A Revival of the Keynesian Economics into the Current Kenyan Economy

The past decennium over, Kenya as a country has made consequential political and economic reforms, which have advanced perpetual economic growth, social development, and political sturdiness.

Nonetheless, its core development quagmires yet embrace penury, inequity, youth joblessness, straightforwardness and liability, environmental adulteration, persistent weak private sector investment, and a susceptibility of the economy towards domestic and international crisis. Moreover, Kenya’s sturdy growth is attributed to the State-owned enterprises, ensuing in debits proneness which has been aggravated hence interpolated by the contracting global financing background.

Suffice is to state that Kenya’s growth performance over the past two decades has been robust. The economy attained an aggregate growth, averaging 5.2% per year between 2022 and 2023, similar to the Lower Middle-Income Country average of 4.8 and above the Sub-Saharan Africa average of 2.4%.

However, in the wake of President’s Ruto’s term in office, Kenyans have experience a skyrocketing rise in the cost of living, coupled by a heightening of cost in fuel, petroleum products, and other commodities, if just to mention but a few. The country has equally been subjected to an additional cost in the fiscal policy, which has led to the disgruntlement of many citizens.

In my capacity as an economist, I would like to avail some suggestions in a bid to restore sanity to the incidental economy. This would call for a revival of the Keynesian Economy, and its subsequent implementation upon the Kenyan Economy.

This can only but raise an issue as to the nature of the Keynesian economy and the manner in which it could salvage the debt riddled Kenyan economy.

Keynesian Theory

Keynesian economics is an economic concept that was coined by the British economist, John Maynard Keynes, amidst the 1930s, as a mechanism to grapple with the aftermath of the Great Depression of 1929.

By definition, Keynesian Economics is a macroeconomic policy which enunciates the aggregate expenditure in the economy and its impacts upon production, work, and the expansion of the economy. The core credence behind this economic theory is that the Government’s arbitration can even-out the economy.

With relevance to his hypothesis, Keynes subscribed to an increment in the Government spending, coupled by a reduction of taxes, to invigorate demand and haul the world market from the Depression.

In due course, Keynesian economics was accustomed to quote the theory that capital economic output could be attained hence recessions could be averted, by impressing upon the Domestic Final Demand (DFD), through market intervention by the Government. Keynesian economists presume that such arbitration can have the ramification of an unabridged employment and stabilize commodity prices.

The Cutting-edge Concept

Keynes argued that deficient aggregate demand could induce long-term stretch of soaring unemployment. It follows that a county’s output of commodities and services is the summation of four constituents: consumption, investment, government purchases, and indeductible exports (the difference between what a country sells to and buys from foreign countries). Any augmentation in demand has to stem forth from one of these four elements.

Nonetheless, in the event of a depression, strong forces many a times diminish demand, as expenditure plunges. For instance, amidst recessions, consumer confidence is oftentimes eroded by uncertainties, spawning a scaling down of their spending, by and large on non-compulsory purchases the likes of a house or a vehicle. This spending cuts by consumers can induce a decline in investment disburse by enterprises, as corporations counter incapacitated demand for their commodities. The duty of increasing output is thence entirely placed on the government. As far as Keynesian economics is concerned, the government arbitration is imperative to abate the economic upturns and downturns, also termed as the business cycle.

In conformity with Keynes’ perspective of this alleged classical theory, supposing that the Domestic Final Demand in the economy tumbled down, the subsequent impairment in production and jobs would occasion a dwindling in cost and revenue. A peripheral level of inflation and revenue would prompt employers to create investment expenditure and hire more people, boosting employment and reinstituting economic expansion.

Keynesian Economics and its applicability to the Kenyan Economy
Kenya should embark on massive fiscal stimulus plans to rescue the financial and the private sectors of the economy. This could be comparable to Barrack Obama’s stimulus package, in the United States in the wake of the financial crisis of $878 billion, approved by the government in February 2009, which represented the biggest fiscal stimulus ever. Under the same principle, some of the EU countries moved beyond fiscal stimulus and nationalized some of their failing banking industries. The responses of the governments across the globe in the wake of the global recession fully recognized the Keynesian view that markets do not have any automatic mechanism to self-correct and that government intervention is necessary to revive the economy.

President Ruto’s government should engage in spending programs to compensate for the sharp decline in aggregate for the country’s export. This would be done by cutting down the tarrifs due for exports, subsidizing domestic export businesses, injecting subsidies into industries that have now become defunct the likes of KICOMI (Kisumu Cotton Millers Industry), SONI Sugar Company, MUHORONI Sugar Company, MIWANI Sugar Company, The Kenya Railways train freights from Kisumu to Mombasa, as an extension of the SGR Train, The Kenya Breweries industries all over the country, if just to mention but a few.

There should be very stringent protectionist policies to keep out imported goods that water down on the domestic commodities hence giving Kenyan traders ‘a run for their money’. Keynesian aggregate demand management would once again become a critical policy instrument for the revival of the Kenyan economy.

Up until the economy stabilizes and goes up the business cycle, the state should not shy off spending on the local industries to revamp employment opportunities for Kenyans, and stimulate consumption, boost aggregate demand, etc. This would bring back the economy into equilibrium.

Just as Keynes himself agreed that the market forces will drive the economy into equilibrium in the long run, should the government take appropriate measures to correct the short run fluctuations through appropriate macro policies. Commodity prices still provide the best signal in resources allocation if greed/speculation are minimized and adequate level of regulatory measures are instituted. Transparency and accountability in all the sectors of the government should be adhered to.

With economic policies based on Keynesian principles of demand management, the Kenyan economy will survive many more business cycles to come.

Go to Who Owns Africa for more news from the African continent.

Follow Who Owns Africa on Twitter @Who Owns Africa, on Facebook at Who Owns Africa or on Instagram at whoownsafrica