Time to rank County Performance

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This article first appeared in my column with the Business Daily on February 10, 2019

The first and second phases of devolution in Kenya have revealed the economic benefits Kenyans have accrued from it but has also highlighted key problems that have arisen from it. Key benefits include the devolution of financing to locations outside of major cities in the country, Kenyan professionals leaving big cities to work on county development and the creation of several devolved centre-points for economic development strategy formulation and implementation. However, key challenges have emerged. These include the devolution of corruption, poor fiscal accountability by county governments and a deterioration in the business environment in many counties. This article will focus on the last two points raised and how they can be addressed.

As mentioned a key problem with devolution has been the notably weak county fiscal performance; most counties are not adhering to the Public Finance Management Act. A report by the International Budget Partnership (IBP) shows that the average transparency, as determined by the availability of key fiscal and budget-related documents was 42 percent in September last year; the figure was 25 percent in 2017. Further, during physical checks conducted by IBP, where it was checked whether required budget documents are physically available in county offices, only 2 of the 15 counties assessed were found compliant. This performance is informed by two factors: capacity and corruption. Technical capacity deficiencies exist that truly compromise the ability of county governments to develop, disseminate and implement fiscal documents. On the other hand, there are no consequences for poor fiscal accountability which creates a breeding ground for corruption to run rife in counties particularly on the expenditure side.


A second problem with devolution has been how many county governments are making the business environment very difficult. In my conversations with both large and small business the issues of CESS and county government levies/taxes has been raised numerous times. County governments are arbitrarily raising the cost of fees of doing business in areas under their jurisdiction; one county is said to have increased land rates by 600 percent. There are multiple charges of CESS and the creation of new permits such as the onerously expensive distribution permits which are levied even at sub-county level. In addition, businesses are harassed at county level where, for example, vehicles are unfairly impounded and brides demanded for release. Part of such actions by county governments are due to pressure to generate own their revenue, but some of it is plain corruption. Many county government actions are harming business activities and thus employment and wealth creation in their counties and thus Kenya as a whole.

What can be done to address these issues? Ranking. Rank counties on their fiscal transparency and their business environment. Kenyans and other interested parties should come together and create two ranking systems that highlight the best and worst performers on both fiscal and business environment issues. Perhaps then, there will an impetus beyond individual county government values, that make them more fiscally accountable and work to improve their business environment.

Anzetse Were is a development economist


How Insurance can drive the Big Four Agenda

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This article first appeared in my weekly column with the Business Daily on November 11, 2018

An interesting question that has been posed, is as to how the insurance sector in Kenya can play a role in the development of the country and the Big 4 Agenda. The focus sectors of the Big 4 are manufacturing, food security, universal health coverage and affordable housing. There are key actions insurance can play in each sector that can enable each sector to strengthen its role in the economy and contribute to the general welfare of Kenyans.

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The first step is for the insurance sector and companies to stop positioning themselves as being an option for ‘rich Africans’ to being a necessity required in a well-functioning economy. In the context of economic development of a young economy like Kenya, insurance has two important roles. The first is as a stabilising presence that signals that certain business activities are deemed credible. The second role of insurance in this context is as a risk management strategy. If the private sector in Kenya and Africa at large seeks to position itself as a safe bet for investors, insurance plays a key role in risk management. There is a need to manage risks linked to agriculture and climate change; risks associated with manufacturing in Africa; securing the health of a large and growing population and providing dignified housing for a significant portion of the population. Thus, in the African context, insurance is a risk management tool.

But there is a more innovative role that insurance can have in catalysing economic development in Africa and each of the Big 4 sectors in specific. In terms of manufacturing, a current pitfall is the lack of a comprehensive insurance package for manufacturers, and in terms of health, insurance is not deemed affordable by most Africans. With regards to agriculture, insurance for small holder farmers who are the custodians of food security, is largely deemed to be uneconomical where payments made are not commensurate to losses incurred in the context of extreme weather conditions or pest damage for example. And in terms of health insurance, that is deemed as a luxury for the rich in Africa.

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But insurance can be a risk management tool by for example, giving manufacturers an insurance bouquet that enables them to manage all their key risks at once. Insurance, through micro-insurance can allow Kenyans and Africans to pay small amounts to secure their health and homes. And for small holder farmers, insurance can play a key role in farmers recovering from unforeseen by bundling insurance with government agricultural credit lines.

In short, the role of insurance in the Kenyan and African economy is undermined because its risk mitigation qualities are underappreciated. Insurance is still seen as an option for ‘rich Africans’. This must change as insurance is a key element of a sustainable African economy rooted in secured long term growth.

Anzetse Were is a development economist;

Kenya’s fiscal missteps must be corrected

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This article first appeared in my weekly column with the Business Daily on November 4, 2018

Last week the International Monetary Fund raised Kenya’s debt distress warning level from low to moderate. This is partly informed by the rapid increase in debt level as well as Kenya’s breach of debt sustainability measures such as the external debt service to both the export and revenue ratios There are three factors to bear in mind as one assesses Kenya’s public debt and general fiscal path.

The first is that Kenya’s public debt is understated because it is not clear the extent to which official figures factor in debt accrued by county governments. For example, the County Government of Nairobi alone is said to have a debt of KES 57 billion. Bear in mind, county governments tend borrow from commercial banks with high interest rates and shorter loan tenures. At the moment there is no clear documentation available as to the scale and terms of all county government debt. This makes is difficult to systematically ensure that all debt owed by county governments is reflected in official public debt figures. Thus, at this stage, it is safe to surmise that Kenya’s debt distress levels are more onerous than official figures suggest and that national debt figures understate the scale of total public debt owed.

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Secondly, the government has a chronic problem with revenue generation. In late October government cut the revenue projection downward by KES 96 billion for FY 2018/19 and by KES 42 billion for 2019/2020. Revenue targets are only revised downwards when it is clear that the original target cannot be met. The reality is that Treasury continues to accrue debt while clearly knowing government is not generating enough revenue. This alone makes it clear that Kenya’s fiscal path is not sustainable. The irony however is that, the Kenya Revenue Authority just released a report indicating that Kenya may have lost up to KES 270 billion in tax over the past 3 years due to tax exemption provisions. It is in the interest of government to better coordinate expenditure with sustainable revenue generation that does not stifle economic growth. Though slower, developing a shrewder tax regime that actually stimulates business activity would be better in the long term rather than slapping a new VAT on a basic commodity such as fuel, as this increases the cost of doing business and production which have negative effects on profit margins and thus taxes paid.

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Finally, government at both national and county levels continue fail to pay their suppliers; this is leading to fiscal problems. As of July 2018, the government was said to owe SMEs KES 200 billion. The failure to pay for goods and services rendered is not only morally abhorrent, it is crippling the ability of SMEs to remain commercially viable. As a result, SMEs affected are making losses which then translates to lower (if any) tax payments. So again, government behavior is causing problems for itself.

Kenya’s fiscal problems are becoming structural in nature. The concern is that the fiscal structure is unsustainable. One wonders at what stage the seriousness of Kenya’s fiscal missteps will be comprehensively addressed so as to address the negative fiscal momentum currently being generated.

Anzetse Were is a development economist;

Important role of MSMEs being recognised

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This article first appeared in my weekly column with the Business Daily on October 21, 2018

Last week the Inaugural Presidential Roundtable for Small and Medium Enterprises (SMEs) was held at Strathmore University with a focus on six sectors linked to the Big Four Agenda: Textiles, Livestock (dairy, beef and leather), Agro processing, Aquaculture, Construction and Trading. While the title of the roundtable headlined SMEs, the roundtable actually brought together micro enterprises as well thus making it a forum for MSMEs. Entrepreneurs discussed key issues and generated recommendations specific to their cluster with cluster representatives selected to share their content with the President.

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The importance of this roundtable ought not be dismissed because it is the first time under the new constitution and devolution, that such high level attention has been accorded to the MSME sector. MSMEs are crucial as they constitute at least 80 percent of the private sector in Kenya and are central in generating employment, creating new jobs and contributing to GDP. Thus the focus on MSMEs is welcome, particularly at a time where many Kenyans feel economic growth does not translate to economic security and welfare. This is largely because MSMEs are locked out of financing and support structures that allow them to become more productive, profitable and scale. As a result, often the returns generated are not commensurate to the effort and time invested in business ventures by most MSMEs. For the most part, most low income Kenyans stay confined to subsistence, informal business activity, mainly as micro and small businesses.

The roundtable is important and signals that government has recognized the importance of MSMEs, and has an interest in learning about the sector to address their challenges. It also signals to financiers and business development providers that the MSME sector ought not be neglected if the country is to get on a credible path of economic transformation. One key issue is that, at the moment, MSMEs seem stuck in a vicious cycle where they are shunned by most financiers, and thus do not grow and strengthen financially, and thus remain vulnerable and ‘high risk’ and thus are shunned. Given the return on assets of banks in Kenya where the top 3 Kenyan banks are outperforming global peers in profitability and are among the top 20 in the world, there is room for banks to become more creative and relevant in financing MSMEs. For only then will a transition from micro to small and medium enterprise occur at a scale where a pool of larger businesses emerge that provide a wider and deeper deal pipeline for financiers.

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Beyond financing and business development support, another key issue is market access, an area with which many MSMEs struggle, particularly in terms of the physical market spaces in which they operate. Most physical markets in which MSMEs conduct business are congested, dilapidated, have limited to no amenities in terms of electricity, water and sanitation, have poor security and are serviced by poor transport infrastructure. These factors alone discourage customers from visiting these markets, thereby locking MSMEs out of a lucrative consumer base.

Last year, the Central Bank of Kenya made the point that MSMEs were key in the resilience of Kenya’s economy and are crucial in economic recovery and performance. MSMEs have proven their worth. Let them be accorded the seriousness and focus they warrant for in doing so Kenya will more credibly achieve economic transformation and development.

Anzetse Were is a development economist;

TV Interview: 8% VAT on Fuel in Kenya

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On September 18, I was part of a panel that discussed the 8% VAT on fuel that has since been effected.

TV Interview: The Chinese in Kenya

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On September 15, I sat down with Citizen TV to discuss dynamics between Chinese and Kenyans.

Parallels between small business in the USA and Kenya

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This article first appeared in my weekly column with the Business Daily on September 16, 2018

I recently came back from traveling in the USA after a long time of not having been there. What struck me was the robust presence of small business. Often sitting in Africa, you only here about massive US corporations, and their achievements. However, while I was there it struck me that there are similarities between small business in the USA and here in Kenya.

First, definitions are required so that the terms being used are clear. In the USA, a small business is one that, depending on industry, has a maximum of 250 employees or a maximum of 1,500 employees. Some say a ballpark definition for small business is one with 500 employees or less. However, Kristie Arslan who worked with the Small Business and Entrepreneurship Council in the USA, makes the point that 95 percent of small businesses have fewer than 10 employees. Here in Kenya there are three categories that can be defined as small business namely, micro (less than 10 employees), small (10 to 49 employees and medium (50 and 99 employees). These constitute the Micro, Small and Medium Enterprise (MSME) segment of the economy.

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One key point of similarity is that small business in both countries lead in employing people. In the USA, small businesses employ 53 percent of the workforce; in Kenya 83 percent of employed Kenyans sat in the informal sector (which constitutes mainly of MSMEs) in 2017. Further, in both the USA and Kenya, small businesses generate the most jobs. In the USA, Arslan argues that small businesses account for 64 percent of net new jobs created. In Kenya the informal sector, was responsible for creating 89 percent of new jobs in 2016.

The final point of similarity between small business in the USA and Kenya is financial constraints. Whether it was the global financial crisis or the interest rate cap, lenders seem to have a similar attitude to small business, particularly when they are operating in a difficult environment. In the USA, after the global financial crisis, small business access to credit was severely constrained. Fundera points out that small business loans fell more sharply during the crisis relative to the peak—both in absolute and proportional terms—than large business loans, and access has remained relatively constrained during the recovery.

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This is exactly what has happened in Kenya when the interest rate cap was introduced. The Central Bank of Kenya report on the cap stated that the number of loan accounts declined significantly between October 2016 and June 2017, and there was lower access to credit by small borrowers. This trend continues and is not without consequence. It is estimated that reduced lending to the MSMEs due to the cap, contributed to a 1.4 percent decline in the growth of GDP in 2017. Clearly small business in both countries are marginalized due to attitudes of lenders, despite the fact that they are the segment of the economy that employ the most people and create the most of the jobs.

However, despite the challenges small businesses face, they aren’t going anywhere. It seems the determination of the entrepreneurial spirit in both countries is alive and well.

Anzetse Were is a development economist;