The Economy...Intangibles ......our stupidity

The economy is like faith. it is moved by factors that are not tangible.Hence, many developed economies around the world have Business Confidence indices i.e. the higher the business confidence, the better the economy's performance.

The current crisis will eventually subside.My guess is that by the end of March we will have a solution to the problem.However, whether that solution will be palatable to all, i don't know.You may NOT like the taste of Quinine but it can cure malaria.(get the drift?)

The lack of confidence means that even if normal business resumes in Eldoret,Nakuru,Kisumu and Mombasa and the displaced return, the local community won't make substantial investments in those areas.

For Kisumu, the likes of United Mall are unlikely to be built for a while.Uganda underwent a similar situation for about ten years after the end of the Bush war in 1986.For instance, the average Ugandan proffessional started building and buying houses from around year 2000.Over 10 years after the end of the war.

Once,peace is restored most people in Kenya won't be sure how long they can live before the next violent outbreak.Don't expect them to build 10 bedroom mansions or build retirement homes.Hence, expect the next Kenyan fad will be to have a second/third home in Dubai.UK and South Africa are ruled out beacsue the former has too mant taxes and the latter has Jacob Zuma and Power rationing.

The legal cost to business/economy.
Hernando De Soto's book 'The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.'said that it is because the poor in developing countries don't have property rights and cannot monetise/mortgage their assets(land) for capital.

The current crisis has made Title deeds void i.e. the fact that you have a title deed or lease certificate is useless as long as the locals in an area won't allow you to live or develop a certain area.Hence, you well tended 5 acre tea and dairy farm in the Rift Valley, can't get you a loan at the nearest Bank.

The losers in the current situation are:
Banks/Lenders
Do you think you can auction any land/houses pledged as security in Kisumu or Eldoret? If you do, then can you get a market price for it?

Society
Since, you can't got to court for legal redress or to the elders(there aren't any around), what do you do to solve your problem?You guessed right, a small proportion of people(the stupid ones) will take the law into their hands.

Court Process
In the current state,even if you obtained judgement against a debtor how do you enforce it or collect it? It is difficult to attach property in the current environment.As a result businesses will become more averse to granting Credit which is the KY Jelly that enables consumption in the economy.Less lubrication(read credit), less economic growth

PREDICTIONS
January's almost over,here are my belated observations on who,what and how 2008 will turnout. People The following individual will make the headlines:

Muthoni Wanyeki
She has come a long way from her FEMNET- gender activism days.She's just about to become a national face.I must admit back then i thought she was one of these overeducated Kenyans who tend to give overly complicated solutions.Time has proved me wrong.

Muthoni offers a fresh and sometimes unconventional way of analysing our collective problems as a nation and sugesting/implementing new solutions. For more about her bio await the Sunday Nation featurette.

Mutahi Ngunyi
Kenya's best political analyst.He has a fine grasp of the tactical and strategic political landscape.Uncannily accurate predictions that are sometimes years ahead of his peers(who specialise in pathetic,bombastic TV soundbites) He ought to have a blog. In 2008 Kenyans will pay more attention to his analysis given the current political climate.

Musalia Mudavadi
The perfect compromise candidate.In the struggle for a new political order,expect him to be nominated for some post.

Cyrus Jirongo Political survivor,you haven't heard the last of him.Expect him to challenge Musalia for their tribal leadership position.

Companies
Chinese car companies
All those Greatwall car brands wil push to be more recognisablea and be better known in the Kenyan market. Unfortunately, most of these cars are clones of better known models like Isuzu and Toyota

Forex Trading Companies
Royal, Genius and similar outfits are offering training on how to trade forex.They claim that the training will enable you to make huge profits from trading forex.The truth is that if it were that easy to trade`forex and make money, then Banks wouldn't spend money hiring forex traders(Treasury dealers) from each other.
They would just spend Ksh 30,000 or Ksh 75,000 train one of their tellers and voila make huge profits through him. This year the 'investors' may probably realise how 'useful' the training is.

A small proportion of the people taking the courses will make money.The vast majority 95% plus ,will never make money.

My advice- 'A fool and his money are soon parted'.

Society

Police Reservists
I expect them to make a return.The current political crisis is going to increase the levels of insecurity.To maintain security, the civillian populace in an area must be involved.Police reservists are one way of doing it.The reservists are members of the community who are trained and armed in order to assist in maintenace of law and order in an area.

NEW YEAR ,NEW PROBLEMS

Let's hope the year ends better than it started. I have been away for the holidays and work. My condolences to all of you who have lost friends, family, colleagues and property in the current political crisis.

Let’s hope we deal with the root causes of the crisis which are poverty, inequality and rabble rousing politicians who are the matchstick that lit our flame. South America, South Africa and Nigeria have the same problems as Kenya. However, the problems manifest themselves through kidnapping, armed insurgency and drug trafficking in South America. In Nigeria the crime and constant coups in the past. In South Africa via violent crime and xenophobia.

Aside from that I think this will be great year for the market. Why?

1. Inflation

It will be high in the current year. Generally inflation tends to erode the value of money. For instance, bread is now Ksh 35/loaf from Ksh 23 a year ago. You still get the same loaf (500gm) but you must spend more money i.e. Ksh 12 to get the same 500gm.

2. Real Estate slump

I don’t think the high end of the market will go anywhere soon. The current chaos will make wealthy Kenyans think of buying second, third or even fourth homes overseas. I see UK (If u can get around the tax implications for non-resident property owners), UAE, Tanzania and even Australia get some of this Kenyans.

3. Uncertainty creates opportunities

Opportunities are present in the current environment for the clever investor. There is only one rider 'YOU NEED CASH TO SEIZE THE OPPORTUNITIES'

Therefore, you must be in cash (but u will get whacked by inflation) or near cash situations.

That leaves only one place to place your money-Stocks.