In recent days, Kenyans have been shocked, dismayed, hurt, and deeply disturbed by the events that have unfolded, taking many by surprise. The pressing question on many minds is why the youth, who overwhelmingly supported the current leaders, are now the most determined to demand change at any cost.
From an economic standpoint, this turn of events was not unexpected. It was bound to happen due to several factors:
Kenya has become one of the most economically unequal societies. A small elite enjoys extreme wealth and opulence, while the majority live in dire conditions.Youth unemployment in Kenya is among the highest. University graduates struggle to secure even menial jobs, let alone formal employment.Kenyan youth are exceptionally smart, savvy, and ambitious. They lead in IT literacy and have a globally envied social media presence.Kenya ranks among the top ten most corrupt countries in the world. At the current rate, it may surpass Nigeria as the most corrupt in Africa.Kenyan politicians are among the highest paid globally when adjusted for purchasing power parity (PPP). Yet, corruption under their watch has reached unsustainable levels. Politics has become the most lucrative profession, surpassing even medicine and law.Many elected leaders are never held accountable and loot national resources with impunity, showcasing their status with expensive accessories, vehicles, and homes, while the majority struggle to afford two meals a day. The public questions how many youthful leaders acquired such wealth so quickly.Patronage and favoritism often drive job appointments rather than competence and qualifications.Kenya’s borrowing has reached alarming levels. While borrowing for development is permissible, rampant looting renders these resources ineffective. Many projects fail to take off, yet funds are repaid with interest.Kenya has become a political state where dissenting voices are accused of not supporting the government rather than being invited for dialogue.
These factors, though not exhaustive, have led to a stagnant economic growth rate, an inability to create jobs, and a high tax burden.
Clients seeking services at KRA headquarters, Times Tower, Nairobi on February 23, 2024.
Photo credit: File | Nation Media Group
Over the last eighteen months, some tax rates and salary brackets have increased by up to 9 per cent, even before the anticipated 2024 Financial Bill. These conditions could trigger instability and discontent among the youth. While their actions may not be legal or in the interest of national security, hopelessness and despair can have dire consequences. However, as economists, we believe the youth recognize that sobriety and negotiations are a safer path than destroying their future.
Economists globally agree that investing in youth and creating opportunities for them is fundamental to economic growth and long-term sustainability. Democratic sustainability is also key to peace and harmonious coexistence. Moreover, prudent and optimal allocation of limited economic resources is crucial.
In freemarket or mixed economies, allowing market forces to drive resource allocation is essential. One of the most significant barriers to optimal resource allocation in many African countries is corruption.
Let me focus on two key issues—corruption and taxation—as they critically affect economic growth and job creation.
Corruption
Corruption involves the illegal, wasteful, and unproductive allocation of economic resources to parties without any contribution to economic activity. This heavily negates economic growth. Some might argue that beneficiaries might reinvest these resources productively, but this is rarely the case since they often avoid declaring taxes. In many countries, corruption is treated as a crime against humanity, with severe penalties, including the death penalty in China. So why is corruption so damaging to economic growth?
While the beneficiary of corruption might receive a certain percentage, say 10 per cent, the indirect and sunk costs to the economy are much higher, often economically prohibitive.
The negative impact on the economy can be as high as 30 per cent above what it would be in the absence of corruption. Here’s why:
The payee determines the price of the economic activity, factoring in the impact of the illegal deal, especially taxes.The value of the bribe increases with the deal’s value; 10% of 1,000 shillings is 100, while 10 per cent of 100,000 is 10,000.Unethical business owners may underperform due to the implicit protection provided by corrupt parties.The elimination of other market actors due to the preference for corruption partners has medium and long-term negative effects on the economy.Many potential investors and job creators lose interest in doing business in such a country, leading to stagnation in development and job creation.
Taxation
Taxes are broadly classified as direct and indirect. Indirect taxes include levies on petrol, road use, and tariffs, which do not appear directly on one’s income but are paid through spending. Direct taxes are drawn directly from income, such as salaries, business earnings, capital gains, and inheritance. Common examples are PAYE and income tax, as well as corporate taxes.
Taxation is a balancing act to ensure that society pays proportionally to income levels without disincentivising economic activity. After taxes, the remaining balance is known as disposable income (DI), which families use to meet their needs. Globally, the goal is for this balance to allow for savings after household demands are met.
Many African households, however, lack enough disposable income to save, leading to low investment levels. Without investment, job creation and development are hampered, causing the challenges witnessed in many African countries, including Kenya.
Given the high unemployment rate in Kenya, it is crucial to calibrate tax regimes carefully.
High taxes reduce disposable income, leading to anxiety and potential unrest.
However, constructive dialogue, transparency on how tax revenues are spent, and accountability are key to achieving better outcomes.
In conclusion, addressing corruption and ensuring fair taxation are vital steps toward fostering economic growth and creating jobs in Kenya. Investment in youth and prudent resource management will pave the way for a more prosperous and stable future.
All stakeholders especially youth have to be part of the process of redressing the economic challenges we face.
It is my prayer that our youth will be resilient, generous with knowledge and cognisant of the fact that a process of this nature will require time and patience.
Peter Karungu, P.hD Economics, is an economist and businessman in RSA
Source link : https://nation.africa/kenya/blogs-opinion/blogs/time-for-reflection-on-the-kenya-we-love–4680778
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Publish date : 2024-07-05 16:59:38
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