Check money laundering before it cripples us

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I recently read an Indian Proverb that says: “Only when the last tree has died and the last river been poisoned and the last fish been caught, will we realise we cannot eat money.”  I quote this maxim with a lot of respect for all the hardworking Kenyans who are trying to get ahead in life…the legitimate way. 

I also bring it up, because I realise that there’s a huge influx of unexplained cash into Kenya lately.  Unfortunately, we are only too willing to do business with just anybody, and I’m afraid we may learn that lesson when it is too late. 

Earlier this week, my fellow blogger Michael Mumo mentioned that certain people are making lump sum rent payments for a whole year in advance, when the usual requirement is to make quarterly payments -, for commercial leases.  What of those property owners who have received offers that are up to twice the value of their properties?  What are these new trends telling us about doing business in Kenya? 

When I hear of such situations, am I tempted to offer financial advice to these entrepreneurs free of charge.  More importantly, this trend raises huge concerns in my brain.  Why would anyone be willing to make annual payments when the requirement is much lower?  Wouldn’t it be wiser, to pay the quarterly rent and put the rest of the money in a low risk investment vehicle like a fixed deposit instrument? 

Such an argument however might not make much sense for someone who does not know the hard work and pain associated with earning money.  This, in itself, is telling that the source of money is probably illegitimate and not earned using the right channels.  We may be – knowingly or unknowingly – helping these people to launder money right before our very own eyes.

In my opinion, trouble is brewing in our land.  Laundering money corrodes important sectors of our economy and threatens to curtail growth. 

For instance, money launderers often use other legitimate businesses as a front for their illegal operations. Because they have much money at their disposal, they are able to subsidise the cost of their goods, sometimes even below manufacturers’ cost.  This promotes unfair competition that can potentially paralyse the manufacturing sector in Kenya, consequently resulting in layoffs, plant closures etc.
 
It would become even more difficult to promote the integration of East Africa, if most member countries suffer from the same ills.  They might revert to protectionist practices for the sake of their countries.  Another way that criminals launder money is by investing in solid assets which they can sell off later.  They are able to finance and facilitate the growth of certain industries, as may be the case with the real estate sector locally. 

Again, at the point of buying, they drive up the prices of these assets because they are willing to buy at whatever cost.  However, when they need money or the assets no longer suit them, they will often ditch the property by selling at whatever price is available right away. 

This practice can cause a ‘housing market bubble’, which when it bursts, results in the collapse of the real estate sector.  Our people will be left holding onto overpriced assets whose loan facilities they are not able to service, as was the case in the US in 2008.

Some of this money could also be channeled through financial institutions and the Capital market.  Our monetary policy is determined in part by the amount of excess cash in the economy that may need mopping up.  Essentially, our central bank could be making policy changes on interest and federal exchange rates based on fictitious statistics.  How dangerous is this?

Obviously this list is inexhaustible.  There are other direct and indirect costs on our economy as a result of the changing demography and on our society itself.

My take on this is that the Government is fully aware of this influx of unexplained cash into our economy and needs to deal with it comprehensively.  We are just now beginning to recover from the effects of post-election violence and the global economic crisis.
 
Anything else that has the capacity to erode the confidence in our market by local and foreign investors should be dispensed with right away.  Let us not wait until our manufacturing sector collapses, or when citizens are not able to meet their obligations and criminals control our economy before we realise we cannot eat money.

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