By Jimnah Mbaru

In the past, developed countries have granted credit facilities to developing countries with the condition that the borrowing countries import goods and services from the lending countries.

For example, Japan has been granting Kenya a yen line of credit tied for importation of goods and services. Similarly the USA, Britain, Germany and other developed countries have been granting credit facilities to Kenya and other developing countries as means of sourcing markets for their goods and services.
Kenya could be a donor

This Sunday, we propose that Kenya could itself consider granting a line of credit to our major trading partners in the Africa. Particularly, the credit line facility could be extended to Uganda, Tanzania, Rwanda, Burundi, Sudan, Ethiopia and the Democratic Republic of Congo. Like grants given to developing countries by the developed countries, the credit line given to the countries mentioned above would have the condition that these countries import goods and services from Kenya.

The purpose of the credit line

Kenya has a more established industrial and manufacturing capacity compared to other countries in the East and Central African region and the Great Lakes region. In some instances, some of our manufacturing establishments produce a surplus of goods and services exceeding domestic consumption rates.

However, this potential has not been sufficiently exploited so that the country to benefit from export business. On their own, most manufacturing establishments are not able to access markets outside the country. Efforts by the Government to access markets in the developed countries as the case when Trade and Ministry Minister Mukhisa Kituyi led a team of business people to a fare in Germany are laudable. However need to assist manufacturing establishments get access to African markets is called for.

The credit line would serve to increase the volume of goods and allied services in the region. The credit line would also put the country in an advantageous position to compete with countries from which countries that export goods and services to countries in this part of Africa. This would go a long way in correcting the export-import imbalances that have affected our economy by increasing outbound exports from Kenya.

Goods and service eligible

The industrial and manufacturing sector in Kenya is especially strong in the areas of textiles, leather and leather products, construction materials like cement, roofing iron sheets, tiles, motor vehicle accessories, spare parts and tyres, value added cereals products like maize and wheat flour, animal feeds, and industrial chemicals. Other goods that could be exported to the countries accepting the credit line could be from Jua kali industry including bicycles, cooking equipment like; jikos, farm implements like hoes, shovels and wheelbarrows. In addition, the service industry could benefit from after sales services for instance in installing and maintenance of equipment in the purchasing countries.

How the idea would work

The credit line could be given to the eligible Governments after working out the finer details in bilateral agreements. The eligible Governments would then determine the goods to be imported from Kenya. This would entail the borrowing Governments determining the companies or businessmen and women in their countries that should benefit from the loans. It would then be the duty of the borrowing Governments to ensure the repayment of the loans, on the basis of suggestions we propose below.

How the funds would be sourced

The Kenyan Government, through the Central Bank of Kenya would issue a 7-year treasury bond on the Nairobi Stock Exchange as a means of raising the $ 100 million. The special bonds would be traded on the stock market. The investors who would invest in the bond would include insurance companies, pension funds, parastatal bodies, other companies and individuals.

Given that the special treasury bond would be issued for a period of 7 years, the duration of the credit line would cover a 7-year period too. So as to make the credit facility attractive, the interest rate of the loans would need to be low. We suggest an interest rate of 4 per cent per annum. As mentioned above the Kenyan Government would not need to individually follow up loan payment as this could be done through the mechanism of the borrowing Governments.

Another possible source of the funds that would complement the floatation of the tradable bond on the stock market would be budgetary allocations.

Benefits of the credit line

The idea if thought through well and implemented would serve to stimulate the currently under performing economy, especially the manufacturing sector in line with the economic rejuvenation agenda of the new Government.

There are obvious gains that Kenya would benefit in the terms of foreign exchange accruing from the increased export. The strength of any economy is its potential to produce goods and services that can earn it foreign exchange through export. The manufacturing sector has been said to be the 'engine of development'.

In addition to benefits accruing from exports, there would be many other advantages.

We estimate that about 50,000 jobs would be created annually after implementation of the idea. This would be a major boost to the strategy of curbing unemployment and a step in the right direction for meeting the 500, 000 jobs annually as pledged by the Government during the campaigns.

Other benefits

Due to the slow down in economic growth over the past years, a number of factories and manufacturing establishments have been closing down. Since the purpose of this proposal is to have Kenyan goods and services find their way into regional markets, demand for Kenyan goods would increase. With the increase in the demand for Kenya goods, manufacturers would in due course operate at full capacity thus stemming the closures that have been experienced in the past.
In addition, the manufacturing companies, be it small, middle or large scale would recoup profits and re-invest in new technology and other business development plans with a result that the currently retarded state of the sector would change for the better.

The closure of factories has meant an increase in redundancies. With an increase in exports, retrenchment of workers will eventually be overcome. As suggested above, the idea could in fact mean creation of 50,000 jobs annually. Remuneration for workers would also improve and impact positively on the livelihood of Kenyans.
Questions have been raised about the early retirement of people working in the manufacturing sector. With the demand for labour to satisfy the export business, the retirement age will go up with the result that Kenyans can be in productive work for longer years as is the case in developed economies.

Besides, the existing factories and industries would diversify and start manufacturing goods for which there is demand in the region. Along the same lines, new industries would come up to take advantage of the conducive manufacturing environment while small scale and informal or jua kali businesses would develop and hopefully grow to become bigger entities.

The writer is the Chairman of Dyer and Blair Ltd., a stock broking company, a member of the Nairobi Stock Exchange. E-mail address: mbaru@dyer.africaonline.co.ke

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