For Online E-newspaper
The East African : Oct 6th 2014
32 The EastAfrican OUTLOOK OCTOBER 4-10,2014 D E VE LO PME N T ‘Competing to starve people to sell products at low prices will fail’ Unctad wa≥ns that a lopsided development model will fu≥the≥ slow down economic ≥ecove≥y By JEFF OTIENO The EastAfrican T he United Nations Conference on Trade and Develop- ment wants African states to abandon the development model that focuses on production of goods and shuns minimum wage increases for workers in productive sectors. Unctad said that the model is partly to blame for the sluggish growth in the world’s economy and may affect the economic recovery if unchecked. “International trade has not slowed down or remained quasistagnant because of higher trade barriers or supply-side difficulties; its slow growth is the result of weak global demand,” said Unctad in its latest Development and Trade Report, 2014. Given the insufficiency of glo- bal demand, Unctad said, it is unlikely that international trade alone will kick-start economic growth. The global economy has re- mained weak for the past three years, affecting growth and development in both rich and poor countries. The poor performance, for example, has limited foreign-exchange earnings for many countries in Africa, a challenge that has forced many governments to cut spending on crucial sectors like manufacturing, agriculture, health and infrastructure. The sluggish growth has al- so compromised international trade, making it hard for African countries to find markets for their goods and services as targeted countries, mainly those in Europe, embark on austerity measures to cut spending on imports. In addition, slowing global economic growth, according to economists, has restricted investments, forcing some of the top savers to turn to government bonds. Early in the year, the Interna- tional Monetary Fund said low interest rates in the developed world could spur risk-taking behaviour by investors, hurting fragile economies in Africa more, especially if investors in question make unrealistic demands before spending their money. “Increased risk taking, in helps create local demand for goods and services. “If you pay workers poorly you are also making it difficult to create a strong middle class population, that can help create the market for local goods and services. Workers will only spend if they have enough money in their pockets,” he added. Both Dr Kituyi and Mr Mwan- gi are in agreement that East African countries and others need to borrow a leaf from China, which has succeeded in creating a big middle class population that has in turn helped stimulate local demand for goods and services Chinese miracle “China is one of the few coun- tries in the world that have succeed in using the domestic consumer to achieve economic growth and development,” said Dr Kituyi. However, Kenya’s Foreign Af- fairs Principal Secretary Karanja Kibicho warned that other factors like cost of raw material, cost of electricity and bureaucracies involved in the production of goods and services cannot be ignored. “Wages should be tied to pro- ductivity or we will continue killing our industry,” he added. In fact, the high cost of en- The tea sector is mentioned among productive industries whose pay and working conditions are wanting. Picture: File turn, may increase systemic financial sector risks, and appropriate macro- and micro-prudential oversight would therefore be critical for maintaining financial stability,” said IMF. Unctad said that though im- proving trade flows by modernising Customs procedures will be helpful in making trading systems more efficient over the longer term, it will not address main constraints to trade. Unctad warned that the cur- rent emphasis on the cost of trade could be counterproductive, especially if pursued by several trade partners simultaneously. “The only way to expand trade at a global level is through a robust domestic-demand-led output recovery at the national level,” said the report. Unctad secretary general Dr We risk going the Greece way if we do not control the public wage bill.” Micah Cheserem, chairman, Commission for Revenue Allocation Mukhisa Kituyi singled out African countries for using the lopsided approach to boost exports. “Competing to starve your people to sell products at low prices is not viable and will fail in the long run,” said Dr Kituyi. He added that countries ought to find a balance between producing quality goods and paying workers reasonable wages. The wage debate has remained controversial in East Africa with trade unionists constantly calling for an increase in pay and employers arguing that most economies are weak and cannot sustain a heavy wage burden. Export sectors that have come under scrutiny for this lopsided approach are coffee, tea and CULPRITS Some of the export sectors that have come under scrutiny for the lopsided development approach — where production volumes are preferred to raising minimum wage, for example— are coffee, tea and flower. Coffee sector: Farmers have for long complained about poor pay, despite the crop being one of the main foreign exchange earners in the East African region. Uganda, for example, trade unionists argue that the benefits have not trickled down to the farmer and other flowers. In the coffee sector, for ex- ample, farmers have long complained about poor pay, despite the crop being one of the main foreign-exchange earners in the East African region. Uganda’s case Uganda, thus, is one of the leading coffee exporters in the world, but trade unionists argue that the benefits have not trickled down to the farmer and other labourers who toil on the coffee plantations. In Kenya, some coffee farmers have abandoned the crop for real estate. The flower sector, on the other hand, has faced criticism from human-rights and labour organisations for paying workers poorly. Early this year, the Kenya labourers. Flower sector: Human rights and labour organisations say its working conditions are appalling and the pay is too low. Though analysts agree that productive sectors in East Africa have used the approach as a way of ensuring exports remain competitive, other insist that factors like cost of raw material, electricity, bureaucracies involved in the production of goods and services cannot be ignored. Export Floriculture, Horticulture and Allied Workers Union threatened to go to court over poor working conditions and pay on most flower farms in Naivasha. Agricultural economist, George Mwangi concurred with Unctad’s concerns, saying some productive sectors in East Africa have used the approach as a way of ensuring exports remain competitive. “Paying workers low wages is a way to cut the cost of producing a particular cash crop to make them competitive in the international market,” said Mr Mwangi. He said that this approach in most cases contributes to unbalanced economic growth, which neither takes the interest of workers into consideration nor ergy has been an impediment to the growth of the country’s manufacturing sector, which is yet to realise it full potential in wealth creation. The challenge is the same in other East African countries that depend on rain-fed rivers for hydroelectric power generation. Dr Kituyi warned the imbal- ance between current and development expenditure in the country is unsustainable and must be reviewed. “Kenya cannot achieve mean- ingful development with the current imbalance. We must free more money for development expenditure and reduce our recurrent budgets,” he added. The Commission for Revenue Allocation chairman Micah Cheserem, the man responsible for sharing of revenue between the national and county governments, has already warned that the country is being set on a path to financial meltdown unless spending is controlled. “We risk going the Greece way if we do not control the public wage bill; we must cut wastage, do away with excessive travel both foreign and domestic, and too many allowances to public servants in order to free up money for development,” Mr Cheserem said recently. The public wage bill was esti- mated at 12 per cent of the gross domestic product (GDP) in 2013, which is beyond the international benchmark of seven per cent or below. In fact, the wage bill remains the single-largest recurrent expenditure item in county and national government budgets, accounting for Ksh196.266 billion ($2.28 billion) or 55 per cent of recurrent expenditure.
Sep 29th 2014
Oct 13th 2014