Nimi Mweta. Dar es Salaam: PLENTY of agitation is often heard from policy
making circles that businesses in the country should stop charging for
services in the US dollar, seeking to make it that this leads to the local
currency losing in value to Uncle Sam’s money, as this habit diminishes
demand for it. This agitation would virtually make it out that the reason
for the sharp decline of the shilling over the years, for instance to the
Kenya currency and not just the dollar, is due to heightened use of foreign
currencies, as this diminishes demand for the local currency. This is an
inverted view of reality.
The demand for the US currency that is being contested is at best limited
to hotel services and often rental quotations, even if the latter would
still be paid in the local currency. Radical critics who prefer to believe
that their private sentiments and often snobbish gesticulation on things
that are foreign – everything except the dark business suits and land
cruisers – have the same value as economic thinking proper, don’t really
spend time thinking why our shilling slides fast with regard both to the
dollar and the Kenyan shilling. It is enough they issue a call, ‘educate.’
Were they to spend time thinking about the question, they would discover
that the use of US dollars in air travel ticket quotations, paying hotel
bills or for that matter renting furnished apartments in Masaki or Mbezi
Beach isn’t a factor in setting the rate of the local currency vis a vis
the dollar. They would realize that what is in that sense involved is
aggregate demand for the dollar especially in payments tied to dollar
denominated public debt, and what is earned in exports, or foreign aid.
Locally, many people keep their savings in dollars to stem short term
depreciation.
At a moment where bank savings or deposit interest rates are less than ten
per cent prime rates or five per cent ordinary rates, keeping savings in
dollars could earn one such gains at the end say of one year, as the
dollar could sell at ten per cent higher if not more. There is also ease of
transaction as forex shops don’t have the same queues as bank teller
windows, making it easy to obtain the local currency when one needs it in
substantial quantities, among businessmen in particular. Otherwise there is
nothing to write home about in relation to charging in dollars.
What is more interesting is to explain why it took 30 years from the time
of the Arusha Declaration to 1997, where – at the time of the privatisation
of the National Bank of Commerce to complete financial sector
restructuring- for the shilling to slide to Tsh10 to Ksh1, compared to the
later period. From 1997 to 2012 is another 15 years, half of the earlier
period, and our shilling has travelled the same road, from Tsh10 to the
Ksh1, to Tsh20 to Ksh1, which from an arithmetical point of view is
comparable. It is double the previous rate in terms of linear progression.
What thus comes up as a reasoned hypothesis is that the motion of exchange
rate depreciation has taken half the previous period of linear progression
where it had shifted from Tsh1 to Ksh1 early in 1967, to Tsh10 to Ksh1,
reached after 30 years. But the same linear progression from Tsh10 to Ksh1
to Tsh20 to Ksh1 has been reached in 15 years from the time that it reached
Tsh10 to Ksh1, one to ten in 30 years, which means it has depreciated at
twice the old rate. The question is why the depreciation was faster whereas
both countries were formally market economies.
Faster depreciation means the sort of weaknesses in terms of ability to
attract foreign exchange into the economy, and more significantly, earn it
or retain it by exports and lower exports of capital as compared to
investment, worsened in the later period. Two sorts of reasoning, or rather
mapping out causes, can be put across for the faster rate of depreciation,
which depend upon the viewpoint that one adopts about either economy. Is it
Kenya that improved its economy, thus its currency became stronger
continuously, or what sort of opportunities do we miss?
Looking at the Kenyan economy from outside, or say from ‘within East
Africa,’ it is hard to say that it has come a long way in terms of economic
reform, as in any case the agenda has scarcely been audible in the Kenyan
context. If any reform agenda cropped up in Kenya, it took the form of good
governance as we often try to see the problem of improving economic
management. especially at the political level, which is a reflection of
local conservatism in favour of public companies. In Kenya the market
context has remained firm, and perhaps cut out a few abuses, etc.
Take an example of tourism, where Kenya’s shortchanging of Tanzania is a
glaring difference in how the two countries manage their economies. It may
to an extent explain not just tourism sector performance but economic
efficiency as a whole. In Kenya foreign tour operators or hotel owners have
the same operational conditions as locals, in other words what is
administered by law is a company, not the owner.
It is easy to see that in such a situation where Tanzania has shifted from
about 500,000 tourist visits per annum in the 1990s (for ease of
comparison) to nearly 1m at present, the same should have happened in Kenya
at a faster rate as its regulatory regime is far more hospitable than here.
So the logic of doubling of exchange rates, similar to doubling tourism
visitations, does not demonstrate total inefficiency of economy (as that
would be a contradiction) but comparative levels of use of opportunities.
We use opportunities, but Kenya would use vastly more.
There is another dimension of linear progression comparisons which can help
to amplify on the total opportunities available in an economy, on the basis
of the fact that use of opportunities implies availability of credit. This
is vital both in terms of start up ability or improvement, expansion and
operations of the sort, like mergers and acquisitions of foreign companies
investing in a sector. Where there is ease of availability of credit, there
is a compound effect that is built over time compared to situations where
lending is difficult at all levels, or may tend to be overly selective.
Availability of credit is unavoidably tied up with ease of transfer of land
titles in terms of ownership, which is an extension of the sort of
ownership a country has privileged, or in that same sense, portions of land
that are transferable with ease compared with those that are
non-transferable or non-credit attracting. Roughly it is said that about
ten per cent of Kenyan land is fully owned privately, in the sense of not
being communal, with extended rights for a specific ethnic group or clan.
The right figure for South Africa is about 20 per cent, and Tanzania two
per cent.
It is hard to qualify two per cent of land in Tanzania as fully privately
owned, but it makes sense in the sense of value of land that can change
hands rapidly either by personal transaaction or court order, whereas the
portion of vastly larger for Kenya. As for South Africa most people would
think of it as fully entrenched in private ownership of land, forgetting
that so many zones in the rural areas are entrenched tribal areas, the
foundation of the old policy of ‘separate development,’ upon which
nominally independent states were created. These zones are a psychic
cornerstone.
To make a ‘linear progression’ cumulative calcul of opportunities, one
needs to take the spread out of land that is easily transferable as
attracting capital on the one hand. All the three are weak on this score, as
land shifts within the local setting, while urban land is available for
larger investors to build hotels, office blocks, etc. Rural land dynamism
is higher in Kenya for its smaller scale of ownership, chiefly.
On that score one can see that though South Africa is a much larger
economy, its microeconomic performance doesn’t seem to rival that of Kenya,
where communal antipathies are higher, but class-based grassroots revolt
nearly absent. South Africa has higher populist pressures than Kenya ever
had, as ownership in Kenya relates chiefly to a local class of landowners
and numerous small owners, thus it is ethnic intrusion that is fought, not
ownership per se as in South Africa. Tanzania on the other hand has rising
capitalisation on urban land, burning fingers with rural land.
It is probably in acquisition of shares and opportunities in that field
that the three economies are vastly different, and which give them their
specific status. While its agriculture is performaning, Kenya’s stock
market has been quite dynamic owing to equal conditions for operators or
management recruitment where no one shouts that a ‘Boer’ is now the general
manager, and when the government is in some joint venture (as in Kenya
Airways) it is a better investor than the partner, while here the
government is the cheat. This partly whittles down Tanzania’s opportunities
totally.