Economy - Market structure & Macroeconomy - Essay Example

1 Port of Mombasa: Economic Importance Part The port of Mombasa lies within the oldest major in Kenya. What once served as a gateway for traders from Saudi, Arabia, India and Asia has become not only the largest East African port, but also a blend of culture, history and industry. Mombasa has endured rule of many different nations, from the Portuguese in the 12th century to the British more recently, until gaining its independence in 1963. The completion of a railway from Mombasa to Uganda in 1901 serves as the link between the port and the rest of Kenya, as well as surrounding East African countries. While Mombasa is an important shipping port for imports and exports along the East African coast, it is also a popular tourist area, with many hotels to the North and South of the 15 square km island. The population of Mombasa is roughly 900,000. Over one fourth of all workers in Kenya are employed in Mombasa working in the port itself, in manufacturing, and in tourism. Tourism, and particularly that of visiting naval ships, is an important aspect of the economy, accounting for nearly 40% of Mombassa’s revenues. Among its many exports are coffee, flowers, vegetables, textiles and livestock. Problems that the port has encountered since the early 1990s include a declining economy that is said to be the result of price controls, import licensing and foreign exchange controls. Like Nairobi, 2 the largest city in Kenya, the city of Mombassa has experienced an increase in population, though on a much smaller scale. This is a continuing problem across Eastern Africa, and solutions for “secondary cities” (Otiso, 2005, p.117) in which occupants can live and work to sustain themselves is elusive. Increase in Kenya’s Urban Population In 1993 the price controls, import licensing, and exchange controls were removed to encourage more free trade. Around the same time world banks were established in large cities and ports of Kenya. Such measures encourage free trade generally aid in 3 economic growth. Until around 1999 ,this was the case in Mombasa, as well as in Kenya and surrounding countries. Kenya’s participation in COMESA, a regional trade union consisting of 20 Eastern African nations, had also been cited as movement which greatly increased the nation’s GDP. Economist Jacob Wanjala Musila reports that “In 2000, COMESA absorbed about 42 percent of exports, the European Union absorbed about 30 percent, the Far East and Australia absorbed about 12 percent and North America absorbed about 2.7 percent.” Since the initial growth, there has been a decline in the economic growth of all East African countries, as well as increased trade deficit. This is due, in part, to the “flood of South African goods into the country.”(Musila, 2004, p.67). Many of the goods coming from South Africa are those already manufactured in Kenya. South Africa still imposes high import tariffs, which helps to increase the trade deficit between the two regions. Kenya eliminated comparable Protectionist policies in the 1990s to encourage free trade and capitalist competition, in an effort to boost the economy of Kenya and the port of Mombassa. African Economist Shikwate claims that foreign aid and corruption often go hand in hand, and are largely responsible for a slowing economy. He gives an example of an overabundance in corn from the United States and Europe, leaving local and regional farmers with no market in which to sell their crops. He further claims that if there were 4 no aid “Kenyans, would be forced to initiate trade relations with Uganda or Tanzania, and buy their food there. This type of trade is vital for Africa. It would force us to improve our own infrastructure.” Shikwate also claims that often food intended for distribution among nations in Kenya arrives in the Harbor in Mombasa only to be sold on the black market or “directly into the hands of unscrupulous politicians who pass it on to their own tribe to boost election campaigns.” Attitudes toward improvement and revitalization of Mombassa are often negative and based on fear. A common belief is that money spent on renewal will take away from that needed for common infrastructures such as water, electricity, and other essentials. As Geographer Brian Hoyle points out, “clear links are perceived between urban renewal and benefits such as water, housing, tourism, and employment.” Hoyle’s views are similar to those of Shikwate, that development generally improves economic conditions. Such concepts were also theorized by the Scottish economist Adam Smith, that when people help themselves “their efforts serve as an “invisible hand” that helps the economy grow with the production of needed goods and services.” (Nickels, McHugh, McHugh, 2005, p.39). Part 2 The increase in GDP has slowed greatly since 1999, for Mombassa and all of Kenya. Lack of regional development strategies are blamed for the increase in urban poor, and 5 increasing destitution of those living in rural areas. Kefa Otiso believes that development of rural areas will take the strain off Kenya’s urban cities by redistributing the population to areas that will become more profitable to live and work. In turn, the increased productivity will provide more product available for trade, which will then boost the economy of ports such as Mombassa, and surrounding East African nations. Year GDP-Kenyan Shillings in Millions 1980 74,940 1985 143,715 1990 278,502 1995 614,267 2000 967,838 2005 1,449,408 6 Redistribution of wealth in Kenya is difficult as Otisa explains that political policy tends to lack distribution of power and focus on investment in Nairobi. He also states that there is little fiscal responsibility. Redistribution of power, by allowing individual provinces to make financial decisions, is one method for changing the current development policies. Each region in Kenya has different natural resources, populations, cultural traditions and beliefs, and different geography. Some areas are rich in minerals and ores, so mining should be controlled by the municipalities in which those resources are plentiful. In other areas livestock and farming should remain the focus. COMESA and other trade unions should continue, while including many more regions in East Africa, including the smaller, less populated areas. It seems as though East Africans have resources to assist each other as COMESA is successful. Renewal strategies, though costly, can incorporate the assistance of global corporations that are willing to invest, but not to the point of making a profit at the expense of East African citizens. Governmental restructure must take place to ensure that all Kenyans benefit, not just those in control, deciding where and what to distribute. Shikwate does bring up a valid point, that aid is often a hindrance to improving the lives of the very citizens for which it was intended. This is the main reason why the United States and many European countries are becoming more hesitant 7 in their aid. Multinational corporations, and foreign manufacturers can bring many more jobs, tourists and in general give the economy of East Africa a boost. Mombassa remains an active port with about 200 cargo ships leaving on a weekly basis. Redevelopment of the port will allow for faster shipping of exports. Development of more railways from surrounding countries will also speed up the process of moving export crops from the point of origin to their global destinations. In general, development of processes that move exports more quickly make them more desirable to trading partners, and therefore more profitable, according to the law of supply and demand. In Kenya, the Monopolies and Prices Commission, a department of the Treasury, has been appointed to govern the new free trade policies. Muchoki Njoroge outlines the many responsibilities of the Commission during a Malawi Government delegation meeting.1 He stresses the importance of free trade, and the necessity of the Commission to take measures in enforcing the new trade laws. He goes as far as to suggest that government officials should swiftly administer punishment to those who ignore or disobey the laws. He fails to address how to deal with corrupt officials who may also ignore or hold themselves above the laws. One of his suggestions for improved economic conditions within those regions that fall under the trade laws is for improved educational opportunities and requirements. Knowledge in his view, allows those affected to better understand the law and the right of entrepreneurs to enter competitive markets. Muchoki addresses the need for more trained medical personnel from within 8 the free trade zones, as opposed to bringing in foreign health workers, or training a few specialists abroad. Though ridding government of corruption seems a daunting task, those with more education can often make choices that include refusal to trade with or work for those who are involved in corrupt practices. Muchoki’s belief in education as a means of uplifting and improving economic conditions is true in theory. However, even those who are highly educated are often powerless in making decisions that will benefit themselves and their communities. “Unlike their counterparts in Western industrialized economies, marketing practitioners in developing countries often are not free to make decisions based on market conditions. Thus the traditional marketing-mix framework may be of little help to marketing managers because the government determines distribution channels and prices.” (Dadzie, Johnston, Yoo and Brashear, 2002, p. 430) While he has some well thought out proposals and interpretations of Monopolies and Price Commission laws, Muchoki fails to address the unfair trade practices embraced by increasingly powerful South African monopolies. Trade embargos seem drastic, however, and often have adverse consequences. At this point the port of Mombassa, and the rest of Kenya’s regions will experience much less economic expansion if the situation is not addressed. Another option is to rescind or revise the 9 guidelines of the Monopolies and Prices Commission to state that Nations who enforce high tariffs in their ports will be charged similar high tariffs in the port of Mombassa and in the other Kenyan ports. The last option is a combination of restructuring governmental power, educating managers and marketing professionals, and identifying new or alternative markets for exports. Bibliography Dadzie, Kofi Q, Johnston, Wesley J, Yoo, Boonghee, Brashear, Thomas G 2002, “Measurement Equivalence and Applicability of Core Marketing Concepts Across Nigerian, Kenyan, Japanese, and US Firms, “ The Journal of Business and Industrial Marketing. Vol 17, Iss 6, p. 430 , Santa Barbara Hoyle, Brian 2001, ”Urban Renewal in East African Port Cities: Mombasa’a Old Town Waterfront, Geo Journal, ABI/INFORM Global, Vol 2, Iss 53, p.183 Muchoki Njoroge, “ A Vision of Competition Policy: Experience and Lessons for Developing and Less Developed Countries- The Case of Kenya,” Presented to The Malawi Governmental Delegation Musila, Jacob W 2004, “The Common Market for Eastern and Southern Africa and Kenya’s Export Trade,” International Journal of Social Economics, Vol 13, Iss 1/2, p. 67, Bradford Nickels, William G, McHugh, James M, McHugh, Susan M 2005, Understanding Business, “ 7th Edn, McGraw Hill, New York, p 39 Otiso, Kefa M, 2005, “Kenya’s Secondary Cities Growth Strategy at a Crossroads: Which Way Forward, “ Geo Journal, Iss 62, p. 117 Thielke, Thilo 2005, Interview With African Economics Expert, James Shikwati, Spiegel, English Site, Online, Visited 14 August, 2006, < http://service.spiegel.de/cache/international/> Read More