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How to sustain economic growth against globalization.

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Studying how the first era ended could help preserve the second.

First Era

In 1920 John Maynard Keynes reflected on Britain he knew before the outbreak of the first world war. “The inhabitant of London”, he wrote, “could order by telephone, sipping his morning tea in bed, the various products of the whole earth.” Keynes’s Londoner “regarded this state of affairs as normal, certain and permanent”, and not long ago the globalization of the present age seemed a similarly inexorable force.

A new world war remains unlikely, but the uncomfortable echoes of the past in recent history suggest that a closer look at the rise and retreat of 19th-century globalization might yield valuable lessons.

Economic History

A work of economic history published in 1999 provides a great starting point. “Globalisation and History”, by Kevin O’Rourke and Jeffrey Williamson, hit shelves at a time of growing unease about the effects of deepening economic integration.

Then, anti-trade activists swarmed meetings of the World Trade Organisation, while a few economists began to draw attention to the occasionally troubling distributional effects of globalization.

It roared on nonetheless over the first decade after the book’s publication. But in the years since, economic nationalism has become a potent political force, and the book has come to seem eerily prescient.

Nineteenth-century integration began in earnest around mid-century, after decades of instability and insularity. Liberalized trade rules helped; Britain repealed its Corn Laws—tariffs on imported grain—in 1846.

But the integration of markets was supercharged by improvements in communication and transport technologies which allowed for faster, cheaper, and more reliable movement of people, goods, and information. The telegraph, steamships, and railways brought the economies of Europe and the Americas into close contact, with profound consequences.

In the new world, the land was abundant and cheap, and wages were high. The reverse was true in Europe, where workers were plentiful and landowners collected fat rents. As these markets integrated, prices converged.

In 1870 British wheat prices were 60% above those in America; by 1890 the gap had mostly closed. When telegraph cables connected distant financial markets, differences in the pricing of various securities vanished almost immediately.

Theory

Simple trade theory predicts that as differences in the prices of traded goods shrink, the cost of factors of production like land and labor should likewise converge. Experience in the 19th century bore this out.

As waves of American grain spilled into European ports, land prices in Europe tumbled toward those across the pond. In America, the real price of land tripled between 1870 and 1913, while in Britain, it dropped by nearly 60%.

Real wages converged as well, although the authors note this owed more to migration than trade. Nineteenth-century migrant flows were unlike anything in recent memory. Between 1870 and 1910 they reduced Sweden’s labor force by 20% relative to what it otherwise would have been and increased America’s by 24%.

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These flows transformed labor markets. Real wages earned by unskilled laborers in Ireland rose from roughly 60% of the British level in the 1840s to 90% in 1914, thanks entirely to Irish emigration.

How much can really be learned from such a different world? Today, migration matters much less than it did in the 19th century. Skilled workers account for a far larger share of rich-world workforces, and are protected by modern regulations and social safety-nets.

Technology

The trade consists not only of bulk commodity shipments but of components imported and exported multiple times along complex supply chains. Forget telegraphs; in meetings today people chat face-to-face with colleagues on other continents.

Yet a number of lessons appear relevant. Start with the issue of convergence in incomes across countries. Much of modern theorizing about convergence focuses on the role of capital accumulation and technological progress.

Poor countries grow rich, in these models, because they invest more and adopt more sophisticated technologies. But in the 19th century, the integration of markets drove convergence: a force that has also been at work in recent decades.

America and China

The narrowing gap between American and Chinese wages is in part a story of Chinese technological progress. Yet it is also one in which hundreds of millions of Chinese workers began participating in a global economy, making low-skilled labor more abundant globally and contributing to weaker blue-collar wage growth and higher inequality in rich countries.

Second, people in the 19th century generally understood the effects that trade and migration had on their economies, and those on the losing end sought political solutions to their troubles.

Then, as of now, training and education were touted as answers to the problems of unhappy workers. But moves to improve schooling were accompanied by a broad shift towards protectionism. From the 1870s European economies, with the notable exception of Britain, began raising tariff rates. Over the same period, migration policy in the Americas became ever more restrictive.

Don’t spoil the ending

So it has gone this time, too. Work by David Autor of the Massachusetts Institute of Technology and three co-authors found that American counties which were more exposed to imports from China became more likely to vote Republican in presidential elections, for example, a shift which in 2016 helped to elect a trade-warring president.

And yet third and most important, it was not higher tariff barriers or restrictions on migration that plunged the world into the deep and destructive insularity that took hold after 1914; it was war.

But for war, the retreat of globalization a century ago may have remained modest and short-lived. The same may be true today.

If inattention to the distributional effects of trade can prompt a backlash, then a greater commitment to sharing the bounty generated by openness might permit a renewal of economic integration—if the world remains willing to learn from the past. 

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Three Global Firms Signed By Nairobi Financial Hub On Its Launch

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Three companies were signed by Nairobi’s international financial centre on the day of its launch. The three include Prudential plc, ARC Ride Kenya and AirCarbon Exchange (ACX).

The Nairobi International Financial Centre (NIFC) is a special economic zone for financial firms.

Prudential, one of the world’s biggest insurers and asset managers, became the first firm to formally join the NIFC.

Singapore-based global carbon exchange ACX came along with Prudential. It seeks to set up a carbon exchange in Kenya.

Check out: Why Buyers Are Now Running Away From Popular Used Toyota Cars

NIFC has also admitted ARC Ride Kenya. It is a new start-up that is going to establish an electric vehicle assembly plant in Nairobi. The plant will produce two and three-wheeled electric bikes and scooters.

Also, the Financial Centre is determined to bolster the manufacturing sector in the country. It has signed an MoU with the Kenya Association of Manufacturers (KAM), to help increase financing and investment in the sector.

NIFC authority has hinted at being in discussion with other participants seeking to join it and will give official news soon.

“Last year Prudential Plc, one of the world’s biggest insurers and asset managers, made a commitment to relocating their Africa headquarters from London to Nairobi and join the Centre. Today we are proud to announce that Prudential becomes the first firm to formally join the Nairobi International Financial Centre,” Vincent Rague, Chairman NIFC Authority.

After many years of waiting, the hub will eye large foreign firms, boosting capital flows to Kenya and the region.

The authority has singled-out four sectors that it will prioritise for growth: financial technology, green finance, investment funds, and becoming a hub for regional multinationals.

The NIFC general regulations have been enacted, as the initial set of tax incentive proposals have been passed.

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Certification from the NIFC Authority must be applied by Firms considering conducting business through the NIFC.

A 15% corporate tax will benefit firms operating a carbon market exchange or emission trading system under the NIFC. The 15% advantage will happen for the first 10 years of operation.

Companies certified by the NIFC Authority and have invested a minimum of Sh5 billion will benefit from the certainty that, the Capital Gains Tax applicable at the time they make their investments will remain unchanged during the lifetime of the investments.

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Hackers Make Tactical Change, Now Targeting Small Businesses

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Traditionally, cybercriminals have been targeting big companies with aim of demanding ransoms running into millions. Nonetheless, the trend no longer holds, as new studies have shown the shift in hackers’ interest from big companies to small and medium ones.

Studies have shown that hackers are shifting their focus to small online businesses which they believe are more vulnerable.

Experts have warned that these SMEs and payment portals, especially those relying on mobile payment solutions, are now facing high risks of cyber attacks coordinated by these hackers.

Speaking during the inaugural Africa Cybersecurity Congress held in Nairobi, Hadi Maeleb, Agora Group co-founder and CEO said the threats to online businesses were growing at a high rate.

Further, he stated that more than 90% of business owners are unaware that their enterprises are at risk, despite the high growth rate of the attacks.

“Cybercriminals are now targeting small businesses more as they have realized that these enterprises do believe they would be exposed due to their comparatively low turnovers until they lose their data and payments are compromised,” said Mr Maeleb.

With the adoption of e-commerce platforms, State agencies, financial institutions, healthcare, energy and utilities have persistently faced cyber-attacks in the recent past.

According to CAK- Communications Authority of Kenya’s first-quarter data (between January to March 2022), a total of 79.2 million cyber-attacks were reported. This has prompted the government to issue 28,848 advisories in an attempt to fight the rising attacks.

Invest in Cybersecurity

Mr Maeleb noted that business owners should invest in cybersecurity tools as there is no magical solution to cybercrime.

“This ‘democratization’ of cyberattacks is expected to push losses due to business interruption, financial theft, personal data breaches and even ransom payments over the Sh4 trillion mark by end of 2022,” he said.

At the peak of the pandemic, several states adopted tough lockdown measures such as social distancing, working from home, and online learning.

Also read: Why Buyers Are Now Running Away From Popular Used Toyota Cars

Hackers shifting focus to small businesses.

This adoption of digital solutions such as e-commerce, remote working and banking went up as Kenyans turned to online platforms to curb the spread of the coronavirus.

“Unfortunately for them, the business of cybercrime has evolved to a point where attacks like ransomware are now sold as a service,” he added.

Even though these measures triggered the adoption of digital platforms, they also increased vulnerability such as ransom, data breaches, harassment, cyberbullying, and data breaches.

Kenya’s ICT Policy which came into effect in 2006, is credited for creating an enabling environment for the growth and usage of technology.

Kenya’s ICT Policy which came into effect in 2006, is credited for creating an enabling environment for the growth and usage of technology.

To achieve Kenya’s Vision 2030 goal of a regional ICT hub, the tech sector was expected to contribute directly and indirectly to an additional 1.5% of Kenya’s GDP by 2017/2018.

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Why Buyers Are Now Running Away From Popular Used Toyota Cars

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As it has been noted that Kenyans are now running away from the popular used Toyota car models, contrary to what has been a tradition in the country. The rise in their costs has seen even dealers cut down on imports of these vehicles due to decreased demand.

Traditionally, popular models such as Toyota Premio and RAV4 have been synonymous with middle-income earners over the years. However, this is no longer the trend.

Car dealers say more Kenyans are now going for vehicles such as Nissan Sylphy and Mazda, which cost less compared with popular Toyota models.

Toyota Vs Nisaan and Mazda models

According to Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, Nissan Sylphy and Mazda’s CX5 and Axela, are quickly gaining popularity among Kenyans.

Mr Munyori said the price of a Toyota RAV4 has short up to Sh3 million currently from Sh2.8 million in February while a Premio is going for Sh2.2 million from Sh2 million four months ago.

On the contrary, Mazda Axela is now selling for Sh1.6 million with Nissan Sylphy (Blue Bird) going for at least Sh1.5 million.

Currently, consumers find these brands to be the best alternatives to their preferred models, as they are relatively cheaper and good.

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With the rising household costs, these car prices are making them affordable to most Kenyans as they struggle to balance the high cost of living.

“We are seeing a shift where Kenyans are now moving from the popular brands such as Toyota Premio and RAV4 to other models. This shift has been occasioned by the high cost that these cars are now fetching at the market,” said Mr Munyori.

“In fact, most of the car dealers are hardly bringing in Premio and RAV4 models because they are not moving and they will tie up money that they would need for importation of more vehicles,” he said.

Ex-Japanese vehicles

Ex-Japan vehicles dominate the Kenyan second-hand sector with a more than 80% market share.

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The buyers in the sector prefer these cars as their spare parts are easier to obtain locally compared to other brands. Additionally, buyers believe that the resale value of Toyota vehicles are higher than that of other brands like mazda or Nissan.

Reasons for risisng vehicle cost

The rising cost of vehicles in the country has been linked to the unavailability of dollars locally, a shortage of electronic chips in Japan, and a weakening shilling against the dollar.

The country is currently experiencing extreme dollar shortage, that one has to wait for at least three days to get $20,000 or $25,000 from the banks.

“We have to wait for like nine days in order to accumulate $80,000, and this has seen car dealers delay in making their orders. We are really feeling the impact of the dollar shortage in the market,” Mr Munyori said.

banks have imposed regulations on dollar purchase. This has forced traders to face difficulty in meeting their obligations.

Industrialists are forced to start seeking dollars in advance. The shortage puts a strain on supplier relations and the ability to negotiate favourable prices in gap markets.

On the other hand, Semiconductors are used in making electronic devices. Their shortage has forced the vehicle manufacturers to scale down the production. The quantity and quality cannot be maintained with decrease in one of the crucial raw material.

Finally, the shilling has persistently remained weak against the dollar. this has made it costly for importers shipping in goods.

The shilling has hit a record low trading at of Sh 117.06 against the dollar. This predicts a continued rise in imported goods, and signifies a further dollar shortage crisis.

The continuous depreciation in shilling stability is attributed to increased demand for dollars from importers. This highly arises on importaion of crude oil and merchandised goods.

It should be noted that most external debt is repaid in the dollar. Therefore, a weakened shilling increases prices of imported goods, and puts pressure on the country’s debt repayment.

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