'WHY ARE KENYANS BROKE?'

Uhuru, kwa ground vitu ni different

Do not rely on statistics from our growing GDP

In Summary

• Media told us that the Presidentsaid he does not understand why we Kenyans are broke; why they do not have money in their pockets.

• President Kenyatta is wondering why all the many infrastructural projects his administration is undertaking is not translating immediately into Wanjiku’s pockets.

President Uhuru Kenyatta.
President Uhuru Kenyatta.
Image: FILE

$10.5 billion: This is how much Steve Jobs was worth on the day he died in October 2011.

On the day he died, a single share of Apple stock was trading around $54. In August 2018, Apple broke the USD trillion mark and its share price topped to a high of $207.05. Had Steve Jobs been adept at controlling his anger as he was in developing apps, he would not have dumped his 99.99 per cent shares, which he did in a fit of rage.

So by the power of simple math, today his 20 per cent stake in Apple would be worth roughly $200 billion. He would have easily been in the top 10 of the richest human beings of all time.

If you were to ask Wanjiku why Steve Jobs was so rich, the answer you are likely to get is that it is because he was the CEO of Apple. And if you think I am exaggerating, all you need to do is to remember the national tirade when it was revealed former Safaricom CEO, the late Bob Collymore, earned Sh16 million every month, or Sh500,000 daily. And there was an uproar at how immoral it was while there were many other Kenyans who went to bed hungry.

But were Steve Jobs and Bob Collymore rich because they were the CEO of Apple and Safaricom, respectively? Contrary to popular opinion, they are not rich simply because they serve in the role of CEOs. Allow me to unpack this for you.

If you stroll down to Jeevanjee Gardens in the heart of Nairobi city, you are likely to find a crowd of people keenly listening to a street preacher instructing them that the formula to be prosperous, is to sow their money in the kingdom of god. And sadly, many do so unquestioningly. But the only prosperity they are likely to see is on viusasa.

If you were to ask the same crowd how many people had Sh50,000 in their savings accounts on that day, very few would probably raise their hands. But if you were to ask the same crowd how many have a smartphone and transact on M-Pesa, perhaps 99 per cent of all the hands would go up.

Is it then a wonder that Steve and Bob made as much money as they did? They are rich because we have made them rich.

This week, the media informed us that President Uhuru Kenyatta posed a question to his advisers. They told us that he said he does not understand why we Kenyans are broke; why they do not have money in their pockets.

Kenyans characterised this question as being harshly insensitive, particularly given that it was not only coming from the head of state, but also from one brought up with privilege. In a bid to express their displeasure, a hashtag #uhururesign trended all day, where all manner of opinions were proffered. And because opinions are like noses, where everyone has one, but it has a couple of holes in it, so did the array of reasons advanced under this hashtag.

I do not hold brief for President Kenyatta. But the question he posed was not insensitive. It was his rendition of wanting to know why kwa ground vitu ni different. In other words, why was the trickle-down economics elusive to Kenyans?

I stand corrected, but I have no recollection if the same media informed us of the answers he received from his team of advisers. In my dream world, I sometimes imagine him seeking my opinion. And on this particular question, had he asked me what I think, I would have told him that he had asked the right question, the wrong way. What he ought to have asked is ‘why are some Kenyans wealthy?’

Most people think that wealth is synonymous with money. This conflation is brought about because we think that people who have money in their possession, or have access to it, are wealthy. But in economic-speak, there is a difference between the two.

Money is a medium of exchange and if you have it you can convert it into wealth. Money is, therefore, a conversion tool rather than an end in itself. The only reason we value money is that we anticipate the thing(s) we would acquire when we get rid of it in an exchange.

If someone asked you if the United Arab Emirates was a rich country, you would probably sarcastically respond with a rhetoric question, is the Pope Catholic? Yes. The UAE is rich. But is it wealthy?

Wealth consists of assets that promise a future stream of income. Real wealth comes from production. Therefore, the money earned through any form of transitory streams of income such as oil, minerals or loans needs to be converted into remunerative capital such as industries and transportation infrastructure, which can continue to assure a future yield.

For example, in the 16th Century, Spain became rich from silver and gold extracted from the mines of its colonies. In a relatively short period, it went from a backwater country to being the wealthiest nation in Europe. Those overseeing the colonisation of its conquered colonies, became instant millionaires. After all, why work for decades when you could steal all you want from your colonies? The notion of thrift and production vanished. The overnight millionaires spent their money just as fast and went back to the colonies for another round of plunder. When the colonies regained their independence, Spain relapsed back to its former state. What this teaches us is that wealth is not found in nature. It must be created.

President Kenyatta is wondering why all the many infrastructural projects his administration is undertaking is not translating immediately into Wanjiku’s pockets. But I wonder if any of his advisers has schooled him on the Cantillon effect of monetary expansion.

The Cantillon effect explains how those closest to the money spigot are enriched faster than those who are farthest from this tap. To illustrate this, imagine pouring honey into a deep cup. The reality is that the honey will not spread out evenly immediately. It will clump in the middle of the cup first before spreading out. And there will be a time delay before the honey spreads out eventually. This is the same case with trickle-down economics from big government infrastructure. Those that will profit from it immediately are those that are closest to the tap and who begin to make investments.

So to answer the question of why some Kenyans are wealthy, it is because, like Steve Jobs, they have invested in the production of things and services that people value; hence the latter are willing to voluntarily and frequently exchange their money in return.

Finally, my unsolicited advice is to President Kenyatta; many people use statistics the same way a drunk man uses a lamp post – for support rather than illumination. Likewise, do not rely on statistics from our growing GDP; because due to the Cantillon effect, kwa ground vitu ni different.

They say that love is more important than money; but have you ever tried to pay your bills with a hug? - Anonymous