In Summary
  • Last year, Kenya’s currency depreciated by about 10 per cent in comparison to the US dollar, leading to woe and hand-wringing, as if the economy itself was grinding to a halt.
  • What was argued, even in the business press, was that depreciation of the Kenyan shilling is bad while appreciation is good.
  • An American teacher I met said that the most effective technology products he ever used to teach Advanced Placement algebra in high school were a pair of whiteboards and pens of different colours.

Kenya’s economic policy environment is always in flux, trying to respond to problems with one policy statement after another.

While I take most policy measures, as stated, in good faith, bad policy finds implementation in Kenya consistently.

I took a cursory count of the policy declarations that have been made and reversed in the last three years and was reminded to list my signals of a poor policy process, and its outcomes.

Top of my list is the hurried implementation and withdrawal of the Capital Gains Tax (CGT). The quick reversal reflects inefficiencies in policy development and implementation.

Industry, undoubtedly, would be reluctant to accept a new tax regardless of its size, so the vociferous opposition to this measure alone was not proof that it failed. The real signal that it would not work was how administratively onerous it was.

In other words, Parliament was convinced to pass an unworkable tax policy and went on to repeal it without asking why it failed. It was poorly designed and too complex, the first signal that it could fail or cause large distortions.

Ideological rigidity is a great signal of poor policy thinking and it is plainly evident in Kenyan policymaking. Last year, Kenya’s currency depreciated by about 10 per cent in comparison to the US dollar, leading to woe and hand-wringing, as if the economy itself was grinding to a halt.

Enormous political pressure was placed on the Central Bank’s leadership to respond, without questions being asked about whether this was good policy. What was argued, even in the business press, was that depreciation of the Kenyan shilling is bad while appreciation is good.

SUBSTITUTES FOR HORSE TRADING

Accordingly, currency depreciation somehow represents bad management and therefore should be corrected by strengthening the currency at all costs.

People forget that with the exception of Germany, few countries have maintained a strong currency and benefitted from it.

This “currency strength” fallacy is of concern, because it means that important economic decisions are being made based on national pride and posturing, as opposed to calmer analytical resolve.

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