18 January 2014

Kenya: Governors Should Tread Carefully

As the March 4, 2013 election dust begun to settle, and the new governors embarked on assembling their respective County Cabinets, questions lingered as to whether we should continue pledging our allegiance to the West as a nation or Turn East and embrace Communist China.

This battle for influence would culminate in PM. Raila Odinga herding his ODM allied Governors on a maiden trip to the US; a move soon reciprocated by President Kenyatta leading a larger and more powerful delegation to Beijing in a show of might.

To the ordinary citizen, such moves, punctuated with promises of foreign direct investments to the tune of hundreds of Billions of Shillings, handed down by the glaring cameras of the local media, presented near unprecedented hope; a balm for the brutally contested election bruises in a tribally polarized nation.

To the foreign direct investors, Kenya had become virgin ground. The likes of Kitui Governor, Afred Mutua, with lofty dreams, would transform the hitherto sleeping giant into the United Arab Emirates of Africa.

Pilgrims would soon troop to Nairobi; the new Mecca of the figurative and literal "Dark Continent," reminiscent of the Queen of Sheba's historical visit to Jerusalem.

It is in such times of great delusion that the Scribes and the Wise Men of the land are expected to rise up and point the nation in the direction in which it should go, but the silence of our local economists and the media is deafening.

None seems to want to mention the obvious elephant in the room, either for fear of destabilizing the status quo or because our politics has taken such a tribal and personality dimensions that even our intellectuals are enamored and mesmerized into a tunnel vision.

Neither the deliberate policy decision by the Kenyatta administration, nor the trips by Prime Minister Odinga and his Allied Governors to the West present much economic value to the citizenry in the long run. The argument against Facing East has often been met with the response that, "If it's good for the US, it is good for Kenya."

The contention is that, the US applies double standards when it comes to other nations getting their funding from Beijing, while it is by far, the single largest beneficiary of Chinese loans. Such arguments have to a given extent been advanced by Beijing, with little interrogation by our media and economists, resulting in a laity that swallows it hook, bait and sinker.

Those with economics training will readily concede that, the US negotiates its relations with China from a position of strength. The US dollar, given its depth and breadth, provides investors with large cash reserves and no better arbitrage opportunities a safe haven to warehouse such resources.

The Bretton Woods Convention made a deliberate calculation when they converged on the Dollar as a reserve currency. The US deficit is therefore by design, to provide such reserves for international commerce. US debt is also the only Risk Free financial instrument in the entire world.

The three month T-Bill serves as the bench mark for Capital Asset Pricing. Even the London Interbank Offered Rates (LIBOR) is predicated and bench marked on the Treasury bill. China, like any prudent investor, uses US debt to park its reserves. A case in point is when the US credit rating was downgraded by S&P. People expected capital flight, ironically, with no better options, US debt became even more attractive, driving up the bond prices and confounding financial analysts. The implication is that, the US government pays pennies on the Dollar in servicing their debt obligations.

The same cannot be said of Kenya's relations with Beijing. A look at Sino-Kenyan relationship must be predicated on the tenet that smart money seeks to maximize returns at every risk level. Before an investor decides on a capital investment project, he seeks to know the opportunity cost of capital.

That is, what is my next best option? It therefore stands to reason that, the riskier a venture is, the higher return investors demand.

Now you may begin to understand why the LAPSET Project's cost may have been revised to more than one trillion shillings. Kenya as a nation is highly leveraged and given its capital structure, the law of diminishing returns may have long set in, bringing with it, bankruptcy costs, resulting in junk bond rating on her debt instruments within the international finance circles.

The opacity of our systems coupled with systemic corruption within and outside the government further exacerbates this phenomenon as potential investors factor such variables in their risk and subsequent expected return computations.

Consequently, when we face East and return with what the local media has dubbed as "Goodies," we may want to question the concessions leading to such deals. China may be eating our lunch.

Similar arguments can be advanced for Prime Minister Odinga and his ODM allied Governors flirtation with Western Investors. If the Chinese are any savvy, their Western counterparts, especially the US investors are much more sophisticated.

Our governors may be in the process of making concessions that may in the long run subject their Counties to an early bankruptcy grave or worse, send the innocent citizens to servitude in the hands of foreign masters. It is imperative that the citizens begin interrogating their leadership, especially at the County level instead of being preoccupied with endless national electoral politics.

Martin Ouko, PMP, is a US based Consulting Business Analyst and a Master's Fellow at the New Jersey Institute of Technology School of Computing Sciences. He also holds a US patent on Bone Matrix Composition and Methods. Moo5@njit.edu

Copyright © 2014 The Star. 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 publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.