How To Operate in a Semi-Criminal Economy
I was reading Bill Kerrow’s Op-ed piece in the Nation yesterday and Kerrow is essentially saying what we said here almost one year ago, which is that the bloated government was going eat up the country’s tax revenue’s and leave very little for any meaningful development.
However, as I began to read his piece, I couldn’t help but think that Kerrow was operating under a false assumption about the basic tenets of the Kenyan economy and by extension, the Kenyan state.
If we were being honest with ourselves, we would define Kenya as a semi-criminal state and thus, it’s economy would be a semi-criminal economy and semi-criminal economies operate under a different set of rules.
I have been reading a book by a guy named Dmitry Orlov and he’s Russian and lived under Soviet communist rule and then under it’s new economy, which he describes as being semi-criminal and whose descriptions parallel what Kenya’s economy has been for most of it’s history and I want to use his descriptions of Russia and put them into a Kenyan context because I think they are applicable here. I also think that understanding how semi-criminal economies operate would be very helpful for those Kenyans who are thinking about moving back home to earn their daily bread. i.e. in order to survive, you have to understand what the rules of the game are because they are very different than what you would find in the west.
So, let me begin with Dmitry’s descriptions about semi-criminal economies and what one has to do if they hope to survive in these places, but first a short quote from the book:
“When faced with such developments, some people are quick to realize what they have to do to survive and start doing these things, generally without permission. A sort of economy emerges, completely informal and often semi-criminal. It revolves around liquidating and recycling the remains of the old economy. It is based on direct access to resources and the threat of force, rather than ownership or legal authority. People who have a problem with this way of doing business quickly find themselves out of the game.”
Now, onto the required modes of survival that one will require in a semi-criminal state:
1) With the official economy at a standstill, the old capital, consisiting of stocks, bonds and cash, quickly becomes worthless (Why? is it because of inflation, which now stands at 20% or is it because of corruption, which we have seen at the NSE where investors have lost their shirts?). I think it’s because of both. Therefore, investing in stock markets in semi-criminal states is not a good idea).
2)Much of the capital equipment, such as truck and airplane fleets, which are inoperable and unmaintable without cheap and plentiful enery become stranded assets, worth their weight in scrap metal (thus, investing in a jua kali shop in a semi-criminal state is a good idea because the metal “scraps” will have more value than cash whose value can easily be wiped out by inflation).
3)Personal connections and favors prove to be of abiding value (Transcentury, Equity bank, etc, etc…without the personal favors and connections to statehouse, these entities would not exist. Like I said before, these guys are not geniuses & neither were many of the kalenjin millionaires that emerged during Moi’s time).
4) With the nominal, official government powerless to control the situation or even to influence the course of events, new power structures arise. Elements of organized crime, urban gangs, former military and former law enforcement, amalgamate to various extents in what is sure to be a messy, bloody process. Where these elements become separated by racial or ethnic divides, civil conflicts may erupt, which if left unchecked, may descend into ethnic cleansing (classic kenyan situation with gangs like Mungiki in central province and former Kalenjin military officers formenting the violence in the rift valley, which descended into ethnic cleansing).
Your thoughts….
KE,
Though you make lots of sense on this one I would also like to note for you that such negative elements in the economic atmosphere exist all over the world even in the West. Its only I guess their economies are soo huge the effect is minimal.Political connections can be found from the US to Korea whether its Hulliburton or Daewoo or in any other developed nation for that matter. On a second thought, elements of organized crime are even more deadly in the West..From the Sons of Silence,Barrio Aztecas to the Yakuza..its all the same thing as our Mungiki except they make Mungiki look like a small backyard bully…your thought..
Yes, this is true, but since this blog is about kenyans, I had to boil it down to a specific region, but if you were planning on moving to a myriad of places, Dmitry’s Orlov’s descriptions could be applied to other countries for sure.
I think Dee has missed the point. Corporations like Haliburton and Daewoo are part of the formal economy. They are not criminal elements operating outside the formal system even though I must admit that they do benefit from being close to the centre of power. Secondly, those who engage in organized crime in the West rarely ever get a chance to sanitize themselves unlike in Russia or Africa where criminals can literally buy their way into parliament and the cabinet. The difference between the West and the rest of us is that in those countrys, the semi-criminal economy – though it exists – rarely assumes legitimacy. In Russia, when the state was able to re-assert itself after a decade of gangsterism under Yeltsin, Putin went to a great deal of trouble to bring down the semi-criminal economy. Certainly, the Russia of today is not the same as it was back in the 1990s.
Ke,
I agree with you assessment. I still feel that Kenya is more like 75% criminal state.
We need to get everyone on some Kantian Ethics. I mean like everybody needs to start thinking and taking responsibility for their actions.
Is this just too much to ask for ?
Godfrey:
You make a good point. Although I still haven’t finished reading Orlov’s book, I think the larger point he is trying to make is that people need to start recognizing what is happening within their countries and they should do so in a very honest way and that way is not going to be pretty.
I like to use the example of zimbabwe. Lets say you were a retiree in zimbabwe in 1985 and you had put all your cash in a bank. Now, had you been paying attention to what was happening to the economy, you would have started moving your cash either out of the country or into physical assets where its value would not have been wiped out.
However, if you were one of these people who was just living on a blind sense of hope, all your cash would have been wiped out by inflation.
And I suppose at some level, people are beginning to realize that the trends in Kenya are not lining up towards a good place:
The population is increasing and the countries productivity levels are not, leaving a huge number of young, unemployed men to roam the streets.
The coalition government is consuming 80% of the countries revenue’s, leaving very little for crucial development projects and without these social welfare programs, people’s anger is going to rise.
Crime is shooting up. A PS shot yesterday, the Othaya CID chief killed, people being beheaded, carjackings, hunger, etc, etc…
Even if you have money and are comfortable, you have to start making assessments because the seeds of disintegration are being sown.
And the west, even with all it’s problems (since no system is perfect) still has one thing that has kept their systems functioning and that thing is the rule of law.
GODFREY,
Maybe I missed the point but I guess we are on the same missed point boat…You mention Daewoo and Haliburton are not criminal elements but part of the formal economy…But going by KE’s article, which is what I did , he uses EQUITY BANK and TRANS CENTURY GROUP as examples…are they criminal elements or part of Kenya’s formal economy?..And talking of criminal elements, as for PUTIN, though he’s credited for reforms, it seems there is a side of criminal element in him you don’t know..find out..(hint.KGB)…Over to you Godfrey..
Dee:
I would argue that Equity bank and Transcentury are part of the semi-criminal economy because their ability to operate is largely based on the personal favors they have received and in some ways, I think that they are operating outside of the framework of true, legal authority.
I’ve said before that I think that they are both ponzi schemes and even in countries where you have the rule of law, a ponzi scheme can go on for years and years. Look at Madoff and now this guy in Texas called Sanford. The point Godfrey was making (I think) is that the state itself is a criminal entity and is engaged, at all levels in the criminalization of the economy. This is different in the west where you have individuals, not the state, engaged in criminality. All societies will always have criminals, but that is not the point of contention here. The question is when the state itself becomes part and parcel of this criminality, the economy as a whole will be redefined. So, to say that Kenya is a capitalist country would not be accurate. At best, it is a country that practices crony capitalism. At worst, it is in fact a semi-criminal economy.
In terms of ponzi schemes, it takes years to discover them. Now, imagine how well you can run a ponzi scheme in a country like kenya where your existence is backed by the power of the state? As long as the friendly regime remains in power, they’ll be fine, but once Kibaki leaves, trouble will befall them.
First the PS shooting and now this! It’s almost as though you’re trying to discourage me from heading home, KE! You’re like a one man anti-PR agency.
In all seriousness, I don’t want to quibble, but many businesses get by on personal contacts to those who are able to serve their interests. Very few businesses get off the ground without their founders making use of the personal connections they have, especially if it provides them some sort of advantage.
That being said, while I am not intimate with the details of Trans Century Group or Equity Bank’s relationship to State House, any business that finds itself dependent on political patronage and favour cannot be said to be anything but corrupt, as it enjoys a position that its competitors cannot aspire to. I would go further and say that this makes them inherently weak, as a change in government would wipe out their competitive advantage.
As far as operating in a semi-criminal economy goes, I’m running a series of posts on my blog at the moment on starting your own business, and I would add the following tips for any budding Kenyan entrepreneurs:
a) You will pay bribes to get stuff done. It may not be right, it may not be fair, but you have to come to terms with it
b)Do not, under any circumstances, get into bed with a politician. They could easily lose their seat at the next election
c) Keep the KRA onside. I have worked for a business that was going through an audit. They pick over even the tiniest discrepancy. Do not piss them off
d)If necessary, keep two sets of books. One for what is actually going on, one for the authorities
e) Knowledge is power. It is also something that can’t be seized. It is easier to put a manufacturing firm out of business by confiscating its assets than a consultancy
Step,
Two wrongs don’t make a right brother.
KE,
You are doing great. Leave the KoolAid drinkers to drink their KoolAid and practice their corruption.
KE
Point of correction:
The West is “peaceful” because of three things and the Rule of Law id NOT one of them. They are below:
1) Welfare Benefits
2) Threat of Nuclear War
3) Monopoly of violence by the state e.g. police, army, special forces, intelligence services etc.
Rule of law is just a smokescreen. Make an honest assessment and you will see the truth.
Inari:
Based on your analysis, which is very good, you have all but eliminated 99% of business opportunities by telling people to concenctrate on consultancies.
There’s one other thing I’ve noticed about semi-criminal economies, especially as it applies to kenya and that is, the proliferation of family owned banks. e.g. family bank, equity bank, etc, etc…
How are these guys doing it? titus muya, the head of family bank was not a banker, but he decided one day to just open a bank?
James Mwangi worked for a bank that collapsed and whose owner had to flee the country when his corrupt deals caught up with him, but yet, he too turns around and starts another bank
It seems like entrepreneurialism has been reduced to the opening of banks all claiming to offer services to the un-bankable (aka the poor) but the only people getting rich are these “philanthropic” bankers.
Where are these guys getting the money from?
Where are they moving the money to?
Who is regulating them?
I’m beginning to realize that the economic growth during the first term of the kibaki era was largely fueled by these banks giving out loans, not by any real productivity, but where did these previously unheard of banks get their money from?
KE,
I wanna thank You from the bottom of my heart for inspiring me with innovative ideas through your blog. I decided to put your .com idea into practice and i registered 10 domain names of my own. Yesterday one of my domains sold at Moniker.com for a 4 figure amount. Thats the most money I’ve ever made in a single transaction. I have decided to push this domain thing full time. Its worth the little time and the returns can be huge. I’have also decided to reveal my true Identity on this blog when I hit the 5 figure mark to use myself as a KE success product (only if it wont seem like am bragging). Else if I knew whom ur, I would send u a small token of thanks. i mean it. My next KE blog project is the “Ecofaebrick”..I’ve already written a proposal to them in Indonesia. Hopefully I can start a production plant back in Kenya in the next two years. Wish me Good luck. Thanks again for enlighting us with business ideas.
Dee:
Are you trying to jive me?
Now that you’ve sold the domain name, what was it called?
I’ve never heard of moniker.com. I might just give it a try because I’ have some domain names that I’m desperately trying to get rid of.
What on earth is an ecofaebrick?
KE,
I sold..www.Manhattan4sale.com and ECOFAEBRICK is an idea I got from your post about Green technology..which included the eco toilet bag which turns into fertilizer and u said could work for Kibera…anyways check ur past blogings…
manhattan4sale…very interesting. Do you know who bought it and why?
How’d you come up with that name?
I like your emphasis of not just trying to go for african-centric names.
Dmitry Orlov:…It is based on direct access to resources and the threat of force, rather than ownership or legal authority. People who have a problem with this way of doing business quickly find themselves out of the game.” A part from this being a description of the word thuggery this line of thinking sets up a collision course with…” Provers 1:17ff. How useless to spread a net in full view of all the birds! These men lie in wait for their own blood; they waylay only themselves! Such is the end of all who go after ill-gotten gain; it takes away the lives of those who get it.