The short-sightedness of buying and building Kenya

By Shadrack Muyesu

The Buy Kenya-Build Kenya Campaign Strategy was developed in April 2017 following a Presidential directive that a strategy be formulated to drive consumption of locally produced goods and services. The Buy Kenya-Build Kenya initiative is expected to enhance competitiveness of local firms, stimulate local production and promote industrialisation, a key priority area in Vision 2030. In addition, the strategy shall contribute towards mitigating the impacts of the trade deficits.

Among the lofty objectives of the policy document are the establishment of a legal and regulatory framework to guide public procurement; the provision of an enabling business environment; the enhancement of market access for locally produced goods and services; advocacy and the creation of an institutional framework to enable sustainability of related activities.

Specifically, in order to protect local industries, the strategy proposes that Ministries, Departments and Agencies (MDAs) be required to reserve a minimum of 40 percent of their procurement budget for locally produced goods and services in line with the 2015 presidential directive and Section 155 (1) (2) (3a) of the Public Procurement and Asset Disposal Act, 2015, which demands Preferential treatment and reservations for locally manufactured goods. 

The strategy also aims at sealing loopholes in the regulatory framework and more so Kenya’s procurement law, which in its assessment, has affected policies to enhance growth of industries. Inter alia, while through the Public Procurement and Asset Disposal Act the Government has made concerted efforts to prioritise locally manufactured goods over cheap imports, poor implementation and enforcement of the provisions of the Act leaves local products vulnerable to unfair competition from imports.

Other strategies that will be employed include the provision of subsidies and incentives to local producers in targeted sectors and the provision of quality infrastructure to enhance competitiveness of local products and services. Government also aims to promote competitiveness and consumption of local products and services and facilitate packaging and branding so as to enhance market access. 

The strategy also identifies a number of key threats which include stiff competition from global commodities as a result of international treaties and the threat to local production owing to importation of cheaper products. According to the findings, due to liberalisation policy, more countries are coming to grow their produce in Kenya for their own consumption. Regionally, the relocation of Kenyan industries to other countries in the region, increasing Technical Barriers to Trade (TBT) and Non-Tariff Barriers (NTBs), as well as implementation of the East African Community Common Market Protocol were also identified as threats that are likely to slow down the advancement of local production.

Dependencia

In short, the strategy simply identified outside competition as threatening development and proposed closed borders as a solution. The report is merely a critique of capitalism as we know it and the formal incorporation of protectionism that Trump is now pursuing and that has served countries like China with distinction. More than anything so far it, it signalled an economic and intellectual shift eastwards. 

In line with the strategy, recently the Department of Justice released a circular directing that on all Fridays starting from October 2019, all members of staff shall be dressed in decent, smart, casual, Kenyan produced and tailored attire subject to the Public Commission Act, Human Resource Policies and Procedures Manual for Public Service, 2016

It seems all good on paper, especially when you have the example of China to rely on, but in truth is no developing country has ever been served by protectionism and import substitution as long term economic strategies. Any country that wants to grow must open its borders takes advantage of cheap technology and ideas produced elsewhere to grow its industries and compete like the rest. History is awash with examples. 

It reeks of a dependencia theory initially propounded by Lenin that blames capitalism for the economic underdevelopment of, in our case, the Third World. In his well-known 1914 pamphlet, ‘Imperialism: The Highest Stage of Capitalism’, Lenin argued that Capitalism had bought time for itself by in effect exporting exploitation to the colonies, where native labour and raw materials could absorb European “surplus capital”. Competition among “monopoly capitalists” led to the political division of the underdeveloped world and, ultimately, to conflict, war, and revolution among them.

As Francis Fukuyama writes in ‘The End of History and the Last Man’, “According to classical liberal trade theory, participation in an open system of world trade should maximise the advantage of all, even if one country sold coffee beans and another, computers. Economically backward latecomers to this system should in fact have certain advantages in economic development, since they could simply import technology from the earlier developers rather than having to create it themselves. The Dependency theory, by contrast, held that late development doomed a country to perpetual backwardness. 

The advanced countries controlled the world terms of trade and, through their multinational corporations, forced Third World countries into what was called “unbalanced development”—that is, the export of raw materials and other commodities with low processing content. The developed North had locked up the world market for sophisticated manufactured goods like automobiles and airplanes, leaving the Third World to be, in effect, global “hewers of wood and drawers of water.” Many dependencistas linked the international economic order to the authoritarian regimes that had recently come to power in Latin America in the wake of the Cuban Revolution. 

Only developed, industrialised countries with large populations can practice protectionism and get away with it. Anywhere else it is a voluntarily taken poison.

Protectionism doesn’t suit anyone

The policies that emerged from dependency theory were decidedly illiberal. The more moderate dependencistas sought to bypass Western multinational corporations and to encourage local industry by erecting high tariff walls against imports, a practice known as import substitution.

He goes on to expose its fallacy in the following terms 

But while the Dependency theory lives on among left-wing intellectuals, it has by now been exploded as a theoretical model by one large phenomenon it cannot possibly explain: that is, the economic development of East Asia in the post-war period. Asian economic success, apart from whatever material benefits it bestowed on the countries of Asia, has had the salutary effect of finally laying to rest self-defeating ideas like the dependencia theory that were becoming in themselves an obstacle to growth by preventing clear thinking about the sources of economic development.

It is true that China et al has been served by protectionism, but it’s a bad example to follow. Oftentimes, countries that rely on this strategy are those that are already economically advanced, industrialised, with a large population that has a high purchasing power to buy its locally manufactured goods. These countries can close their borders and survive, even thrive because they are crawling with the two main ingredients any business needs, demand and supply.

At the very best, closing your borders when you’re a poor country means that you produce expensively and worst, you die out because you lack the means of production. The high cost incurred during production will be passed on to the consumer which means that the goods are expensive and incapable of competing with cheaper products from elsewhere in the international market. It beats the whole purpose of protectionism which should be to grow for export.

And even where local production is simply to sustain the domestic market, in an environment where people’s purchasing power is limited such as Kenya, the produce will still be expensive leading to an increase in the cost of living. And if the country punishes importers as the Buy Kenya build Kenya strategy suggests, the high cost of manufacturing will still be passed on to the consumer in a country that relies on outside technology to produce. 

Fukuyama gives an example of the late modernizers in Asia, beginning with Japan, who were able to purchase the most up-to-date technologies from the United States and Europe and, unburdened by an aging and inefficient infrastructure, were able to become competitive (many Americans would say too competitive) in hi-tech areas within a generation or two. This proved to be true not only for Asia relative to Europe and North America, but within Asia as well, where those countries like Thailand and Malaysia that started their development process later than Japan and South Korea have experienced no relative disadvantage. Western multinational corporations behaved as liberal economic textbooks claimed they should: while “exploiting” cheap labour in Asia, they provided markets, capital, and technology in return, and were the vehicles for the diffusion of technology that eventually allowed self-sustaining growth in the local economies. 

Let people import

As past examples will show you, let people import. Although it hurts the domestic producer as in the sugar and mitumba industries, things will be cheap which leaves more money for savings, investment or government through taxes. Whether it is from the freed up consumer or government, in a couple of years there will be an expenditure driven boom and production, even if it is in unrelated industries, soars. At that point government can say, “We prefer our own” and introduce protectionist policies to good effect because the people can buy yet you’re not just relying on them.

In contrast, when the people are limited, protectionism has to be financed by government. This hurts the Gross Domestic Product and eats into the budget. Money that would have been invested in more lucrative sectors is now used up in recurrent expenditure and the loss making venture of financing a very expensive production cycle. It’s no coincidence that the cost of living and the debt to GDP ratio was much lower in the days when sugar retailed at Sh11 and bread at Sh17. I am sure most Kenyans would prefer those days. 

In my view mismanagement and poor business strategy are just as to blame for the collapse of hitherto thriving industries as are cheap imports. Without solving the former problems, the industries will not roar again no matter how much government protects them. Mumias Sugar is one example. 

But even more importantly, as a government, sometimes you have to take a loss in the short term in order enjoy prosperity in the short future. Although leaving local industries to struggle with the competition, it is worthwhile in the long term and even beneficial to the local manufacturer. One may even argue that stopping imports hurts those whose livelihoods are sustained by the industries and encourages the mediocrity of monopolies. The bottom line is that only developed, industrialised countries with large populations can practice protectionism and get away with it. Anywhere else it is a voluntarily taken poison.

To conclude with Fukuyama what Asia’s post-war economic miracle demonstrates is that capitalism is a path toward economic development that is potentially available to all countries. No underdeveloped country in the Third World is disadvantaged simply because it began the growth process later than Europe, nor are the established industrial powers capable of blocking the development of a latecomer, provided that country plays by the rules of economic liberalism. Capitalism has never worked in the Third World because it has never been seriously tried. That is, most of the ostensibly “capitalist” economies in these parts are seriously crippled by their mercantilist traditions and the all-pervasive state sectors established in the name of economic justice.  (

—Writer is a constitutional lawyer