Does Nation Media Group have an Economics Editor? Oh, Does it Need One?

I am an avid reader of the World Bank's analytical work, especially those on developing economies and Kenya in particular. Arguably, its latest is the best of them all given its rigorous analysis and compelling conclusions. The report gives a glimpse of how the economy's progress - more accurately, perceptions of progress - have a shaky grounding as inequality, institutional challenges, instances of policy failures that could trigger market failures, and (without calling it as much) crony capitalism is the order of the day.

A very good summary of the report was presented in a commentary by Anzetse Were in the Business Daily, March 13, 2016 edition. Ms. Were's column came three days down the road after the Business Daily - in its wisdom or lack thereof - decided that the thrust of the report is about how all the problems of this economy are caused by the "big banks cartel".

It is clear to me that the author of the Business Daily lead story hadn't read the World Bank report in its entirety. If he did, then he hadn't read it carefully. At the very least, he donned the jaundiced eye  - seeing everything as yellow (in other words, starting from the conclusion that it just be the big banks' fault and then seeking to hang it on the World Bank report).

It is no coincidence that the Business Daily had an editorial on  March 13, 2016 that explicitly accused big banks of being a cartel. This is a strong accusation that even the Competition Authority of Kenya has not made; indeed it cannot make such accusations unless it proves it! But hey, the Business Daily could have quietly done a "rigorous study" and come to that conclusion. Only that I fear that the conclusion was a function of  the seat-of-the-pants determination, devoid of careful thought.

It can't be that the leading business newspaper doesn't understand that a cartel, as defined in economics, means a formal collusion by competitors to fix process and/or block entry into the market; nor can it be that the same newspaper doesn't know that cartels are illegal. What is it then?

I do not know. All I know is that sometimes the heat-of-the moment temptation to sound authoritative   cannot give way for logical, objective and convicting analysis and conclusions. That is why, for instance the World Bank's December 2013 report (Reinvigorating Growth with
a Dynamic Banking Sector) could have been a good basis on whether or not one could arrive at the same conclusion as the Business Daily does.

But then such report will not fit the pre-determined conclusion, for it brings out market dynamics, as well structural and policy issues that lead to the state of the banking industry as we see it now. Or that could well be history, and the good Business Daily, just like good old Sam Cooke is quite capable of sing, "don't know much about history"!

But the storyline - or is it an attitude looking for justification - seems to have permeated the Nation Media Group (NMG). Being officially a family affair, the Sunday Nation carried two interesting write-ups on the same topic. One of them was a predictive piece - "Hope of lower lending rates as CBK's advisory team meets on Monday"[March 21, 201] - based on quotes from the likes of Cytonn Investments and a host of other actors in a practice called pseudo-economics (the only economist quoted in the piece is Jibran Qureishi of CFC Stanbic Bank; and among those interviewed, only his views made sense ). Three things come out of this story.

The first is in the heading ( you may think this is trivial, but it isn't) and specifically the phrase "advisory team". The monetary policy committee (MPC) is not an advisory team. It is an independent, decision making team. This points towards either a casual attitude or a lack of understanding about the Central Bank of Kenya's structure and the reasoning behind it. It didn't help that even when the MPC decided to hold the policy rate at 11.5% - the only logical decision, the same author of the earlier report indicated that the advisory committee "voted" to "hold fire". The impressions being create - a wrong one at that - is that there is no science (and fine art) in the MPC's thus it out outcome of reached at whim.

The second is that based on this shaky reporting, the Sunday Nation, in its editorial page on the same day almost exclaimed that the case for lower rates has been made and the only reason why banks are keeping  rates high because of greed. I don't know whether to call this gullibility or mere incompetence because the same editorial commences with observation opinion is divided on the likely decision of the MPC.

Just to be clear, I have argued in the past that lower interest rates are always desirable for both lenders and borrowers. But when it comes to interest rates, it is not simply a George Orwell-equivalent of "two-legs-bad, four-legs-good" in the form of "high-interest-rates bad, low--rates good". If high interest rates are towards pursuance of stability either in the goods market (as happens when we have high inflation) or foreign exchange market ( has happens when there is volatility at a time when foreign exchange reserves are constrained), then they should be seen as a necessary evil.

I therefore don't see the retention of the MPC's policy rate as a sign of holding fire; instead I see it as a way of entrenching policy credibility.

The third is that there is a common thread in the editorial of the Business Daily and the Sunday Nation's. They converge in their conclusions:

"we urge the CBK, the CAK, Parliament and the executive to put in place strong measures to tame expensive loans for the good of Kenyans and the economy" (Business Daily);

"The question Kenyans will want answered after the Monetary Policy Committee meets on Monday is what tools CBK and treasury can use to force banks to lower the prevailing rates which can only be regarded as extortionate" (Sunday Nation).

They put that out with a sense of immediacy! What do they expected these four institutions to do? I do not know. But to the extent that they haven't explicitly stated their prayers, I can assume they are looking for a short-cut, such as the one proposed in the form of interest rate caps (a wrong-headed and potentially disastrous piece of legislation) but are portraying inexcusable intellectual coyness. I throw a challenge to NMG to make such a case.

Such a case has to navigate the  evident lack of appreciation that a concentrated market - and our banking industry is not necessary the most concentrated - is not necessarily a less  competitive market. There are numerous studies that have demonstrated that the relationship between competition and concentration is at best tenuous. Similarly, such a case has to be litigated on the back of a clear  lack of appreciation that in our market, and others at our level, the monetary policy transmission mechanism is very weak.

It will take a keen eye with an appreciation of the logic that economics provides to see through this maze (or more precisely mess) that is easily created when matters banking - more so pricing - are publicly argued. A good economics editor would be of help. But does NMG have one? oh, do they need one? I do not know.