Friday, December 19, 2014


With poverty of the mind, values and matter we are bound to be trapped in the vicious cycle.
Various disciplines, among them economics have sought to address this scarcity of resources and how human behaviour is shaped by the scrabble of resources; perfected by Keynes , mercantilist et al

Politics , laws, family and marriage  and all associations seek to share these resources by each individual player seeking to have a cutting advantage over the other; to effectively control and eventually annihilate the other; thus Charles Darwin survival for the fittest.

How have modern societies escaped or perfected Darwinism??

Life is a rat race and to join the fast lane there has to be collateral damage inform of bad laws, death and collapsed buildings and other human made calamities.
To escape the rate race we have to seek an equitable way of fighting scarcity; to nourish the mind the soul and the body and that’s what Marxism is all about

Corruption, nepotism, is all ways of seeking competitive advantage over the other.

Laws, taboos are made by owners of resources  as a means of seeking to control the masses, the lumpen proletariat; they are meant to serve the ruling elite unless the masses (if they got the critical mass) rise and redefine the societal values.

The security bill, some say curtails some of the fundamental rights enshrined on the bill of rights.
But we forget that every right granted comes with a huge responsibility.
I hold the view that the media is irresponsible; they need to sell news. Are these the excesses of the untamed capitalism?
Unchecked social media is on the rampage where all abuses are traded?
Political utterances that fuel hatred and hatred; all later denounced?
Forgive me, but in a society where the social fabric is broken down,  we need laws  what those not in power call draconian;
 And focused dictators ; and that’s why Kagame  is my living model- I am a Kagame wannabe..

On a different note we need to change the word BRIBE to TIPS
In most western countries, one is obliged to tip almost everyone from bank tellers, hotel attendants, and cab drivers et al…. remember chickens.. IT’S THE ART OF THE DEAL

This would allow institutionalizing corruption (sorry giving tips) and stopping wasting resources fighting what seems a vibrant self-regulating enterprise.

Dowry is a way of appeasing the bride’s parents– is it a bribe or a tip??

Saturday, November 22, 2014

New railway is not value for money

So far, the raging debate on the proposed standard gauge railway is focusing on dodgy procurement. 
There are also questions about the cost although, on the whole, it is not evident that it is grossly overpriced. Many people seem to be under the impression that it is otherwise a good investment. It is not.
Three hundred billion shillings is not loose change. If it proceeds, it will be the biggest loan that we have borrowed to date. It will increase our external debt by close to one third, our debt to GDP ratio by nine percentage points and our interest payments on external debt by 50 per cent. 
The annual repayment of the principal amount translates to over Sh600 million per county - you may want to think what your county could do with an extra Sh600 million every year for the next 10 years.
If we are going to put ourselves in debt to this extent, we need to be sure we are getting value for money. Are we?
I have a simple back-of-the-envelope method I use to check whether a project makes commercial sense.
At the very minimum, a commercial project should pay the cost of capital. Let us put the cost of capital at 7.5 per cent per year, about the rate that we can expect to pay on the sovereign bond we are about to float. This means that the project needs to generate a surplus of Sh22.5 to pay for capital.
To generate this kind of surplus, the railway would have to have a turnover of at least Sh120 billion. Assuming that it charges the prevailing tariff of US$1,000 per container, it would need to carry 1.4 million 20-foot containers a year, 4,000 a day. That would take about 48 very long trains every 24 hours. The busiest single line railways in the US, for instance, run 20 trains a day.
What about cargo? The Mombasa port is now handling containers about one million TeUs (twenty feet unit equivalent). That means the new rail would have to enjoy a monopoly of Mombasa port cargo to pay its way. This is probably why the Chinese financiers are asking for guaranteed cargo. But what they do not seem to appreciate is that the Kenya State does not have the same command and control power that the Chinese State has.
One can argue that the cargo volume will grow. That is true. But we are not demolishing the old line. And the new one comes only to Nairobi at first.
It does not make sense to load cargo going beyond Nairobi on the new line only to transship it to the old line that could have carried it from Mombasa in the first place.
More importantly, the region is building competing transit corridors not least our very own LAPSSET. But the most immediate competition is Tanzania’s central line. This line goes from Dar-es-Salaam to Isaka, about 100 km south of Mwanza.  It is being extended to Kigali, with a branch line to Musongati in Burundi. At 1,400 km, the distance from Dar to Kigali is 25 per cent shorter than Mombasa to Kigali.
If our Chinese friends make good their pledge to build the mother of all ports at Bagamoyo, Mombasa will have a hard time competing for transit cargo to and from Rwanda and beyond. 
The Lamu port, if completed, will also take a chunk of domestic and northbound cargo. And Djibouti is also angling for South Sudan and Ethiopian business as well. No massaging of data, or growling at critics, will make this railway make commercial sense.  
The long and short of it is that the railway will be paid for by taxpayers’ money. Our constitution has set out five principles that public finance must fulfill. Two of these are pertinent.
Article 201(c) requires inter-generational equity that is fairness between current and future generations. Article 201(d) requires that public money be used in a prudent and responsible manner. Let us take 201 (d) first.
The fact that the railway cannot pay its way does not mean it is imprudent. It may be that it has huge indirect public benefits which are not captured by the revenues -- what we call in economics positive externalities, are very high.

A good example of this was JF Kennedy’s mission to put man on the moon. Its direct economic returns were zero, but the technological advances it engendered are said to far exceed its cost.
But it is hard to see what the public benefits beyond those that accrue to the owners of the cargo that is carried are. And the fact that alternative modes of carrying cargo on the same route, including modernising the existing one, means that even the additional economic benefits to those are not that significant. 
A good example of this was JF Kennedy’s mission to put man on the moon. Its direct economic returns were zero, but the technological advances it engendered are said to far exceed its cost.
But it is hard to see what the public benefits beyond those that accrue to the owners of the cargo that is carried are. And the fact that alternative modes of carrying cargo on the same route, including modernising the existing one, means that even the additional economic benefits to those are not that significant.  
If we must build a railway, it is doubtful that this particular one is the best value we can get for our money. It seems to me that a new line from Lamu to Thika represents better value for money. Three reasons.
First, it is a cheaper and faster alternative to the proposed LAPSSET route, as there is already a line from Thika to Nanyuki that only needs rehabilitation. All it would require to make LAPSSET a reality is a container terminal in Nanyuki and a good road from Nanyuki to Juba, as the road to Ethiopia is already under construction. The economic rationale for replicating the Mombasa-Nairobi line when we are struggling to secure funding for the LAPSSET infrastructure has totally escaped me.
Second, it would connect both the Northern Corridor and the proposed LAPSSET corridor to both Mombasa and the new Lamu port. Choice for the customer, and competition between the two ports, can only be a good thing.
Third, it will stimulate development of the historically marginalised regions along its route. It will carry livestock and livestock products to the ports for export, coal and cement from Kitui, and food from the million acres of the lower Tana that we are about to irrigate.  

Let us now consider 201(c), the inter-generational equity provision. This provision requires that we do not burden future generations unnecessarily, and vice-versa. It would be unjust to borrow money to consume today, for example, to throw the Golden Jubilee party, which would be repaid in 20 years.
That is obvious enough. What is less obvious is that it is equally unjust to tax poor people today for an investment that will benefit future generations who, in all likelihood, will be wealthier than we are today. 
It should be readily apparent that taxing people who don’t have enough to eat to finance a project whose benefits will be realised in 50 years is as unconscionable as burdening our children and future generations with debt whose benefits they will not enjoy.
So, how else then can we finance such a long-term investment as a good railway project? There are various ways, but the most obvious is to borrow as long term as possible. As it happens, we do have access to long term cheap loans from the World Bank -- 40-year maturity, 10-year grace period at 0.5 per cent interest. 
If it were World Bank IDA or the African Development Bank’s (ADF) money, the repayment works out to a third of the Chinese loan, and we will not start paying until 2024, by which time the economy will be much bigger, there will be a lot more cargo to carry, and in effect, the public financial burden less onerous.
But this funding will not be available for long, as it is only available to the poorest countries, a status that we will soon graduate from. What a smart government would do is take advantage of this to finance as many long term capital projects as the World Bank and AfDB are willing to finance.
There is no shortage of commercially viable infrastructure projects, energy ones notably, for the Chinese to finance. At any rate, the Chinese are likely to win most of the construction work even when it is competitively tendered.
It’s hard to see what is smart about getting into the kind of murk they now find themselves in on this project. All it does is to reinforce the negative perceptions that many people have about the way they are doing business with African governments.
It is a lose, lose, lose project. We lose, the President loses, the Chinese lose. It is not worth it.

Friday, May 23, 2014

Corruption is a social evil ; Six strategies to fight corruption

Thanks a lot for this insightful piece on combating the malignant social and economic malfunction called corruption
Broadly, there are three policy proposals on curbing corruption: lawyers approach, the businessman’s approach and the economists approach. These consist respectively in producing tougher new laws, tougher enforcement of existing laws and increasing the level of competition in the economy, both among firms and bureaucrats.
Singapore and Hong Kong are some of the least corrupt countries on the world are successful applications of lawyers approach – they have draconian laws on corruption; they also pay their bureaucrats exceptionally well but the level of political competition on this e countries is extremely low; this has allowed exception level of pay in the bureaucracy without too much political completion.

I will borrow example from one country in East Africa-Kenya; this is my country of birth.
The Kenya Civil service is among the highly paid; this was strategic to attract and retain and high performing from the private sector’s ; it started with an elite Dream Team crafted by the former president in late 90s to turn around the Kenyan economy; vision 2030 secretariat and et al.
Yes, the work by Rijckeghem and Weder (2001) that there is an inverse relationship between the level of public sector wages and the incidence of corruption may be partially correct; it ignores the rent seeking nature of the economic man and the politics of the country which are central to award of civil service jobs.; what about the level of civil liberties?
The Kenyan MP is paid over $10,000per month excluding various unwarranted allowances like sitting allowance (being paid to be in parliament), yet they still misuse constituency development funds, solicit bribes to support either private or public members bill , refuse to pay for child support?
Thus the questions is how much of the clean record if any in Kenya/LDC can be attributed to the policy of high wages?

The red tape of bureaucracy is not a choice of large institutions but product of the desire to systemize processes which should/must outlive the officeholders/owners; and that’s why  it’s easy for a small outlet in downtown street to complete an order for emergency backup generator that for GE( Kenya) to fix a rundown backup generator
Government are the highest rent seeking entity in the economy; they extract income through these bureaucracies; they also create employment otherwise every government unit/ department should be run as a business unit able to finance its operations.
I agree these needless regulations need to be removed but are the leaders ready to pay the political price?  And as such instead of dismantling these bureaucracies they create more efficient  ‘political outfits  ie centers of excellence like Huduma Centre in Kenya; constitutionalize various commission and authorities , merge moribund parastatals rather that privatize them et al
Thus there’s a a correlation between the nature Governance of a country and level of red tape.

Corruption is a social evil with immediate economic effects but long-term damage on moral fabric of the humanity; it eats into the family values where ones worth is measured by the size of the wallet.
It emanates from the Id- the instinctive nature of the being, the self, the selfish, the animal desire to fulfill immediate aggressions which matures into fully grow untamed ego.
It’s also fueled by the capitalism which advocates completion, privatization and wealth accumulation.

To address corruptions we need a bottom up approach

1.      Disband Anti-corruption agency- this agency serves the master.
2.      Set up a Whistle blowing agency whose sole mandate is educate the citizenry on corruption
3.      Make corruption a subject/ topic in basic education.
4.      Personalize corruption; carry out national wide HIV like campaign and sensationalize and sensitive citizens on evils/benefits of corruption.
5.      Set an alternative form of Social justice dedicated to corruption like the Rwanda’s Gecaca system.