Supplementary budget weakens Kenya’s fiscal position

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This article first appeared in the Business Daily on October 17, 2017

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A few weeks ago, the National Treasury presented a supplementary budget cutting development spending for the current financial year by KES 30 billion. Additionally, the IEBC has requested KES 12 billion for the presidential election re-run. These developments are problematic for several reasons.

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(source: https://static.pulselive.co.ke/img/incoming/crop7313340/0094679013-chorizontal-w1200-h630/national-treasury.jpg)

The first problem is Kenya is in an already compromised fiscal position where recurrent expenditure accounts for 58.8 percent of the 2017/2018 budget. We already have a budget with subpar development spending which translates to less money being channelled to productive spending; instead the bulk of funds sit in non-productive recurrent spending. Thus the cut in development spending will skew the development-recurrent ratio even further pushing Kenya into a position where government spending will have an even more muted effect on contributing to the economic growth.

Secondly, the government’s revenue collection for the fiscal year starting July was behind target by KES 29 billion. As much money as possible should stay in the development docket so it is used to spur economic growth and raise domestic revenue to better manage growing spending and debt needs and obligations. The cut in development spending will mean revenue targets will likely not be hit and government will have to borrow aggressively next financial year to plug the fiscal deficit due to subpar revenue generation catalysed by the cut in development spending.

Thirdly, private sector will be negatively affected. The supplementary budget indicates that development plans in roads, water, power plants, real estate projects and electricity transmission, will be affected. Domestic private sector usually contracted to implement such projects will not get contracts which would have ensured they remain productive. Bear in mind, the cut in development spending occurs in a context of muted economic growth due to a combination of election, the drought and the interest rate cap. Thus the development spending cut will exacerbate an already difficult year for many businesses, further compromising economic growth.

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(source: https://www.matchdeck.com/uploads/image/asset/10018/large_Nairobi_NIGHT.jpg)

Finally, there is a real risk that the cut in development expenditure will be shifted to recurrent spending. While National Treasury indicates it also seeks to make cuts in recurrent spending by limiting travel of individuals on the government payroll, they will likely be unable to save enough to finance the KES 12 billion requested for the election. It is likely that the election re-run will be partially or fully funded by money previously earmarked for development spending. This is deeply worrying as the government borrows to meet development expenditure. Thus there is an emerging situation where the country will likely use debt to finance recurrent expenditure; this is untenable. This puts the country on an even more precarious fiscal path.

Government seems to have a habit of using supplementary budgets to shift money from development to recurrent spending making it difficult to track the ratio between the two types of spending and analyse the extent to which debt is financing recurrent expenditure. While this year the surprise election re-run has put the National Treasury in a difficult position by generating expenditure momentum in the wrong direction, the features of this supplementary budget are not new. Greater caution needs to exercised in developing supplementary budgets so that this process is used to strengthen, not weaken Kenya’s fiscal position.

Anzetse Were is a development economist; anzetsew@gmail.com

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Education misalignment costly for Kenya

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This article first appeared in my weekly column with the Business Daily on October 15, 2017

There is a story of bright young person in Kenya who studied biochemistry in university and graduated with first class honours. The young person was passionate about biochemistry and was determined to pursue a career in scientific research. After applying for and being turned down from several jobs with various scientific organisations, the young person gave up and decided to start a business in the transport sector. The only problem is that that he had not studied transport and logistics nor business management and thus did not have a clear idea about what starting a business in the transport sector entailed. To this day this young person ekes out a measly living in a business venture at which he’s not very good, all because he couldn’t pursue the career for which he was trained.

The story above mirrors the life of millions of Kenyans. They study hard, parents and loved ones save up to take them through to university and in the end, they end up unemployed, underemployed or mis-employed. Quality of education aside, this type of educational misalignment is costing Kenya billions in several ways.

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(source: http://www.dhahabu.co.ke/2016/05/27/assessing-state-university-education-kenya/)

The first is that Kenyans are spending billions getting educated in fields they end up abandoning. The hours, efforts and money spent to attain secondary and tertiary education is all wasted when the young Kenyan discovers there are no jobs in his/her area of interest and expertise. This is despite the fact that from an economic point of view, the country needs that expertise to diversify the economy and start or strengthen numerous industries. Thus, the millions poured into the education of young Kenyans go to waste as they are forced to move away from their knowledge base to pursue careers in other fields for which they did not study.

Secondly, because young people often turn to self-employment in order to survive they often end up running businesses badly because they have neither the aptitude, training or interest to run and manage a business. Not everyone is an entrepreneur, yet millions are forced to become entrepreneurs. The informal economy, where most Kenyans are employed, is full of Kenyans who turned to entrepreneurship as an act of desperation. For most, running their business is not a well thought through and strategic venture for which they have been trained, it is the final push for survival. The result is that millions of businesses are not functioning at optimal levels, indeed many are being run very badly, providing subsistence living for those running the business.

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(source: https://softkenya.com/education/wp-content/uploads/2016/03/Technical-Training-Institutes-photo.gif)

This leads to the final point; the presence of millions of poorly managed businesses all of which undermine economic growth. The economy not only misses out from the economic contributions of the knowledge base of millions of Kenyans, billions of manhours are committed to badly run businesses. It’s a double whammy for the economy because the investment in education is wasted and businesses that should have never started are created out of desperation. This all leads to wasted training, poor business performance and subpar economic growth.

There is a need to address the education misalignment beleaguering the country if Kenya is to tap into the potential of its population and spur sustainable income growth and economic activity.

Anzetse Were is a development economist; anzetsew@gmail.com

 

The intelligence of inclusive business

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This article first appeared in my weekly column with the Business Daily on October 8, 2017

Last week Safaricom launched its 6th Sustainability Report detailing the company’s performance on sustainable business targets based on the UN Sustainable Development Goals (SDGs). The report highlighted Safaricom’s gains made over the year as well as areas for improvement. For example, while Safaricom’s use of water and electricity increased, Safaricom contributed an annual average of 6.5 percent to GDP and 98 percent of their suppliers had signed up to a Code of Ethics. What was striking was that the report was thorough and transparent, detailing strengths as well as ongoing areas for improvement. Such detailed reporting is not a legal requirement and it should be noted that KCB and Safaricom are the only Kenyan corporate companies that deliberately and comprehensively report on sustainability. Many businesses seem to find such reporting not only onerous but also appear to be of the view that acknowledging low points in performance is unnecessary and risky.

Another clear point that came across in the report is that triple bottom line performance that seeks to generate financial, social and environmental return, is possible. Inclusive businesses reject the notion that business is about choosing between having a purpose or making a profit as both can be achieved; Safaricom’s consistent performance is evidence of this. Thus, given that there is a business case for being inclusive and sustainable, why hasn’t the sustainability movement gained traction in Kenya? There are three realities informing this reality; realities that pull against each other.Image result for sustainable business

(source: https://www.unf.edu/uploadedImages/aa/coggin/about/business_centers/Center_for_Sustainable_Business_Practices/Diagram.jpg)

The first reality is that it is possible to engage in dubious business practices in the country and still generate immense profits. The culture of bribery and corruption in the country has created a sense in some quarters that unethical business practices are a necessary evil to ‘survive’ in Kenya. Some companies even set aside funds to grease the necessary wheels that facilitate the continuation of their business model. They consistently break laws, take shortcuts and generate negative externalities all in the name of profit.

The second reality is that of an inauthentic commitment to sustainability where the companies function within the law but do not have a sincere commitment to being inclusive. The principles of people, purpose and planet are seen as external to core business. These are companies that know that they can be seen to be making impact through carefully orchestrated photo ops and PR gimmicks. So, while they understand that brand value can be enhanced by being seen to be responsible, they do not put a great deal of money or effort in that direction.

The final reality is that of companies that are authentic in their commitment to being inclusive, sustainable and holistically responsible. They are willing to put energy and effort into being sustainable and have a culture of consistently improving their triple bottom line performance.

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(source: http://www.everbluetraining.com/sites/default/files/u42494/sustainable-business.gif)

While all three realities exist in Kenya, only the third is truly intelligent. In a world of social media and citizen reporting, it is becoming increasingly difficult for companies to either flagrantly flout the law or inauthentically masquerade as inclusive. The sooner companies in Kenya understand this, the better it will be not only for themselves but the country as a whole.

Anzetse Were is a development economist; anzetsew@gmail.com

County Governments are not accountable to Kenyans

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This article first appeared in my weekly column in the Business Daily on October 1, 2017

Last week the International Budget Partnership Kenya (IBPK) released the results of an assessment on county budget reporting for all 47 counties for the financial years 2016/17 and 2017/18.  They found that counties are not making key fiscal and budget-related documents available to the public online in a timely fashion. As a result, citizens cannot participate effectively in the budget process as intended under the constitution and Public Finance Management Act (PFMA).

 There some troubling findings the first of which is that counties are still not making key documents available to the public online. With regards to the Annual Development Plans which are a main anchor to budgets, as of the second week of September 2017, just 22 counties had published their 2017/18 Annual Development Plans online; that is less than half of the 47 counties. In terms of the 2016/17 Quarterly Implementation Reports which detail budget implementation performance during the year, only Baringo county had published its Budget Implementation Report for the third quarter of 2016/17. With regards to 2017/18 Budget Estimates which detail program and item level decisions, only 15 counties had made the document available. Finally, with regards to the 2017/18 County Fiscal Strategy Papers which is the most important budget formulation document that sets total budget size, sector ceilings and key priorities, only 21 counties had published this online.

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Overall, the IBPK assessment found that only about 20 percent of key budget documents that were supposed to be online were available. To make matters worse, four counties (Garissa, Mandera, Migori and Turkana) have never published any document analysed during the assessment. The star performer however is Baringo County which has consistently been the most accountable across all documents studied in the assessment.

The findings above make one reality clear; there is a consistent pattern of low fiscal transparency across most counties. There are several factors at work that creating this troubling picture.

The first is that counties do not feel moved to adhere to PFMA stipulations and account for how they plan for and execute county budgets. There is a distinct air of mischief informing this laxity. It is not a secret that the first era of devolution revealed how much autonomy county governments have in the planning and use of funds they receive and generate. In the past, it seems that the poor reporting may have been due to lack of capacity at county level. While this may be true in some cases, Baringo county makes it clear that counties can develop the capacity if they have the will to do so. Ergo, this lack of transparency seems to be aimed at facilitating a culture of financial mismanagement and corruption at county level, in an environment where, frankly, no one is holding them accountable.

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(source: https://upload.wikimedia.org/wikipedia/commons/thumb/4/4b/Baringo_County_in_Kenya.svg/250px-Baringo_County_in_Kenya.svg.png)

This leads to the second point, county governments know they can get away with failing to account for funds because there are no consequences to poor performance. County governments know that National government will still deploy funds the next year irrespective of whether they comply with the PFMA or not. With no consequences for poor fiscal performance and reporting, financial mismanagement and corruption at county level can and probably are running rife.  The basic question is: who is responsible for keeping county governments accountable?

The way forward is for citizens in each county to demand financial accountability from county governments. This is because it is county citizens to whom county governments are accountable and it is county citizens who can vote out county governments.

Anzetse Were is a development economist; anzetsew@gmail.com

Intellectual dishonesty is killing Kenya

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This article first appeared in my column with the Business Daily on September 2, 2017

Over the past year, a troubling trend has emerged; the use of intellectual arguments to present a one-dimensional analysis of complex issues in order to either generate support for or discredit certain political positions. It has become clear that many analysts and public intellectuals are using their knowledge base and expertise in a spirit of intellectual dishonesty.

The truth is that any topic being discussed has several dimensions to it. It is my view that it is the role of expert analysts and public intellectuals is to provide comprehensive, rigorous and apolitical analysis of issues so that Kenyans get a robust sense of the factors being discussed and the complexities therein. Thereafter, Kenyans can reach an informed conclusion. For the most part, this does not seem to be happening. What is happening instead is public intellectuals and analysts deliberately creating incomplete analysis and narratives that service certain political agendas. This is problematic for two reasons.

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First is the moral issue of intellectual dishonesty. All arguments have information that can both support or challenge a narrative. There is no single issue, especially when it comes to the political and economic reality of Kenya and Africa in general, that can have a single narrative and line of argument. Honest intellectuals will present both sides of a given argument and then state that they support a certain side because of certain merits. Instead what some public intellectuals seem to be doing is taking a given, one-dimensional political position and creating incomplete analysis to either support or discredit certain political agendas. This is creating immoral intellectual posturing where experts know they are not giving comprehensive analysis because they have a political agenda in mind. This is the height of intellectual dishonesty and goes against the spirit of robust intellectual exercise and practise.

Second is the issue of misinformation. The truth is that most Kenyans are often not aware of the layers of complexities of issues when analysis is given from certain technical backgrounds. As an economist I have the privilege of having a knowledge base where I can point out the holes in economic arguments. Most Kenyans do not have this privilege. Thus, in analysts and experts knowingly providing incomplete analysis, they are actually in the business of misinformation because Kenyans will be of the view that that the expert’s one-dimensional analysis is the only or best way to interpret a given issue. I am not suggesting that analysts and public intellectuals should not have certain positions, they should. The problem is that many do not point out counterarguments to their position and thus lead Kenyans down the road of incomplete analysis and misinformation. Thus, rather than analysts contributing to a culture of intellectual rigour and knowledge creation, they are contributing to a culture of intellectual deception and misinformation.

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(source: https://goinggentleintothatgoodnight.files.wordpress.com/2013/11/lies-deception-dishonesty-fictions-alzheimers-disease-dementia.jpg)

When knowledge and intelligence are used to beget bigotry rather than challenge it, what happens is that the nation creates a habit where narratives are not questioned and blanket statements are taken as the gospel truth. Intellectually dishonesty begets intellectual laziness where arguments are not interrogated but rather taken as fact. This should not be encouraged. It is time Kenyan analysts and public intellectuals took a long, hard look at their behaviour and decide who it is they serve. Are they using their knowledge to serve Kenyans or politicians? The answer to this question will determine the nature of intellectual discourse in this country and for which Kenya will be known.

Anzetse Were is a development economist; anzetsew@gmail.com

TV Interview: Blow to business due to the election season

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On September 20, 2017 I was interviewed by the China Global Television Network (CGTN) on the effect of the nullification of Kenya’s presidential election on the economy.

TV Interview: Impact of an extended election season on the economy

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On September 20, 2017, I was part of a panel on Citizen TV discussing the impact of the extended election season on the Kenyan economy.