Rieko Mwenyewe gives his personal take on how to grow Kenya’s economy..

Economic growth is measured by an increase in Gross Domestic Product (GDP), which is defined as the combined value of all goods and services produced within a country in a year. Many forces contribute to economic growth. However, there is no single factor that consistently spurs the perfect or ideal amount of growth needed for an economy. Unfortunately, recessions are a fact of life and can be caused by exogenous factors such as geopolitical and geo-financial events.

How Does an Economy Grow?

Politicians, world leaders, and economists have widely debated the ideal growth rate and how to achieve it. It is important to study how an economy grows, meaning what or who are the participants that make an economy move forward.

In the United States, economic growth is driven oftentimes by consumer spending and business investment. If consumers are buying homes, for example, home builders, contractors, and construction workers will experience economic growth. Businesses also drive the economy when they hire workers, raise wages, and invest in growing their businesses. A company that buys a new manufacturing plant or invests in new technologies creates jobs, and spending, which leads to growth in the economy.

In Kenya, we can enhance economic growth by strengthening our agricultural production. One way of doing this is by providing subsidies such as farm inputs and mechanisms such as tractors and cheap labour. Climate change also affects food basket.

President William Ruto

The President, William Ruto is trying to provide farm inputs in form of fertilizers, seed cane and irrigation but the nature of Kenya’s rain water is a big challenge. The President has also invented cheap housing projects in several counties all over the country some of which are in progress. Kenyans are also buying parcels of land and building their own houses to reduce dependence on rental houses to spar the economy.

The Role of the Banks

Other factors help promote consumer and business spending and prosperity. Banks, for example, lend money to companies and consumers. As businesses have access to credit, they might finance a new production facility, buy a new fleet of trucks, or start a new product line or service. The spending and business investments, in turn, have positive effects on the companies involved.

However, the growth also extends to those doing business with the companies, including in the above example, the bank employees and the truck manufacturers.

Here are a few of the measures that can be employed to increase and promote economic growth.

KEY TAKEAWAYS

1. Economic growth is driven oftentimes by consumer spending and business investment.

2. Tax cuts and rebates are used to return money to consumers and boost spending.
Deregulation relaxes the rules imposed on businesses and has been credited with creating growth but can lead to excessive risk-taking. Infrastructure spending is designed to create construction jobs and increase productivity by enabling businesses to operate more efficiently.

3. Tax Cuts and Tax Rebates are also designed to put more money back into the pockets of consumers. Ideally, these consumers spend a portion of that money at various businesses, which increases the businesses’ revenues, cash flows, and profits. Having more cash means companies have the resources to procure capital, improve technology, grow, and expand. All of these actions increase productivity, which grows the economy. Tax cuts and rebates, proponents argue, allow consumers to stimulate the economy themselves by imbuing it with more money.

4. In the United States for example in 2017 President Trump created legislation to lower corporate taxes to 20%— the highest corporate income tax rate was 35% before the bill. Various personal income tax brackets were lowered as well.

In Kenya President William Ruto insisted on removing all tax exceptions and tax holidays and decreed that all companies and individuals who received tax waivers in the past must pay their taxes in retrospect. This seemed to be targeting some of his perceived detractors, names withheld.

As with any stimulus used to spur economic growth, it’s often difficult to pinpoint how much growth was created by the stimulus and how much was generated by other factors and market forces.

5. Stimulating the Economy with Deregulation:

Deregulation is the relaxing of rules and regulations imposed on an industry or business. It became a centerpiece of economics in the United States under the Reagan administration in the 1980s when the federal government deregulated several industries, most notably financial institutions. Many economists credit Reagan’s deregulation with the robust economic growth that characterized the U.S. during most of the 1980s and 1990s.

President William Ruto during his campaign and manifesto talked a lot about improving Kenyan economy using bottom-up portfolio but when he won the general elections on 9th August 2022 and within his first 100 days in office, nothing much has taken place apart from removing the subsidies from important areas like fuel and unga and introducing subsidies on agricultural inputs.