MOTOKI: Kenya should resist pressure to subsidize consumption as it only helps the wealthy

Motoki Takahashi, the adviser at JICA, spoke to Vincent Owino about Kenya’s priorities for economic reforms.

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Kenya has a new administration. What should be the government’s economic policy priorities to speed up economic growth and development?

President William Ruto should emphasise the importance of small and medium-sized enterprises (SMEs) development, and formalisation of the informal sector. These will be the key drivers of economic progress. The new administration should prioritise the development of manufacturing SMEs. They should also protect the intellectual property rights of SMEs, to foster innovation and safeguard the welfare of innovators. Security and infrastructure should also be high on the agenda. Without these, SMEs cannot thrive. The new leadership should also endeavour to protect the rights of the labourers.

Are these the pillars that fostered Japan’s rapid economic growth and development?

Yes. History indicates that Japan did not progress when labour movements faced difficulties and oppression from the government. But the workers fought for their rights and that fostered development. I hope that the Kenyan government will not suppress labour unions. They should be given a space to protect themselves and fight for their rights. Only then can there be real development. Besides that, financing for small businesses and innovations is important to foster growth. This should be done by the public and private sectors.

Public debt is a major problem in Kenya. What can be done about it?

It is justifiable to ask the government to slow down on borrowing externally because the world’s interest rate is rising, making it expensive to finance their outstanding debt. The infrastructural development experienced because of the borrowing in the past 10 years is good, but the big issue is in paying back. Management is important and the country should be careful what composition its public debt is. It’s advisable for Kenya to take more concessional loans from international financial institutions and developed countries, which charge low interest rates, as opposed to loans from emerging powers whose interest rates are relatively high.

The IMF has advised Kenya against subsidies. What do you think should be the policy on subsidies?

Subsidizing production is a better idea than consumption subsidies that Kenya has done in the past. A production subsidy is an investment in the future. For example, feeding school children is a subsidy and it is an investment in the future. The leadership should resist pressure to subsidize consumption, because this mostly only helps the rich.

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