Political Economy

TV Interview: Kenya’s Debt Question

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On November 12, 2017 I was part of a TV Panel with the CEO of the Kenya Association of Manufacturers, Phyllis Wakiaga and Alex Awiti from the Aga Khan University analysing the effect of the elections on the Kenyan economy and rising public debt.

 

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Leverage devolution to make Kenya’s economy more resilient to politics

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This article first appeared in my weekly column with the Business Daily on November 12, 2017

A few weeks ago the Kenya Private Sector Alliance stated that the business community had lost more than KES 700 billion in just four months of electioneering. This figure was arrived at by costing not only business lost due to disruptions linked to protest and general unrest, but deferred investment decisions as well.  The economy’s performance this year is weaker than last year. The economy expanded 4.7 percent in Q1, down from 5.9 percent 2016, with Q2 at 5 percent, down from 6.3 percent last year. Previous analysis indicates that the Kenyan economy tends to slow down in an election year by about 1.2-1.4 percent. Of the 10 elections the country has had, 7 have been associated with slower economic growth and it takes about 26 months for the economy to fully recover from an election.

While there is warranted concern about the extent to which economic performance is tethered to politics and elections, other dynamics in the country have also negatively informed growth this year. These include the drought which led to a contraction in agriculture which constitutes about 30 percent of the economy. Additionally the interest rate cap negatively affected the financial sector which constitutes about 10 percent of the economy with knock-on effects felt in a contradiction in access to credit particularly to SMEs. Thus even without the effects of the election, at least 40 percent of the country’s economy was struggling this year.

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(source: https://softkenya.com/kenya/wp-content/uploads/2011/11/Kenya-Economy.jpg)

That said, there does need to be an examination as to why economic performance during election years tends to be more muted than would have been the case if there were no election. Clearly key investment decisions from the private sector tend to be deferred in an election year while any decisive action in policy is deferred by government. The question now becomes what can be done to make the economy more resilient to politics and elections such that Kenyans are buffered from related uncertainties. Leveraging devolution with a focus on county governments and county private sector is key to achieving this.

The first step in building resilience is by encouraging a fundamental shift in the mind-set of county governments. At the moment county governments seem to view themselves primarily as expenditure units, not development units. Rather than obsessing over what allocations have or have not been made to them, county governments have to enter a mind-set where every penny is targeted at ensuring they drive economic development in their counties.

Secondly, county governments ought to listen to concerns of the private sector in their counties. Kenya’s private sector is dominated by informal businesses as 90 percent of Kenyans are employed in this sector and rely on it for their income. Yet the informal sector does not truly feature in county development documents, this needs to change. County governments, perhaps with the support of the Ministry of Trade ought to create a robust informal sector strategy that works to address structural weaknesses that compromise the sector’s robustness. These could include piloting formalisation schemes, improving technical and business management skills, and creating financial structures that provide patient capital to informal businesses. The aim should be to stabilise informal businesses so that they continue to perform even during difficult political times.

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(source: https://i1.wp.com/kenyanlife.info/wp-content/uploads/2016/11/Counties-in-kenya.png)

Finally, county fiscal policy must be deliberately development oriented. Dockets such as agriculture, health and devolved education functions ought to feature prominently in county government allocations. By investing in food security through agriculture and human capital through education and health, counties can play a powerful role in building a population that is healthy and educated, and thus better able to identify and exploit economic opportunities that build income.

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

TV Interview: Effect of the elections on the Kenyan economy

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On November 2, 2017 I was part of a panel on Citizen TV that analysed the effects of the elections on the Kenyan economy.

Gender inequality expensive for Africa

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This article first appeared in my weekly column with the Business Daily on October 22, 2017

 

According to the UN gender inequality is costing Africa USD 95 billion a year.  This figure peaked at USD 105 billion in 2014, or six percent of the region’s GDP.  In a report released by the UNDP last year, it was found that women achieve only 87 percent of the human development outcomes of men and only make 70 cents for each dollar made by men. The causes of gender inequality are numerous and range from lower levels of female secondary attainment, lower female labour force participation and high maternal mortality, to the physical and sexual abuse of women and girls by boys and men, as well as women being underpaid and undervalued in the workplace. Indeed, while 61 percent of African women are working, they still face economic exclusion.

Gender inequality is jeopardising Africa’s efforts for inclusive human development and economic growth. FILE PHOTO | NMG

(source:http://www.businessdailyafrica.com/)

The continued marginalisation and mistreatment of women and girls is making the continent lose billions and leaving everyone, including men and boys, worse off. Africa continues to be foolish in the tolerance of gender inequality. For example, women are crucial investors in their community and spend 90 percent of their revenue on their family or community.

Gender inequality in Africa is a multi-layered and complex issue, and class differences inform the articulation of how inequality is experienced by women.

Low income women are often trapped in an economic and cultural reality where girls are excluded from going to school; according to the UN only 39 percent of girls in rural areas attend high school. Low income pregnant women cannot afford good quality healthcare for themselves and their children and thus often die while giving birth and many of their children die before reaching the age of 5. Further, domestic labour is a grievous burden; African women and girls still carry out 71 percent of water collecting translating to 40 billion hours. While all members of the household, men and boys included, benefit from this female labour, women and girls are never compensated for their contribution. Low income women are also often locked in the informal sector; a sector riddled by a lack of regulation which often engenders gross injustices such as under-compensation, labour law violations and flagrant exploitation, all of which disproportionately affect women.

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(source: https://iycoalition.org/wp-content/uploads/Africa1.jpg)

High-income women who have the opportunity of being educated, can afford decent healthcare and often have help around the home are still affected by gender inequality. In the workplace for example, women are notoriously underrepresented in leadership positions. In Africa, only between 7 and 30 percent of all private firms have a female manager. This is largely due to patriarchal socialisation that conditions populations to prefer male over female leadership. Women are often judged negatively for exhibiting what are deemed to be the male qualities of ambition, assertiveness and even self-confidence. Contributions made by women are often under-appreciated and sometimes bro-propriated, a phenomenon where men take credit for ideas generated by women. And while high income women may have help at home, they are still disproportionately saddled with the domestic responsibilities. These range from ensuring the home looks presentable and ensuring the children do their homework, to the emotional labour of organising daily schedules, and knowing and catering to everyone’s emotional needs.

Africa will continue to lose billions to gender inequality and while this issue is often articulated as a ‘women’s’ issue, the reality is that everyone, including men and boys, are negatively affected by the mistreatment and marginalisation of women and girls.

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

 

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

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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(source: http://www.fortyfort.org/images/Budget.jpg)

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