A letter to The National Treasury of Kenya
Peter Watua
Seasonal Entrepreneur, Climate and Sustainability Enthusiast, Finance & Investment consultant
The prevailing global economic uncertainty has continued to affect many countries. In trying to curb the growing effects of these economic trends which have left many Kenyans struggling with the high cost of living, unemployment, and weakening shilling against the dollar. The government of Kenya through the National Treasury of Kenya, invited the public to contribute ideas on how the Govt can collect more taxes, lower the cost of living and create employment opportunities.
Being a law-abiding citizen and a person who has the government's best interest at heart, I thought why not air my perspective and propose solutions that I feel will help most Kenyans if they can be approved? Here are my perspectives and how they will come into play in dealing with these economic issues.
My name is Peter Watua, feel free to view my profile on this?link, I am a Quantitative Analyst, Economist, and Market Researcher. I hold an Msc. Mathematical Finance, MBA (Finance and Analytics), Bsc. Mathematics (Applied Mathematics and Statistics)
First I'd like to thank you for appealing to the public contribution regarding the question of how the government of Kenya can lower the Cost of Living and Create Employment Opportunities. It only takes a transformative mindset to take such a huge step as this. I have done plenty of research on this matter and I'd like to highlight a few conclusive solutions that I feel would help the government tackle this problem:
Collecting More Taxes: How People, Capital, and Ideas Make Countries Rich
First, we have to agree that for there to be a collectible tax, there needs to be a stream of income somewhere that the tax collector is targeting. This income either comes from registered businesses or Working Population.?An economy needs both healthy?demand?and?supply.?Kenya's?demand?for goods and services suffered when the COVID pandemic came and as a result of inflation that has led to the recent collapse of overinflated sectors of the economy that has left companies with bad debts that they have to work off.?At the same time, deep-seated forces have chipped away Kenya's ability to?supply?goods and services.?
The supply problem is critical because in the long run economic growth hinges on a country's productive potential, which rests on three things:
Population is the source of future workers. A smaller workforce limits how much an economy can produce. Capital and Ideas are essential for making those workers productive. Numerous factors determine a country's success and whether its companies are good investments. Inflation and interest rates, consumer spending, and business confidence are important in the short run. In the long run, though, a country either becomes rich or stagnates depending on whether it has the right mix of?people, capital, and ideas.?Get these fundamentals right, and short-run solutions seldom matter.
So why are we not able to collect more taxes from people? A Country's growth rests on two building blocks: Population and productivity. Over the past decades, Kenya's economic growth has been declining because of the?productivity?or output per worker?of an average Kenyan which determines how each worker's taxable income has been going down.?
The total collectable tax of any given county is hinged upon,?potential output, i.e.,?the total output a county can produce given its labor force and its productivity and?potential growth, i.e.,?the rate at which that capacity grows over time.?
The recent increase in Kenya's population has led to population/ economic size disparity where the productivity of an average Kenyan continues to decline with time, hence the exponential decline in taxes collected.?
The solution is to raise the productivity of the average Kenyan, this will boost growth, create employment and eventually increase growth.?You can raise productivity by equipping workers with more capital, which means investing in land, buildings, or equipment. You can also do it by reviving the sectors of the economies that have been employing the majority of the population previously such as the agricultural sector.?Give a farmer more land and a bigger tractor or pave a highway to get his crops to the market, and he'll grow more food at a lower cost.?
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Capital is not free, though. A shilling invested to produce more stuff tomorrow is a shilling not available to spend on stuff today. Thus, for someone to invest a shilling, someone else should save a shilling; a key ingredient of growth is saving. Saving can come from households, businesses, foreigners, and even governments.?The more a society saves, the more capital it can accumulate.?The government should incentivize its citizens to save more and cut down on expenditures in order to produce more.?
Lowering Cost of Living: A Tale of global inflation and high foreign exchange rates
The higher cost of living is a result of growing inflation and the declining shilling against the dollar. Most of the goods we consume are imported, and this includes agricultural products. As long as we rely on imported products, the cost of living will always be high because the prevailing factors affecting the global markets are universal factors and they cannot be controlled. For example, the Russia-Ukraine war has disrupted the global supply chain due to fuel shortages.?
The cost of living cannot be completely taken off, but if some factors can be eliminated off that least, Kenyans can be able to stomach the rest. To go about this we need to ask ourselves, what necessities an average citizen needs can we import, and which ones do produce? Take agricultural produce for example, essentially to protect the citizens against the exposure of high cost of living, we need to produce most of our agricultural products. If we import most of the food products that are highly consumed by Kenyans such as maize and wheat, there is no way for us as a country to not be impacted by the negative effects of weakening shilling against the dollar.?The same goes for other products that can be produced locally but we have chosen to import.
If we can find a means to revive our industries and produce most of the goods that are widely consumed by citizens, we will be able to hedge the effects of high foreign exchange rates on currencies and global inflation. Locally produced goods will level out the impacts of imported goods. Essentially it takes us back to the initial point of balancing our?demands and supply?through the mobilization of our resources.?
Creation of Employment: How Ideas and Innovation propel employment?
New ideas transform economic production. By combining the capital and labor we have maximumly, we can produce new or better products, expand business lines through innovation and build more opportunities for the growing population. Investing in more buildings and machines costs money. But a new idea can be reproduced endlessly. Already we have seen how Kenya is at the frontier of global tech start-up hubs. In 2022 we saw how the funding for Kenyan Tech startups increased from $292 million to $574.8 million. These start-ups are the creators of job opportunities. As a country maybe it's time to establish a way that we can support start-ups. This essentially can be done by bringing together the key stakeholders who are:
Collaboration across key stakeholders is crucial for collective impact and acceleration of 'innovation-driven-entrepreneurship' at the regional level which plays an essential role in building global businesses that have the potential of creating employment.
I hope this material will be of help. I wish you all the best
Kind regards,
-Peter
These sentiments are not just applicable to Kenya's context but to most of the African nations that going through the same issues, I welcome public contributions and opinions. Teamwork always wins