BRICS: Insights for Kenya

Post date: Mon, Sep 7, 2015 |

Category: General |

Conceptualized as a group of countries with a few economic similarities, the BRICS group (Brazil, Russia, India, China and South Africa) has been a political entity without a concrete economic agenda to counter that of the so-called Washington Consensus. Even though some of the BRICS countries have experienced rapid economic growth over the last three decades, these countries continue to face challenges that prevent them from wielding as much international influence as, say, the G7. Recent news of stock market losses in China, corporate scandals in Brazil, and Russia’s revanchist foreign policy and the resultant sanctions against Russia highlight some challenges that hinder the BRICS economies from gaining prominence internationally.

In Half Way There, Chris Hart and Glenn Silverman, both of Investment Solutions – a South African investments management firm, conduct a survey of the BRICS group and examine the social, political and economic environment in each of them, with a view to identifying opportunities for and impediments towards investment. They observe that whereas the transitional policies of these five countries over the last three decades have contributed to rapid GDP growth and significant reduction of poverty, this growth will only continue (or increase) as a consequence of considerable shift in policies and institutions. Basically, the countries are at an inflection point.[1]

Hart and Silverman proffer that the political economy of a country is partly determined by its national scar, a painful or injurious past event or present characteristic, which defines the psyche of a country and informs policymaking, either positively or negatively. Some of the national scars that they identify include hyperinflation (Brazil), aversion towards foreign influence (Russia and China), excessive bureaucracy (India), and apartheid (South Africa).

I would say the post-election violence of 2008 and corruption are Kenya’s political and economic scars respectively. Further, even though Kenya is smaller than the BRICS in terms of population size, GDP, trade volumes, financial market sizes, and global influence, I drew two major lessons from the experiences of the BRICS, as written in the book, which could inform policymaking in Kenya.

First, a reasonable regulatory regime is important for attracting investment, both domestic and foreign. The authors cite onerous compliance costs as inhibiting business (India’s licence raj, for example), delaying or minimizing the spillover effects that could emanate from favourable regulation, licensing and tax. In no way is this a call for less regulation for the sake of it, but a reminder that the regulation should only be so much as to produce optimal gains for the overall economy.

A related issue is that although protection of domestic enterprises might be politically expedient, the resultant welfare losses to society could potentially outweigh the benefits to the few protected industries. Protecting domestic industry could inhibit innovation, leading to stagnation in domestic productivity and a decline in competitiveness. As much as Kenya negotiates for exemptions that allow domestic industries to develop, policymakers should be cognizant of the likelihood of the stunting of these industries on account of the selfsame protections.

Second, a larger, younger and educated Kenyan population could contribute to faster growth in total production, as it has in India. The worry with a growing population, however, is that access to services such as healthcare and education, and employment opportunities might not grow as fast, creating socio-political tensions, as in South Africa. Considering Kenya’s aspiration to middle-income status, as expressed in Vision 2030, the challenge then is on policymakers and other stakeholders to check that the gains from the growth of the economy do not only to accrue to a few, leaving out a majority of the population and increasing inequality levels, as is the case in some of the BRICS.

Overall, I found the book quite a compelling read. The profiles of various companies within each of the BRICS offer a more relatable perspective on business and economics, much less esoteric than many economics books that focus on these countries. In addition, write-ups by contributors from government, academia, and business add to the depth of the book.

[1] Chris Hart and Glenn Silverman, Half Way There. Cape Town, South Africa: COSA Media (Pty) Ltd, 2014.

More Number of the Week

Most people in Kenyan prisons serve shorter sentences

83% are imprisoned for less than 2 years, including those held for less than 1 month. 16.3% of prisoners are convicted for 2 years or more, with 0.5% sentenced to life imprisonment and 0.2% added to the prison population. The Number of the Week is 83%, the share of prisoners convicted for less than two […]

Kenya’s comparison of Out of pocket expenditure on Health with its peers

In the advent of increased Non-Communicable Diseases such as cancer that require long time treatment, reduction of the Out-of-pocket payments is key in sustaining affordability and access to health care services. These can be achieved through increased insurance both by the government and the private sector.

Outstanding Stock of Treasury Bonds by Holders

Treasury bonds are a secure, medium- to long-term investment tools that typically offer periodic interest payments semiannually throughout the bond’s life. The Central Bank auctions Treasury bonds on a monthly basis, but offers a variety of bonds throughout the year, so prospective investors should regularly check for upcoming auctions. Outstanding Treasury Bonds increased by 11.2 per cent to Ksh 1,152,041 million in June 2016 from Ksh 1,035,662 million in June 2015.

Outstanding Stock of Treasury Bills by Holders

In June 2016 compared to June 2015, the stock of Treasury bills increased by 84.4 per cent to Ksh 588,088 million from Ksh 318,929 million while the proportion held by commercial banks increased by 67.4 per cent to Ksh 361,859 million from Ksh 217,742 million. In the same period, holdings by pension fund institutions increased to 20.1 per cent from 12.8 per cent while proportion held by insurance companies decreased to 3.1 per cent from 6.5 per cent.

Outstanding Stock of Treasury Bills and Bonds by Holders

The medium term debt strategy for the financial year 2016/17 emphasized on the need to develop the domestic market by increasing the issuance of Treasury bonds over the medium term. The strategy targeted a mix of 60 percent and 40 per cent for external and domestic financing, respectively.