Tom Mshindi
9 October 2008
opinion
Nairobi — PRESIDENT KIBAKI'S DECIsion this week to instruct his Energy and Finance ministers to review Government taxes on energy with a view to reducing them and pass on the relief to consumers answers directly to the responsibilities governments have towards their citizens, and cements its centrality as a critical arbiter of the environment in which social and economic interactions between people and institutions occur.
If the global financial meltdown witnessed over the last four weeks, first in the US, and rapidly spreading to other key financial markets placed the focus squarely on what the US government and others would do to arrest the spiral and restore confidence in the markets, the escalating energy costs that have sent inflationary pressures spinning out of control demanded that the Kenyan Government acts decisively to stem the inevitable negative effects that private sector players have started to suffer.
THE US GOVERNMENT PROFFERED a staggering $700 billion lifeline to oil the markets and allow money to start flowing again in that credit-centred economy.
Germany, Ireland, Greece, Sweden, Denmark, the Netherlands, the United Kingdom and Russia have all intervened or promised to intervene to restore the confidence of shaken markets or stave off potential traumas.
While these actions by avowedly pro-free market economic systems may surprise some, they actually are completely in conformity with what governments are expected to do to guarantee the health of systems that support the creation and distribution of wealth.
It is very much linked to the principle of protecting national interests, which in many ways is the sole purpose of governments to exist. And nowhere has this been more dramatically demonstrated than in these countries' apparently contradictory stand over subsidies.
Subsidies at home are supported as domestic producers need to be insulated from the uncertainties of global commodities trade, and are opposed abroad because the foreign markets need to be kept open for products from these developed countries!
It is heartening that this basic logic is finally becoming evident to our leaders. Governments must protect existing producers to give credence to claims that their countries are ideal investment centres for foreign investors seeking options around the world.
Just this week, Prime Minister Raila Odinga was in Paris arguing, correctly, that Kenya needs trade more than it requires foreign aid to fire up and sustain economic growth. He also knows that trade requires products that must be produced in an environment that is politically stable and delivers returns to the investor.
Pleas that Kenya represents an attractive investment destination have been belied by stark realities, demonstrated most poignantly by the cost of energy - a key input in any productive endeavour.
It is hard to argue with the fact that the KwH (kilowatt hour) cost of energy in Kenya at US cents 21 compares rather dismally with 4 US cents in Egypt, 11.8 US cents in Uganda, 7.4 US cents in Tanzania and 3.1 US cents in South Africa. No amount of sweet-talking will persuade an investor that Kenya is more attractive than these key competitors in the Comesa region.
As much as it keeps away prospective investors, it is the damage that it does to the existing producers that is really worrying, and which prompted the President to finally take the action.
COMPANIES HAVE BEEN FORCED TO reduce production and increase prices, while others have been considering moving at precisely the time when they should be doing the opposite.
They should be hiring more, increasing capacity and producing more to sustain the momentum that may see Kenya post an amazing five per cent growth compared to the gloomy prediction from earlier on in the year.
The whole energy policy needs to be made more progressive, agricultural production must be boosted, and Government subsidies guaranteed to reduce production costs and ensure competitive producer prices. Government investments in infrastructure, especially transport, must be escalated.
The outrageously ambitious goal of achieving the dream of Vision 2030 demands posting and sustaining an annual minimum economic growth rate of 10 per cent over the next 25 years. For the foreseeable future, this will call for more, not less involvement of Government in the productive process.tmshindi@nation.co.ke
Be the first to Write a Comment!
Copyright © 2008 The Nation. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
