Friday, May 16, 2008

Economic Stimulus Friday

This month US citizens get a second windfall cheque from President George W. Bush as economic stimulus cheques arrive in their mailboxes of at least $300 (~Kshs. 19,000) per person, and more for parents and guardians with children. (The first was after he pipped Al Gore to the presidency and came through with one his main campaign promises).

But they are being rewarded and banks cushioned largely because of blind/(dumb)real estate and investments decisions - buying houses & using up credit on borrowed cash of extending sub-prime finance in anticipation of even higher housing prices.

Kenyans went though a contested election and a period of post election violence, after they did their part and voted faithfully in the presidential election. 99% had no part in the election tallying or violence that followed or the stalemate that paralyzed the economy for two months.

But instead of a stimulus, we are coping with higher food, fuel, and transport prices that are only expected to get higher in the aftermath of rising oil prices, an expanded government, infrastructure repair projects, and the downturn of agricultural produce this year.

Instead of a stimulus, the Government has flatly refused to
lower petrol taxes (which may ease some of the burden on citizens and companies), and civil servants (government workers), are being asked to contribute financially to the resettlement of displaced Kenyans - a target figure has been arbitrarily set at Kshs. 30 billion ($485 million). It remains to be seen how much will be raised from citizens who were able to fork out over 80 billion shillings ($1.3 billion) in pursuit of the Safaricom IPO (and money for which the Government still holds)

So who needs a stimulus more?

19 comments:

McAlv said...

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Acolyte said...

One thing you may not be in the know about is that the stimulus we are getting will be figured in next year's return. Nothing comes for free out here.
But yes I do agree with you that the Kenyan government should lower its tax on petrol for a short while so as to take off some inflation for Kenyans.
I do agree that alongside high inflation and the super parliament, Kenyans are being milked for all they are worth by the government with no mercy at all.
What practical solutions do we have to that situation?

FoodMerchant said...

@Aco,yes even if we are taxed on the stimulus in 2009, unless you have a 100% tax rate, we have still recieved incremental funds that we wouldn't have without these checks. Granted, most of us will probably use the funds to pay for gas badala yakununua viatu na DVD, so it's effects in stimulating the economy is questionable.

Question on lowering petrol tax. With lowering the goverment's revenue, won't that potentially affect provision of some services ( I know, there are no services, but let's assume grand coalition delivers)? I agree that something needs to be done to help wananchi weather the storm.

fimbo said...

The government should give tax incentive and rebates to energy generating devices like solar panels, wind mills and hybrids

Kibaki has been borrowing and spending like a drunken sailor for the last 6 years. He is selling off our properties and the debt keeps growing

Typical boom and bust cycles, 1970s all over again.

You talked about dumb real estate investments...the same is coming to a government near you

toiyoi said...

Bankelele
@aco, @fimbo @foodmerchant

Your comparison of US Gov and GOK on rebates/gas tax provision to its citizens, show that either:
(i) You are just writings these for lack of somethign better (pole) OR
(ii) You do not understand/or refuse to understand that the GOK is not for the people of Kenya (it does not even pretend that it is) unlike the US Govt that acts in a manner likely to suggest that they are for the people and are answerable to the people

FoodMerchant said...

@toyoi
Speaking for myself,I know the two goverments are not the same or similar, but it is intreasting to discuss the potential solutions to what is happening.The disimilarity in purpose and structure of the gvts does not invalidate people having discussions on this matter, does it? We all have diffrent perspectives and I can guarantee no one has the right answer....just diffrent views based on our own unique experiences.
So si ati sina kitu ya kufanya, through the discussions/comments I invariably learn/discover something new. Like kama unasema serikali is not for the people, who/what/how/do YOU think the mwananchi can get some relief?

acolyte said...

@ toyoi
Seems someone woke up on the wrong side of the bed. The only thing I said that may sound to you that the gvts are similar is the fact that both dont give anything for free. In fact I have pointed out how much the people are being milked by the government.
Plus I do think that if the gvt took less tax from petrol yes that would be less money coming into there coffers but could you imagine how much it would stimulate the economy,industries and spending by people?
This is an exchange of opinions and thoughts? We are doing our best not to get resigned to the situation where-ever we are!

adam cartwright said...

first ..... we are getting royally screwed heres how... provatisation = selling off the lucrative public assets like safaricom( my understanding is that chaps like jimnah and job kihunba of standard bank aka chair and vice chair of nse each gor 400 million shillings worth on the back of a unit trust licence which they have only on paper....( it happened in russia in 1997.. that how we have the abramoviches and berezovskys of this world.

second... dyu know that kra operates on an abitrary target drawn on the back on the latest last collection. thoise chaps actually ,manage to somehow cart of a large chunk of ua eax collection. its like a revolving fund ama merry go round for them..

third... like someone lectured me .. comparing different countries is like comparing apples and oranges.

fourth.. yes we are stuck.. in fact we are in the same position as my elder sister and her three year old nephew. she cant send him off ro school for an early education because he calls himself cabbage-carrot and describes himself as a baby girl.... she thinks he will be bullied and hurt his self esteem.. you chew on that!

toiyoi said...

@aco
Probably u are right, on my waking up from the foot of the bed..BUT

The lack of goodwill gesture for the economically distressed is appalling

Add to that the madness of making 90+ useless Lords over-happy is sickening( what do they actually do?)

Kenya Inc. is one of the few unique corporations in the world that rewards non- performing C*Os

African safari said...

I always wind up after working on my African safari and vacations blog by reading yours. The days when you don't post are always not so good days for me. Keep up the blogging.

fimbo said...

@Toiyoi
You are merely stating the the obvious. GOK is not Congress!

Having said that, economic policy in Kenya extends beyond Parliament and State House.

There are other stakeholders such as the WorldBank and the IMF. And they have world class economists on their payroll.

They also have the clout to take their ideas from paper to practice.

GOK has used tax incentive [we know what a stimulus is ] extensively from independence [remember Goldenburg?] to promote exports and trade.

Proud Kikuyu Woman said...
This comment has been removed by the author.
Proud Kikuyu Woman said...

The Kenyan economy needs a stimulus more than the American one, of course. As my day for getting back karibias, I'm just starting to notice all the nice things in stato that are non-existent in Kenya. E.g. the tax burden is kubwa kiasi (close to 7.5% -a bigger % than most people save or invest- of each paycheck goes to medicaid and Social Security), before the federal govt and state govt take their cut. But at least everyone drives or rides on tarmacked roads,electricity is everywhere, primary and secondary school is free, and the govt sends you at least $300 in your bank account/mail at the mention of the 'R' word. Quite the opposite in my homeland.

Bankelele, would you please enlighten me of some ways I'd minimize my tax burden in Kenya? Individual, possibly corporate/SME.

no-spin said...

By the way, the stimulus check is NOT taxable. Those of you that can remember back to Bush's 1st term there was a similar stimulus which was NOT taxable. But I'll be devil's advocate here - if you don't think this has anything to do with politics, especially in an election year, then you haven't followed American politics long enough. Bush wants to ensure a third Republican term, and for the majority of voters who do not look at the bigger picture, this will strengthen their faith in the Republicans. The American Economy is in shambles right now. $300 dollars will not make a dent in the lives of thousands who've lost their jobs to outsourcing or lost their homes to the reckless subprime mess that took place on George Bush's watch. It will not fix the sub-standard education or lack of education that children in public schools are receiving under Bush's "no child left behind" program. Bush is simply trying to line the path for a McCain election and I hope people will realize this and not allow their judgement to be marred by this gimmick. Has anyone done the math on how much is being spent in Iraq every single day since this senseless war began? Do the math and you'll realize that the $300 is just an attempt to divert voters minds from the real issues.
And for comparing this to GOK - it is apples and oranges, however, our government could start by reducing MP and cabinet salaries. This would be a major stimulus towards building our country. A Kenyan MP earns a lot more than an American senator - this doesn't make any sense at all especially given that we're among the world's poorest countries.

Maishinski said...

Why are we surprised by the food prices, high taxes and economic downturn?

Lest we forget, we are reaping the harvest we deserve after gleefully sowing the seeds of self destruction.

Thanks to brainwashing by our ruthless politicians, some people though the economy belonged to the prezzo and kyuks - instead of all the Kenyan people.

Now that the economic gains have been destroyed, who feels the pain? Certainly not your MP in the Benz - who somehow convinced you that only a small number of people were "ëating" and that getting him in power would enable you to eat too.

The clear reality is that ALL kenyans were benefiting from the growth... either directly or indirectly. There was no clique of "elite" controlling the national wealth - it's all just plain ECONOMICS! Otherwise the ordinary kenyans would not have seen any change in their day to day cost of living after the election violence!

Now: Everyone is now WORSE OFF than they were in dec 2008. Unfortunately people dont know a good thing until they lose it!

- GDP of 7% last year now down to to 2.5% this year. Growth will be slower - a damaged reputation takes many years to rebuild.

- Investor interest in Kenya was at an all time high. Many multinationals were planning to set up their African Headwuarters in Kenya. Now they are more cautious and they will probably wait another 5 years to see how the politics play out.

I could go on and on about the economic damages but much has already been said.

There are many ways of airing grievances, but Kenyans chose the worst kind:- SELF DESTRUCTION.

Now that everyone is in power, what explanation will the brain washers and hate mongers have for the hardships faced by ordinary kenyans?

We need some young educated and well exposed leaders to emerge and help build an new united Kenya.

Still on politics, the concept of "Provinces" as it currently stands dicides the country into tribal terrirtories - hence people who Eastern Province are coonsidered "foreigners"in Northern province.

Grand coalition should abolish this British divide-and-rule concept of Tribal Territories so that our children can see themselves as KENYANS FIRST AND FOREMOST.

...etc etc

Cheers!

bankelele said...

Acolyte: I thought there was no tax on the stimulus cheque.

FoodMerchant: It’s up to everyone to put their cheque to a good cause, maybe towards c credit card or pressing mortgage payment

Fimbo: One problem with Kenya is that any stimulus is milked/exploited by people close to power, and the intended beneficiaries don’t get a fair share

Toiyoi: I think US and Kenya and all other politicians say the right things, and intend to do good, but act differently

Adam Cartwright: wow, interesting tale about safcom!
- I believe KRA are entitled to about 4% of what they collect as admin expenses, so the more they collect, the bigger their budget the following year

African safari: thanks, keep reading

Proud Kikuyu: That’s one thing the developed world shines at – you see your taxes at work in development and there’s’ more accountability.
- I can tell you many corporates do very good turnover, but always set out to declare the smallest net profit possible. Which in away is justified since we all pay so many indirect taxes.

No-spin: that’s what I thought – no tax. A reduction in cabinet expenditure and flamboyance, however symbolic, (driving in Toyota’s) would convince Kenyans that belt-tightening was serious

Maishinski: I think few Kenyans thought it would be this bad. And the business community through they could ignore the bad politics and continue to make money up till the election.
- It’s good to see Richard Branson selling Kenya, but will other investors follow suit?

Acolyte said...

@ Bankelele
I'm not saying the cheque itself will be taxed but I have the feeling that somehow it will figure into next years tax budget. After all the government has to find someway to make up for those billions it has given out.

bolingowarrior said...

Lowering fuel taxes doesn't mean that prices will decrease. In fact, the opposite is bound to happen and the decrease will instead benefit the oil companies. Barack Obama learnt as much during his stint in the Illinois Senate, an experience he referred to when he criticized McCain and HRC's call for a summer gas tax holiday.

Maybe increased investments in public transport might help. I'm shocked at just how many cars now clog Nairobi's streets.

FoodMerchant said...

Great discussion.

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