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INTERNATIONAL BUSINESS ENVIRONMENT
Introduction
This case study report is based on the subject of scenario planning. A set of scenarios for future development are presented with reference to a specific country. The country selected in the present paper is Kenya, an East African nation. In the first section, a basic overview of Kenya’s current economic profile is presented. Appropriate data and statistics are used to emphasize crucial indicators of development and economic growth.
In the second section, a set of scenarios for Kenya’s future to the year 2032 development are highlighted. Based on these scenarios and presentation of further data, critical factors that determine the future of the Kenya are highlighted. On this basis, the scenario that is regarded as most likely among those highlighted is outlined. On this basis, the case study report ends by providing a conclusion.
Kenya’s economic profile
Kenya is situated in East Africa. As of the 2011 national census, the country had a population of 41,609,728 (Kenya National Bureau of Statistics, 2012). It has a GDP (Gross Domestic Product) of about $33.62 billion, which is currently growing at a rate of 4.3 percent (Kenya National Bureau of Statistics, 2012). Kenya’s inflation rate stood at 14 percent in 2011 (Kenya National Bureau of Statistics, 2012). Kenya’s economy appears to be stabilizing gradually, although it is still vulnerable to both internal and external economic shocks. On average, inflation reached 15 percent. Moreover, the Kenya Shilling sharply depreciated. However, during 2012, the inflation rate has dropped and the exchange rate has been stabilizing. According to statistics provided by the Kenya National Bureau of Statistics, the inflation rate stood at 6.1 percent In August 2012. This was a significant drop, compared to 2011, when it peaked at 19.7 percent (Kenya National Bureau of Statistics, 2012).
According to the World Bank’s projection, the economy is currently on track given that the rate of growth increased from 4.3 percent in 2011 to five percent in 2012. This growth would have looked promising if only the country was able to mute the shocks. Bank analysis indicates that between 2012 and 2013, growth is going to be driven largely by recovery in the agricultural sector and stability in energy supply because of good rains (World Bank, 2012).
Kenya has managed to bring stability to exchange rates and interest rates due to prudent fiscal policies (Thugge, 2011). Moreover, low prices of energy and food at the international market have led to a sharp decline in inflation. The interest rates at first increased sharply towards the end of 2011. Towards the mid-2012, the Central Bank began lowering it once again. For instance, in September 2012, it was reduced to 13 percent (Wu, 2012). Similarly, for most of 2012, the Kenya Shilling stabilized and exchanged at between Kenya Shillings 83-85 to the US dollar (Kenya National Bureau of Statistics, 2012). Furthermore, the service sector in Kenya has recently maintained strong growth. Additionally, debt levels have been maintained at below 45 percent of GDP.
However, the economic growth rate is still below the average growth rate in the East African Community (EAC) as well as Africa, whose average rates of growth are six and 5.3 percent respectively (World Bank, 2012). It may be true to say that macroeconomic stability has already been restored in the country during 2012. However, certain aspects of vulnerability still remain particularly because of the current account balance that continues to widen.
Over the last two years, Kenya successfully averted a looming economic downturn. However, structural weaknesses still remain, and it is for this reason that Kenya still remains vulnerable to a fresh wave of economic instability. There are some imbalances in the economy that need to be fixed urgently. The main area that needs to be addressed relates to current account deficit. This deficit has been caused by a trend in which imports are growing faster than exports. For instance the Central Bank of Kenya indicates that in mid-2011, the top country’s export; namely tourism, horticulture, manufactures, and tea, failed to sufficiently finance the country’s oil import bill, which shot up by an average of 23 percent during 2011 (Kenya National Bureau of Statistics, 2012).
A major economic problem for Kenya is her reliance on short-term capital inflows (International Monetary Fund, 2004). Although these inflows are critical in stabilizing the exchange rate, they make the economy increasingly vulnerable to external shocks. Kenya’s external competitiveness is also constrained by her real exchange rate, which is 20 percent stronger today than it was ten years ago (Kenya National Bureau of Statistics, 2012).
To avoid economic stress and increase stability, Kenya needs to increase exports of various goods and services, particularly by venturing into new markets and coming up with new products (Nyangena, 2012). The country should also address the perennial challenges relating to energy and food deficits. If these challenges are addressed satisfactorily, the country will have charted a clear path towards industrial and agricultural transformation.
The country also faces the need to deepen regional as well as tap into the surplus produce that exists in the other EAC countries (Nyong’o, 2007). Tanzania and Uganda continue to produce more food than they can consume, particularly maize, Kenya’s staple food. By contributing to the growth of the EAC’s food trade, Kenya will also be helping her population pay less for food. At the same time, the country will be helping Ugandan and Tanzanian farmers get more earnings from their produce. It may also help a great deal to tap into the energy reserves of other neighboring countries such as Ethiopia. This would also contribute to an increase in Ethiopia’s earnings from energy sale to various energy-deficit countries.
Kenya has also put in place non-tariff barriers which continue to act as a hindrance to trade, particularly within the fast-growing EAC region (Seto, 2011). The average growth rate for the EAC region was the second highest at 5.8 percent, second only to the ASEAN (Association of Southeast Asian Nations) region (Seto, 2011). Through participation in regional growth, Kenya has an opportunity to mitigate its external vulnerability. Moreover, increased intra-EAC trade may greatly reduce the country’s current account deficit while at the same time opening up the economy to new avenues of foreign direct investment (Baziliana & Nussbaumer, 2012).
Despite a looming general election scheduled for March 4 2013, investor sentiments remain positive. Natural gas has been discovered at the Kenyan coast while oil has been discovered in Northern Kenya. These two crucial discoveries have greatly boosted investor confidence. Moreover, after a long period of poor performance, the Nairobi Securities Exchange has been bullish since mid-2012 (World Bank, 2012).
However, on the flip side, there are many concerns about security, unrest, and perceptions of corruption in the run-up to the general election in March 2013. Moreover, pressure on further economic growth continues to be fuelled by drought in the arid and semi-arid areas of the country, particularly in Eastern and North Eastern provinces (Biggs, 2012). The situation is made dire by recent increase in agitation for higher salaries by many civil servants, including public university lecturers, teachers, nurses, and doctors. This has increased pressure on the country’s national budget. Yet this budget is already being constrained by increased spending on forthcoming elections as well as on the devolved system of administration.
Kenya has also recorded impressive performance with regard to a reduction in the number of people affected by drought. In 2012, this number dropped to 2.2 million people from 3.7 million who had been affected by drought during 2011. However, a major problem still persists because about 5.5% of the Kenyan population still requires food, medical supplies, as well as other forms of aid to survive (World Bank, 2012). This denotes a high level of vulnerability, particularly in the northern and eastern regions which also double as the poorest sections of the Kenyan society.
Kenya also faces the problem of economic inequality. The improving macroeconomic conditions during the last decade have greatly improved the welfare of millions of Kenyans. However, many poor people have continued to be vulnerable to crises such as drought. Such vulnerability has greatly contributed to the serious problem of urban and rural poverty. The national absolute poverty index in Kenya stood at 46.1 percent in 2006, which was significantly higher than Tanzania (at 36 percent) and Uganda (at 31 percent) (Kenya National Bureau of Statistics, 2012).
Strong regional disparities in poverty indices are also evident in the country. Rural poverty, at 30 percent of the population, is at its lowest in Central province while it is highest in North Eastern Province at 74 percent. In terms of inequality, the main indicator is the distribution of income. In the rural areas, income disparities have been decreasing slightly in recent years while in urban areas they have been increasing. In the revenue sharing formula based on five criteria unveiled in 2012, the Commission on Revenue Allocation decided to allocate a 20% weight to poverty incidence (Kenya National Bureau of Statistics, 2012).
In fact, poverty and vulnerability rank at the top of the many development challenges that continue to bedevil the country. However, in recent times, economic and political milestones have yielded numerous development opportunities. Nevertheless, this turn of events has not prevented concerns from being raised in critical areas, including governance, food security, and corruption. International oil prices continue to be a major source of external shocks and vulnerability. This problem has been complicated by underperformance in the manufacturing sector in addition to reducing agricultural output.
It may be a while before the numerous problems arising from successive crises are resolved. For instance, the post-election violence that erupted in January and February 2008 led to the loss of many lives, destruction of physical assets, and displacement of more than 300,000 Kenyans, who comprise more than one percent of the country’s population. Many tourists and investors lost confidence in the country and a lot of destruction was made to social capital. To date, the tourism industry is yet to fully recover from the setbacks caused by the post-election violence. The recent economic recession also hurt Kenya’s prospects of rapid economic recovery in the wake of the post-election violence in 2008.
Currently, the looming global economic slowdown poses the latest risk to Kenya’s development blueprint (Van der Hoeven, 2011). There is a need for the eventuality of an economic slowdown to be put into consideration in the process of coming up with a comprehensive policy management framework. Another factor that needs to be put into consideration is the rising demands as far as public expenditure is concerned. It is highly likely that Kenya will resort to domestic borrowing in the form of privatization receipts and long-term infrastructure bonds to cover financial shortfalls.
Scenarios for the future development in Kenya
The present situation
It is imperative to begin by presenting an analysis of the current economic, political, and social conditions in Kenya and how they have been created. Currently, there is decreased agricultural productivity, lack of competitiveness in the manufacturing sector, a rapidly growing population, food insufficiency, and global marginalization, all of which are indicators of an economic crisis (Kinley, 2011). The country appears to have reached the limits as far as its economic and political models are concerned. However, on a positive note, the government of President Mwai Kibaki has made remarkable progress in building infrastructure.
Kenya is also in a political dilemma characterized by lack of legitimacy in the present political system, mistrust in the judiciary, mistrust of security forces, and weakness in institutions such as parliament (Callaghy, 2011). Formal institutions are continually being brushed aside in preference for informal institutions and arrangements. There is also poor delivery of services in spite of heavy taxation. Moreover, politicians continue to exploit ethnic and regional diversity to gain political mileage. However, on a positive note, the much-awaited new constitution was promulgated in August 2010.
From the social perspective, cultural values have been eroded, criminal violence has increased, and the number of unemployed youth continues to increase. Moreover, the education and health systems are unable to meet the population’s needs. Many rural communities are on the verge of collapse and family violence is on the rise. This social disintegration is an indication that the traditional path of development adopted by the country based on peasant agriculture and primary exports is unsustainable. The social situation has been made worse by the failure by key stakeholders to entrench a broad-based and highly competitive manufacturing sector. Moreover, the government has not emphasized the need to engage in production of a wide variety of capital goods. Similarly, the same government appears to be founded on the model of patron-client model of politics, which impacts negatively the way policies are formed and implemented. These challenges come at a time when a trend of global liberalization is emerging.
Two major crises exist in Kenya at the present time. The first crisis is that of the governance structure. There is a deeply entrenched belief that for a politician to attract a huge following, he or she has to appease Kenyans with money (Wilson, 2010). For this reason, leaders rapidly accumulate wealth while still in office. They use public office not for public service but for private gain. The second crisis is that of the economic structure. The village-based production model through agriculture is no longer sustainable because all land as been colonized. Most of the Kenyan population has migrated to the urban centres in the search for new types of jobs.
The industrial development model that was charted at independence has failed to yield positive results (Kassam, 2012). There are no skills to sustain the model. Furthermore, the industrial model is being challenged the world over because of its negative effects on the environment. There are three issues that make the economic structure difficult to remedy. The issues include the HIV/AIDS pandemic; globalization of information, finance, and trade; and the crisis within the current global environment (Dicken, 1998).
Currently, Kenya is positioning herself to benefit from the globalization of information, trade, and finance through ambitious plans to develop information and communication technology (ICT) infrastructure (Akama, 2002; Cable, 2012). According to Greenspan (2010), many countries, including Kenya, hope to benefit from the information revolution by building the kind of infrastructure that will create new employment opportunities to the technology-savvy young population.
Although there is a massive trend towards globalization of trade, finance, and information, some perennial local-based problems such as tribalism persist (Roe, 2009). There are 42 different ethnic groups in Kenya, some of whom inhabit arid and semi-arid areas, and feel marginalized by the government (Giddens, 2002). This marginalization is evident in disparity in knowledge and experience among the various ethnic groups.
Unfortunately, the first tool used by Kenya’s political class to address these problems is the ideology of tribal affiliations. It is impossible for a Kenyan politician to survive politically without “playing the tribal card” (Giddens, 2002). The politician has to cultivate a cult-like following among his ethnic kinsmen, which he uses as a tool for negotiating for political positions upon joining coalitions that have a national outlook and a high likelihood of winning the general elections. The government responds to this challenge through numerous quick fixes that are always far from effective in dealing with the underlying problem.
Against the backdrop of this present situation in Kenya, three scenarios are possible. The first scenario is that of development in the context of inequality. In this scenario, the transformation will focus on reordering the national economy but will be characterized by resistance to full-blown transformation of political structures. The second scenario is known as constitutionalism-oriented development. In this scenario, Kenya’s institutions will be reorganized in a way that will make them democratic and accountable. In this scenario, substantial economic reforms will be ignored. The third scenario is that of democratic reform and economic growth. This scenario is characterized by reforms in the economy as well as the country’s main institutions. In this scenario, institutions will be reorganized in such a way that the nature of representation as well as the level of participation will be a reflection of Kenya’s diverse society. This democratization process will take place hand in hand with an economic revolution that will ensure that national resources are distributed equitably and that there is accelerated growth.
First scenario: Development in the context of inequality
In this scenario, Kenya will pursue the goal of economic recovery but no political reforms will be undertaken. This scenario is based on the background of the current situation in Kenya. Currently, the Kenyan government faces declining tax revenue because of poor performance by most businesses. The level of insecurity is high; incidences of robberies and carjacking are a daily occurrence. A huge proportion of the population is unemployed and is idling around. Many of these people no longer have confidence in their government.
These circumstances have been a dominant feature in Kenya for a long time. In fact, lack of confidence with the government was one of the main reasons why most Kenyans persistently pegged their hopes on the new constitution (Huntington, 1991). Although the new constitution has been promulgated, Kenya appears not to be parting ways with the old way of doing things fast enough.
An in-depth analysis of these problems shows that the current crisis is first and foremost economic (Mietzner & Reger, 2005). Given that Kenyan politicians like to make quick fixes to problems, they are likely to embark on ambitious infrastructural projects aimed at bringing about economic reform while leaving the underlying problematic political structures untouched (Giddens & Hutton, 2000). The government may address this problem after become overwhelmed by numerous cases of economic instability and social upheavals.
The path of economic change also appears attractive to the political class because it gives them an excuse to put on hold real political and constitutional reforms. After an analysis of various social problems, the government will conclude that they are largely economic, hence the need for economic reforms. The political class will assume that rapid economic growth will bring a sense of satisfaction across the Kenyan society, thereby reducing demands for political reform.
In this scenario, it is likely for the government to hire the services of economic experts with the aim of obtaining recommendations on how best to resolve the looming economic crisis as well as chart a roadmap for future economic prosperity (Castells, 1996). A priority issue would be revamping of the basic infrastructure such as roads, electricity, railway lines, schools, and hospitals. This would necessitate increased emphasis on privatization. It is also possible for government to decide to highlight specific sectors and focus most attention on them in efforts to speed up economic growth.
The strategy will seem to have worked because rapid economic growth will ease off any demands for political reform. However, the success may turn out to be nothing more than an illusion. It will be just a matter of time before the weaknesses of this road will start to show. Although many jobs will be created and the economic plan will be applauded by the international community, the average Kenyan will still be poor. Although the tourism industry will grow, a new rail network will be in place, Kenyan produce will have a ready foreign market, the rich people will have become richer while the poor will have gotten stuck in the abyss of the status quo.
The discomfort will start creeping in after many Kenyans realize that the growth has not been shared equitably; it has only benefited a select few. Once again, they will start clamouring for political reform. The clamour may intensify within the next ten years, reaching a climax during the 2023 general elections; two electoral cycles are sufficient for Kenyans to discern a clear trend with regard to economic growth, social equality, political reform, and wealth distribution are concerned. Moreover, two electoral cycles are enough for the citizens to realize that the economic growth already achieved has been laid on a very weak foundation.
The path that the country takes from here will greatly determine its future. The country may degenerate into tribal conflicts if the political class does not work towards bringing about political reform. The political leaders would need to be visionary enough to see the bullet that they will be dodging by implementing political changes.
Second scenario: Constitutionalism-oriented development.
In August 2010, the much-awaited new Kenyan constitution was promulgated. This milestone was heralded as a new beginning for the country. To many Kenyans, the day of promulgation was as important as the day Kenya attained her independence from Britain in 12 December 1963. Although the road towards political reform has been long, there is still a lot to be done. The surface has barely been scratched as far as the work of implementing the constitution is concerned. Without proper implementation, the new constitution would worthless. Unfortunately, the relics of the old political order are still in power and they may present numerous barriers to the implementation process.
Nevertheless, the will of the Kenyan people is clear, and they hope to see once they go to the poll in 4 March 2012. This is the first general election after the promulgation of the new constitution. The politicians may be forced to submit to the will of the people and undertake all the political reforms, particularly devolution. Incidentally, devolution is a costly undertaking because each of the 47 counties will be allocated a share of the national budget as part of the decentralization process. This is unlike in the previous system where the centralized approach was used to channel the government funds directly to various ministries.
The problem is that the country’s economy is too weak to sustain such an ambitious reorganization of its structures of governance. Power is decentralized to governors who are the chief executive officers in each of the 47 counties. The new administration will start hailing ethnic diversity as a national asset. The senate which occupies the upper house keeps the executive under check, and may move a motion for the impeachment of the president. The senate is also empowered to address all issues that threaten Kenya’s stability.
The changes may create the impression that equality among all the social classes and ethnic groups is being realized. However, the energy that the government will have directed towards these reforms will effectively mean that matters of economic reform have largely been ignored. This withdrawal from issues relating to the economy means that not much will have been done by way of economic progress. Instead, the only credit to be attributed to the government will be the facilitation of a conducive environment for success in business and investment. Otherwise, no measures can be seen to have been undertaken to stimulate the economy. This would make the economy remain largely informal, with most Kenyans remaining poor.
The main consolation would be that by the 2023 general election, Kenyans are in control of all their affairs, and that the right foundation for economic prosperity has been established. In such a situation, there is a high likelihood of the Kenyans achieving the highest level of equality upon gaining economic stability and growth. As the right political structure falls into place, Kenyans gain confidence in the ability by the government to guarantee them peace. Though poor, Kenyans at this point feel that their long-term survival is guaranteed. By 2032, Kenyans will be living the dream of long-term economic and democratic stability.
Third scenario: Democratic reform and economic growth
This scenario starts with attempts by the current administration to engage in crisis management. It is based on the realization by the current government that support is waning even among its staunchest supporters. Quick fixes have already failed to bring about desirable results. There is open criticism of the government and questions are being raised regarding its ability to govern. It is time for a transitional governance arrangement, and soon, elections are held and a new government is in place.
This scenario is largely based on the actions that the new government takes, the most important of which is to break free from the past violations. This involves identifying all the economic crimes that were committed and taking bold measures to offer amnesty where necessary. The best-case scenario is where issues of the past are dispensed with, amnesties offered, convictions made where necessary, and as many state assets recovered. This requires a new form of national consciousness that allows every institution to function without any interference from top government officials.
This national consciousness is reinforced through weekly television and radio programming and public awareness campaigns all spearheaded by top government officials. In this way, most sceptics are convinced about the seriousness of the government in pursuing democratic and economic reform. The scenario is that between 2013 and 2018, the new government will have formally outlined and addressed historical injustices that yielded deeply entrenched economic imbalances and inequalities.
A sense of nationalism is what this scenario is all about, hence the need to communicate the vision in all the country’s languages. This is an excellent way of ensuring that no one is left behind in the pursuit of proper governance and economic prosperity. The big question is on whether the current political class is willing to do such things which they are not used to. The reality is that the current crop of leaders have already started positioning themselves for positions of gubernatorial and senatorial positions in the newly decentralized structure of government. If the electorate retains a huge section of the current political class, this scenario will simply not unfold.
The most likely future scenario: Development in the context of inequality
There are several factors to be considered in determining the most likely future scenario (Ringland, 2002; Mietzner, 2006; Morrison, 2002). This requires an assessment of each of the scenarios in terms of enablers and hindrances. In the first scenario, there are many indications that it is possible for development to take place in a context where inequality continues to thrive. For instance, between 2011 and 2012, the rate of economic growth rose from 4.3 percent to five percent in 2012 (Kenya National Bureau of Statistics, 2012). At the same time, income inequalities have remained unchanged. The main enabler for this scenario is the penchant for quick fixes among the current political class (Porritt, 2011). The main hindrance may failure within the devolved system of government. This is an ambitious system, which the political class has been trying to arm-twist by derailing the process of implementing the new constitution.
In the scenario of constitutionalism-oriented development, the main enabler takes the form of numerous opportunities that diverse sections of the Kenyan society have to participate in governance. Previously, many social groups such as the youth, women, and persons with disabilities have been sidelined from the leadership positions. The new constitution has addressed most of these challenges. For instance, it provides that the National Assembly cannot be constituted by members of one sex only. This effectively means that a third of the members of parliament must comprise of women. However, this, in turn, depends on whether the marginalized groups will offer themselves for elective positions in the 4 March 2013 elections. Another hindrance is the weak state of the economy. One way or the other, the economic considerations will force planners to give priority to measures that favour either the first or the second scenario. The first scenario will be selected because it is not against the interests of the current political class.
Conclusion
The patron-client politics in Kenya makes it impossible for politicians to give priority to issues of political reform when they could just use the economic-reform approach to appease their constituencies. For this reason, the most likely scenario is the first one: development in the context of inequality. During the next ten years, the rate of economic growth will continue rising but income inequalities will persist. Not much will happen in terms of political reform until all stakeholders in the Kenyan society acknowledge that any amount economic growth without the foundation of proper political reforms is not sustainable. The citizens are most likely to acknowledge this after around ten years. In this case, after the 2023 general election, ten more years will be needed to embark on political reform. This means that after 2032, Kenyans will most likely be living the dream of a full functional democratic structure and economic system.
Over the next twenty years, the path taken by Kenya will depend by the level of urgency with which the political class will feel the need to implement all aspects of the new constitution, particularly with regard to political reforms. It is also appropriate for one to remain open to the possibility of new unforeseen developments that may shake up the country’s political developments, for instance a popular uprising because of unwillingness by politicians to implement the constitution and to address income inequalities. In the likelihood of such an uprising, the political class may find the urgency to carry out both political reforms and the economic growth agenda.
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