A fortnight or so ago, the Kenyan branch of the global investment company AIG released its quarterly country report for the first three months of 2004, in which it revealed that the Kenya's economy grew by just 1.4 per cent in 2003.

Being macroeconomic gurus, Kenya's Planning Minister Anyang Nyong'o, and his Finance counterpart, David Mwiraria, will have reasoned explanations for the dismal performance of the economy during their watch. Kanu's shenanigans must form a pivotal part of their argument. And it is true that, like the Queen Mary, a nation's economy takes time to both gain speed and turn around.

Still, at the individual level, money managers will tell you that if you ever want to become rich, you must work, put away a little for a rainy day, and use what you have to generate more. In other words, you create wealth, save, and re-invest.

It is against this native wisdom that the course we are steering needs to be viewed. Will it promote the creation of wealth, its saving and its reinvestment?

Just over a month ago, for example, in what officials said was an unqualified success, the government hosted an investment conference in Nairobi, during which it tried to convince foreign businesspeople that Kenya was a safe and profitable place to invest their capital. Seen alongside its efforts to cosy up to the Bretton Woods institutions, the government development agenda seems to be predicated far too much on inflows of foreign capital, either through donor channels or the so-called FDI – foreign direct investment.

But to balance the equation, one must factor in the absolutely pivotal role of indigenous investors in the growth of the economy, despite lessons from such countries as Malaysia (which succeeded sans IMF) and Argentina (an IMF basket case) that foreign capital is not necessarily the panacea for underdevelopment.

On the contrary, anecdotal evidence suggests that certain types of foreign participation can be grossly unhealthy for an economy such as Kenya's. Consider this.

A major foreign bank hearkens to the government’s call for investment in Kenya, and opens branches in seven major towns around the country, employing hundreds. Bankruptcies It then proceeds to charge customers for everything except breathing in the bankhall, giving an infinitesimal 1.5 per cent interest on deposits and charging 17 per cent for borrowings. 

At the end of the year, the bank posts stratospheric profits, half of which are repatriated to the mother country. Because the financial services sector is liberalised (thanks, of course, to donor conditionalities), the government cannot control the bank's outrageous counter and interest charges. Nor can it compel it to pay its employees decent wages.

In this whole leech operation, how is the country creating wealth, saving it, or reinvesting it? How does Kenya, as a nation, become richer?

The tragedy for the country is that the policies that have led to this incredible state of affairs continue to be touted as the way out of our economic mess. Today, thanks to these same policies, when a Kenyan spends his/her money on just about anything, from telephony to beverages, a cash till rings somewhere in the West. Kenya is then the less richer.

Contrast this to the economic impact of a medium-sized local manufacturer who invests all the profits from his business in a tea farm in Central Kenya, a commercial building in Eldoret, or a chicken farm in Kitale. The only money that he sends out of the economy is the money the banks extort from him as charges! Just whom should the government be paying its attention to?

If truth be told, FDI only contributes to a country's economic growth if it is in value-adding or manufacturing sectors, and if the salaries paid to local staff enable them to attain personal financial goals. FDI in service industries, such as telecommunications, the finance sector, the hospitality industry as well as the professions, achieves little fundamentally to develop an economy, though it might give the impression of movement and efficiency.

FDI is, admittedly, also valuable for extremely poor countries, such as those emerging from civil strife, without adequate human resources or a working financial system. Ultimately, though, the fact is that no foreign investor takes their money to a country out of altruism. For every dollar invested, several dollars are likely to be paid back.

For a country like Kenya, which has a fairly developed human resource base and significant levels of local capital, to hinge its hopes of economic development on foreign benefactors, is a lopsided way of doing things. No country has ever attained economic development through that route, and even the few that are cited as success stories still report some of the worst poverty levels in the world among the ordinary people.

Ironically, the value of local investment to the development of the Kenyan economy is perhaps best illustrated by that most maligned of sectors – the public transport industry. Today, the industry employs tens of thousands, and in the last quarter alone contributed more shillings to the exchequer than the largest multinationals in the country. Because virtually all public transport vehicles are owned by Kenyans, every shilling made in profits are ploughed back into the country, building rural homes, buying dairy cows, paying watchmen... building the economy.

Instead of holding conferences to invite Western buccaneers to a second Scramble for Kenya, the government should be talking to local investors, from Manu Chandaria to the vegetable vendors around the corner, on how to improve the business environment for locals through such interventions as the strengthening of co-operatives and saccos, cheap and available credit, and the establishment of better marketing systems for the agricultural sector.

Yes, it is Kenyans who hold the key to Kenya's economic revival.

Dagi Kimani is a Nairobi-based correspondent for The EastAfrican. E-mail: dkimani@nation.co.ke
 
 

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