TRANSFORMATIONAL OR WHITE ELEPHANTS?

Dark economic clouds on the horizon

What now seems to be manageable debt may grow to be unmanageable in time.

In Summary

• I am not convinced that the projects to which much of this money is devoted will generate as much economic growth as we have been encouraged to believe.

There is an ongoing debate on whether or not Kenya’s external debt is sustainable.

On the one hand we have those who defend Treasury Cabinet Secretary Henry Rotich, and insist that substantial borrowing was necessary given the ambitious development goals that the government has set.

On the other hand, we find those who consider the Kenyan economy so hopelessly weighed down by unwarranted debt, as to be an object of pity.

Now the unpalatable fact here is that what Kenyans think about our national debt is not really important. What is important is what the kind of people Kenyans love to refer to as “interfering foreigners” think, as it is to such foreigners that we turn when we need to borrow large sums.

And these foreigners, in general, do not form opinions on their own but rely on the global ratings agencies which have over the decades acquired a reputation as reliable assessors of the possibility of sovereign default.

One such agency is the Fitch Group, which is, according to its own website, a global leader in financial information services with operations in more than 30 countries.” Within the Fitch Group is Fitch Ratings, which we are assured is “a global leader in credit ratings and research”.

Direct flights to the US had long been presented as the holy grail of our aviation sector; the one thing sure to bring about transformational progress, and which justified investment in airport expansion and advanced security measures at JKIA.

Whether or not Kenyan taxpayers trust what Fitch has to say about Kenyan indebtedness is irrelevant. What matters is that those who can lend us money, generally believe these Fitch Ratings.

And so, when in May this year, a local financial newspaper had the headlines “Fitch Ratings says Kenya able to service long-term foreign loans” that really should have put an end to the debate. I say “should have” because – of course – it won’t.

Kenyans will continue to disagree on whether the Finance CS is taking the country down a path to ruin; or laying a solid foundation for future prosperity.

My own criticism of the CS and his Cabinet colleagues is not based on any idea that Kenya is borrowing too much money. Rather it is that I am not convinced that the projects to which much of this money is devoted will generate as much economic growth as we have been encouraged to believe.

And that what now seems to be manageable debt may grow to be unmanageable in time: Our prospects may be sunny now, but there are storm clouds on the horizon.

The Fitch Ratings approval after all, was conditional on “strong economic growth levels which will cushion [Kenya] against budget deficits and external debt service pressure”.

Now one of the things which is universally believed to contribute to such economic growth is investment in new and better infrastructure. However, such infrastructure has to be put to good use, if it is to generate economic growth.

One of our few profitable agriculture sub-sectors, the tea industry, now shuns the new standard gauge railway, which we had been assured would be transformational in the bulk transport of goods to and from the Port of Mombasa.

In this context then, should we not be uneasy when we see headlines like this one in Business Daily on May 1: 'Direct US flights struggle, as KQ posts Sh7.55bn loss'?

For direct flights to the US had long been presented as the holy grail of our aviation sector; the one thing sure to bring about transformational progress, and which justified investment in airport expansion and advanced security measures at JKIA.

However, we now find that the immediate former Kenya Airways CEO, Sebastian Mikosz, had this to say: “I do not consider it to be a lucrative route. There is nothing lucrative about flying to New York. The route is necessary but difficult”.

Add to that this headline, in the same paper, on May 22: 'Tea companies give SGR wide berth over high transport costs'.

So, apparently, one of our few profitable agriculture sub-sectors, the tea industry, now shuns the new standard gauge railway, which we had been assured would be transformational in the bulk transport of goods to and from the Port of Mombasa.

Finally, consider this headline (also from May this year): 'Isiolo Airport mostly idle despite Sh2.7 billion upgrade'.

This refers to “Isiolo International Airport”, which the report states “was billed as a gamechanger for the economies of Northern Kenya”.

All in all, it would seem that in Kenya, there is really no distinction between “transformational infrastructure” and “white elephant prestige projects”.