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Those who disparage mega projects overlook how economies grow

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 BITANGE NDEMO

BITANGE NDEMO

Two Rivers, a mega project that is one of the largest shopping malls in Africa, finally opened last week.

This giant piece of infrastructure cost $274 million or about Sh28 billion to build. Some 35,000 people visited the mall on its first day of operation to witness the opening ceremonies.

As you read this, many young people are already working at the mall. Local suppliers will find opportunity as foreign firms troop in with Foreign Direct Investment (FDI) to take advantage of this ultra-modern facility.

As we admired many of the features in the mall, a friend asked me, “Is this what Dr Ndii is opposed to? ” 

“Yes, but his opposition is based on naivety,” I responded. 

I noted a dissatisfaction with my response, so I said: “The question you ought to ask is, how does the economy grow?” I will answer my own question. Perhaps it might help you understand where Dr Ndii is coming from.

Any economist will tell you that an economy expands when the level of business activity surges and gross domestic product (GDP) grows.

RESIGNED TO POVERTY

Several factors precipitate rapid economic expansion. These include capital formation (investment in infrastructure such as machinery, buildings, energy, transportation, and telecommunications); human resources (quantity and quality); natural resources (what God gave us both beneath the surface, on land, and in the sea); technology (the application of scientific methods in production), and believe it or not, social and political factors.

Let me explain the last point first, since it is easier to understand. If you carefully look at our GDP growth over the past 20 years, it tends to dip during every election year. Politics, therefore, affects economic growth. We experienced the worst in 2007, when virtually every business activity was brought to a standstill. 

However, the greatest factor that affects economic expansion, and one that I have extensively written about, is our sociocultural beliefs. A significant percentage of our people believe that some kind of magic (call it voodoo) determines success in some way.

Several people have resigned to poverty thinking they were unlucky, or didn’t have the requisite magic. Inactivity contributes to economic inefficiency that leads to lower GDP growth.

In virtually all rags-to-riches cases, there was an element of hard work. As Polish-American film producer, Samuel Goldwyn, once put it, “The harder I work, the luckier I get.” Yet success is not the consequence of backbreaking work alone.

Then there is the aspect of smart thinking. You need to develop a culture of combining technology and skill to reduce workload. 

For example, using hybrid seeds and mechanised farming eases your workload and gives you greater chances of harvesting more crops from 100 acres than someone who uses manual labour and non-hybrid seeds on 500 acres. GDP grows when production is efficient.

THEORETICAL ECONOMISTS

Let me dive deeper into the infrastructure investment that seems to bother Dr Ndii. First, let me state upfront that I do not question his right to ask probing questions on project costing. Where I differ with him is in project feasibility.

My argument is that mega projects carry within them the potential to spur, and have indeed generated, much-needed economic growth. Some nine years ago, Kenya made a bold move to go it alone in building the undersea fibre-optic cable. 

We were roundly criticised, with many economists saying that Kenya had no capacity to utilise the cable. Many called it a white elephant. 

However, one distinguished economist – President Mwai Kibaki – had faith in us. The entry of the TEAMs cable not only changed fortunes in Kenya but also precipitated competition from other undersea cables. 

In total, today we have four cables with a capacity of 48 terabytes. All four cables are economically viable and private investors are already exploring the possibility of building a fifth cable into Mombasa. Prior to taking this leap of faith, private investors relied on the advice of economists like Ndii. 

In each case, these theoretical economists thought we needed another 50 years to understand the meaning of broadband, leave alone build the backbone infrastructure. Yet they had been wrong for the 40 years during which we had no connectivity in the entire eastern seaboard of Africa.

FORWARD-LOOKING ELEMENTS

The business model of Konza Technology City never envisaged public sector funding outside of infrastructure. Many of the investments there will come from the private sector. The whole idea was conceptualised after studying many cases, including Malaysia, and Bangalore in India.

India went through a lengthy learning curve before they got it right. Then they built modern buildings that met US standards, and only after that did the business of knowledge and business process outsourcing began to boom.

Technology Park Malaysia is a success that has catapulted the country into a major location for light electronic manufacturing. Having learned from others’ mistakes, we had no reason to enter the market and hope to grow organically.

Our Silicon Savannah never intended to compete with Silicon Valley. It was a concept whose time had come and definitely not the “field of dreams” Ndii tried to argue it was in his February 11 article.

Konza is not an aimless, wanton dream. It is a planned project complete with justification and forward-looking elements. But it is still a dream because if you don’t dream then you won’t get anywhere.

Dreams are the currency of progress. Dreaming means looking forward into the future. Those who denigrate dreams condemn us to our miserable past.

“Build it and they will come” is the common denominator throughout the history of modern economic development, from the moment the first turnpike in Pennsylvania, USA, was built to a metropolis like Dubai, which is based on nothing but a dream.  

Konza has already attracted over 55 private sector companies, 10 government research agencies and two institutions of higher learning from Korea and Germany to put up universities of applied sciences.

If we had not dreamt about the Technology City, these corporations would be headed elsewhere, most likely to where there was a dream.

SUFFICIENT IRON ORE

Korea and Germany have done it and now want to share their experience and expertise with Kenya. This cooperation will rekindle hope in our young people aspiring to get an education. 

In some way, these foreign governments are correcting our mistakes and enabling us to improve the quality and quantity of human resource that is key to economic development. 

There is no better place to do it than where there is a growing ecosystem. If we continue with the prophecy of doom, we shall fail to take advantage of the emerging fourth industrial revolution.

Our efforts now are to encourage mechanisation of agriculture and policy incentives for local production. Very soon, our target generation capacity of 5,000 MW will be nothing. Just like with fibre-optics, we must not underestimate the capacity of people to exploit energy resources. 

Foreign investors, too, will find it attractive to invest in places with reliable energy. If we build large-scale energy production, investors, both local and foreign, will come. 

There were two planned Vision 2030 projects in particular: steel mills in Taita-Taveta and Homa Bay, where we have sufficient iron ore. However, every time these came up, the main challenge was always: Where we shall get energy?

With good policies, the increasing number of vehicle manufacturers would be required to increase local content in their manufacturing facilities thereby increasing the consumption of energy. 

Further, with large-scale production of energy, Kenya would, in the long run, have reliable, cheaper energy due to economies of scale.

BELOW-SURFACE ENERGY

Ethiopia, which is in the process of increasing its installed capacity, is attracting investors, including from China, whose labour cost is pushing them into other locations. As a result, Ethiopia’s economy is growing at a double-digit rate. 

India too is benefiting from China’s increasing outsourcing of manufacturing work. Why? Because India is effectively dealing with energy problems. It is practically nonsense to try to attract industrial production by promising to increase your energy output. 

In the next 10 years, Kenya’s energy consumption should be in excess of 20,000 MW. In my view, we should, by now, be having sufficient skills, technology, and resources to exploit our below-surface resources. I see no reason why we should not be a major steel producer.

So, in summary, Ndii is capitalising on his good writing skills to paint a very skewed, incorrect picture of how economic development takes place. In this age of the Internet, he can only use a few examples to advance his cause.

Take Bangalore, for example, where there are modern condos built to attract the BPO (business process outsourcing) industry. Several modern office blocks had to be built to the correct standards to make India a competitive destination. The Infosys campus alone, which I personally toured with its founder, is the size of Konza. 

Back to where I was, Two Rivers. If we truly want to create employment and expand the economy, look to mega projects. They require skill, technology, resources, and the social and political will to expand the economy.

With a progressive Constitution, we would eventually deal with our governance deficit.

 

The writer is an associate professor at University of Nairobi’s School of Business. Twitter: @bantigito

 

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