Economy and Development

Economy and Development

In Kenya there is a fascinating intersection between the local and world economy. It is possible to get a full lunch of locally grown and cooked food, with tea, for around 100Ksh (£0.70). Yet, a chocolate bar will cost upwards of 250Ksh as many of the inputs are priced internationally. This points to the wider reality for capital goods within Kenya. Business machinery like cars and electrical generators are priced on an international commodity scale as their supply chains are inherently internationalised. Whilst at the same time, locally produced products remain very cheap. Within the economy this leads to a constriction of capital investment as you have to sell a serious amount of lunches to afford the car that will let you purchase produce directly from the farms, for example. It is easy to imagine how this plays out in a wider sense throughout the economy. It confirms much of what I have read about the importance of financing investment within developing economies. There is a vast amount of untapped resource in the physical geography of Kenya, as well as within the people here.

The view from our entrepreneur's farm.

This lack of investment is particularly striking within the agricultural sector. In Europe we are well used to huge levels of mechanisation in vast farms that grow single crops. However, here the average Kenyan farmer is likely to have a holding of just a couple acres at most with very few tools available to them to till the fields. In fact, we are working with an entrepreneur who has half an acre and no tools, who is hoping to start a potato farm to supplement their income from a job as a tea packer. In this way we have seen first-hand the difficulties involved with a farming start-up in a capital starved business environment. This is a problem that is compounded by the high rates of unemployment here as people often turn to subsistence agriculture in lieu of getting a job. Subsistence agriculture is an inherently inefficient way to grow crops as it doesn’t allow specialisation in skills and capital, preventing the farmer from achieving economies of scale and the ability to compete in the world market. Furthermore, sub-division of land occurs as farmers pass their land onto their children, reducing the size of individual land holdings in many areas. Despite the vast resource of highly fertile land in Kenya, their agricultural sector remains underutilised.

In the UK disparities of wealth and income seem to dominate political discourse. However, here in Kenya the divide is far more stark. This fact really hit home when we ventured outside of Kericho town to visit the farm of one of our entrepreneurs in a small community called Chepsir. We were on a fact-finding mission to work out the full costings for running her smallholding farm, including the labour costs for tilling fields etc. I was shocked to find that agricultural labourers are paid around 200 Kenyan Shillings per day. This is exactly $2 and constitutes the definition of poverty for many international bodies. It contrasts quite highly with what we see on a day to day basis as we live and work in the more affluent town of Kericho. Furthermore, the majority of entrepreneurs that we work with can be considered very well off in comparison as they have assets and often degrees to back them. It potentially shows a limitation to Balloon’s approach as we are not immediately targeting the poorest within society. However, the hope is that by creating sustainable economic growth, with higher production, demand and more jobs, it can act to raise the wages for all in the economy. This includes the aforementioned agricultural workers as the price of manpower is raised.

This experience really demonstrated to me the problem behind much of the old approach to international aid. It is superficially very attractive to give handouts to the obviously poorest people you encounter. For me, seeing people work a 10-hour day moving earth for 200 shillings gave me a firm vision of my own privilege. This disparity in opportunity extends to all the volunteers on this programme, UK and Kenyan, many of whom have been to university and have the facility to give their time for free. When you earn such a minimal wage there is little scope to invest in yourself and your long-term outcomes. The lessons of development economics, as seen all over the world show us that the obvious approach of giving to those with the least simply doesn’t work. Hand-outs should only be reserved for situations of acute crisis where there is immediate risk to life and wellbeing. Instead, constructing a proper functioning economy with higher paying jobs and more inward investment is a far better way to ensure the livelihoods of all. When combined with an effective national government, it has the power to spread opportunity and give a broader base to positive developmental impacts.

This all forms a core part of the founding ethos for Balloon Ventures that was developed through listening to young people in Kenya. East Africa is plagued with unemployment, particularly amongst the youth. And, as we see even in Europe, this is a recipe for social discord and missed opportunity. This is compounded by the economic environment of East Africa where people simply cannot rely on the state for the provision of welfare. Once kids leave school, they’re often totally on their own and struggle to get by. What has filled the gap in employment for many of these young people is an education arms race where it becomes a necessity to have a masters degree to even get to interview for white-collar job. This directs a lot of inwards investment in the economy into education which is not necessarily a bad thing. But, when you have university graduates working the tills in small businesses, it is possible that this money would have been better spent elsewhere. There exists little reason within my mind why Kenya can’t grow to become an economic powerhouse within Africa, and potentially wider, should the investment environment be maintained. However, significant challenges still exist in terms of domestic politics and the stability of the business environment. Much of these are nothing to do with the ordinary entrepreneurs and workers who are trying to make their living.