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February 21, 2019

Poisoned Chalice: Why SGR spells doom for a homegrown Kenyan economy

Wine glass
Wine glass

On one of my visits to the United States while on civil society assignments, my attention was attracted by the huge number of migrant workers who, in all estimations, keep the American economy running. This prompted me to seek an explanation from a friend from George Washington University on how and why the American economy can sustain such a huge number of workers.

His answer was simple — the American economy, he said, is homegrown and private sector-driven. In essence, the American economy is in the hands of the private sector — a private sector that is not foreign-owned or foreign-dominated.

If one applies this explanation to analyse the Kenyan economy with regard to the effects of the standard gauge railway on the economy that has thrived along the Mombasa-Nairobi and Nairobi-Malaba highway, it emerges that a key chunk of the Kenyan economy that is homegrown is on the brink of collapse.

First and foremost, road transport, especially cargo haulage, along this busy highway has seen the emergence of thriving stopover towns and trading centres that have a multiplier effect on the economy. For instance, Kikopey trading centre in Gilgil is one township that has grown rapidly within the last decade.

From a centre initially made of temporary structures to accommodate roadside eateries, Kikopey is today growing into a small metropolis with modern hotel and accommodation facilities. As the centre opens up, the value of land in the area has risen and one can now see people putting up modern houses, schools and recreational facilities.

However, there are now genuine fears that fortunes of the likes of Kikopey will come tumbling down as the SGR is extended from Nairobi to Naivasha and all the way to Malaba. Being an express cargo hauler, the SGR does not give room for stopovers hence offers no chance for emergence and growth of such towns. The likes of Kikopey are a perfect example of a homegrown, private sector-driven economy that Kenya badly needs to create jobs.

It suffices, therefore, to say that the SGR is some kind of a poisoned chalice. As much as the SGR will make the haulage of goods efficient and faster, hence freeing our highways of trucks, the Kenyan economy will be the one to suffer as it will lose the multiplier effect that comes with homegrown, private sector-driven economic activities that thrive in centres like Kikopey.

It must be noted that SGR is a government economic investment, meaning that it competes with the private sector. And as my friend from George Washington University explained, there is no way Kenya will take off and reach the levels of developed countries like the US when major economic activities are government-driven and externally owned.

In a recent interview with the Kenyan press with regard to President Kenyatta’s infrastructure investments, World Bank country director for Kenya Diariétou Gaye said that as much as infrastructure investments such as the SGR will spur the Kenyan economy someday, the bank prefers to see an economic strategy that is driven by the private-sector instead of government because the former is more sustainable and allows room for robust innovations.

But there is the equally reasonable argument that the SGR will openup the interior of Kenya and thereby attract foreign investment. However, as much as foreign investment is good, it cannot sustain the Kenyan economy. As already pointed out, the American economy is strong because it is not only private sector-driven, but it is also homegrown and locally owned.

There is a big danger with a foreign investment-driven economy because of the shocks that are likely to jolt such an economy whenever foreign investors feel threatened or jittery. It must be noted that as much as foreign investment can also have a multiplier effect, such effect is not guaranteed because the nature of foreign investors is such that they move in to make a kill and once their objectives are achieved, they retreat and invest elsewhere in order to maximise on returns. For this reason, foreign investment cannot be relied upon to sustain the Kenyan economy.

Then there is the loss that comes with regard to financial institutions that have advanced loans to owners of haulage trucks. As the SGR penetrates the Kenyan interior, many people who invested heavily in haulage trucks are about to start feeling the pinch. The SGR will certainly put many truck owners out of business, and with this comes the danger of financial institutions losing billions of shillings in the form of default on loan repayments.

As we celebrate the milestone that is theSGR, we also need to look at the other side of the coin — a side that spells doom for what would be Kenya’s homegrown, private sector-driven and locally owned economy.


Head of Strategy and Partnerships at the Supreme Council of Kenya Muslims  



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