This Is Why People Are So Excited About Africa’s Growth Potential

A great article by the Economist explains life in one of the biggest ‘slums’ in Nairobi, Kenya. An estimated 1 million people live there.

It is arguably one of the freest markets anywhere in the world today. There is no government provision of any services. No taxation either. Individuals are actively engaged in providing each other with goods and services, of all kinds. Want security? Hire a Masai night guard who will accompany you at night. Want textbooks for your kid at school? Buy it from a street vendor. Want music on your iPod? Pull into a guy’s shack and get it loaded. There is a deep division of labour going on in this township.

What would really turn the standards of living around for people living in townships such as this is access to sound money. They need to be able to save money that maintains its purchasing power. These people need to be able to put some of their incomes away each month in order to accumulate enough in order to buy capital goods so they can increase their productivity and hence, living standard.

Unfortunately, the Kenyan central bank debases the shilling chronically and at a rapid rate. As a result, it is impossible to accumulate purchasing power by saving. As the Economist writes: “A market of one million potential customers crowds in on entrepreneurs, but raising the money to start a business is hard.”

Mobile money such as M-PESA has been a great technology to lower the cost of banking services and to roll it out to a broader user base at a low cost in low income areas in Africa (it eliminated the need to build physical bank branches), but it comes with a major downside. These societies such as Kenya will move toward a cashless society, and that means the central bank and commercial banking system can create limitless credit and money supply, and hence more price inflation that reduces the ability of Kenyans to accumulate purchasing power and capital even further.

You won’t get that bit about what’s holding Kenya back in the article, but to get a sense of the type of life in the slums of Kenya and how free the market is, the article is a must read. If this entrepreneurial spirit can be harnessed with sound monetary, regulatory and fiscal policies, the sky if the limit for African growth.

Read the full article: Boomtown slum.

For my in depth analysis of whether Kenya is moving in the right direction, subscribe to ETM Analytics’ Africa Advisory service.