Why law holds the key to Kenya’s wealth

One jarring point in the historical narrative is the marginalisation of northern parts of Kenya.

Spatial development followed the original Mombasa-Malaba transport corridor to the exclusion of all else. Session Paper Number 10 of 1965 promised redistribution – that gains from early investments in “high potential” areas would be used to pull up the rest. Sadly, it was not to be.

Coding capital, a phrase made popular by legal scholar Katharina Pistor, refers to the role of law in making capitalism work. In accounting, an asset that is not generating cashflow and therefore wealth, is considered impaired.

The law turns property into assets, giving them their wealth-generating attributes. It creates and protects wealth. I raced from Shanzu to the LSK Nairobi Branch legal awards gala to make that case. But the points, coming as they did from a mere commoner, were lost to many!

Legal instruments; property rights, contracts, and trusts, transform ordinary property into assets. The wealth-generating attributes include priority (the right to be paid first), durability, convertibility (ability to be converted into cash), and universality.

State power is vital for enforcing those attributes. It ensures that the "coded" assets generate wealth and that the legal rights of asset holders are protected.

The creation and maintenance of property registers – such as for patents, trademarks, lands, motor vehicles, and shares is central to that enforcement.

But "coding" can exacerbate inequality by creating advantages for those with the resources and legal knowledge to code their assets, however obtained. It is how the colonialists took Kenyan resources, appropriating them for both their empire, as well as themselves, as individuals.

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Kenyans were perplexed to find that land they had used for centuries now belonged to another and that coercive State power was being used to enforce the rights of the new owners. Taking from such oppressors was seen as moral and just. To change that, the modern State has to right those wrongs.

That is why the restoration of the management of the Amboseli to its rightful custodians was so heartwarming. I was privileged to witness the transfer last Saturday. It was the crowning event of the 3rd Maa Cultural Festival, held at Kimana gate.

Also featuring in Shanzu meeting was the state of the economy. Most speakers agreed that though the macros are correct, many Kenyans report no money in their pockets. Some bankers argued that inflation is low because of low aggregate demand. Indeed, the economists, agreed. After all, that was the purpose of tight monetary policy.

But with inflation now contained, the refusal of banks to quickly drop lending rates to attract more household and private sector borrowing is an impediment. Without it, aggregate demand will recover very sluggishly, hence no money in our pockets.

Banks have reduced deposit rates quickly, dropped them by 3.65 percent since August 2024, compared to only 1.77 percent in lending rates during the same period.

The spread, (difference between the two rates), at 7.44 percent, is the highest it has been since August 2016, when Parliament responded with a rates cap. While no one is advocating a similar move, it is clear that Parliament may have to act soon.

Some captains of industry felt that the government is too big for the economy. Still government can sometimes innovate. Such was the case with the creation of the Kenya Tea Development Agency model.

Clever legal structuring made it possible for smallholder tea farmers to own the processing factories, thus solving the aggregation problem. Many Europeans, convinced that tea was, by necessity, a plantation crop, were amazed.

Contrast that to the livestock economy. The Branding of Stock Act 1905, was an early attempt to create a property rights register for livestock. Many amendments later, it remains inadequate, and does not solve the aggregation problem.

As a result there is disconnect between primary production (pastoralists), and slaughterhouses, most of which are owned by county governments.

Perhaps lawmakers will code livestock property rights, linking producers with slaughterhouses. As they do so, Amboseli as a pasture bank will be super.

@NdirituMuriithi, an economist, is partner at Ecocapp Capital, the advisory firm