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Monday, March 24, 2014

Stop this shameful massacre of Elephants and Rhino

Early this year, a story in the New York Times described how 72 boxes of trinkets were all that remained after more than 100 elephants were slaughtered for their incisor teeth. The trinkets included beads, chess sets, bone-white animal figures, bangles and toys, earrings, pendants and bracelets. Similarly, rhino horn is regarded as an irreplaceable ingredient of traditional Chinese medicine. Its collection is responsible for the shameful massacre of tens of thousands of rhinos.
The largest land creatures on the planet are being slaughtered to extinction for vanity and myth of healing. Like biting your fingernails or munching equine hooves, rhino horn has no effect against pain or inflammation, or muscle spasm or stomach ailments.
Elephants and rhinos are not nondescript organisms. They are fascinating, gentle giants. For instance, a recent study in which researchers played voice recordings to wild African elephants revealed that elephants are able to differentiate between ethnicities – Maasai and Kamba – and gender. Moreover, elephants are intelligent and social creatures. Invariably, poaching of adult elephants ravages their social structure, reducing elephant populations to leaderless units of traumatized orphans.
Half a kilogram of ivory is worth about US$1,500 in the black market. The price of rhino horn varies between US$65,000 and US$100,000 a kilogram, which is about 2.5 times more than the value of a kilogram of gold. Profits from illegal wildlife trafficking are now worth an estimated US$8-10 billion annually, making it the fifth most profitable form of transnational organized crime after narcotics, human trafficking, oil, and counterfeiting.
Poachers are now slaughtering up to 35,000 of the estimated 500,000 African elephants every year for their tusks. In 2013 about 1100 rhinos were killed in Kenya and South Africa. Over 95 percent of the dead rhinos were killed in South Africa where poachers are using GPS, helicopters and semi-automatic weapons. This year alone, Kenya has lost 13 rhinos and 14 elephants, a majority of them killed inside the most well protected sanctuaries.
Illegal wildlife trade is big, with organized-crime syndicate modus operandi, which operates locally, with links of couriers, buyers and exporters who sell to Hong Kong, China, Taiwan, Singapore, Japan, South Korea, Malaysia, and Thailand, the primary ivory and rhino horn consuming nations in the world. Quoting a recent Interpol report, Kenya’s foremost conservationist, Richard Leakey, said Kenya is now the preeminent conduit for trafficking ivory and rhino horn in East Africa. The Kenyan port of Mombasa and Dar es Salaam in Tanzania are the two largest exit points for illicit ivory.
According to former US Secretary of State Hillary Clinton, there is growing evidence that terrorist groups including Al-Shabaab with its unspeakable attack on Westgate fund their activities from ivory trafficking. It is believed that Al-Shabaab raises circa US$600,000 a month from poaching to funds its activities. Janjaweed, a militia that operates in Darfur and Uganda’s Lord’s Resistance Army, also raise money directly from poaching.
Poaching and illegal wildlife trafficking poses a grave threat to national security, political, social and economic stability. There is credible evidence money made from poaching is funding Al-Shabaab, giving them the financial and organizational wherewithal to kill and maim innocent Kenyans. It is plausible that the haul of money made from poaching is used to corrupt public officials, thus undermining the integrity and capability of our institutions.
The inexorable decline of rhino and elephant will change irreversibly, the structure and workings of savanna ecosystems, including pastoralism. Such dramatic habitat changes will wipe Kenya off the list of leading wildlife tourism destinations. What is scary is that this will happen before 2030. The collapse of tourism will have a Tsunami effect on our economy. Tourism contributes nearly 15 percent of our GDP and supports nearly 900,000 jobs. Poaching is therefore an economic crime of grave proportions.
It is inconceivable that Kenya’s ubiquitous security and intelligence resources cannot find and bring to justice the individuals behind the nefarious wildlife trafficking. Like the priest and the Levite in Jesus’ parable of the Good Samaritan, we have chosen to pass by on the other side. But like the Samaritan, we must stop and save for posterity, the rich wildlife heritage bequeathed to us by our forebears.
In honor of these gentle giants, I rephrase the eternal words of English poet and preacher John Donne. Any elephant or rhino death diminishes me, because I am involved in all of nature’s bounty. 

Sunday, March 16, 2014

Balance Austerity with Public Sector Reform

In his first address to the 11th Parliament in April 2013, President Kenyatta said that at Sh. 458 billion, the wage bill was gobbling over half of public revenue. Mr. Kenyatta noted that recurrent expenditure was squeezing out resources meant for development.
Today the wage bill is a veritable monster. Speaking at the cabinet retreat near Mt. Kenya Mr. Kenyatta said "We need to deal with this monster if we are to develop this nation otherwise sooner or later we will become a nation that only collects taxes to pay ourselves”. In this financial year, salaries and allowances paid to public servants will gulp down 55 percent of tax revenue, equivalent to 13 percent of GDP.
Mr. Kenyatta is done talking and is acting. Effectively immediately, the president and his deputy will take a 20 percent pay cut. The cabinet and their principal secretaries will take home just 90 percent of their current earnings. And last week, a visibly angry president ordered parastatal chiefs to take a 20 percent cut.
Is the dawn of government austerity is here? Cutting salaries is important but insufficient. We have a larger growth, revenue and spending problem, which has been in the making for years. We must to re-think the form and function of government for the 21st century.
The economy is staggering under the weight of outsized and profligate governments, surging insecurity, runaway poaching, decline in tourism and a widening current account deficit. 2013/14 revenue collections are below target. Moreover, the stratospheric cost of living in Nairobi, eternal traffic congestion, deplorable ranking on ease of doing business and poor infrastructure continue to starve the country of foreign directive investment flows.
A quick calculation reveals that the pay cut directive amounts to an annual saving of about Sh37.4 million from the presidency, cabinet secretaries and principle secretaries. With a pay cut of 20 percent, the 292 parastatal could save taxpayers circa Sh245 million annually. This is very modest but not trivial.
But here is the revenue hemorrhage Mr. Kenyatta must contain.
By Mr. Kenyatta’s own admission we pay Sh1.8 billion annually in salaries to dead, retired and dismissed civil servants. This says everything about how the civil service operates. I am amused that the devolution and planning ministry we will be spending about Sh2 billion on a civil service rationalization program. I wonder why we cannot stop paying these ghosts and use the savings to finance the rationalization program.
Devolution jerked up public sector wage bill by Sh15.4 billion as at December 2013. County governments spend on average 55 percent of their budgets on salaries and allowances. Analysis of the operations and maintenance expenditure revealed that county governments spent Sh1.07 billion on domestic and international travel. They spent Sh241.9 million on conferences and entertainment, Sh161.2 million on training and Sh708.5 million on purchase of vehicles.
Corruption and waste is monumental. The audit report for the 2011/2012 fiscal year revealed that 33 percent of the actual expenditure or Sh303 billion could not be accounted for. This is 2.5 times the Sh122 billion of additional expenditure the Treasury is seeking to keep the government running until June 30 2014. I think that unaccounted for expenditure for 2013/2014 will also be in the hundreds of billions.
Mr. Kenyatta has displayed credible outrage on government profligacy. He must follow through with structural and functional reform of government. An outsized government constrains public investment and crowds out private sector growth. Government must lean and fit for purpose. Trim down the coterie of political appointees, so-called advisors and directors. Government is not a vocational harborage for kith and kin.
Non-core services such as transport must be outsourced. Government has no business employing drivers and owning vehicles. Travel, entertainment and sitting allowances for public officials must be abolished. Travel and hospitality expenses should be reimbursed based on actual verifiable and pre-authorized expenses.
Lets face it! Devolution is an unwieldy burden on the taxpayer. At colossal costs to the taxpayer, devolution has delivered too much government, excessive political representation and little service.
More importantly, can Kenyatta make history as the first president to take on the corruption cartels in government and private sector? Can he be the first president to run a lean and efficient government? Can he stand up and say, we must fix devolution? Will his presidency be transactional, business as usual, or transformational? This is your moment, Mr. President.

Sunday, March 9, 2014

Why Nairobi is stuck with matatu and traffic policemen

Many people in the so-called upper class think traffic police and matatus should be pushed off the cliff. In their view, traffic police and matatus make worse Nairobi’s traffic gridlock. But last week we had a chance to experience how commuting would be without traffic police or matatu. Simply put, for the “orderly and efficient” functioning of the city of Nairobi, traffic police and matatus matter.

Two decisions; asking the police to stop controlling traffic at intersections and increasing monthly levies charged to matatus inflicted anguish and frustration, to say the least, to residents and businesses who live and operate in Nairobi.

Nairobi County is trawling for revenue. And governor Kidero believes that policemen caused more confusion and gridlock at intersections, exacerbating traffic congestion. But this is a very simplistic reading of a complex problem.

In the typical Kenyan way, without analysis or evidence or consultation, we plunged into action. We got traffic policemen off the roundabout believing that traffic lights would work miracles. The result, one of the worst traffic gridlock ever. It was total collapse of mobility. All the major roads leading into and out of the city were chocked.
Consider that a vehicle coming into a roundabout with five roads radiating from it junction could turn one of four ways, with the widest being a 270 degree turn across two sets of light signals. You can bet that even the most sophisticated traffic signal cannot handle this efficiently. All it takes is poor judgment and lack of courtesy on the part of handful motorists at a roundabout to shut down the entire city. And they did.

Another reason why the network collapsed without policemen is because the system of traffic signals at most intersections are the fixed or static time control type. They are based on timers that have invariant intersection timing and phasing plans. What policemen bring to a static system is dynamic control. Policemen, in their limited way, adaptively alter phasing and timing in response to prevailing traffic conditions as best as they understand it. One of the great features of the dynamic police control system is that it can respond robustly to random incidents causing unusual demand at a roundabout.

Using a roundabout to manage road intersections becomes doubly complex with high vehicle density. Even in the best of times, without incompetent or discourteous drivers, a roundabout is difficult to maneuver. Invariably, a roundabout disrupts free flow, amplifies impedance thus exacerbating snarl-ups in rush-hour traffic. In my view the roundabout is an inconvenient monument, which presents a problematic structural constraint to efficient management of traffic flow in Nairobi. 

Last Wednesday matutu operators flexed their muscle by withdrawing their services to protest new parking levies. Whenever they strike, matatu operators also harass other motorists hence disrupting overall traffic flow. But the magnitude of traffic gridlock that ensues is associated with the matatus strike always astounds me. Why is there such a strong correlation between massive traffic jams and matatu operators’ strike? It seems counter intuitive because the expectation is that there would be less traffic, especially because matatus are off the streets, something we always long for.

In my view, this is what happens. Without the convenience of public transport, nearly all commuters who have cars will bring them out to the streets. My estimate is that one out of seven people who take public transport have a personal car but elect to take public transport to work. Hence, whenever matatus withdraw their services, there will be 2 private cars for every 14-seater matatu. All you have to figure out is how many people commute by matatu and how many matatus operate in the city of Nairobi. And it will scare the hell out of you how many private cars could potentially pour out into our constrained road network whenever there is a matatu strike. And rain, especially morning showers, also has the effect of getting lots of cars on the streets, just like end of the month when most private car owners love to flash their pay.

Without a publicly funded transit system, with modern high occupancy vehicles, we are stuck with the cargo minivans. But I must add that the proposed parking levies are provocative regressive taxes, which could make things worse for all commuters. Matatu operators offer a vital public service and must be treated with respect.

How about a combination of 4-way intersections, underpasses and overpasses, instead of the roundabout? Then we can keep the moronic static light signals and tell the police to stop messing around with traffic at intersections. 

Sunday, March 2, 2014

Kenya’s Middle Class: Myth and Reality

Africa’s rapidly growing population is under scrutiny for evidence of a bulging middle class. Although Africa’s consumer market is growing it is nothing like the romanticized image projected by media and marketing pundits – a group awash with disposable income and an insatiable appetite for luxury consumption.

In 2011 the African Development Bank estimated that Africa’s middle class had risen to 350 million; larger than the middle class in China, India and larger than the combined population of Canada and the United States of America. In 2013 Deloitte projected the Africa’s middle class will reach 1.1 billion, 42 percent, by 2060.

But who is the middle class? The African Development Bank (AfDB) defines the middle class as those spending between $2 and $20 a day. According to AfDB about 60 percent of Africa’s middle class spend $2-$4 per day, subsisting just above the poverty line. Most of this group works in the informal sector. They are highly vulnerable to shocks and easily slide into poverty. The relatively stable middle class, spending more than $4 a day is about 128 million by 2010 estimates.

According to Global Pacific, a leading advisory firm, the proportion of Africans who occupy the global middle class is less than 5 percent and is scattered across the continent, concentrated largely in Algeria, Morocco, Tunisia, Egypt, South Africa, Botswana and Nigeria. Tiny pockets of the African middle class also exist in countries such as Kenya, Ghana, Ethiopia, Uganda and Senegal. The OECD believes Africa’s middle class comprises only 3.2 percent of the population.

Pundits have hyped the rapid expansion of Kenya’s middle class. For instance Aly Satchu Khan, an investment analyst believes that the mushrooming of malls is a sign of a growing middle class. But estimates of the size of Kenya’s middle class are all over the map.

The AfDB estimates that about 16.8 percent or 6.7 million Kenyans belong to the middle class, capable of spending $2 to $20 per day. The World Bank estimates that less than 2 percent of Kenyans belong to the global middle class, spending $10 and $20 a day. According to Kenya National Bureau of Statistics, 1 in 5 Kenyans is in the middle class, which includes individuals spending between $10 and $100 a day. That 1 in 5 Kenyans is the middle class is highly improbable because only 12.4 percent, about 5.1 million Kenyans, work for a wage, in the informal and the modern sector of the economy. This is according to figures computed by the World Bank, based on the 2009 census and the 2012 Economic Survey.  

In my view, contrary to the exuberance, Kenya’s middle class is small, pretty broke, and is not growing as fast as the talking heads would have us believe. Consider this. Just 6 percent of young Kenyans entering the labour force can find work in the wage paying modern sector of the economy. Unemployment is as high as 70 percent among school leavers and college graduates. What is growing rapidly is the rank of the educated underclass. It is growing faster than the middle class.

Something else is growing; debt driven consumption. And local banks are giving their all to grow personal debt among salaried customers. For example, the personal unsecured loan product has greatly increased access to cash for non-investment spending such as weddings, vacation, home improvement and purchase of automobile. In 2013, 389 billion or 25 percent of total loan disbursements were for personal use. The growing portfolio of personal loans is partly driven by high cost of living, inability to make ends meet, and low savings. And the net for consumption debt has been cast wider to catch those in the non-wage informal sector. M-Shwari, Safaricom’s mobile phone micro credit and banking services disbursed 7.8 billion in loans over the last 15 months.

The bulging ranks of a young educated underclass are worrying. To bring the underclass into the middle class, Kenya must ensure that fiscal and social policies, which support robust economic transformation, beyond headline GDP growth are in place. Transparency and fiscal discipline must be enhanced. It is a large and stable middle class, not the extractive sector that will drive economic growth and shared prosperity. Greater investment in employment-generating sectors remains a critical requirement. Most of all the government must ensure public sector efficiency through a lean and well-paid public sector, especially the police and teachers. 

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