How the Coastal Kenya Market will recover in 2021
Coastal economy was the worst hit by the pandemic after the World cut it’s connection with the country after Covid-19 was declared a world wide pandemic. Relatively, many businesses had to resort on seeking the local market and assume there are no exports and imports to supplement their money economy. While most of the prices of regular commodities remained fixed, Kenyans were left with no choice but to increase their spending even when the economy had been going into an “Intensive Care” state.
This scenario mostly happened in the Coastal region and some bit in Nairobi. With regard to the breakdown, evidently you can fore see the assumptions as propagated by the ‘Keynesian model’ coming into solid composition.
Among the assumptions derived from the Keynesian model on income determination are that the economy has excess production capacity which was as the case of what was seen in the state of the nation since the pandemic hit. Productivity increased, a number of creative Kenyans began exploring the untapped market gaps created by the pandemic, i.e the hospital beds; however the county governments did not fully utilize this opportunity to their maximum as would have been expected. At that time, firms were assumed to make no tax payments; all taxes were largely paid by households, which was clear. The central government had cut it’s budget by easing on the P.A.Y.E and VAT for all Kenyans. In such a case the Keynesian model has been on the triumph silently yet many casual onlookers would not have been seeing it.
Economists might suggest another prime way for economic recovery but the Keynesian way is the best path on saving the Coastal economy. In relation to the factors that make the Coastal region a greener field for the Keynesian model is that; the economy shrunk by half of its initial productivity level, the import and export taxes went down to almost zero remittance and utmost what keeps the Coastal economy is the active import and export business.
Many would see this as a reasonable position. Most economists view the market system as fundamentally healthy. It will get sick from time to time and therefore need medication, but it is basically self-healing, like the human body. So treatment should be limited in scope and duration. This is particularly the case given the unreliability of political medicine. John Maynard Keynes (1883–1946) rejected this analogy between the market system and the self-healing body and believed rather that a market system left unattended by the state could never be healthy.
With a number of legislation passed daily in the Coastal counties assemblies, and even the bicameral house, there has been no true definition of how to bring back the Coastal bloc economy into order. The inception of the Lamu Port recently has elicited many popular and unpopular opinions that would revive the economy around. The idea will still stagnate once the ports operations hit a 30% operationalization. Turkana for example was praised for the oil deposits, more than three years now the region still pants of heavy economic burden. Unless the Keynesian model is implemented by the county assemblies in Mombasa a lot worse would be expected.
Keynesian economics starts with this blinding shaft of common sense. People are unemployed when there is no demand for their services. Yet this insight never fully converted the economics profession, who went on cooking up all kinds of fancy reasons to demonstrate that what looked like unwanted unemployment was really a ‘choice for leisure’. Today I would wager that most economists believe, deep down, that most unemployed people could find work if they really wanted to, or if state benefits did not provide them with an alternative income.
Unfortunately the biggest derivative of demand has always been supply. If income is kept constant, during this economic recessions period in the country, demand would go down and a relative effect would be seen on supply, causing a break down in operations. If there are no jobs, demand for basic goods will go down and the frustration thereof would cause the youth to forage for any drugs available to abuse. This is where most idle youth will spend their meagre income. In Mombasa and some counties around it, Miraa business has been on the high end. It’s consumption not only lags the Coastal economy by reducing the productivity ratio of its youthful generation, but the returns on its business are felt in Meru and other areas where it’s being planted. My teaser in relation to the Keynes way is that the county government to lay down structures that would accommodate these youth maximally, also impose a huge tax on the “joints” selling the Miraa plant. The idea behind this is to accommodate what we have as the Coastal economy and level up the barriers in order to win in the economy this post-covid period.
A lot has been done by the county governments including setting up direct fiscal policies that would leverage the falling economy in the coast region, But why do economies not quickly bounce back from collapses? Keynes gave two reasons why even flexible wages will not maintain or restore full employment.
Keynes’s first argument was that every producer is also a consumer: my wages are your income, because my wages buy your goods. If my wages go down, your income goes down, too. The general principle is that cuts in production costs (whether by cutting wages or by laying off workers) deepen a slump by simultaneously cutting total demand or spending power. A fall of income in one part of the economy reduces production in another part, and so on, in a downward spiral as unemployment spreads rapidly throughout the economy. Eventually spending power is stabilised at a much lower level as people stop saving. But nothing has happened to stimulate consumption, and therefore to promote a recovery. The weird idea that the way to revive an economy is by getting everyone to stop spending comes only to a well-trained neo-classical economist.
Keynes’s second argument against the V-shaped recovery model had to do with the behaviour of money. It is characteristic of a slump that instead of investing their money, businesses ‘hoard’ it, or ‘add to their cash reserves’. The greater this ‘liquidity preference’ is, the higher the rate of interest that owners of money will charge to lend it out. But to stimulate production, borrowers need lower rates, not higher rates. So when confidence is low, the higher rates demanded by the banks for loans mean even less investment, less consumption and less employment.
“The calculus of probability…was supposed to be capable of reducing uncertainty to the same calculable status as certainty itself,” wrote Keynes, however this projection looked like a myth and he further explained, “Actually…we have as a rule, only the vaguest idea of any but the most direct consequences of our acts.”
This was the second huge shaft of commonsense to pierce the mathematical precision of forecasting models.
The government’s ought to be consistent and lay down enough strategies to protect the economy as evidenced by Keynes. Governments are indispensable ‘balancers’ of market economies. They add and subtract spending power as and when needed.
This explains why there is no virtue in trying to balance the budget as such. Being Keynesian means having a theory of the economy that justifies the use of the state budget to balance economic activity at an optimal level of output and employment. This can mean either a budget surplus or a budget deficit or a balanced budget, depending on what is happening in the economy. It is the accounts of the economy that it needs to balance. Without this balancing act the economy will have a spontaneous tendency not to full employment but to underemployment.
To maintain economic life on a balanced, governments need to do two things. First, they need to steady the rate of investment. They can do this through public investment programmes.
“I expect to see the state, which is in a position to [take] long views…taking an ever greater responsibility for directly organising investment,” Keynes 1936.
Secondly, governments should pursue counter-cyclical policy to limit the effect of remaining fluctuations. This means injecting extra spending into the economy when private spending falls and curtailing it when it rises. It can be done on the tax side, or spending side, or both. The ‘multiplier’, based on what is called ‘the marginal propensity to consume’, tells governments what the multiplied effect of any spending they add to or subtract from the economy will be.
The first would reduce fluctuations in investment to much narrower limits; the second would provide a buffer stock of jobs, which would automatically expand in a downturn and deplete in an upturn. Public investment does not require public ownership. Much of it could be done by quasi-state institutions like public investment banks or funds or state-holding companies.
These two balancing functions, public investment and counter-cyclical policy, are needed to ensure the full employment and stability of capitalist market economies. The stability of rising industries such SMEs would be catered for by the government’s. And the fuller the use of a country’s human resources, the more prosperous the country will be, the greater the social contentment and the less the danger of political extremism and we would have saved the Coastal economy and added idea to save other regions in the country.
With our businesses on the brink of yet another steep recession, and with ecological disaster coming, as the Coastal region we can no longer afford the luxury of just an economic policy that concentrates only on the war against inflation leaving unemployment to emergency measures, distribution of wealth and income to the market with excess ignorance to the ecological challenges.