Gabriel Kimwaki on his coffee farm in Nyeri County, central Kenya. Agriculture is still the backbone of the economy even when many small-scale farmers continue to receive minimal returns. Credit: Miriam Gathigah/IPS

By Miriam Gathigah
NAIROBI, Nov 4 2014 (IPS)

Coffee farmer Gabriel Kimwaki from Nyeri County, in central Kenya, is considering “giving up farming altogether”.

He told IPS that the returns are too low “and with every harvesting season, I am making less and less profit.”

His is not a unique story. Francis Njuguna, an agricultural extension officer in the area, told IPS that while it is still difficult to quantify, “more farmers are shifting to food crops. The cash crop business is proving to be too risky for small-scale farmers.”

Kenya was reclassified as a middle-income country in early October, but as this East African comes to terms with its new ranking, it is becoming clear that status alone will not result in fewer people going to sleep hungry.

There is still a great need to address the plight of Kenya’s poor, as agriculture remains the backbone of the economy.

According to the Kenya National Bureau of Statistics, based on a five-year average from 2009 to 2013, the agricultural sector’s contribution to the GDP is now estimated at 25.4 percent — up from 24.1 percent.

The contribution that small-scale farmers like Kimwaki make cannot be overemphasised with government statistics showing that small-scale production accounts for at least 75 percent of the total agricultural output and 70 percent of marketed agricultural produce.

Economic analyst Jason Braganza told IPS that “the move to middle-income status was as a result of using better data from high-performing sectors.”

The sectors include agriculture, telecommunication, real estate and manufacturing — the latter sector’s contribution to GDP has risen from 9.5 percent to 11.3 percent, according to Braganza.

What the revised GDP revealed, Braganza said, “is that the country is worth much more than what was previously recorded.”

The country’s GDP is now estimated at 53.4 billion dollars compared to 42.6 billion dollars before the revision, making Kenya the ninth-largest economy in Africa, up from the 12^th position.

Kenya’s gross national income rose to 1,160 dollars, up from an estimated 840 dollars before the revision. According to the World Bank, a country is classified as middle income if its gross national income per capita — a nation’s GDP plus net income received from overseas — surpasses 1,036 dollars.

While this has been hailed as a move in the right direction for a country that remains East Africa’s strongest economy, policy analyst Ted Ndebu told IPS that this does not mean that Kenya is “rich and that it has risen above its social economic challenges.”

World Bank statistics show that more than four out of 10 Kenyans live in poverty. The country has a population of 44.3 million. With an economic growth rate of 5.7 percent, Ndebu said that the country “is still a long way off from a double-digit growth rate of at least 10 percent as outlined in the Vision 2030, the country’s economic blueprint.”

Braganza explained that revising the GDP or rebasing the economy is a purely “statistical exercise. It provides a better understanding of the economy but in itself, it does not change people’s poverty status.”

But he added that based on the new statistics, “the government has a better understanding of which sectors are driving the growth of the economy. But it does not mean that fewer people are sleeping hungry.”

He said that economic growth alone would not eliminate poverty.

“Growth must be accompanied by development. It is development that reduces poverty because it addresses issues like access to education, health services, jobs and so on,” Braganza said.

He explained that there were many factors that were not captured in statistics and income bracketing is not always a true representation of the people’s well being. “That is why household surveys are important. They show you the conditions under which people are living.”

Braganza added that this did not mean that rebasing the economy was not important. “It is very significant because the findings can be used to boost development and improve people’s living standards.”

The government would also be able to see which sectors can potentially bring in revenue, and tax them accordingly, thereby exploiting the potential that each sector has to the fullest.

But Ndebu said this could have a downside effect if the sectors are taxed too heavily and could discourage investment and innovation particularly in the telecommunication industry which pioneered mobile payments technology.

But this is not the only implication. Kenya could also be overlooked by donors.

Jason Lakin, the country manager at International Budget Partnership Kenya, told IPS that donors have in recent years focused on the poorest countries and a middle-income country may not be prioritised for funding.

He said that low-income countries generally qualify for more generous assistance.

“Take the World Bank’s International Development Association (IDA) credits, which are loans given to countries on very concessional terms [low interest and long repayment periods]. Middle-income countries will not qualify for these terms,” he explained, adding that middle-income countries may still get loans at  higher rates or over shorter repayment periods.

“Kenya may not find donor financing as attractive when the interest rates are higher and repayment periods shorter because it has now shown that it can borrow internationally,” said Lakin.

While market rate borrowing may still have higher rates than donor financing, experts say that donor funding usually has other conditions, making it less attractive for a country with other options.

Lakin said that international bond markets for instance “only want to be repaid and do not impose any conditions.”

Although Kenya is not an aid-dependent country since aid accounts for only seven to 10 percent of the national budget, Braganza said that “we still cannot undermine the importance of [aid] because it finances key sectors such as health, agriculture and education.”

“Donor aid is very significant because it is used in social sectors where people are in very severe poverty conditions,” he said.

Ndebu added that there was also aid that does not go through the national budget but through non-government organisations, which significantly complemented government projects.

Edited by: Nalisha Adams

By Chakravarthi Raghavan
GENEVA, Jul 22 2014 (IPS)

The world of today is considerably different from the one at the end of the Second World War; there are no more any colonies, though there are still some ‘dependent’ territories.

In the 1950s and 1960s, as the decolonisation process unfolded, in most of the newly independent countries leaders emerged who had simply fought against foreign rule, without much thought on their post-independence economic and social objectives and policies.

Some naively thought that with political independence and power, economic well-being would be automatic.

Chakravarthi Raghavan

By the late 1950s, the former colonies, and those early leaders within them who yearned for better conditions for their peoples, realised that something more than political independence was needed, and began looking at the international economic environment, organisations and institutions.

In the immediate post-war years, the focus of efforts to fashion new international economic institutions (arising out of U.S.-U.K. wartime commercial policy agreements) was on international moves for reconstruction and development in war-ravaged Europe.

As a result, in the sectors of money and finance, the Bretton Woods institutions [the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) or World Bank], were established – even ahead of agreeing on the United Nations Charter and its principle of sovereign equality of states (one nation, one vote in U.N. bodies) – on the basis of the ‘one-dollar one-vote’ principle.“Within the Bretton Woods institutions, there was no direct focus on promoting ‘development’ of the former colonies; what little happened was at best a side-effect of the lending policies of these institutions and the few crumbs that fell off the table here and there, often to further Cold War interests”

In pursuing their wartime commercial policy agreements, the United Kingdom and the United States submitted proposals in 1946 to the U.N. Economic and Social Council (ECOSOC) for the establishment of an international trade body, an International Trade Organization (ITO).

ECOSOC convened the U.N. Conference on Trade and Employment to consider the proposals; the Preparatory Committee for the Conference drafted a Charter for the trade body, and it was discussed and approved in 1948 at a U.N. conference in Havana.

Pending ratification of the Havana Charter, the commercial policy chapter of the planned international trade body was fashioned into the General Agreement on Tariffs and Trade (GATT) and brought into being through the protocol of provisional application, as a multilateral executive agreement to govern trade relations, i.e., governments agreeing to implement their commitments to reduce trade barriers and resume pre-war trading relations through executive actions subject to their domestic laws.

At Havana, during the negotiations on the Charter, Brazil and India had expressed their dissatisfaction, but had reluctantly agreed to the outcome and the provisional GATT.

The U.S. Senate, as a result of corporate lobbying, was however unwilling to allow the United States to be subject to the disciplines of the Havana Charter and did not consent to an ITO Charter; the result was that the provisional GATT remained provisional for 47 years, until the Marrakesh Treaty which brought the World Trade Organization (WTO) into being in 1995.

Within the Bretton Woods institutions, there was no direct focus on promoting “development” of the former colonies; what little happened was at best a side-effect of the lending policies of these institutions and the few crumbs that fell off the table here and there, often to further Cold War interests.

From about the early 1950s, to the extent that it provided any reconstruction and development loans to the developing world, the IBRD acted in the interests of the United States, its largest single shareholder, and favoured the private sector.

For example, early Indian efforts to obtain IBRD loans for the public sector to set up core industries like steel, which needed large infusions of equity capital that the Indian private sector was in no position to provide, were turned down, based purely on the ideological dogma of private-vs-public-enterprise.

It was only much later that a separate window, the International Development Association (IDA), was created at the World Bank to provide soft loans (with low interest and long repayment periods) to low-income countries.

But the IDA did not function as professed and did not provide loans to set up industries or promote development in poorer countries; in actual practice it acted to advance the interests of the developed countries in the Third World.

IDA loans came with conditionalities to promote structural adjustment programmes, such as unilateral trade liberalisation, resulting in deindustrialisation of the poorer African countries. Even worse, IDA loans came with additional conditionalities to cater to the fads and fashions of the day and the concerns of Northern, in particular Washington-based, civil society.

The IDA “donor countries” dominated its governance and used their clout there to sway IDA lending – initially, the IDA obtained funds from the United States and other developed countries, and there were two or three substantial replenishments thereafter.

Subsequently, the funds from loan repayments and the profits of the World Bank (earned by lending at market rates to developing countries) were used to fund IDA, with small new contributions from the “donors” at every replenishment.

Though developing countries borrowing from the IBRD at market rates thus turned out to be the funders of the IDA, they had no voice in IDA governance, and the developed countries, with very little new money, have maintained control over the IDA and IBRD policies, to promote their own policies and the interests of their corporations in developing countries.

On the trade front, in successive rounds of negotiations at the GATT, the group of major developed countries (the United States, Canada, Europe, and later Japan) negotiated among themselves the exchange of tariff concessions, but paid little attention to the developing countries and their requests for tariff reduction in areas of export interest to them.

The only crumbs that fell their way were the result of the multilateralisation of the bilateral concessions exchanged in the rounds, through the application of the “Most Favoured Nation” (MFN) principle. From the Dillon Round on (through the Kennedy and Tokyo Rounds), each saw new discriminatory arrangements against the Third World and its exports.

In the Uruguay Round (1986-94), culminating in the Marrakesh Treaty, the developing countries undertook onerous advance commitments in goods trade, and in new areas such as ‘services’ trade and in intellectual property protection, on the promise of commitment of developed countries to undertake a major reform of their subsidised trade in agriculture and other areas of export interest to developing countries.

These remain in the area of promises while, after the 2013 December  Bali Ministerial Conference, the United States, Europe and the WTO leadership are attempting to put aside as ‘out of date’, all past commitments, while pursuing the ‘trade facilitation’ agreement, involving no concessions from them, but resulting in the equivalent of a 10 percent tariff cut by developing countries.

In much of Africa, this will complete the “deindustrialisation process” and ensure that the Third World will remain “hewers of wood and drawers of water”.  (END/IPS COLUMNIST SERVICE)

* This text is based on Chakravarthi Raghavan’s recently published book, ‘The THIRD WORLD in the Third Millennium CE’.

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