The Implications of Adding More Debt
22nd October 2015 5:28 AM
Recently one major headline captured my attention in the Daily Nation (DN), 10th October. The heading read: “Questions over use of Eurobond billions as state borrowing sends rates through the roof”. Probably a considerable number also read it but did not give any further thoughts about it. This mostly happen because Kenyans in general are more interested in meaningless political rhetoric than any economic activity with the potential to disrupt the social, economic, and political fabric of this nation. The heading that appeared on the DN triggered a statement President Obama once made when he was under pressure to bring the deficit down and grow the economy. This is what Obama had to say:
I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.
- President Barack Obama, on Fox News, November 2009
Therefore, the heading made me wonder whether the common man in Kenya is worried about the deficit (our national debt!). Are we able to see any correlation between our national debt and the problems facing this nation today? I hope not! What many don’t realize is that some government actions, if not checked, can be disastrous to the economic well-being of this nation. However, while the public are playing ethnic tango with the economy, the investors and potential financiers are busy analyzing the environment for its conduciveness to sustainable business. So, when the economy is showing signs of uncertainty, potential investors will obviously develop cold feet.
Investors intending to do business in Kenya study political and legal situations in order to adapt company activities to local conditions. The study of successful companies indicates that they begin with the realization that when it comes to politics and laws, countries’ decidedly different ideas result in decidedly different political and legal environments. Therefore, the investor confidence is reinforced when there is steady government and well entrenched political systems that promises stability. This brings me to another view of political systems as are practiced especially among advanced nations. What should be the goals of our political system?
In my view, the fundamental goal of a political system is to integrate the elements of society; with the ultimate test of uniting a society in the face of diverse and divisive viewpoints. Most of you will agree with me that our country has experienced a catholic of diverse viewpoints which the ruling party (if they were open to diverse opinions) should have used to its advantage. In my view, political system defines the institutions, political organizations, and interest groups along with the political norms and rules that govern the activities of political actors. The fundamental purpose of any political system (as many scholars would argue) is straightforward: integrate different groups into a functioning, self-sustaining, and self-governing society. Correspondingly, the decisive test of any political system is its ability to unite a society in the face of diverse and divisive viewpoints. Success supports peace and prosperity. Failure leads to instability, insurrection, and, ultimately, national disintegration.
The prevalence of pluralism, no matter its particular catalyst, spurs managers to understand its dynamic of interplay and the implications to governing the business environment. Pluralism rests upon ideas drawn from the sociology of small groups. When translated to the level of a society, these ideas make sense of the relationships and interactions between and within groups as they champion and contest political ideologies. In a pluralistic society, government does not command the authority to act unilaterally. Rather, government’s task is to balance the initiatives and pressures championed by the various groups. The fact that these groups anchor their agendas in different political ideologies calls upon governments to negotiate solutions and compromises. Consequently, ambiguity often marks decision making in pluralistic societies.
More worrisome is the actions of the political class in a given society and the manner in which they handle political discourses in the country. For investors, they are more concerned with such political developments that adversely affect the operations of every company in a country. Typically, this arises from specific flash points, such as ethnic discord, illegal regime change, civil disorder, or insurrection. It disrupts the business environment in a way that affects every firm in the country. Lesions from neighboring countries makes it apparent that if such disruptions spiral out of control, they devastate companies and nations.
In concluding this discussion, I would probably want to revisit the very objective of my message. We should be concerned about the debts the government is incurring to meet their immediate needs without caring how this debt will affect the present and future generations. Admittedly, the country is in a serious financial crisis…this is complicated further when the country goes into liquidity trap. The country is already in a liquidity trap. Most astounding is the fact that despite all the warnings of over borrowing and likely rise of interest rates, the political class in this country have acted as if nothing is happening. There has been massive looting by both executive and parliament that should, in all circumstances, act as the watch-dog. The theft being reported daily are not in millions – they are in billions! Yet the doctors, teachers, lower cadre civil servants work for a paltry wage. Even some of us who had embraced generational change have become disenchanted with the way government affairs are run in this country. We need more bipartisan approach to the problems facing this country before it’s too late!
Dr. Otieno Mbare is a senior lecturer in international business, marketing, strategic management & responsible business management in Finland.