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Aug 05, 2022
The global rise of nationalist leaders has in recent years led to countries looking inward. But as the lead up to Kenya’s presidential election next week shows, the world is still deeply interconnected and globalized, with the war in Ukraine sparking a growing demand for tax cuts and experts worried about a Sri Lanka-like crisis in the East African nation of 56 million people.
– with reporting by Tatira Zwinoira from Harare, Zimbabwe
Kenya: Familiar match-up, brand new challenges
Kenya’s perennial opposition leader Raila Odinga will face off against long-time Deputy President William Ruto when East Africa’s largest economy votes in its presidential elections next week. While the contest has an air of sameness, the country’s voters are animated. They want economic change. Their demand:“Reduce the prevailing high cost of living and make access to credit possible,” said Stephen Mutoro, secretary general of the Consumers Federation of Kenya, in an email to OZY. “This will be done by cutting high taxes and levies.” Factors hurting the nation include: the depreciation of the Kenyan shilling, the fourfold rise of the country's debt levels to $75.7 billionfrom $16.8 billion less than a decade ago, declining revenues from reduced tourism, and soaring energy and food prices due to the war in Ukraine. Can either Ruto or Odinga — who lost the past three presidential elections — rescue Kenya?
Prudence over populism
That’s what it will take — rather than tax cuts — suggested Kenyan economist Aly-Khan Satchu. Kenya’s government has over-borrowed and made long-term investments that lost money, something he expects will be felt over the next decade. COVID-19 has compounded the problem. “The incoming administration is going to have to level with the electorate and, in fact, launch an austerity program,” Satchu told OZY. The economist sees worrisome parallels between Kenya’s situation and Sri Lanka’s ousted President Gotabaya Rajapaksa, noting that any populist promises by Kenyan presidential hopefuls would be “dead in the water” without an injection of international funding. Both Odinga and Ruto have promised to address the economic crisis through tax reforms and debt-management strategies.
Libya has returned to producing 1.2 million barrels of oil daily, Bloomberg reports. This amount is reportedly back to the level it was in April, before production output was halved due to clashes between groups loyal to Abdul Hamid Dbeibah and Fathi Bashagha — rival leaders who control the western and eastern parts of Libya, each claiming to be prime minister. In a process backed by the United Nations, Dbeibah became prime minister last year, pending elections in Dec. 2021. However, since no elections took place, the Libyan House of Representatives appointed Bashagha in his place, a move rejected by Dbeibah; the two leaders are nowin conflict. The country has been in turmoil since its former dictator, Moammar Gadhafi, was killed in 2011. The resumption of oil production is expected to help ease global supply problems. (Source: Bloomberg)
Technology stocks down, but investors remain bullish
The Nasdaq is down 21% this year, but The Wall Street Journal reports that investors are bullish on tech stocks. Although Amazon and the parent companies of Facebook and Google have witnessed double-digit declines, independent research firm Vanda found that investors last month made significant purchases in a slew of tech stocks, including Apple, Microsoft and Tesla. “The market is severely undervaluing how much tech can actually play into our lives,” said New York-based investor Jerry Lee. (Sources: The Wall Street Journal, Financial Times)
New Manchin bill includes fresh taxes on oil
Following months of stonewalling by Democratic West Virginia Senator Joe Manchin, Senate Majority Leader Chuck Schumer and Manchin have struck a deal. The new proposed spending bill, called the “Inflation Reduction Act,” includes $25 billion in new taxes on the oil sector, largely achieved by reviving a prior levy on imported crude, which will amount to 16.4 cents per gallon. Overall, the bill is expected to bring in $739 billion in additional tax revenue over 10 years and thereby reduce budget deficits. Much of the new revenue would come from closing tax loopholes. (Sources: Bloomberg, Washington Post, Financial Times)
Latin America and the Caribbean face higher poverty, polarization
Inter-American Development Bank Chief Economist Eric Parrado Herrera says both Latin America and the Caribbean may return to their pre-pandemic growth rates, but warned that it would be accompanied by higher poverty and political polarization. These regions have been heavily impacted by the war between Russia and Ukraine through increased food prices. “Critics who fault governments for policies that exacerbate inequalities and throttle investment miss a vital consideration: the lack of trust among the region’s citizens,” said Herrera in an opinion piece for the Financial Times on Sunday. “Governments that focus on building trust can improve the odds of successful reforms.” (Source: Financial Times)
Cannabis cafes flourish in Thailand
Several cannabis cafes have opened in Thailand since the country decriminalized sales of the green leaf back in June. The new cafes offer a fresh draw for tourists in a country that has been hurting from a decline in foreign visitors. “Europeans, Japanese, Americans — they are looking for Thai sativa,” cannabis cafe owner Ong-ard Panyachatiraksa told Reuters. “Cannabis and tourism are a match.” (Source: Reuters)
British PM hopeful Sunak promises 20% income tax cut
Britain’s former Finance Minister Rishi Sunak has promised to cut income tax by 20% in the next seven years, in a last-ditch effort to rise in the polls to become prime minister. Sunak trails Foreign Secretary Liz Truss, who has risen in the polls due to promises of immediate tax cuts, among other sweeping changes. These promises come as energy and food prices have soared, causing Britain’s annual inflation rate to rise to a 40-year high, on top of economic disruptions caused by Brexit and COVID-19. “It is a radical vision but it is also a realistic one,” Sunak said about his proposed tax cut, in a statement. (Sources: The Economist, Reuters)
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