There was an error in this gadget

Monday, November 16, 2009

New Kenya?

The funniest thing occurred to me today...Kenyans actually think that they will solve their problems by enacting a new constitution. I got news for the rest of us... our biggest problem is economic in nature and is caused by the one agent everyone is looking to solve their problems... its called GOVERNMENT!
Kenya is in trouble and our biggest problem isn't distribution of resources or income disparity. The problem with Kenya is productivity... or rather, the lack of it. Being in Kenya, there is virtually no incentive to be productive in almost any sector. ICT- high licensing fees, agriculture- de facto price controls, finance- over-regulation, energy- not liberalized, and finally the kicker, the high taxation that government imposes on its people. The taxes that do the most damage are:
1. Value added tax (VAT. By its very definition, it is a tax on productivity. It should not exist in a country that wants to progress economically. It is probably one of the reasons why France needs Francophone Africa to survive otherwise their economic model is not sustainable... even the French prefer to start businesses in London than in France.
2. Income tax- It is not a bad tax per se but if government would be acquainted with the laffer curve, at least the basic philosophy of the concept, they would realize that the income tax code is poorly designed and is a big disincentive to work.
3. Licenses- Suppose the license for ICT services were not Kes +1bn, how many companies would be offering 3G services. The licensing regime was clearly a rent seeking venture by government and the only beneficiary was Safaricom... guess who sits on the board... government!
4. Quantitative easing- like VAT, printing money is a stealth tax on those who save and only serves to benefit government.
There are many more but I'll stop there for now. The taxes only serve to do one thing, shift wealth from the most productive part of society (private sector) to the most unproductive unit in the economy (the public sector)

No comments: