State of the Nation: The Rogue Economy

Around 4 p.m. on Friday afternoon, I received a message from a close relative who graduated four years ago with a Bachelor’s Degree in Economics from a public University. It read “I am in trouble, I smelled it kitambo (a long time ago). That is why I was keen and focused on job seeking. Frankly, I am not good at CV writing or interviews or networking. I need a coach, a mentor, a guide…Like I need a miracle kit. Can you help?”

This is a distress call only that it comes barely 24 hours after the State of The Nation Address in which The President declared that the country grew by 6.2 percent in 2018.

There is something unsettling about this economy and no one seems to place a finger on exactly what it is. The previous week, 15 NSE listed companies had issued profit warning meaning that their profits will have dipped by more than 25 percent after trading in the same year of impressive economic growth.

One of them is Government controlled East African Port Land Cement in a year where real estate was amongst the key drivers of the economy. It is not just the government-owned cement manufacturer that is ailing; privately owned Athi River Mining is under administrative supervision for failing to meet its debt obligations.

The question doing rounds in social circles, is who it is that is making money in this economy with unemployment rates hitting the ceiling, retail businesses folding every day and auctioneers having a field day? Loretta Napoleoni describes a rogue economy as one that is driven by criminal enterprise, at least according to her book Rogue Economics.

Although her work has been criticized as empirically shallow and too left-leaning, her assertions are not far off the mark. Trade, as espoused by Adam Smith in his all-time classic The Wealth of Nations, is dead. According to Smith, by allowing and encouraging free enterprise all economies could thrive with wealth appropriating to the most competitive producer.

The idealism imagined by Smith made the grave assumption that everyone would play fairly and by the rules. This implied the international standards would be adhered to; pricing would have arrived at competitively and required disclosures would be made. Allow me to use an analogy to demonstrate the reality, Angel is from an ordinary family who works hard to join university and earn a degree in economics while Angie comes from a well off family whose matriarch is an influential politician. Though Angie she never qualified to join Uni. she enrolls for a diploma in purchasing and supplies and thereafter private university. During this period she also secures a job with a public institution as a procurement officer. Eventually, she sets up a string of companies in collusion with colleagues and family with the intention to supply to the government.

What ensues is spirited lobbying, blackmail, and bribery which ensures that Angie’s affiliated agencies enjoy the most lucrative government procurement opportunities whose payments are received in advance. While Angie is mastering the art of wheeler-dealing, her cousin Marcos is busy importing substandard commodities duty-free, thanks to his reliable contact at KRA. By the time poor Angel graduates, following a string of lecturer strikes and student unrest, the economic horse will have bolted kitambo. Her parents were looking up to her to educate her younger siblings and now the only job she can secure is that of freelance academic writing or a consumer promotions sales agent. Alternatively, she might start a blog and hope to build some online business selling cosmetics or fashion articles.

Meanwhile, her HELB loan will slide into default and most banks will focus on microlending, which she cannot access, while their funds remain immobilized with the 15 NSE listed companies among others that are slowly sinking into unprofitability. To remain afloat, these companies will downsize generating more joblessness instead of the reverse while eating into shareholder wealth. Some sectors of the economies will experience superficial booms as illegal substandard imports flood the market at the expense locally manufactured products and proceeds of money laundering and other economic crimes will find their way into the real estate sub-sector.

By some standards, Angel is doing better than her brother Mark who barely made it through high school and now splits his time between betting platforms and menial jobs. One day, he hopes to buy a boda-boda from his betting windfall or even better an Uber. All of these imaginary characters are part of a rogue economy. Proceeds of explicit economic crimes are finding their way back into the economy providing Angel, Mark and millions of their peers with freelance and menial jobs. Unwittingly, some of their economic pursuits border on rogue economics whose ultimate beneficiaries are a restricted club of dodgy entities.

Perhaps we need to rethink our economic model and pull the rug from under the unscrupulous economic plunderers. To achieve this, we may need to affect some radical pro-poor policies like offering beneficiaries of government subsidized education loans first priority of employment at public institutions. We should consider outsourcing government procurement to independent third party agencies while ring-fencing import trade from margin opportunists. Lastly, our trade and financing policies should be pro-local youth because they don’t just need jobs, they need high-quality ones. A rogue economy cannot be wished away through statistical enumeration of numbers, it will take nothing short of a social-economic revolution.