BY ANTONY MUTUNGA
The World Economic Forum annual meeting that was held in Davos, Switzerland in January 2016 was an eye opener on the crisis that is looming over the global economy. The delegates tackled various topics ranging from cyber crime to rise in technology but none was more important than the topic on the global economy with the focus on slow global economic growth.
China, for example, is faced with its slowest rate of economic growth in over two decades. The Asian Tiger accounts for 15% of global output and the effects of its economy’s downturn will be reverberated around the world. This is a problem. China has one of the world’s largest economies in terms of quantity on goods and services produced and it contributes the most towards the world economic activity.
China’s slow economic growth rate has already reduced the expected global growth rate. Maury Obstfeld, the IMF chief economist said, “The global spill-overs from China’s reduced rate of growth… have been much larger than we would have anticipated.” The decline is said to be due to decrease for Chinese goods by other nations as well as the weakening of its currency.
It was also caused by the effects of transitioning from an investment-driven to a consumption-driven economy. The weaker unexpected economy growth rate is gradually decreasing the rate of export growth of countries that largely rely on China’s demand for various products for its industry, which include oil, machines and metals.
According to Philip J. Jennings, secretary general of UNI Global Union, a global union federation for skills and services, gathering national and regional trade unions, the global economy is falling as China experiences a slowdown in terms of its economy and at the same time, unemployment creeps more out of the door trying to engulf the world more in poverty.
One would like to know, exactly, how does this affect Kenya?
The Kenyan economy seems not to be affected greatly by the drop in the rate of the global economy as according to the World Bank, the rate of growth for Kenya is poised to increase in 2016. The World Bank report forecasted the country’s economy to increase to 6.0% this year. Kenya’s economy is safe as well due to the country having various diversified partnerships with other countries, which allow it to survive even when the global economy reduces its growth rate.
Central Bank of Kenya (CBK) governor Dr. Patrick Njoroge says, “Somehow there’s a lot of turmoil out there and markets are trying to digest the bad news about the global economic outlook but we have differentiated ourselves quite well and despite the worrisome clouds out there Kenya seems to be in a much stronger place.”
This is because the Chinese slowdown opens a potential opportunity for some countries that include Kenya which export goods that can be gobbled up by the rising Chinese population. But if the Chinese economic growth overall continues to slow, sub-Saharan Africa figures to suffer, the World Bank says in its report.
According to Africa Global Research Standard Chartered Chief Economist, Razia Khan , “China’s slowdown may not affect Africa as much as people think because Europe is its largest trading partner.” Kenya’s export to Europe being 22% while to the regional market within Africa being at almost 42% and to China being only 1% according to data from CBK, the global economic slowdown may not hurt the country as much because it holds on to its largest export market.
The deteriorating economy is also leading to oil prices decreasing around the globe hence causing problems for countries, mostly in USA, Asia and Middle East, which get most of their wealth from oil. These countries, due to the decrease in price, are feeling the pinch and this eventually has their economies growing at a slower rate. As most of the countries in the category are normally what contribute to a higher global economic growth rate when they feel the pinch it will decrease the rate at which it grows.
On the other hand, the decrease in oil prices will be an advantage to most of the developing countries. For example, in Kenya it has lifted a heavy load off most Kenyans who were being terrorized by the high fuel prices. Low fuel prices will in the long run result in steady if not lower electricity costs that will ultimately affect production costs. The transport sector will too benefit hugely from sustained low prices at the pump.
Kenya, however, is not out of the frying pan. The downturn trend in the global economy will have a negative effect on some other countries that normally transact with Kenya in one way or another. USA, for instance, has opted to hike its Federal Reserve interest rates which will certainly affect developing countries like Kenya. When the world’s super power increases its interest rate on its federal reserves, it makes debt unsustainable for developing economies. This would cause the government to find other means of acquiring funds, which may lead to an increase in taxes in the country and the resultant economic stagnation.
Another example is the change in commodity prices that is probably going to affect most countries, as prices will mostly decrease. This is due to the decrease in spending by the people due to decrease in global economic growth. Companies affected will be subjected to decrease their prices so they can attract customers and be able to sell more. As a result the economies that acquire goods from these companies will enjoy low prices hence spend less and thus cause their economies to grow at a high rate.
At the end of the day, Kenya will be hit by both positive and negative impacts but as things are currently, moving on, the economy will have more of a boost than a decline. The country is to keep experiencing robust growth as it has a diversified economy, which is a result of scarcity of commodities.
As Napoleon Hill once said, “Every adversity, every failure, every problem carries with it the seed of an equal or greater benefit.” Kenya, among other countries, was struggling with scarcity of commodities and due to that it diversified. Now it is turning the adversities into greater benefits that will assist it to be able to survive the slowdown affecting the global economy and gradually increase the growth of its own economy.
