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Kenya not ready for 24-hour economy, experts explain

Posted In Business - By admin on Saturday, April 6th, 2013 With No Comments »

bizpxDuring the just ended electioneering period, Kenyans were peppered with promises that Nairobi would be turned into a 24-hour economy.

In line with Vision 2030, candidates for governorship vowed that a 24-hour economy in the city would become a reality in a few months.

And in the early days of the devolved regime, politicians are still reiterating these promises.

However, experts are warning that creating a 24-hour economy will be harder than just scheduling a new shift and ordering people to work through dinner-time.

They have argued that the blanket implementation of a round-the-clock economy may actually not be beneficial to Kenya at this juncture of development.

In an essay published last Thursday, the Institute of Economic Affairs chief executive Kwame Owino warned against “the fallacy of a 24-hour economy”.

“Working round the clock will not necessarily solve Kenya’s fundamental problems such as unemployment and poverty,” he said.

The 24-hour economy, articulated in Vision 2030 and envisioned by the National Economic and Social Council, would see parts of Nairobi’s Central Business District act as a pilot with “rapid expansion” to other cities in the country.

Increasing employment opportunities has been volleyed around as a sufficient justification for creating a 24-hour economy by both politicians and policy strategists.

“It means more jobs for the millions of Kenyans who are now jobless, more revenue and more security in urban centres,” said Vision 2030 chief executive Mugo Kibati.

However, Mr Owino argued that this may be a logical fallacy. The dilemma, he said, is that once a new shift is created and employment as well as production increase proportionately, consumption may not match the nation’s current production levels.

“Production is not an end in itself but is undertaken purely to meet demand that is real. So for most businesses and work places in Kenya, the constraint is the size of the market and that cannot be expanded by a government declaration of a 24-hour economy,” wrote Mr Owino.

A counter-argument, of course, would be that in creating more jobs, a 24-hour economy would be empowering a greater number of Kenyans with the purchasing power to raise consumption rates thereby expanding the market.

“With more people at work, there will be more spending and investing, further stimulating the economy,” said the Kenya Private Sector Alliance in a statement to theSunday Nation.

However, increased consumption would still not be proportionate to production growth because the remuneration of workers in Kenya remains relatively low.

“More people finding jobs is a good thing. However, we still consider our salaries very low and this will make it very difficult to consume much of what is produced in such an economy,” notes Dr Noah Chune, an economist and trade unionist who sits on the National Economic and Social Council.

In his essay, Mr Owino argued that in order to lift the country out of poverty, strategy should focus on raising people’s incomes through increased productivity.

He draws a fine distinction between production, which is simply the creation of more goods and services, and productivity, which focuses on efficient use of available resources. The level of productivity in a state, he says, distinguishes low income and high income economies.

“Simply put, human welfare is improved whenever people use less of a resource (time included) to produce the same amount of output. A call for a 24-hour economy suggests that we merely need to add inputs such as labour to the equation to ensure growth,” he says.

Mr Chune suggests that the country needs to address the erosion of purchasing power of workers through such factors as inflation as well as reduce stark income discrepancies in order for consumption to increase to a point where it meets the supplies of a 24-hour economy.

In a 2009 report on a 24-hour economy, NESC argued that Kenya will need to identify new markets – both domestic and foreign – that will absorb goods and services produced by the country as a result of working extra hours.

All production

This is not to say that a 24-hour economy is wholly impracticable. In fact, according to Mr Owino, it already exists in Kenya. If the economy is taken as an aggregation of all consumption and all production, then Kenya is already a 24-hour economy. There are industries thriving at any time of day and night.

One of the pioneers of the 24-hour model in Kenya is retailer, Nakumatt. The company opened its first round-the-clock outlet in 2007. Currently, the company has eight branches operating on a 24-hour basis.

However, Nakumatt is cautious in its expansion of the 24-hour model. It is not implemented in a blanket manner. It is informed by demand.

“The conversion of any of our stores into a 24-hour branch is always informed by feasibility studies. Among other elements, such studies rely on customer demands,” says Nakumatt.

KEPSA also points out that other hurdles exist even for businesses that want to adopt a continuous working schedule. Insecurity, they say, has discouraged many businesses from opening up their doors at night.

There are areas of the economy where the provision of round-the-clock services will remain crucial, indispensable even. Kenya and its fellow East African Community partner states are attempting to turn border posts into 24-hour operations. Already, the seaport at Kilindini operates round the clock out of necessity to avoid costly congestion.

 -Nation

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