All right. Hello everybody. Good evening and welcome to the Hall International Business School. My name is Max Guba. I go to Hall International Business School. I am technically the host for the day. So thank you so much for coming. Thank you for your time. Today we are taking this event which is themed 'How to Make Safe Investments for Impact and Growth in Africa.' As you can see, we have a great panel of thought leaders that you're going to hear more about as the event goes on. What we're going to do is we're going to start with interviews. We're going to be talking to Dari here. For those who are not Kenyans, Dari simply means doctor. So, you know, give it as a term of endearment, of respect to people who have achieved that status. Dari, you might hear me say it. And so I want you to feel at home as well. So we're going to start with interviews with Dakari and also this Dari Caroline as well, which is going to come next. And after that, we're going to take a short break and we're going to come in with presentations on strategies of how to invest from both a valuation perspective and a legal perspective as well. So, I think you're going to be very interested in those conversations. But first, without further ado, I think we can start with Dr. Patrick Njoroge. Of course, you do not need much introduction to many people in the audience but I'm not going to tell your story for you. We're privileged to have you. So let's start a little bit with your story. Everybody, who maybe if you're not Kenyan, you don't know Dr. Patrick Njoroge. He is among many things, trust me, he was sending me his resume to put on the bio and there's too many things, there's almost too many things to put. So he is a visiting scholar at MIT, he is a former central bank governor as well of Kenya. He had a very good run, one of the most successful runs we've had of a central bank governor since Kenya became an independent nation. So we're very excited to, and he's an authority leader across Africa, across the world on finance, on economics. He sits on many panels and yeah, so we're very privileged to have you today, Dari. So let's start with your story. You're a very accomplished global thought leader in economics and finance and I'm sure there's a story behind that. Would you care to tell us how this journey started for you and how it evolved over time to bring you here?
Thank you, Max. And thank you for inviting me here and great to meet you all. It's always great to see people I haven't met before. My story is actually quite simple. Why? Because I grew up in very much a normal family. And my parents were very interested in education. My mom was a teacher and frankly there are many Kenyans whose moms are teachers or whose dad is a teacher. So that's not special in any way. My dad worked for the government. So the point is that they were all very interested in making us good human beings and now looking back that to me is what was more interesting. They were interested in making sure that it included, as much as we could, being good professionals. So being good students, studying hard, etc. And at the same time being good human beings, right. Being good citizens in general and also, I mean, we were kind of a Christian home so being also good in terms of, you know, Christians. So those are the three elements that I grew up sort of learning and preserving. I went to any of the, you know, my high school was Mangu. I went to Mangu. Now there are tons of people that went to Mangu so it's not a surprise by any means here. I then went, when I was there, that's when you had from all levels and A levels. So I did my A levels in Strathmore. Again, Strathmore College, again nothing exceptional but these are all very good schools as we all know to this day they are good schools. At that point I wanted to be an electrical engineer. I was always fascinated by math. I was always fascinated by electrical things and tinkered in the lab etc. But when I was about to go to the university, the University of Nairobi, I had been reading quite a bit and it made, I somehow began to feel that being an electrical engineer is not what I want to do the rest of my life. So I switched and went into Bachelor of Arts, studied economics and continued. So that's the background, the deep background if you may but quickly after that I ended up, I did my undergrad and my masters in the University of Nairobi and after that did my PhD at Yale and then eventually worked for the government for some time, got a job at the IMF, did that 20 years and then got a job at the central bank as the governor, did that for 8 years and here we are. So it's kind of a short story but there it is.
I mean I'm sure there's a lot of more detail to it but I mean it's a very interesting picture of your journey. Thank you for sharing that and as you graciously shared, you've had a fascinating journey. But there is a pivotal moment in my view which is after 20 years of the IMF you went back to Kenya as governor of the central bank. I believe you were in the states at the time right, you were working in the states so you know a lot of us here were working in the states, you know what that feels like as an international person, you know, making it to this country. So you decided to go back to Kenya as governor of the central bank. So walk us through that. How did working globally shape how you see Kenya and what made you decide to come?
Yeah, so I was working in Washington DC for the IMF sort of top of my game right at that point. I was working in the office of the managing director. So I mean there isn't much more that really I could hope for, you know, as an economist that I'm doing what I enjoy doing etc etc. Of course that was a very rich experience. I had worked in all sorts of countries, worked in all sorts of situations. I remember somebody asked me about how many central banks have I dealt with and I said maybe one-third of the world's central banks. You've had intimate knowledge of them and helped them one way or the other hopefully for the better. So yes, it was a very rich experience. It's not an experience you kind of like wear on your sleeve. But it's there and it gets into your head etc. Meaning you learn things. So the position opened because the previous governor had retired and they advertised it and frankly I wasn't interested in becoming the governor of the central bank of Kenya. I wasn't interested. But anyway, so a friend of mine called me. This is a friend, not a politician, right? Let's be clear. A friend of mine called me and said, 'Hey, you know, this job is open. You need to take this job.' I told him, 'Yeah, I hear you, but you know, I'm not interested.' And so I remember one day I was running, and those who know Washington DC I can tell you precisely where I was, and it struck me, you know, I can go, I don't know how this thought came into me, you know, I can go and work in Kenya and maybe I could make a difference. But you know, I could also go and work there and maybe I'll never make a difference. And suddenly me I had a problem. I didn't know which of these two it would be whether I could make a difference or not make a difference and that troubled me. It wasn't some sort of doing good and all those other things. It was just that I didn't know how it would come out. And so in that, well, there's only one way of finding out which is take the job and if I take the job maybe I'll succeed and therefore I'll know, maybe I'll not succeed and therefore I'll know. So the outcome will be clear right. So that's why I took the job. It wasn't any, but I knew I could do it right. Meaning having worked with a third of the central banks in the world, you know, this is just one more central bank etc etc. So I think from that perspective, then obviously one needs to go through the various things that one needed to do to apply etc interview and so forth and I think there that didn't bother me because I was pretty much confident that, you know, I'm pretty good for what I'm doing. So that's how it ended up. The experience itself, before the 20 years at the IMF, it shaped me and even before that in the sense that I got good training on the issues that I had to deal with in the central bank. I don't think there's a single issue I would say that I hadn't come across it before, you know, in the 80s who were there. Now the context is always different but yeah, change the name, change the intensity, change the political sort of frameworks, I mean most countries are pretty much the same, you know, or rather the economic paradigms that we learn, you know, you can apply them to a particular point and I think I felt confident that that was the case.
Interesting. Interesting. And that's very powerful, you know, making a difference being the reason why you went back. So building on that, so you became governor in 2015 and Kenya in particular was facing challenges, currency pressure, inflation, questions about the banking system. I was there, I was 15 years old but you know, maybe I had a sort of peripheral view of it. So what was that like? You know, you talked about context. So I'm wondering what that was like, you now being in the driver's seat, and what did managing that crisis or those situations teach you about how African economies as a whole work?
Oh, I don't know. I think there maybe I could say there are many lessons I learned. And I think the first lesson is that the rules of economics apply. And they don't apply let's say cut and paste. They do need to sort of change what needs to be changed. But it is important to say that because a lot of us in that space in Africa, in other places as well, believe that we can bend the rules of economics right. So prices are going up, well let's have a law that stops the prices. If you remember one of the fights I had when I got there was about interest rate caps. And parliament was adamant to actually put on, put this caps because they felt that interest were very high and so the way to do it is cut them at a particular point. And we argued, and you can actually, there are some elements of that that are in this book, Brothers, and we argued to the public and also to the politicians that this won't make sense. This actually will be something that will harm the economy and we explained it quite clearly to the public. The politicians on the other hand, the view, it doesn't matter. We know what we are, the lawyers. We are the guys who set the law and the economy is going to follow our law anyway. So there was that tension and in the end they won in terms of applying the interest rate caps but what we told the public was going to happen actually happened. And it's good we spoke to the public directly because we did tell them you'll get the credit, you'll be rushed, you'll get it won't be available and it only be available to, you know, let's say the rich, the elite, you know, not you guys, etc etc. The economy is going to go into a tail spin and that's exactly what happened. So in some sense it's important to know and that was a lesson for everybody and fortunately because of that the things were reversed and also they allowed us a bit more space right. Meaning I didn't have the problem that let's say the Fed chair here has with his president but the president is insulting him directly, the media etc. right. There was a lot more, we may disagree but there was more understanding in terms of language etc etc. So what point am I making? That is something that I think is important to explain to people that those laws of economics apply and you have to use them appropriately understanding that. Now when you go there's another element that I want to say to explain. It's important to appreciate that we need to explain things clearly. Unfortunately, we economists love jargon. So, we can talk to each other and talk about paradigms and this and why things work in this way. But, you know, Wanjiku, meaning the regular citizen out there has no clue what's going on. It's like you guys are fighting and we have no clue what this is. And it was important and I learned this also that it is important to talk directly to the citizens and this is a lesson that I have tried to communicate in this book right that I just now mentioned that communicating directly to the regular people, that's another lesson that I think is important. Unfortunately, if you think of some of the economies, we generally try and communicate to business analysts, you know, like yourselves, you know, and you, but at the end we do need to communicate on this. The other element was the importance of innovation that I think is extremely important. We, there's a lot of innovation going on, not just M-Pesa. And this is just one more of many right. But what I think and a lot of you here probably are probably in the space of, you know, engineers etc and so you know the sort of the back end things, coding and all that, you know a lot about that but the point is that to prepare a proper product takes time and effort and there are many elements that you really don't know until you have actually prepared this thing. For instance, I'll give you a simple example. These guys used to bring their for approval, right? So at times we would meet them and when I was really tired, I would go and join them, you know, and sort of have this conversation, you know, it's like a hackathon, you know, so they explain what they're doing. And I remember this particular case where this person was presenting the thing and he's telling us, 'Oh, look at the blue colors and purples and this.' And I asked the question not because the other people in the team would not have asked it but just because I jumped up and asked the question, so how long does it take for your product to complete the transaction? And the guy said, 'Oh, maybe 40 seconds.' And I said, 'Absolutely not. There's no way we're going to approve this if it takes 40 seconds.' So they went and came back. Oh, they had brought it down to 20 seconds. Absolutely not. Came back, you know, 10 seconds. No way. Anyway, in the end, we allowed them to go, we approved it at somewhere around maybe 7 or 5 seconds. The point is that these guys didn't understand how important it was to make that transaction quickly. Our standard was actually 4 seconds. 4 seconds. And these guys didn't know. I mean, they had everything else done. They had coded in Python or whatever it is that they code in, but they had forgotten the most important thing, which is the time for the transaction. So my point is the idea of innovation is no longer just some sort of brilliant thing, you know, the way people say oh you know look at this thing that we have. It was more practical, what are the problems we are solving etc. So the standard for innovation for me became very clear. And all that is something that maybe others have worked on. Finally, obviously there's the whole issue of working with the powers that be meaning the politicians, other decision makers and that is a, there's always a dog and cat kind of fight. Why? Because the objectives are different. The objectives of the politicians are always different from the objectives of the central bankers. But you have to work with them or to try and, I mean you're in the same house. You're in the same canoe. So you do need to make sure that the outcome is appropriate for everybody in some ways. But at times it will get ugly for sure. And yes, there are some things that you can say that you end up lacking cohesion, right? Or coherent policies. And I think that's another thing that we learned. These are our lessons. There are many more, but I think these are the top lessons that come to mind.
Yes, that's very interesting. I applaud you for writing your book and really democratizing this knowledge on economics because you know personally in my opinion, this basic economics should also be, it should be mandatory for anyone especially in office to understand some of these dynamics because, you know, they can cause a lot of pain to a lot of people just by making decisions that they may not understand. But just going back to investment, there's a lot of people here who are interested in Africa as an investment destination, right? And if we're talking about economics, we're talking about all these things that can happen, currency swings, interest rate changes, occasional shocks. Is there a difference? And if there is, what is that difference between temporary turbulence and true disruptive risk for investors thinking about investing in the continent?
Okay. So the way I see it is maybe I'm not very clear about temporary turbulence and what's the second thing?
Yeah, maybe I'm not clear what the difference is. But I'll probably say for me I look at it from the perspective of you always have volatility. Volatility is there to stay. And what is clear now is the swings are much bigger. Much bigger. When I started off the shocks were, we knew there were going to be shocks but they were not that significant. I remember maybe in the first year or so maybe 18 months we counted the shocks but they are nowhere near like COVID or Brexit or you know Ukraine war. Those things will be with us forever. And you also have policy changes. Which I don't. So for me it is more first and foremost the size of the shock, the volatility, you know, how big are the swings. Now some of these are disruptive by nature I mean but I think if you understand it you can deal with it. So for me the issue is is it something that you can actually let's say remediate right. Do you have for instance, if you're thinking of volatility and thinking of the economic volatility, are there, what is it that you're going to do to minimize that right, to minimize the impact of that and you have a whole let's say slew of instruments that you can use right, depending on the market etc, things forward etc. If you remember and that by the way it's not necessarily a sure thing. I mean you know for instance you can buy oil futures but then you know the oil may, the price may go down so you're paying you know at $60 a barrel as I think KQ was doing when the price is actually like $30 a barrel whatever it is. So you end up losing your shirt on all that. So that's my first point of appreciation that. But I think there's another element I would want to stress which is as financial people, there you make money with, you can actually make money coming and going right. So it depends on what your objective is. So if you are a trader, if you are sort of a speculator or for that matter if you are just a, my favorite people are the forex traders. I never understood these characters. If anybody knows what they do, they can talk to me so that I can understand forex traders. I think we understand what they do without labor. But the point I'm making is if you're doing, if you are actually just sort of doing carry trading. If you're a carry trader, I mean it's the volatility that actually helps you. And at times you lose your shirt, at times you don't. So in that sense volatility is not something that you should be afraid of. But you should do something about it. Now for those of us that cannot do anything about it, think of a farmer. And the price of inputs like now have pretty gone crazy or for that matter even the price of the outputs have gone crazy. I mean the poor farmers are left high and dry. So and I think that's why we need to have more markets, deepen our markets so that they can find, they will have more options. I think that's to me that's the call of deepening the capital markets.
