Nairobi's Pricy Petrol

Looks like Nairobi has one of the highest petrol prices in the world. Source: Wired Magazine, June 2007. Courtesy of Dima.

"If inflation Was Good What About Zimbabwe"

The following article was a response to Teddy Sseezi-Cheeye’s opinion that inflation was good for the economy, Uganda's Daily Monitor (Feb 16, 2007).

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Please allow me to express my views on Teddy Sseezi-Cheeye’s article on inflation (Sunday Monitor, Feb 8).

First, inflation is among the least understood but most discussed economic trends. Economists and common people alike fall into the trap of confusing consequences of inflation with inflation itself. Cheeye’s article was not different. He, for instance, referred to inflation as the general rise in prices. This definition is not complete.

Inflation is correctly defined as the oversupply of money and credit, which causes market prices to rise. It should be understood that excessive money supply leaves people with more cash to spend. But because the quantity of goods supplied stays relatively constant, the economy is left with too much cash but with few goods to purchase. This forces consumers to bid on market prices, . . . like they do during public auctions. This results to rapid increase in prices of goods and services, which ends when the central bank stops printing extra currency (inflating). Ugandans experienced such a situation in 1980s. It’s not until Ugandan money supply was stabilized in 1990s that the economy started to recover.

Second, Cheeye portrayed inflation as the economy’s best friend. I kindly beg to differ. If this claim was true, Zimbabweans, who are crying over their 1,000% inflation rate, would be the happiest people on earth.

Third, I was shocked by Cheeye’s justifications for increasing both money supply and government borrowing. His reasons went against the very macroeconomic principles he was trying to address. I wish he could read the book “Economics in One Lesson” by Henry Hazzlitt. It’s a very short economics classic that can be downloaded from the Foundation for Economic Education’s website (www.fee.org).

Kenya's Economic History With Alexcia

Looks like Kenyanomics did alright on a quiz administered by Alexcia.

The Quiz: http://alexcia.blogspot.com/2007/06/kenya-economic-history.html: . . .

["1. Alexcia's question: Name the Ministers for Finance that Kenya has had since independence. For bonus point tell me the years.”

Kenyanomics' Answer:

James Gichuru, 1963-69
Mwai Kibaki, 1969-1981
Arthur Magugu, 1982-88
George Saitoti, 1989-1992
Musalia Mudavadi 1993-97
Simeon Nyachae 1998
Francis Masakhalia 1999
Chrysanthus Okemo 1999-2001
Chris Obure 2002
David Mwiraria 2003-2006
Amos Kimunya 2006-to present

2. Alexcia's question: “Which Minister for Finance introduced price controls in Kenya, and who removed them? For bonus point tell me the year”

Kenyanomics' Answer: Kenya's first Prices Control Act was legislated in 1956, seven years before independence. Some controls were removed in 1970s under Mwai Kibaki, others in 1988/89 under Magugu and Saitoti, and the rest in 1993 under Mudavadi.

3. Alexcia's question: “Which Minister for Finance introduced foreign excahnge currency controls in Kenya, and who removed them? For bonus point tell me the year”

Kenyanomics' Answer: Foreign exchange currency controls were introduced under Kibaki in 1970-71 fiscal year and removed under Mudavadi in 1993.

4. Alexcia's question: “Which Minister for Finance introduced import licensing controls in Kenya, and who removed them? For bonus point tell me the year.”

Kenyanomics' Answer: Import licensing controls were introduced under Kibaki in mid 70s and removed under Mudavadi in 1993.

5. Alexcia's question: “Which Minister for Finance introduced marketing of agricultural produce by governement monopolies in Kenya, and who removed them?”

Kenyanomics' Answer: Marketing of agricultural produce by government controls were introduced under Kibaki in mid 70s and removed under Mudavadi in 1993.

6. Alexcia's question: “Which Minister for Finance introduced fiscal and monetary (banking) controls in Kenya, and who removed them? For bonus point tell me the year”

Kenyanomics' Answer: Fiscal and monetary (banking) controls were introduced under Kibaki in mid 70s and removed under Mudavadi in 1993.

Source: It was a long search, but Google was helpful!!! Was the Kibaki-Mudavadi pattern intentional?

alexcia's remarks...

Execellent Kenyanomics
way better than i would have done myself
What Kibaki-Mudavadi pattern (wink)???
The truth speaks for itself

Fri Jun 22, 01:28:00 PM"]

Bottom Line: “Know Your Stuff Inside Out.” Check-out Alexcia, hii ni blogu ya kushuka !!!

The Case AGAINST Military Draft in Kenya

This post was written for Kenya Imagine, the nation’s first interactive newspaper. It is a response to one writer’s call for a “national conscription program.”

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Dave Nyambati’s call for a military draft in Kenya is both socially unacceptable and economically unsustainable. Such a policy will breed a generation that believes serikali ndiye baba na mama yao, i.e., they are entitled to state-provided food, clothing, jobs, college degrees, and even happy marriages. On the other hand, politicians and bureaucrats will start seeing the youth as nothing but government property, which has no say whatsoever. Any attempt to rise will be met with threats of employment and forced arrest. The vibrant youth will then respond with what they know best: violence. What began like a well intentioned move will become a monster that will haunt our society for generations to come. Is that what we want?

Financing the program will not be cheap. The taxpayer that Dave’s policy is seeking to help will start paying more taxes, which will finance the expanded military’s hardware, food, medical bills, pension, paid leaves, and all other goodies that come with a government career.

I have come to a conclusion that our security sector does not need more personnel or funds to perform its duty. What we need is total transparency on how taxpayers billions are being utilized. This follows a short study on military spending in East Africa. See the following piece that I published during the Anglo Leasing hearings (Daily Nation March 1, 2006):

Kenya's military budget baffling
. . . Kenya is the biggest military spender in East Africa? Our military allocations have consistently dwarfed those of our sister states, Uganda and Tanzania. Moreover, we have been spending more per military personnel than Ethiopia did during its war with Eritrea, Sudan with SPLA, and Uganda with the LRA.

Interestingly, Kenya's army of 24,000 personnel was, as of 1999, the smallest force in Eastern Africa. This is according to the World Military Expenditures and Arms Transfers, a 2003 study by the United States Department of State. Ethiopia's army of 300,000 soldiers was the largest, followed by Sudan's 105,000. Uganda and Tanzania had 50,000 and 35,000 military personnel respectively.

One would expect our army to have the smallest budget. But NOPE!! In 1999 alone, Kenya spent $8,000 (KSh560, 000) for every soldier, excluding salaries. This was more than four times Ethiopian allocation (KSh120, 000), almost three times that of Uganda (KSh200, 000), two and a half times that of Tanzania (KSh244, 000), and double that of Sudan (KSh280, 000).

That comparison affirms that Kenya has surely been spending as if she was at war. But the peace she has experienced over the years makes one wonder how her Department of Defense (DoD) ended up spending Sh150 billion between 1989 and 1999 . . .

(Click here for the entire article)

Now calculate the cost of enlisting 300, 000 high school graduates into the military year after year. Is that affordable? Some of countries that Dave mentions are lucky because Uncle Sam finances their military budgets: it’s not a secret that Egypt receives US$ 1.3 billion (80% of its annual defense budget) from the US. Israel receives about US$ 3 billion from the US alone.

*Check out Kenya Imagine.

Kapenguria Six: The End of an Era

The last of the famous Kapenguria Six freedom fighters just died. Here is a summary of their lives after independence.

The Gentlemen	Post after 1963	Age & Life
Jomo Kenyatta	President	89, Filthy rich
Achieng' Oneko	Information Minister	88, Lived well
Bildad Kaggia	Education Ass. Minister	82, Died Poor
Fred Kubai	Labor Minister	79, Died Poor
Paul Ngei	Minister	81, Died Poor
Kung'u Karumba	Businessman	"Dissapeared"

Kenyanomics salutes them!!!!

State Failure and the Economic Rise of Mungiki

The proper role of government is to secure its citizens’ rights and property. Failure to perform this role could lead to chaos, anarchy and eventual collapse of the society. But since individuals are inherently entrepreneurial, they step-in, and start providing services neglected by the state. This becomes a new way of earning their daily bread.

Such businesses grow fast due to high demand for services rendered. Unfortunately, they attract aggressive competitors who, too, want to make a killing in the new industry. Even the government that had neglected its tax-payers comes back to reclaim its "constitutionally mandated monopoly." The group that had started all these does not sit back and watch. Instead, it vows to protect its business turf to the last man.

That explanation resembles Mungiki’s journey to becoming part of Kenyan life. It was not by mistake that they chose to serve in government-neglected areas, such as slums, Matatu industry and the security sub-sector. These areas share one common misfortune: the absence of law enforcement agencies or being surrounded by corrupt state officials.

Bottom Line: Government failure to provide security has contributed to the current national crisis. The killers in Mungiki must face justice, and the state must start performing its constitutional duty of protecting our rights and property.

An expanded version of this post will appear on Kenya Imagine.

Nakuru: The Making of a Kenyan California

The State of California is the American trendsetter for energy and environmental policies. Most of its regulatory laws are copied by other states, and sometimes by the federal government. Though Nakuru town is not a state, its controversial smoking laws could find their way into other municipalities’ town halls. This could mark a new era in the history of Kenyan local authorities. We could see municipalities starting to exercise their independence from the central government.

This is both good and bad news for town dwellers: Good news because it’s easy for them to protest against laws made locally, and bad news because it might open a by-laws arms race among municipalities. I would not be surprised to see certain County Councils coming up with ridiculous laws, just to outdo Nakuru’s stupid smoking by-law.

Bottom Line: I hope this new era will spark a culture of competition among local authorities. We need to have a situation where Thika will be competing with Nairobi for industrial dominance, Nakuru with Eldoret for agricultural supremacy, and Narok with Mombasa for Tourism prowess.