Imports value addition the way to go

There has been a lot of talk about how value addition is the key to unlock Kenya’s growth opportunity. Most of our exports are raw, especially agricultural products.

Recently, I attended a breakfast meeting by Prof Jim Ellert who taught me finance and strategy at business school years back. He is currently professor emeritus at IMD Lausanne. I admired his approach to teaching finance because he had a way of simplifying complex ideas.

Today, Market Talk shares some of his thoughts on global economic growth and public debt issues.

Exactly, how much is a trillion dollars?

When looking at the US public debt data, he shared the American national budget which was in the tens of trillions of dollars. To simplify how much a trillion was, the professor used an example given by Ronald Reagan when asked by a journalist to explain a trillion dollars to the public.

At that time, in early 1980s, the US public debt had hit a trillion dollars. Mr Reagan said that since a trillion was incomprehensible, he had come up with a way to illustrate it. He said that if you had a stack of one thousand dollar bills in your hand only four inches high then you would be a millionaire.

A trillion dollars, on the other hand, would be a stack of thousand dollar bills 67 miles high. His trillion-dollar illustration helped me understand the wealth of a former MP. When he was campaigning, he joked that if his money was burnt as a source of energy it would cook a pot of maize and beans.

He further joked that he was worth so much money, that if he was to stack every one thousand shilling note he owned, he would reach God! Let’s assume that he meant it would reach the sky which is about 62 miles, indicating that he meant he was almost a trillionaire.
Add value to what you don’t have

The other thing that got me thinking was value addition. Prof Ellert mentioned that Switzerland was the least rich European country 100 years ago on per capita income basis. Today it is the richest.

The Swiss economy is a success story of value addition. For example, it owns some of the strongest global coffee brand (Nescafe) and cocoa (Nestle) brands yet, it doesn’t grow any of the crops.

Its watch industry is also all about adding value to metals which are not mined there. Swiss secret accounts are a value addition for banking service to the super rich in the world. He mentioned that since he moved from the US to Switzerland, the Swiss Franc had appreciated eight times to the dollar.

The lesson here is that countries like Kenya should be focusing on adding value to anything – whether it is produced locally or elsewhere. The idea of adding value to what you don’t have as a country is more powerful than limiting your focus on what is locally available.

For example, Kenyan entrepreneurs could import raw bananas from Uganda, add value to them and export to the world. A country doesn’t also have to be big or to have resources to be rich. Singapore imports fresh water and all citizens have access to clean water.

Leaders should focus on enabling and inspiring entrepreneurs to adopt a value addition culture based on abundance mentality and not scarcity mentality. That way, a developing country can thrive and become newly industrialised in no time.

The writer is the marketing director of SBO Research.
E-mail: [email protected], Twitter @bngahu