about the dangers of a rising gap between the rich and the rest.
Mr Hu puts the reduction of income disparities, particularly between China’s urban elites and its rural poor, at the centre of his pledge to create a “harmonious society”. Mr Cameron has said that more unequal societies do worse “according to almost every quality-of-life indicator”. Mr Buffett has become a crusader for a higher inheritance tax, arguing that America risks an entrenched plutocracy without it. And Mr Strauss-Kahn argues for a new global growth model, claiming that gaping income gaps threaten social and economic stability. Many others seem to share their concerns. A new survey by the World Economic Forum, whose annual gathering of bigwigs in Davos begins on January 26th, says its members see widening economic disparities as one of the two main global risks over the next decade (alongside failings in global governance).


The debate about inequality is an old one. But in the wake of a financial crisis that is widely blamed on Wall Street fat cats, from which the richest have rebounded fastest, and ahead of public-spending cuts that will hit the poor hardest, its tone has changed. For much of the past two decades the prevailing view among the world’s policy elite—call it the Davos consensus—was that inequality itself was less important than ensuring that those at the bottom were becoming better-off. Tony Blair, a Labour predecessor of Mr Cameron’s, embodied that attitude. His New Labour party was famously said to be “intensely relaxed” about the millions earned by David Beckham (a footballer) provided that child poverty fell.
Now the focus is on inequality itself, and its supposedly pernicious consequences. One strand of argument, epitomised by “The Spirit Level”, a book that caused a stir in Britain, suggests that countries with greater disparities of income fare worse on all manner of social indicators, from higher murder rates to lower life expectancy. A second thread revisits the macroeconomic consequences of income disparities. Several prominent economists now reckon that inequality was a root cause of the financial crisis: politicians tried to counter the growing gap between rich and poor by encouraging poorer folk to take on more credit (see article). A third argument is that inequality perverts politics, with Wall Street’s influence in Washington often cited as exhibit A of the unhealthy clout of a plutocratic elite.
If these arguments are right, there might be a case for some fairly radical responses, especially a greater focus on redistribution. In fact, much of the recent hand-wringing about widening inequality is based on sloppy thinking. The old Davos consensus of boosting growth and combating poverty is still a better guide to good policy. Rather than a sweeping assault on inequality itself, policymakers would do better to take on the market distortions that often lie behind the most galling income gaps, and which also impede economic growth.
Begin with the facts about inequality. Globally, the gap between the rich and the poor has actually been narrowing, as poorer countries are growing faster. Nor is there a monolithic trend within countries (see article). In Latin America, long home to the world’s most unequal societies, many countries—including the biggest, Brazil—have become a bit more equal, as governments have boosted the incomes of the poor with fast growth and an overhaul of public spending to improve the social safety-net (but not by raising tax rates for the rich).
The gap between rich and poor has risen in other emerging economies (notably China and India) as well as in many rich countries (especially America, but also in places with a reputation for being more egalitarian, such as Germany). But the reasons for this differ. In China inequality has a lot to do with the hukou system of residency permits, which limits internal migration to the towns; by some measures inequality has peaked as rural labour becomes more scarce. In America income inequality began to widen in the 1980s largely because the poor fell behind those in the middle. More recently, the shift has been overwhelmingly due to a rise in the share of income going to the very top—the highest 1% of earners and above—particularly those working in the financial sector. Many Americans are seeing their living standards stagnate, but the gap between most of them has not changed all that much.
The links between inequality and the ills attributed to it are often weak. For instance, some of the findings in “The Spirit Level” were distorted by outliers: strip out America’s high murder rate (which many would blame on guns, not inequality) or Japan’s longevity (diet, not equality), and flatter societies no longer look so much healthier. As for the mooted link to the financial crisis, the timing is dodgy: America’s poor fell behind in the 1980s, the credit bubble took off two decades later.
Message to Davos
These nuances suggest that rather than fretting about inequality itself, policymakers need to differentiate between its causes and focus on ways to increase social mobility. A global market offers far bigger returns to those at the top of their game, be they authors, lawyers or fund managers. Modern technology favours the skilled. These economic changes are themselves often reinforced by social ones: educated men now tend to marry educated women. The result of all this, as our special report this week shows, is the rise of a global elite.
At heart, this is a meritocratic process; but not always. Rules and institutions are often rigged in ways that limit competition and favour insiders at the expense both of growth and equality. The rules can be blatantly unfair: witness China’s limits to migration, which keep the poor in the countryside. Or they can involve more subtle distortions: look at the way that powerful teachers’ unions have stopped poorer Americans getting a good education, or the implicit “too big to fail” system that encouraged bankers to be reckless and left the rest with the tab. These are very different problems, but they all lead to wider inequality, fewer rungs in the ladder and lower growth.
Viewed from this perspective, the right way to combat inequality and increase mobility is clear. First, governments need to keep their focus on pushing up the bottom and middle rather than dragging down the top: investing in (and removing barriers to) education, abolishing rules that prevent the able from getting ahead and refocusing government spending on those that need it most. Oddly, the urgency of these kinds of reform is greatest in rich countries, where prospects for the less-skilled are stagnant or falling. Second, governments should get rid of rigged rules and subsidies that favour specific industries or insiders. Forcing banks to hold more capital and pay for their implicit government safety-net is the best way to slim Wall Street’s chubbier felines. In the emerging world there should be a far more vigorous assault on monopolies and a renewed commitment to reducing global trade barriers—for nothing boosts competition and loosens social barriers better than freer commerce.
Such reforms would not narrow all income disparities: in a freer world skill and intellect would still be rewarded, in some cases magnificently well. But the reforms would strike at the most pernicious, unfair sorts of income disparity and allow more people to move upwards. They would also boost growth and leave the world economy more stable. If the Davos elites are worried about the gap between the rich and the rest, this is the route they should follow.

The emerging world, long a source of cheap labour, now rivals the rich countries for business innovation


IN 1980 American car executives were so shaken to find that Japan had replaced the United States as the world’s leading carmaker that they began to visit Japan to find out what was going on. How could the Japanese beat the Americans on both price and reliability? And how did they manage to produce new models so quickly? The visitors discovered that the answer was not industrial policy or state subsidies, as they had expected, but business innovation. The Japanese had invented a new system of making things that was quickly dubbed “lean manufacturing”.
This special report will argue that something comparable is now happening in the emerging world. Developing countries are becoming hotbeds of business innovation in much the same way as Japan did from the 1950s onwards. They are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models. All the elements of modern business, from supply-chain management to recruitment and retention, are being rejigged or reinvented in one emerging market or another.
Why are countries that were until recently associated with cheap hands now becoming leaders in innovation? The most obvious reason is that the local companies are dreaming bigger dreams. Driven by a mixture of ambition and fear—ambition to bestride the world stage and fear of even cheaper competitors in, say, Vietnam or Cambodia—they are relentlessly climbing up the value chain. Emerging-market champions have not only proved highly competitive in their own backyards, they are also going global themselves.
The United Nations World Investment Report calculates that there are now around 21,500 multinationals based in the emerging world. The best of these, such as India’s Bharat Forge in forging, China’s BYD in batteries and Brazil’s Embraer in jet aircraft, are as good as anybody in the world. The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006.
At the same time Western multinationals are investing ever bigger hopes in emerging markets. They regard them as sources of economic growth and high-quality brainpower, both of which they desperately need. Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets, with 40% coming from just two countries, China and India. They have also noted that China and to a lesser extent India have been pouring resources into education over the past couple of decades. China produces 75,000 people with higher degrees in engineering or computer science and India 60,000 every year.
The world’s biggest multinationals are becoming increasingly happy to do their research and development in emerging markets. Companies in the Fortune 500 list have 98 R&D facilities in China and 63 in India. Some have more than one. General Electric’s health-care arm has spent more than $50m in the past few years to build a vast R&D centre in India’s Bangalore, its biggest anywhere in the world. Cisco is splashing out more than $1 billion on a second global headquarters—Cisco East—in Bangalore, now nearing completion. Microsoft’s R&D centre in Beijing is its largest outside its American headquarters in Redmond. Knowledge-intensive companies such as IT specialists and consultancies have hugely stepped up the number of people they employ in developing countries. For example, a quarter of Accenture’s workforce is in India.
Both Western and emerging-country companies have also realised that they need to try harder if they are to prosper in these booming markets. It is not enough to concentrate on the Gucci and Mercedes crowd; they have to learn how to appeal to the billions of people who live outside Shanghai and Bangalore, from the rising middle classes in second-tier cities to the farmers in isolated villages. That means rethinking everything from products to distribution systems.
Anil Gupta, of the University of Maryland at College Park, points out that these markets are among the toughest in the world. Distribution systems can be hopeless. Income streams can be unpredictable. Pollution can be lung-searing. Governments can be infuriating, sometimes meddling and sometimes failing to provide basic services. Pirating can squeeze profit margins. And poverty is ubiquitous. The islands of success are surrounded by a sea of problems, which have defeated some doughty companies. Yahoo! and eBay retreated from China, and Google too has recently backed out from there and moved to Hong Kong. Black & Decker, America’s biggest toolmaker, is almost invisible in India and China, the world’s two biggest construction sites.
But the opportunities are equally extraordinary. The potential market is huge: populations are already much bigger than in the developed world and growing much faster (see chart 1), and in both China and India hundreds of millions of people will enter the middle class in the coming decades. The economies are set to grow faster too (see chart 2). Few companies suffer from the costly “legacy systems” that are common in the West. Brainpower is relatively cheap and abundant: in China over 5m people graduate every year and in India about 3m, respectively four times and three times the numbers a decade ago.
This combination of challenges and opportunities is producing a fizzing cocktail of creativity. Because so many consumers are poor, companies have to go for volume. But because piracy is so commonplace, they also have to keep upgrading their products. Again the similarities with Japan in the 1980s are striking. Toyota and Honda took to “just-in-time” inventories and quality management because land and raw materials were expensive. In the same way emerging-market companies are turning problems into advantages.
Until now it had been widely assumed that globalisation was driven by the West and imposed on the rest. Bosses in New York, London and Paris would control the process from their glass towers, and Western consumers would reap most of the benefits. This is changing fast. Muscular emerging-market champions such as India’s ArcelorMittal in steel and Mexico’s Cemex in cement are gobbling up Western companies. Brainy ones such as Infosys and Wipro are taking over office work. And consumers in developing countries are getting richer faster than their equivalents in the West. In some cases the traditional global supply chain is even being reversed: Embraer buys many of its component parts from the West and does the assembly work in Brazil.
Old assumptions about innovation are also being challenged. People in the West like to believe that their companies cook up new ideas in their laboratories at home and then export them to the developing world, which makes it easier to accept job losses in manufacturing. But this is proving less true by the day. Western companies are embracing “polycentric innovation” as they spread their R&D centres around the world. And non-Western companies are becoming powerhouses of innovation in everything from telecoms to computers.


Rethinking innovation

The very nature of innovation is having to be rethought. Most people in the West equate it with technological breakthroughs, embodied in revolutionary new products that are taken up by the elites and eventually trickle down to the masses. But many of the most important innovations consist of incremental improvements to products and processes aimed at the middle or the bottom of the income pyramid: look at Wal-Mart’s exemplary supply system or Dell’s application of just-in-time production to personal computers.
The emerging world will undoubtedly make a growing contribution to breakthrough innovations. It has already leapfrogged ahead of the West in areas such as mobile money (using mobile phones to make payments) and online games. Microsoft’s research laboratory in Beijing has produced clever programs that allow computers to recognise handwriting or turn photographs into cartoons. Huawei, a Chinese telecoms giant, has become the world’s fourth-largest patent applicant. But the most exciting innovations—and the ones this report will concentrate on—are of the Wal-Mart and Dell variety: smarter ways of designing products and organising processes to reach the billions of consumers who are just entering the global market.
No visitor to the emerging world can fail to be struck by its prevailing optimism, particularly if his starting point is the recession-racked West. The 2009 Pew Global Attitudes Project confirms this impression. Some 94% of Indians, 87% of Brazilians and 85% of Chinese say that they are satisfied with their lives. Large majorities of people in China and India say their country’s current economic situation is good (see chart 3), expect conditions to improve further and think their children will be better off than they are. This is a region that, to echo Churchill’s phrase, sees opportunities in every difficulty rather than difficulties in every opportunity.
This special report will conclude by asking what all this means for the rich world and for the balance of economic power. In the past, emerging economic leviathans have tended to embrace new management systems as they tried to consolidate their progress. America adopted Henry Ford’s production line and Alfred Sloan’s multidivisional firm and swept all before it until the 1960s. Japan invented lean production and almost destroyed the American car and electronics industries. Now the emerging markets are developing their own distinctive management ideas, and Western companies will increasingly find themselves learning from their rivals. People who used to think of the emerging world as a source of cheap labour must now recognise that it can be a source of disruptive innovation as well.

Monday, January 24, 2011

Planning for Policy Making and Implementation in Kenya: Problems and Prospects


Peter Anyang' Nyong'o
Former Minister for Planning and National Development



Introduction

The emergence of what can be referred to as the third chapter of the Kenya Government's history of economic policy planning and the challenges that it has faced in the course of implementation, date from the ascension of a new government with the historic elections of December 2002. This election ushered the National Rainbow Coalition (NARC) government into power. A great effort has since been directed at creating an enabling environment for rapid economic growth and development in keeping with the covenant that the then new government made with the people of Kenya during the electioneering period.
For the NARC government, it was evident that the starting point had to be deepening stakeholder consultations with the private sector, the civil society, and development partners as well as with a cross section of ordinary members of the Kenyan public who had assured their victory. All this began early in 2003 and culminated in the preparation of a policy document called the Economic Recovery Strategy for Wealth and Employment Creation (the ERSWEC), which became popularly known by its shorter name, the ERS. The President of Kenya, H.E. Mwai Kibaki, officially launched the ERS, on June 18th 2003. The ERS was considered a major economic policy document for the new government, meant to guide the economic planning process for the first five years of the administration. It drew ideas from the NARC Manifesto; its Post Election Action Programme (PEAP); the Poverty Reduction Strategy Paper (the PRSP) released in 2001; the various National Development Plans that had been developed over the years; and from various sectoral policy documents as well as sessional papers that have been part of the history of economic policy planning in Kenya for the past forty years.

A NATIONAL CONSULTATIVE PROCESS FOR POLICY MAKING

Economic Recovery Strategy for Wealth and Employment Creation gave birth to what now goes by the full title, Investment Programme for the Economic Recovery Strategy for Wealth and Employment Creation 2003-2007 (IP-ERS), released in May 2004. The IP-ERS is a product of further consultation, revision and refinement of the ERS, which brought in views from a variety of key stakeholders. That entire process of consultation for purposes of economic policy making needs to be written, not only to record an instructive piece of history, but also because it signals two fundamental issues. Firstly, the fundamental policy change that NARC incorporated in its mode of operation and which modern day governments cannot afford to ignore: the need for consultation and due regard to the diversity of views. These deepen our own democratic process and credentials. Secondly, it signalled the challenges involved in the process of seeking a national policy consensus.
It needs to be borne in mind that the Government of Kenya subscribed to the World Bank's Poverty Reduction and Growth Facility (PRGF) programme in the year 2000 and embarked on the preparation of a Poverty Reduction Strategy Paper (the PRSP) through wide-ranging consultations and dialogue. This was even before NARC came into the scene and was aimed at building consensus on priority actions and activities necessary for economic growth and poverty reduction.
The PRSP process itself also had a number of incarnations. The Interim Poverty Reduction Strategy Paper (IP-RSP) released in 2001, involved only limited consultations at the national level. Subsequently, consultations followed a three-tier approach at the national, provincial and district levels with stakeholders that included the Private Sector, Civil Society, Development Partners and local communities. This approach led to the formation of a National Steering Committee of stakeholders charged with the responsibility of spearheading consultations and ensuring inclusion at all levels.
The consultations were unique because they covered the thematic areas that are traditionally left out in mainstream sector working groups, but which are very important for stimulating general growth. The consultations went down to the divisions, locations and villages. Participatory Poverty Assessments (PPAs) were conducted in ten (10) sampled districts. The District PRSP reports and PPA reports, together with inputs from the Sector Working Groups (SWGs), were synthesised into the PRSP (2001-2004). This formed an important baseline for the NARC government's own set of interventions.
When the new government took office at the end of 2002, it immediately decided on the process of preparing its own 'Economic Recovery Strategy' (ERS) policy document that would focus on reviving the economy and creating employment while also taking on board any important lessons drawn from the previous history of policy making. As already mentioned, The ERS process was a consultative one involving key stakeholders such as parliamentarians, and for the first time trade unions; professionals from within and outside Kenya; financial institutions; industrialists as well as representatives from the Arid and Semi Arid Lands (ASALs). Also involved in the process were Kenya's development partners; civil society representatives and government officials. It was committed to any important lessons drawn from the PRSP history and it was an immense undertaking.

THE NECESSITY FOR PRIORITISATION

Once the ERS policy proposal became a public document, it soon became apparent that there was a need to cost it and plan more effectively for its implementation. The point worth appreciating here is simply that, policy documents, however well articulated, represent only a small fraction of the actual work that any government needs to have done. Indeed, one of the earliest lessons one learns as a Minister for Planning in a developing country is simply that citizens think in terms of, and require, concrete services; real jobs and improvements in their overall welfare and that they can get very impatient with the most erudite of policy positions which are not backed by concrete implementation. As should be apparent by the end of this article, this remains a major problem and therefore a challenge to our government, whether now or in the foreseeable future. Nevertheless, it was to this challenge that the NARC government responded, leading, first to the development of what we called an Interim Investment Programme. The very idea of supporting our policy with a concrete 'Investment Programme' was in our view, a historic novelty in Kenya. The Interim Investment Programme document, released late in 2003, gave us an opportunity to begin thinking in very practical terms, to consider the resource needs for implementing programmes such as were envisaged in the ERS. The figure that our economists came up with at the time was a colossal 706 billion Kenya shillings!
The Interim Investment Programme was tabled and very candidly discussed at our first National Investment Conference in November 2003. It also formed the basis of discussions at the Donor Consultative Group (DCG) meeting held in November 2003. In general terms, it was a document that was well received and, by most accounts, it led to unprecedented donor pledges amounting to some US$4.1billion. At the beginning of the new year in 2004, another round of consultations began with a prioritisation workshop (January). The 'logical matrix of objectives, outcomes, costs and the enabling activities' for the ERS in line with sector objectives are outcomes of this prioritisation workshop. The release and subsequent national endorsement of the Investment Programme for the Economic Recovery Strategy for Wealth and Employment Creation (2003-2007) show the seeds of broad participation. The result is a document that attempts to highlight national economic policy priorities while offering a logical framework to facilitate expedient reference during the challenging phases of actual implementation. Perhaps, its most important aspect lies in the fact that the prioritisation workshops that were held between January and March 2004 enabled the government to scale down the cost of implementing the ERS policies and programmes from the initial Kshs 706 billion, to a figure of about Kshs 340 billion!

THE CHALLENGES, THE PROSPECTS AND THE ROLE OF A POLICY FRAMEWORK

One of the most significant challenges likely to confront an enthusiastic government is, first and foremost, that it often finds itself a prisoner of history. In our case, the NARC administration came to power after forty years of the single party rule mentality and its record of gross mismanagement, notoriety and general misrule. It is a matter of common knowledge that under those monolithic systems of government – epitomised in Kenya by the KANU regime – good governance and the rule of law had notoriously taken flight while social menaces such as corruption had become endemic. As is now fairly well recorded, the NARC regime very early in its watch, came face to face with 'the fighting back' syndrome of corruption, as well as other manifestations of deeply rooted forms of malfeasance – issues that mere consultations were ill equipped to deal with.
On the other hand, consultation as an aspect of the democratic process, is not without its problems. One of the most important retrospective comments that can be made about the entire process of consultation within the ERS experience is that a national planning exercise is a huge task. Consultation with one sector does not in any way guarantee a common understanding even in that sector, let alone the many others that occupy the expanded democratic space. The reality is that it remains a challenge to determine who the authentic representatives of every sector are, and whether or not they are products of mutually agreed and inclusive democratic processes.
Quite interestingly, a consensus with one sector can easily became the very bone of contention with another, while other sectors allege exclusion. A recurring example is encountered with Civil Society, where one very soon contends with the reality that civil society is itself a huge and highly cleavaged society with its own internal differences. The same can be said of the Private Sector and even the wider public. The challenge that will be with us for some time in this respect is this: How widely can we consult when we are also under pressure to deliver, and who really speaks for who, when?
Box 2.1: Interview with Prof P. Anyang' Nyong'o, Minister for Planning and National Development
Q.
Honourable Minister, can you comment on the slow pace of the ICT Policy process in the country, taking cognisance of the fact that there is already an existing e-government strategy?
Ans.
The ministry is pressing for a policy to support technology transfer and we have emphasised that you cannot have good e-government without an ICT Policy. Two things, elements if you like, characterised the environment before this government. There was fear of ICTs. ICTs were the domain of government and few individuals in government wished to open up an ICT debate because it would threaten the monopoly of government. From monopoly comes rent seeking and tremendous control. This control would be jeopardised if competition was allowed into the market. The government would loose control of licensing, frequency allocation,....of communications.

These two elements, control and monopoly, stopped a progressive discussion of ICTs in the country. The previous government feared e-government, you could not have an e-mail account in government. The other problem is procurement, which is still a problem affecting all policy implementations because of its slow and cumbersome nature. There are too many busybodies.
Q.
You mention busy bodies. How do you balance interests when making policies?
Ans.
It is very difficult to pursue political democracy and economic reforms at the same time. Russia did not succeed. India is one of the few examples of countries that have attempted to do this but it is big, with many states and not all of them are at the same situation. Political democracy allows spaces, which some groups will take and seize as opportunities to pursue their own unscrupulous aims that may not be in tandem with the progressive and legitimate aims of a reforming government. For example, a landlord might say it is his right to charge high rents when the government is committed to a policy of affordable housing, which includes lowering rents.

Economic reforms become bogged down because of all kinds of interests. All this stakeholder talk and consultation can delay policy making considerably. When, for instance, does consultation end and implementation begin? The consultation culture and industry and their support structures in NGOs exist because of this and the very bankrupt pro-poor ideology.
Q.
Tell me about the Economic Recovery and Strategy for Wealth and Employment Creation. It involved extensive consultations.
Ans:
The ERS was a huge undertaking. We needed a paradigm shift from PRSP to economic recovery. The aim of the Kenyan government was not to reduce poverty but to create wealth and employment. We wanted to do good things that we could have done in the past.

Kenya has lost opportunities for development because the environment was polluted by bad governance. We needed to start afresh! We had a unique historical moment for fast tracking economic growth. So we looked at the PRSP, and used what was good in it.

It was time-consuming and energy intensive. We had meetings every morning in addition to the public workshops. It is expensive, and would have been impossible if I hadn't got support from UNDP.
Q.
One last question Honourable Minister. How have you handled equality in policy; for instance in gender?
Ans:
I don't think we have dealt with it. It is difficult to do because of culture. It requires a cultural revolution. We have some formulae so this is good but not sufficient.
Interview conducted in the Minister's office, Ministry of Planning and National Development, Nairobi on Saturday, 23rd April 2005.

CONCLUSION

This short piece has provided only a brief of the information available in bigger volumes in many policy papers of the Government of Kenya. The first major evaluation of our performance in so far as policy making and policy implementation is concerned, can be found in the Annual Progress Report of the IP-ERS -2003-2004 prepared by a newly created Monitoring and Evaluation department. It is hoped that this novelty (Monitoring and Evaluation) will help keep our government on track, especially with respect to tracking development expenditure on one hand and monitoring the wide disconnect between policy (formation) and implementation, as well as reconcile budgetary provisions with actual projects that benefit the majority of Kenyans. As minister overseeing this rather exhilarating process in which we are virtually re-engineering government processes, one must remain convinced and optimistic that we have formulated a commensurate antidote to poor policy making and weak implementation a characteristic of the past.

Kenya Business Forecast Report 2011


T he economic and political prospects of Kenya have been bolstered
by the peaceful acceptance of a new constitution by 67% of voters in
the August 2010 referendum. From a political standpoint, the passing
of the new charter will help to diminish perceptions of political risk
brought about by post election violence in early 2008. This will be
reassuring for investors, both foreign and domestic, who are looking
to harness the economic opportunities offered by the ongoing East
African Community integration process. Signs of political stability
will also be positive for the government’s ability to tap both domestic
and international capital markets – something that will be necessary
as the authorities undertake ambitious spending on infrastructure.
I n the political section of this report, we caution that while the
peaceful passing of the constitution is major positive development,
it does not mean that political risk has been eradicated entirely.
The country faces several significant challenges over the coming
24 months which could yet threaten the political environment. Chief
among these will be actually implementing the new laws, which will
not be automatic given there is some parliamentary opposition to
the charter. Additionally, the ongoing process to try ringleaders of
the political violence risks raising tensions once again.
Political instability was one third of a triple whammy which caused
real economic growth to slow to 1.6% and 2.6% in 2008 and 2009
respectively – the others being a severe drought and the global financial
crisis. With the worst of all of these factors seemingly behind
us, we maintain our view that the economy will return to robust rates
of expansion over coming years with real growth forecast at 4.2% in
2010 and a more impressive 5.4% in 2011. Annual growth is then
expected to average 5.5% in the period between 2011 and 2015
with Kenya set to benefit as the East African Community takes root.
T he strong economic outlook is likely to bring significant opportunities
for Kenya’s financial sector. In addition to an expectation for
increased bank lending to finance investment and consumption, we
expect Kenya’s capital markets to develop over the coming years,
presenting opportunities for corporate financing and investment
banking activities. A recent example of this is Housing Finance’s
acceptance of KES 7bn (US $86.7mn) from investors for its KES 5bn
(US $62mn) bond issuance on the Nairobi Stock Exchange – a 41%
over-subscription.

Wednesday, January 19, 2011

“KKK Alliance” is Dead And Should Be Buried

A worn-out clichĂ© in Kenya has it that Kenyans in Diaspora “have been away for too long” that they should have no business commenting on issues back home because “they have lost touch with reality”. According to a common pontification that routinely finds expression in the mainstream media, the family of Diaspora Kenyans have “nothing to teach” poor countrymen back home because Kenyans abroad “are not on the ground” and should therefore just “shut up” even if the country is burning.
However, a cursory look at political analysis in the Kenyan media sometimes exposes a pathetic level of mediocrity that ought to be called to attention. A case in point is the flood of analysis of the impending 2012 election and the moribund “KKK Alliance” which is supposed to be led by the ODM renegade, William Ruto, Deputy Prime Minister, Uhuru Kenyatta and Vice President Kalonzo Musyoka. This troika of latter day opportunists are constantly sold by the media as a “formidable force” that key players “will have to recon with” because the still to be formed KKK Alliance “will be a big factor” come 2012. It is in the face of such spurious conclusions that an intervention becomes necessary.
Kalonzo Musyoka
Following the theft of the December 2007 elections, Kalonzo Musyoka was basically written off as a politician. After assisting PNU cling on to power by collaborating with thieves who stole elections and installed president Kibaki in the middle of the night, Kalonzo is more popular as the ultimate “Judas Iscariot” in Kenyan politics than a Messiah of the Kamba people. His Party, ODM-Kenya, has been taken over by his opponents who have argued that his cooperation with PNU was a personal decision for personal gain, not a party policy.
His Kamba people are still furious with him because following his collaboration with PNU, Kambas across the country were beaten senseless and chased out of their abodes because of the perception that they were part and parcel of thieves who stole elections. During the Referendum on a new Constitution, Kalonzo failed to mobilize his people to vote “Yes” because of waning influence among his people. How then will Kalonzo lead his people into a KKK Alliance?
Kalonzo’s problems are confounded by the fact that Charity Ngilu, the Minister of Health who is in ODM, has a huge influence in Kamba land that is constantly threatening Kalonzo’s authority. When Kalonzo is projected as the King-pin in Kamba politics, where are the facts that could lead to this conclusion?
Uhuru Kenyatta
Since the days of Kenya’s first President, Mzee Jomo Kenyatta, Central Province, the origin of the largest ethnic group in Kenya, has had no anointed leader. Current President Mwai Kibaki is not a “Kikuyu leader” but the beneficiary of being at the right place at the right time. Every ethnic group in Kenya wants their kith to be in State House and when it emerged that Kibaki had the greatest chance in both 2002 and 2007, Kikuyus voted for him en masse. By projecting Uhuru Kenyatta as the Kikuyu flag bearer in the theoretical “KKK Alliance”, the assumption is that the young Uhuru will be the “Kikuyu leader” come 2012. However, what are the facts?
When Kimendeero John Michuki recently proposed Uhuru Kenyatta to be promulgated Kikuyu leader to guide the community in 2012, he was widely condemned, not by the Luo, the Luhya or the Kalenjin but by the very Kikuyu leaders who believe that there is no room for ethnic leaders in Kikuyu land with the most vocal opponent having been Martha Karua, Chairperson of Narc-Kenya. The view was that no one could impose a leader on the Kikuyu and that every leader must fight it out personally. The point is that there is a huge split within the Kikuyu when it comes to ethnic leaders in current Kenyan politics so how will Uhuru Kenyatta lead the Kikuyu into the yet to be formed KKK Alliance?
Secondly, it is an accepted fact that come 2012, Kenya will not have another Kikuyu President and even Kikuyus at the grass roots are united on this point. Why? During her 47 years of independence, and assuming that Kibaki completes his term, Kenya shall have had a Kikuyu President in State House for 25 years (Kenyatta 15 years and Kibaki 10 years).
Instead of seeking for a Presidential candidate, the Kikuyu are seeking for a political partner who will be able to guarantee and safeguard their economic interests in Kenya after 2012. Today, that partner is Raila Odinga whose stolen Presidency is widely accepted by millions of Kenyans who went to the streets to demand haki yao. Even if Uhuru Kenyatta joins the KKK Alliance to work with traitor Kalonzo et al, any Kikuyu leader who seeks an Alliance with Raila Odinga is likely to enjoy a bigger sway of the Kikuyu vote because of two reasons.
Just like the Kalenjin, Kikuyus at the grass roots have experienced the fallacy of “wealth trickling down” because their man is in State House. They are tired of paying the price of their man “being in power” without any tangible benefits. Following the stealing of Raila Odinga’s Presidency in 2007, Kikuyus at the grass roots paid the ultimate price because it is their houses which were torched in the Rift Valley, hundreds of their people murdered in cold blood and others chased from their houses across the country because their man had stolen the vote.
Today, hundreds of IDPs still languishing in the camps are Kikuyus who have been left without help despite their man occupying State House. Assuming that he joins the KKK Alliance, how will Uhuru Kenyatta convince millions of skeptical Kikuyus about the need to work with the Kalenjin after tragic historical experiences that have tended to isolate the Kikuyu? My take is that any progress on any Uhuru-based KKK Alliance will only be realized if no Kikuyu leader teams up with ODM in an alternative Alliance and there is no shortage of Kikuyu leaders seeking this opportunity. Why are commentators presenting  a skewed analysis of the situation?
Further, Uhuru did play with Ruto in the run-up to the Referendum before he dumped him to join Raila and Kibaki in the “Yes” camp. The KKK Alliance could have been built during the Referendum and the only reason why it did not materialize is that it was not viable.
William Ruto
Going by Kenya’s brand of ethnic politics, and after Moi, a Kalenjin, held power for 24 years, is Kenya ready for another Kalenjin President? This sums up Ruto’s case of ever making it to State House in 2012. Although Ruto is a very vocal politician, he lacks a sound strategy, either because he doesn’t understand the ethnic nature of Kenyan politics or his advisors are deliberately misleading him for some reason.
Ruto could have been a force to recon with if his Referendum experiment had succeeded but it crashed and he lost with a landslide majority. How will he emerge from this huge defeat to set up a national Alliance that will propel him to State House? What is known is that when Kibaki lost the Referendum in November 2005, he lost the vote two years later so how will Ruto convert the Referendum defeat into a victory?
Ruto’s fortunes could have matured easily in ODM than in any other unknown formation but he missed it due to misplaced ambition. When he joined ODM, Kenyans almost forgot his dirty past during his days in KANU where he opposed the re-writing of a new Constitution and declared that Moi ought to rule Kenya for 100 years. Apart from corruption charges facing him in court, and his possible indictment by ICC notwithstanding, Ruto has not yet cultivated a national image that could hand him Kenya’s Presidency. He is still fighting for “his people” (the Kalenjin) and until he begins to fight for the Luhya, the Luo, the Kikuyu and others, his Presidential ambitions will continue to remain a pipe dream.
The Kalenjin at the grass roots chased away the Kikuyu and seized their land. This is the status quo that the Kalenjin at the grass roots would like to maintain. Any political Alliance with Uhuru Kenyatta might meet with opposition in Kalenjin land because of the issue of land confiscated from the Kikuyu. After several evictions of the Kikuyu from the Rift Valley dating back to “ethnic clashes” that were engineered by Moi, the Kikuyu do not trust the Kalenjin so how will an Alliance between the two ethnic groups be forged at the grass roots?
The KKK Alliance is dead and its proponents ought to have been preparing for its funeral, not its resurrection. However, it will remain alive at the rhetorical and propaganda level because after the Referendum, KKK proponents went bankrupt while the media needs sensation to keep newspaper sales up and running. The main victims are the uncritical readers who may be lapping the KKK package without second thoughts.

Tuesday, January 18, 2011

The fallout of ODM

Four Kisii MPs led by Cabinet Minister Chris Obure on Tuesday downplayed the fallout in the Orange Democratic Movement (ODM) saying those threatening to quit the party were driven by greed.
The legislators dismissed the ethnic alignments being perpetuated by KKK alliance as a loose arrangement with a sole purpose of blocking Prime Minister Raila Odinga from ascending to power in 2012.
Mr Obure, Foreign Affairs Assistant Minister Richard Onyonka, his Trade counterpart Simon Ogari and Bonchari MP Charles Onyanche said it was a pity that those behind the KKK alliance were belittling the intelligence of other communities.
"What will happen with the remaining Kenyan tribes if we are going to rely on three communities to chose the president? ," said Obure, who is Public Works Minister and Bobasi MP.
Economic stimulus
Speaking in Kisii during a tour of economic stimulus funded projects in Bomachoge, Kitutu Chache and Bonchari constituencies, the MPs said they will solidly stand behind the premier to win the 2012 elections saying the journey to State House, which was curtailed in the bungled 2007 election, had not been completed.
"If there alliance is meant to fight the premier as it has come out clearly, then they are bound to fail as those are politics of yesteryears," Onyonka, who is Kitutu Chache MP said.
Onyonka said age can never be a measure of a good leader and asked Eldoret North MP William Ruto and Sabot MP Eugene Wamalwa, who have teamed up with Vice President Kalonzo Musyoka to form the KKK alliance to preach harmony among all the Kenyan communities instead to isolating a few to lay claim on the presidency.
On his part, Onyancha, who is the Bonchari MP, defended the Premier’s involvement in the Ivory Coast mediation process. He said the PM needed Kenyans backing as he represents the country in resolving the Ivory Coast crisis.
"I take great exception with remarks by a section of leaders over the PM’s role in the Ivory Coast stalemate. He has been picked to mediate by the international community and as Kenyans we should be proud and wish him well in the difficult task," said Onyancha.
The MPs said Raila was best suited to lead this country to the next level of democracy and urged Kenyans to give him support.

Monday, January 17, 2011

S.Sudan must balance foreign relations after split

Photo
South Sudan will want to strengthen ties with sub-Saharan Africa, the West and beyond after its expected secession, but will have to tread carefully if it wants to avoid antagonising its old rulers in Khartoum.
People from the oil-producing south on Tuesday started their third day of voting in a referendum on whether they should declare independence. Even hard-line unionists in the north now accept they will choose to split Sudan in two.
Once that happens, the most important economic and diplomatic relationship for an independent south Sudan will remain with Khartoum -- the south's economy is almost entirely dependent on oil and its only pipelines snake across the north.
But the south's more natural allies, with shared cultural and religious links, will lie in non-Arab Africa, most obviously its neighbours to the south Kenya and Uganda.
Sudan's first challenge will be to find ways of building on those relationships -- and stepping up trade and aid from the West and other international allies -- without jeopardising its pipeline link to the Red Sea.
That may not be easy. Khartoum is already rumbling.
"Our main fear is that they (south Sudan) may host some enemies of Sudan," Ibrahim Ghandour, a senior member of the north's ruling National Congress Party (NCP) told Reuters.
"We already know about Israel which sees Sudan as one of its enemies. We know of its role in the south. We can also see the agenda of (President Yoweri) Museveni of Uganda. Museveni himself worked in a very clear and structured way to separate the south ... so that he can take its natural resources
Khartoum's distrust has its roots in cultural divisions the north-south civil war that ended in the 2005 Comprehensive Peace Agreement that set up the referendum.
Historians say Israel supported southern rebels from as far back as the late 1960s, when the north stepped up support of Arab causes in the wake of the Arab-Israeli war.
Southern Sudanese politicians have been coy about Israeli plans. Khartoum's paranoia will be fed by commentary on Sudan's referendum that has begun to appear in Israeli newspapers.
"Israel ... is likely to set up formal diplomatic relations with the South, no small matter (senior figures in the Juba government have voiced desire for this over the past year)," wrote Yoel Guzansky, research fellow at the Institute for National Security Studies in Tel Aviv University, in the Hayom daily on Monday.
CONCRETE PLANS
There are more concrete plans with Uganda which has long been a southern ally and a base for its rebels and refugees.
Last month Museveni met south Sudan's president Salva Kiir and discussed the possibility of building hydro-electric power stations on the southern stretch of the White Nile.
Details were vague but the possibility of conflict was clear. Sudan and northern neighbour Egypt are locked in a dispute with other Nile-side nations about how to share out the river's resources. Analysts say Cairo and Khartoum worry that the south might choose to support the upstream countries.
"The issue of the Nile Basin is going to be critical for us. Forty-five percent of the Nile basin is in South Sudan," said Luka Biong, a senior official in the south's dominant Sudan People's Liberation Movement (SPLM).
"Whether the south can have a strategic position in building a new consensus between the northern and southern countries of the basin is going to be very important."
Other links could spark tensions. Kenya is seeking investors to fund its $22 billion share of a planned transport corridor connecting Ethiopia and Sudan to the Kenyan coast including a 1,400 km pipeline.
Such a pipeline would take years to construct but, once built, would redirect the south's lucrative crude away from the north's infrastructure, depriving Khartoum of fees and any chance of revenue sharing.
From Khartoum's perspective, an even worse threat than Israel and East Africa's pipeline plans is The International Criminal Court, which has issued arrest warrants for Sudan's president Omar Hassan al-Bashir accusing him of orchestrating genocide during the country's Darfur conflict.
The south might be tempted to earn points from the West by joining 31 other African countries as a court member. But that act -- which would commit it to arresting Bashir on its territory -- would probably be a step too far, say analysts.
"South Sudan might take the view that signing up to the Rome Statute might invite more trouble at the time being --in relations with the North," said London School of Economics fellow Mareike Schomerus.
Those relations with the north remain central. In a doomsday scenario, the north, if crossed, could simply turn off the south's oil flow. The south already accused Khartoum of sending proxy militias into its territory.
Not that it has to get to that stage. "The south's most important relationship will be with the north," said Yasir Arman, a northern member of the south's dominant SPLM.
"The north and south will share a border of more than 2,000 km with 9 million nomads regularly crossing it from the north and 4 million nomads crossing from the south. It will be a people's border, a border of interaction."

Wednesday, January 12, 2011

Master of Economics (Finance)

Master of Economics (Finance)
Course Structure
First Year
Core Units
EET 500 Microeconomic Theory I
EET 501 Macroeconomic Theory I
EET 502 Microeconomic Theory II (prerequisite: ETH 500)
EET 503 Macroeconomic Theory II (prerequisite: ETH 501)
EES 500 Econometrics I
EES 501 Econometrics II (prerequisite: EES 500)
EET 505 Theory of Finance
EAE 500 Project Planning, Monitoring and Evaluation

Second Year
Core Units
EAE 501 Economic Research Methodology
EAE 513 International Finance
EAE 516 Corporate Finance and Investment
EAE 544 Research Project (Equivalent to four units)
Electives
One unit to be selected from the pool of electives below (Excluding EAE 522)

Pool of Electives
EAE 502 Planning Techniques
EAE 503 Monetary Theory and Policy
EAE 504 International Trade
EAE 505 Public Sector Economics
EAE 506 Labour and Manpower Economics
EAE 507 Agricultural Economics
EAE 508 Transport Economics
EAE 511 Economics of Land and Water Resource Management
EAE 513 International Finance
EAE 514 Financial Analysis
EAE 515 Economics of Asset Pricing
EAE 517 Economics of Entrepreneurial Finance
EAE 520 Economics of Financial Markets
EAE 519 Farms, Firms and Livelihoods
EAE 520 Financial Reforms and Macroeconomic Policies
EAE 521 Labour Markets and Social Policies
EAE 522 International Trade, Aid and Finance
EAE 523 Economics of Global Food Security
EAE 525 Political Economy
EAE 526 Management Accounting and Control
EAE 527 Economic Regulation and Competition Policy
EAE 528 Strategic Planning and Management
EAE 529 Financial Management for Policy Making
EAE 530 Public Policy
EAE 533 Health Policy and Planning (prerequisite
EAE 535 Monitoring and Evaluation in Primary Health Care
EAE 536 Agricultural Systems for Rural Development
EAE 537 African Land Questions
EES 508 Applied Econometrics for Finance (Prerequisite ETH 505 and EAE 518)
EES 509 Econometrics for Environmental Valuation (Prerequisite EAE 509)
EES 510 Quantitative Methods in Health Economics
EET 506 Game Theory and Information Economics
HPH 700 Medical Statistics

 

Monday, January 10, 2011

Kenya set on economic benefits of S. Sudan independence




Madi traditional dancers during the referendum at Dr John Garang Mousoleum in Juba,  Southern Sudan, January 9, 2011. PHOTO/STEPHEN MUDIARI
Madi traditional dancers during the referendum at Dr John Garang Mousoleum in Juba, Southern Sudan, 

One of the greatest economic gains Kenya is likely to get from an autonomous Southern Sudan, with a population of about 8.5 million people, is the market for the proposed Lamu port.
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The port of Mombasa and the existing road and rail network cannot handle the massive volume and weight of materials that will be required for the Southern Sudan reconstruction, maritime experts say.
Although Southern Sudan has several options of seaports to choose from, consideration for the right choice will take into account factors such as security, number of borders to cross, nature of the terrain, length of route, and accessibility to the West and East by sea, says the second transport corridor inter-ministerial lead consultant Dr Mutule Kilonzo.
The Mombasa port has inadequate capacity to handle Southern Sudan cargo. The investment required to increase the capacity at the port and support infrastructure would be enormous.
“As it is, the port of Mombasa is struggling to keep up with the demands of its present clientele – Rwanda, Burundi, Uganda and Kenya,” Dr Kilonzo said.
A second option that has been considered is the port of Dar es Salaam.
This would involve goods transiting two countries, Tanzania and Uganda. Dar’s capacity to handle additional loads is also in question, according to the consultant.
But a new port at Lamu would offer the best option. The distance between Juba and Port Sudan in the North is about 4,000 kilometres, while the distance between Juba and Lamu is only 1,500 kilometres.
Southern Sudan is all set to become a major exporter of oil. Political and strategic imperatives rule out Southern Sudan’s sole dependence on Port Sudan on the Red Sea coast based on the history of the two countries, Dr Kilonzo said.
It is proposed that the Port of Lamu be made a free port which will be connected to the proposed Free Port at Dongo Kundu in Mombasa by a railway line and an access road.
“The free port will be a port in which goods can transit through or be stored for up to 5 years, without the complications of customs formalities. Southern Sudan and Ethiopia bound goods, as well as the exports from them, will require this expeditious utility,” says the consultant.
New generation vessels
With the feasibility studies of the second transport corridor expected to be ready by March this year, Lamu has many advantages as a potential alternative port to serve the sub-region as well.
It has a water depth of 18 metres making it ideal for fast construction. It also has a capacity to accommodate new generation vessels carrying over 10,000 Teus. Mombasa port can handle less than 3,000 Teus ships.
Other components of the second transport corridor include a superhighway that will connect Lamu to Addis Ababa and Juba. The three regions will also be connected with a standard gauge railway line to allow faster trains.
It is envisaged that a merchant oil refinery will be constructed in Lamu and will be connected by an oil pipeline to Juba to refine crude oil from Southern Sudan before shipment. An Optic fibre infrastructure to link the corridor will also be laid down.
International airports will also be constructed in Lamu, Isiolo and Lokichoggio, three important points along the corridor.

Friday, January 7, 2011

The Economic Costs of Poverty

Subsequent Effects of Children Growing Up Poor

Most arguments for reducing poverty in the U.S., especially among children, rest on a moral case for doing so—one that emphasizes the unfairness of child poverty, and how it runs counter to our national creed of equal opportunity for all.
But there is also an economic case for reducing child poverty. When children grow up in poverty, they are somewhat more likely than non-poor children to have low earnings as adults, which in turn reflects lower workforce productivity. They are also somewhat more likely to engage in crime (though that’s not the case for the vast majority) and to have poor health later in life. Their reduced productive activity generates a direct loss of goods and services to the U.S. economy.
What’s more, any crime in which they engage imposes large monetary and other personal costs on their victims, as well as the costs to the taxpayer of administering our huge criminal justice system. And their poor health generates illness and early mortality which not only require large healthcare expenditures, but also impede productivity and ultimately reduce their quality and quantity of life.
In this paper, we review a range of rigorous research studies that estimate the average statistical relationships between children growing up in poverty and their earnings, propensity to commit crime, and quality of health later in life. We also review estimates of the costs that crime and poor health per person impose on the economy. Then we aggregate all of these average costs per poor child across the total number of children growing up in poverty in the U.S. to estimate the aggregate costs of child poverty to the U.S. economy.
We had to make a number of critical assumptions about how to define and measure poverty, what level of income to use as a non-poverty benchmark, and which effects are really caused by growing up in poverty and not simply correlated with it. Wherever possible, we made conservative assumptions, in order to generate lower-bound estimates.
The upshot: Our results suggest that the costs to the U.S. associated with childhood poverty total about $500B per year, or the equivalent of nearly 4 percent of GDP.
More specifically, we estimate that childhood poverty each year:
  • Reduces productivity and economic output by about 1.3 percent of GDP
  • Raises the costs of crime by 1.3 percent of GDP
  • Raises health expenditures and reduces the value of health by 1.2 percent of GDP.
If anything, these estimates almost certainly understate the true costs of poverty to the U.S. economy. For one thing, they omit the costs associated with poor adults who did not grow up poor as children. They ignore all other costs that poverty might impose on the nation besides those associated with low productivity, crime, and health—such as environmental costs and much of the suffering of the poor themselves.
What does all of this imply for public policy? The high cost of childhood poverty to the U.S. suggests that investing significant resources in poverty reduction might be more cost-effective over time than we previously thought. Of course, determining the effectiveness of various policies requires careful evaluation research in a variety of areas.
Our analysis did not venture into the effectiveness of specific anti-poverty policies, but our conclusions point unmistakably to several clear options, among them:
  • Universal pre-kindergarten programs
  • Various elementary and secondary school reforms
  • Expansions of the Earned Income Tax Credit and other income supports for the working poor Job training for poor adults
  • Higher minimum wages and more collective bargaining
  • Low-income neighborhood revitalization and housing mobility
  • Marriage promotion and faith-based initiatives
Given the strong evidence of the effectiveness of some of these programs, such as high-quality pre-kindergarten and the Earned Income Tax Credit, investments through these mechanisms seem particularly warranted. At a minimum, the costs of poverty imply that we should work hard to identify cost-effective strategies of poverty remediation and that we should not hesitate to invest significant resources when these strategies are identified. In the meantime, we should also experiment with and evaluate a wide range of promising efforts.

Wednesday, January 5, 2011

Coffee thefts threaten to derail efforts to revive ailing industry



Increasing incidents of coffee theft are threatening the revival of the industry in Kenya. Photo/FILE
Increasing incidents of coffee theft are threatening the revival of the industry in Kenya.


Theft of coffee from factories and farms is posing a serious threat to an industry just recovering from years of low production, mismanagement and poor earnings.

The problem has become so widespread that industry regulator Coffee Board of Kenya (CBK) on Tuesday sounded the alarm and warned farmers, dealers and agents involved of stern action against the culprits.
“The board wishes to draw the attention of law enforcement agencies, the public and coffee industry stakeholders on rising cases of coffee theft and illegal dealings in some coffee growing areas. This is in contravention of the law and is a punishable offence,” the regulator warned in an advertisement on Tuesday.
“Millers, warehousemen and dealers must at all times insist on valid movement permits for all coffee received at their premises as a sign of authenticity, transparency and traceability,” the CBK advertisement said.
CBK managing director Ms Loise Njeru said about 10,000 tonnes of coffee produced last year was not reflected in the board’s figures and it is suspected that it found its way to either Uganda or Ethiopia.
According to the board’s statistics, farmers produced 43,000 metric tonnes, but this could have been higher if all the output had been accounted for.
“If we discover that registered dealers or millers are involved, we shall take appropriate action, which includes revoking their licences,” Ms Njeru told a recent stakeholders’ workshop in Nairobi.
So severe is the problem, particularly in Central Province and west of the Rift Valley, that an electronic device that alerts residents of intrusions into coffee factories has been invented.
Last year, farmers in the country are estimated to have lost more than Sh40 million worth of coffee to thieves.
The CBK says 1,216 bags of coffee were stolen from co-operatives between July and December last year, raising concerns that farmers faced a fresh challenge as they try to revive the sector.
Current problems at the Kenya Planters Co-operative Union (KPCU) have left farmers, particularly in Western Kenya, exposed to theft as they first have to accumulate large volumes of beans before transporting them to millers as far as central Kenya.
“We lost 93 bags at our factory in August last year,” Mr Alfred Keanya, chairman of Kiomooncha Coffee Factory in Kisii, said.
In the same month, coffee from Kisii was reported stolen around Naivasha as it was being transported to a miller. Komothai and Igegania co-operative societies in Kiambu lost 148 and 120 bags, respectively. A coffee estate in Thika lost 400 bags.
Last year, unscrupulous coffee traders were killed in an operation launched to curb illegal cross-border trade of coffee between Kenya and Uganda.
According to sector players, the recent high prices of coffee against the backdrop of low production has triggered competition for the available beans, with some registered dealers suspected to be aiding the illegal trade.
Coffee has been fetching high prices in the past two years but dry weather and disease have hampered increased production.
“Some of the industry players are encouraging these crimes. Some of them got milling licences yet our capacity for milling is far above production,” a senior coffee expert said.
The CBK urged growers to insure coffee in their stores or in transit and to avoid accumulating huge stocks. It also advised them to beef up security at the peak of the season.

Tuesday, January 4, 2011

Best places to invest your money this year


Just because the financial crisis is over, that does not mean the markets have calmed down or that investing has become any easier, which is one reason most investors stayed on the sidelines for the past year, preferring to play safe via fixed income.
Meanwhile, volatility appears to be here to stay. The past year saw some investors gain and others loose depending on where they had invested.
From equities to real estate, diversification is the key to finding top returns.
In the first quarter of last year, we witnessed an unprecedented surge of stocks of every size and sector. And that performance came on the heels of the 20 share index —hitting all-time lows.
The best way to brace yourself for the ride is through diversification of your portfolio. Just because the financial crisis is over doesn’t mean the markets have calmed down or that investing has become any easier.
Obviously no one knows for sure what’s going to happen in the second, third or fourth quarter of the year because so many unpredictable variables are at play.
Real Estate
Perhaps the two most common ways or places to invest money starts with property investments. Property is a great thing to own, because it generally gains value, and you can make even more money by building a business on the property, turning it into a rental property, or perhaps even flipping it.
Buying houses with intent to sell it for profit is probably the most popular, because it seems to net a great deal of profits while allowing you to show your creative side. People buy houses and properties for cheap, and then remodel them and resell them.
With the Nairobi Metropolitan master plan development, we are set to witness unprecedented growth in real estate.
As an alternative you might decide to own property directly. Look for an up-and-coming neighbourhood. Also, look for places that are being re-vitalised because that is where you are likely to see properties appreciate.
If you are interested in owning investment property start slowly. Make a small investment to see how it works.
Stock and bond marketThe second place is to invest in the stock market. While many people fear the stock market, there are many stocks and companies to choose from that offer different levels of risk.
While higher risk levels will garner biggest returns, one can still make a great deal of money with the low risk stocks. After disastrous performance of the stock market in the first quarter of last year and record low interest rates, analysts sense that investors are open to new investments that promise opportunities for better returns this year.
Here is the deal. Global economic output is pretty picking up and that means returns are likely to be modest until things get better. Further Kenya’s economic growth and performance outlook according to World Bank is projected to hit five per cent plus this year.
I think that’s the story frustrated investors want to hear, and it’s easy to attract new money if you tell that story.
There is every indication that our stock market is on the recovery mode despite the market taking a beating early last year. Investors are advised to include in their portfolio stocks that have strong cash flows, solid balance sheets, and high dividend payouts.
Leveraged Investments
If you cannot make much money using your own money, then you can of course make more money by borrowing someone else’s money.
That’s the basic idea behind all sorts of leveraged investment strategies, from leveraged private equity funds to leverage bond funding to leverage real estate financing.
To my knowledge, there’s evidence that borrowing money and betting on the direction of various markets has a reasonable probability of working out for you. In fact, most of the time it works out pretty good for savvy investors.
http://www.kenyancareer.com/search/label/Research

Ethiopia: Coffee History, Production, Economy facts





To increase international trade competitiveness, the Government of Ethiopia has implemented far-reaching economic reforms in the coffee subsector. As a result of various market liberalization measures, the coffee industry has undergone unprecedented changes.

History of Coffee

Settled agriculture began in Ethiopia some 2,000 years ago. Since time immemorial, coffee arabica has been grown in the wild forests of the south-western massive highlands of the Kaffa and Buno districts of the country. Ethiopia is the primary centre of origin and genetic diversity of the Arabica coffee plant, earlier known as jasminum arabicum laurifolia.

Coffee trade

With coffee thus a commodity crop earlier than 1500, Ethiopia is the oldest coffee exporter in the world, though external invasions and internal conflicts have at times had a negative impact on the country's coffee export history.

Coffee export in Harar and Gerri goes back to earlier than 1810. In 1838, Rupell recorded the export of 100 quintals of Enarea-coffee (now Liumu-Seka, Jimma) via Massawa. In the 19th century, tow coffee types, "specialty coffee", were exported as first and second grade Harari coffee and Abyssinia coffee to London, Marseilles, New York and trieste.

Ethiopian Muslim merchants transported coffee and other goods in caravans of mules, camels and donkeys. Export was dominated and facilitated by foreigners of more than 140 different nations, including Greeks, Armenians, Germans, Belgians, Indians, Lebanese, Turks and Yemenis.

Coffee classification and grading systems in Ethiopia were developed and licensed for the first time in 1952 and then modified in 1955. Ethiopian coffee certification began after the establishment of the National Coffee Board of Ethiopia in 1957. The NCBE's aims were to control and coordinate producers , traders, and exporters interests and to improve the quality of Ethiopian coffee.

In 1960, Ethiopia became a member of the Inter-African Coffee Organization . The same year, it also became a member of the International Coffee Organization and allocated a 2.5 per cent share of the global market.

Economy

Coffee is the most important agricultural commodity in the world, and is worth up to $14 billion annually. More than 80 countries, including Ethiopia, cultivate coffee, which is exported as the raw, roasted or soluble product to more than 165 countries worldwide. More than 121 countries export and /or re-export coffee. More than 50 developing countries, 25 of them in Africa, depend on coffee as an export, with 17 countries earning 25 per cent of their foreign exchange from coffee.

The agriculture-based Ethiopian economy is highly dependent on coffee arabica as it contributes more than 60 per cent of the country's foreign exchange earnings. No other product or service in Ethiopia has earned as much. The labor intensive tree crop also provides much employment in rural areas and is the means of livelihood for over 15 million people in Ethiopia.

Thus, as well as being an important export, coffee plays a vital role in both cultural and socio-economic life of the country.

Coffee Production Potential

The potential for coffee production in Ethiopia is very high, thanks to the country's suitable altitude, ample rainfall, optimum temperatures, appropriate planting materials and fertile soil. Furthermore, the country is of particular interest to the world because it is where coffee arabica originated, and thus has the best inherent quality for production potential. The total area covered by coffee is about 400,000 hectares, with a total production of 200,000 tonnes of clean coffee per annum.



Altitude

In Ethiopia, coffee grows at various altitudes, ranging from 550-2,750m above sea level. However, the bulk of coffee arabica is produced in the eastern, southern and western parts of the country, which have altitudes ranging from 1,300 - 1,800 masl.

Rainfall

Annual rainfall in the coffee-growing regions of the country varies from 1,500-2,500mm. Where precipitation is less, as in the eastern part of the country, which has only 1,000 mm per annum, it is supplemented with irrigation. It is not only the total rainfall which is important for good production but also its eight-month distribution. Rainfall distribution in the southern and eastern parts of the country is bimodal, and in the western part is monomodal. These distribution patterns enable the country to harvest coffee at different times of the year, ensuring a supply of fresh beans all year round.

Temperature

Coffee arabica grows best in the cool, shady environment of the forests of the Ethiopian highlands. The ideal temperature for coffee arabica is considered 15-25Âșc. This temperature prevails in most of the country's coffee-growing areas.

Planting Material

Because the country is the center of origin of coffee arabica, the variability of the plant character is very wide, making possible planting materials which are disease-resistant, high-yielding and of top quality. This is nature's gift to Ethiopia in particular and to the world in general, and it requires special care and proper utilization.

Soils

The soils in the southern and western parts of the coffee-growing regions of Ethiopia are of volcanic origin, with a high nutrient-holding capacity for clay minerals. The Mesozoic layer, made up of sandstone and calcium carbonate, is found in the eastern part of the coffee-growing region. All the coffee-growing regions have fertile, friable, loamy soils, with a depth of at least 1.5m. The topsoil is dominantly dark-brown or brownish in color, with a PH ranging mostly from 5-6.8 (water extract). One outstanding characteristic of the soil is that its fertility is maintained by organic recycling, i.e., through litter fall, pruning and root residue from the perennial, coffee and shade trees.

In addition, the small coffee farmers, who are the majore producers, use organic fertilizers to supplement the natural fertility of the soil. Most buyers know that the bulk of coffee produced in Ethiopia qualifies as organically-grown.

Coffee Production Systems

There are four types of production system in Ethiopia: forest coffee, semi-forest coffee, garden coffee and plantation coffee. Ninety-five per cent of the coffee produced under these systems is organic.

Forest Coffee

Forest coffee is found in south and south-western Ethiopia. These are the centers of origin of coffee arabica. Forest coffee is self-sown and grown under the full coverage of natural forest trees, and has a wide diversity for selection and breeding for disease resistance. It offers high yields and top-quality aroma and flavor. Forest coffee accounts for about 10 per cent of Ethiopia's total coffee production.






Semi-Forest Coffee

This production system is also found in the south and south-western parts of the country. Farmers acquire forest land for coffee farms, and then thin and select the forest trees to ensure both adequate sunlight and proper shade for the coffee trees. They slash the weeds once a year to facilitate the coffee bean harvest. Semi-forest coffee accounts for about 35 per cent of Ethiopia's total coffee production.





Garden Coffee

Garden coffee is grown in the vicinity of farmer's residences, mainly in the southern and eastern parts of the country. The coffee is planted at low densities, ranging from 1,000 to 1,800 trees per hectare, is mostly fertilized with organic waste and is intercropped with other crops. Currently, garden coffee accounts for about 35 per cent of Ethiopia's total coffee production but this is set to increase with the introduction of the system into south-west Ethiopia.

Plantation Coffee

Plantation coffee includes that grown on plantations owned by the former state and some well-managed smallholder coffee farms. In this production system, recommended seedlings are used, and proper spacing, mulching, manuring, weeding, shade-regulation and pruning are practiced. Only state-owned plantations use chemical fertilizers and herbicides and this accounts for only about five per cent of total production. Well-managed smallholder coffee farms account for about 15 per cent of Ethiopia's total production.

Coffee Harvesting and Processing

Coffee is processed by two widely-known methods - dry and wet. Ethiopia exports 80-85 per cent natural or sun-dried coffee and 15-20 per cent wet-processed coffee.

Sun-Dried Coffee

Harvesting- The time of flowering determines the time of the maturing of the coffee fruit. In coffee plantations, flowering does not usually occur all at one time. Usually there are two, three or sometimes four independent flowerings when successive rains occur. In most coffee-growing areas, the flowering period is between December and April and the harvesting period falls between August and January, i.e. seed maturity occurs mostly six to nine months after the blooming period triggered by rainfall. This ensures continuous production throughout the year. The coffee-harvesting is done mostly by family labor, as the size of the average coffee farm is as small as .5ha.

Drying- Natural coffee is dried much more slowly than wet-processed coffee, because it is harvested with a variable moisture content that sometimes requires water to be removed from throughout the whole fruit. Natural coffee is dried in about three to four weeks in the sun, longer in cloudy or damp weather.

The coffee cherry is allowed to dry to about 11.5 per cent moisture in the whole fruit, after which all the outer layers are removed together by hulling and the commercial bean obtained and delivered to the central market.

Hulling- After the dried cherries arrive at the hullery, they are cleaned and stoned before they enter the huller. Undersized cherries are seperated for reprocessing. The basic raw materials required from successful hulling are fully-dried cherries of resonable and even size.

Wet-Processed CoffeeSince consumer preference is for wet-processed coffee, Ethiopia intends to increase the quantity of this commodity it produces. There are currently more than 400 coffee-washing plants in the country, owned by co-operatives, former state enterprises and private companies. At full capacity, these plants can produce about 52,000 tonnes of washed coffee per annum.

The country is well-known for its high-quality wet-processed coffee because there is a well-established and linked structure that connects coffee farmers, processing -plant owners, governmental organizations and coffee-purchasing enterprises, leading to effective quality control and efficient marketing.

The extension program, which includes experienced professionals at all levels, disseminates processing extension services to all producers. In particular, coffee harvesting and handling techniques are passed on by extension agents, and technical support is provided by professional processing experts at each plant.

Besides, each year, before the start of wet-processing operations, training is given to all operators engaged at each washing plant. Each specialized operator knows his duties and responsibilities well, and this is supported by strict supervision.

It is well-known that top-quality coffee is produced only from freshly picked, fully ripe cherries, and farmers are always advised to pick only these. Harvesting is done carefully, under close supervision. In addition, the cherries are sorted before pulping and unsuitable cherries are removed. The final sorted and clean cherries are pulped the same day they are harvested.

The pulped wet parchment coffee goes to the different fermentation tanks to ferment naturally. The process is carefully supervised to avoid under- or over-fermentation.

The fermented coffee is finally washed with clean running water and soaked in clean water to degrade and remove the remaining mucilage and acids and to improve the color of the beans. The wet parchment coffee is dried in the sun on raised drying tables and sorted at 11.5 per cent moisture.

Export Processing

It is a precondition for all exporters that they process their coffee to the country's export standard. The Coffee Processing and Warehouse Enterprise is a modern, state-owned enterprise, whose objective is to render high-standard coffee-processing and warehousing services. The Enterprise has three production lines, each with the capacity to process five tonnes of coffee an hour, and with a storage capacity of 30,000 tonnes.