Thursday, January 26, 2012

A booming time for some

As rich countries face a slowdown, sub-Saharan African economies are expected to post nearly 6 percent average growth in 2012, according to the IMF. A study by the International Finance Corporation, part of the World Bank, has pointed to the potential of the continent's more than 1 billion people, millions of whom have moved out of subsistence agriculture and into urban jobs over the past decade. Such promise has helped fuel foreign investment. Kenya alone has had a capital influx of billions of dollars in recent years: the latest official figures show around $800 million came in in 2008. Western investors have become accustomed to Africa as a boom story in recent years. As demand from places such as China and Brazil pushed up commodity prices, investment poured in. Since the financial crisis, investors have ventured into Africa in search of higher returns. Analysts fret about whether Kenya's exporting capacity can keep pace with its imports. "In most frontier markets ... we haven't seen sufficient evidence of this. Exports go up, but not nearly by enough, and imports - especially of consumer goods - go up even more." Razia Khan, head of Africa research at Standard Chartered in London, says the problem is an Africa-wide one. "More rapid growth was accompanied almost everywhere by a surge in imports, especially capital goods imports related to infrastructure development."

The consumption boom has been fueled by fast-growing credit. In Kenya, firms have been hiring and property prices have risen exponentially, creating a feel-good factor for home owners, especially in towns and cities. That, in turn, has fed the appetite for consumer goods. In Kenya and elsewhere that has sucked in imports - cars, shoes, clothes, wines and whiskies - and swelled the current account deficit. Inflation in Kenya is now nearing 20 percent. As always, high inflation hurts the poorest most.

"Minimum wage-earners in urban centers in East Africa are encountering a simply unprecedented squeeze," said Aly Khan Satchu, a Nairobi-based independent trader and analyst. "It creates a sort of reverse Robin Hood effect where the poor carry the main burden."

Food prices - especially meat - have risen sharply. In a rain-soaked field outside the Kenyan capital, it's easy to see why. Farmer Joseph Kiarie puts the fertilizer on his crop of cabbages by hand from a plastic bucket, and says rising costs have cut his earnings by two thirds in the past year. "This has been a terrible year," he said.

Nairobi's biggest slum, Kibera is a vast shanty town that lacks even basic services such as sanitation. Many Kibera residents - there are hundreds of thousands of them - are angry that while prices of food have risen, wages have not. Many say their families now have to forego meals.
A year ago, 300 shillings ($3.48) bought breakfast, lunch and supper, "but now that is nothing," said Jane Mwalugha, a married mother of five children aged between three and 15, in her one-roomed house. "We have had to cut out lunch this year so we just take supper. Bread is now a luxury so we have cut it out...The government should construct supermarkets for the rich and let us have our own because they have decided in life that there are two tribes, the poor and the rich. They should let us have poor people's shops," Mwalugha said.

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