corruption

Podcast: The Cost of Corruption in Kenya

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The last few weeks have been jarring for Kenyans as we found out that we’d had yet another maize scandal, and this time we lost KES 2 billion at the National Cereals and Produce Board (NCPB) to 21 people. We also found out that we lost KES 9 billion to 10 companies that were irregularly awarded National Youth Service (NYS) tenders. That’s a total of KES 11 billionA few days ago, it also came to light that we had lost between KES 70 – 95 billion at the Kenya Pipeline Corporation (KPC). This scandal is still unfolding.

I join Brenda Wambui of the ‘Otherwise?’ podcast to talk about the cost of corruption on our economy. What does this looting do to our country?

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No Justification for Planned Tax Rise

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This article first appeared in my weekly column with the Business Daily on June 3, 2018

The National Treasury tabled the Income Tax Bill 2018 which, among other actions, has the general thrust of taxing individuals and companies at higher rates than previously was the case. The focus here will be on the opposite ends of the financial spectrum: large companies with taxable income of more than KES 500 million and Micro and Small Enterprise (MSE) most of whom have fewer than 5 employees and generally operate informally, outside what government considers to be the tax net.

Treasury’s rationale for the new taxes and tax hikes is simple: government needs to raise more money in order to plug the fiscal deficit and reduce borrowing in the spirit of fiscal consolidation. But the core question should be: Are these tax hikes justified? With regards to the Corporate Tax, while it can be argued that large companies can afford to pay the 35 percent, the core question is, why? What will corporations get in exchange for the additional amount charged? Rather than approaching the income tax bill from a perspective of service enhancement, government is motivated by more aggressive revenue generation. Given the reality of high costs of doing business in Kenya, the proposed increases simply add another stone on an already heavy load. Perhaps if costs such as electricity, land and transport were more manageable, the effect of added costs in the form additional taxes would be less pronounced.

Image result for tax (source: http://pinnaclepac.com/review-of-your-tax-return-by-the-canada-revenue-agency/)

The proposed presumptive tax on the informal sector, of 15 percent payable by individuals with incomes below KES 5 million applying for single business permits, is unfair and short sighted. At the moment, government provides basically no services to MSEs to support their productivity, profitability and growth. Most MSEs operate in dilapidated shacks with no electricity, water and sanitation, and often next to open sewage and piles of garbage. Government, at both national and county level, seem unable to invest in supporting MSEs, yet here is government introducing a punitive new tax. The question MSMEs will have is, again, why? What will MSEs get in return for paying this new tax? The presumptive tax may motivate informal MSMEs to go further underground because they know they are the new tax target, and since most operate at a subsistence level, any additional cost will truly pinch. Thus, rather than creating an enabling environment for MSEs, government introduces a tax that will make it even riskier for MSEs to conduct business in an already difficult environment.

However, the strongest argument against the tax hikes is corruption and the flagrant lack of fiscal accountability. This Bill is being tabled in the context of one of the largest cases of the mismanagement of public funds Kenya has seen in recent years. Ergo, Kenyans will wonder whether these new tax hikes will improve service provision, or whether the money will be used to buy public officials new properties and cars after being diverted into personal accounts.

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(source: https://www.coe.int/en/web/greco/-/council-of-europe-anti-corruption-body-to-carry-out-urgent-evaluations-of-new-legislation-concerning-the-judiciary-in-romania-and-poland)

Unless government demonstrates that it is a responsible custodian of public funds, tax rates can continue to be escalated without translating into tangible benefits. Rather than scrutinise its own failings, government is being intellectually lazy and increasing tax on an already stretched private sector. Perhaps with some self-reflection and tough action within government itself, government would find it can live within its current means and need not saddle private sector with additional taxes.

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

The Changing Face of Corruption in Kenya

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This article first appeared in  my weekly column with the Business Daily on May 13, 2018

The fact that the Kenyan public is concerned with the perceived mismanagement of public finances is a well-known fact in the country. At both national and county level, Kenyans cite concerns with corruption not only in terms of how public finances are misappropriated, but how bribes are demanded to secure government contracts. You sometimes have to pay government officials in order to provide a service to government it seems. Given how well the negative effects of corruption on development and economic growth have been documented, many may wonder why it persists.

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(source: https://www.weforum.org/agenda/2017/12/four-myths-about-corruption/)

There seems to be an emerging understanding of the psychology of corruption. An understanding that seems to answer why public officials continue to seek bribes and misappropriate funds even though the Kenyan public is outraged by the practice in the country. The psychology of corruption seems to be guided by the logic of self-aggrandisement and gaining financial security for the corrupt individual and his/her loved ones. Indeed, some may reason that engaging in corruption is logical in a corrupt society. It can be argued that some government officials misappropriate funds because they know government is corrupt and will misappropriate funds. Thus, they steal public funds to ensure they benefit from government funds and don’t miss out. They steal public funds to avoid the barrenness corruption brings when you’re not part of the process. They are being corrupt to escape the effects of corruption. This is not a justification of corruption but rather a realisation that when corruption is pervasive, it provides a deeper impetus to engage in corruption. This is not only because one can get away with it, but also because there is an urgency to get to the money first before someone else comes in and takes it instead.

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(source: https://www.coe.int/en/web/greco/-/council-of-europe-anti-corruption-body-to-carry-out-urgent-evaluations-of-new-legislation-concerning-the-judiciary-in-romania-and-poland)

Devolution is also adding an interesting dynamic to corruption it seems. When Kenya was governed under a centralised system, grand corruption was a distant affair that benefited a limited circle of individuals. A farmer in rural Kenya could not conceive how he/she would ever get a kickback in the circle of corruption. Devolution has changed this. When county officials divert public finances to their pockets, much of that money remains within the county economy. The money can be used to finance household expenses, education and health costs, as well as generally improve the quality of life of the corrupt individual and those in their circle. Diverted public monies also become investment funds, where corrupt individuals suddenly have a supply of cash that can be directed to business activity. I have travelled to counties where I have been openly told that this building or that business belongs to a government official. This government official did not have these assets before gaining office, but suddenly they are serious financiers in the county. And interestingly, these facts are not shared with a tone of bitterness or annoyance, there almost seems to be an appreciation that even if public monies are being stolen, at least they are benefiting the local economy. After all, businesses are being financed, people are being employed to run and manage those businesses and suddenly there is a source of income for many that did not exist before.

This is not a justification of corruption but rather an exploration of how corruption is evolving. We seem to have moved on from the days when misappropriated public finances were sequestered in accounts in distant capitals of Europe and North America. Now when public money is stolen, much of it sticks around. How will this inform the fight against corruption? How do strategies that seek to address corruption need to be updated to become relevant again? These are questions for us all.

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

The economics of the doctors’ strike

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

Doctors in Kenya went on strike in December 2016 due to on-going concerns with regards to numerous issues including remuneration, working conditions, promotion and transfer policies, doctor occupational safety issues and inadequate health staff and facilities.

Both the press and national government have given Kenyans the impression that the main demand being made by doctors is focused on a 300 percent pay increase. However, a public announcement released by the Kenya Medical Practitioners, Pharmacists and Dentists Union (KMPDU) stated concerns that, ‘in all its offers the government has addressed itself solely on a non-existent 300 percent pay increase demand and has refused to give its position on the non-monetary issues’. Thus while there are requests by doctors to improve compensation, there are other demands that would benefit the greater health of Kenyans including a call to hire more doctors and better equip hospitals.

https://i0.wp.com/s1.ibtimes.com/sites/www.ibtimes.com/files/styles/lg/public/2012/03/08/245904-kenya-doctor-strike.jpg

(source: http://s1.ibtimes.com/sites/www.ibtimes.com/files/styles/lg/public/2012/03/08/245904-kenya-doctor-strike.jpg)

However, it must be said that although the CBA the doctors seek to have honoured is not solely on remuneration issues, their demands would have financial implications. For example, there is a demand to hire 1,200 doctors per year for four years, making a total of 4,800 new doctors. It cannot be denied that honouring this request in addition to meeting the demands of increased compensation and better equipping medical facilities would be an expensive endeavour; and that is likely why national government has yet to broker an agreement with the doctors.

The reality is that Kenya’s fiscal space is narrowing and the ability of national government to take on added costs is becoming increasingly limited. Last year the government overshot its fiscal year debt target having borrowed KES 147.1 billion against a target of KES 106.0 billion. The public debt to GDP ratio stands at about 52.8 percent, well above Treasury’s 45 percent ceiling; and the fiscal deficit is at 8 percent, well above the 5 percent target. Indeed, the country has acquired public debt to the extent that a fifth of the budget is committed to repaying loans. The national government seems to have acquired the habit of chronic over-spending. And while debt levels are still thought to be sustainable, bodies such as the IMF and World Bank have issued warnings about the trend of government borrowing with concerns that it may lead to the country being over-leveraged, probably in a shorter time span than anticipated. So there is reason for national government to be concerned about the financial implications of the demands being made by doctors.

However, there are is a clear flaw in the case being made by government attempting to use finance and economics to deny doctors their requests. Just as the government seems stuck on chronic over-spending, it also seems stuck in chronic financial mismanagement. Kenyans will simply not believe that the government does not have enough money to meet doctors’ demands given the sheer volume of allegations of colossal corruption housed in national government bodies such as the Ministry of Devolution and Ministry of Health; allegations of graft in these bodies alone are estimated to stand at about KES 8.5 billion. Last year Member of Parliament (MPs) negotiated a deal that effectively made Parliament’s wage bill rise by more than KES 2 billion in a year.  Please note that by 2013 reports indicated that Kenyan legislators are the second-highest paid lawmakers in the world, beating their counterparts in USA, Britain and Japan. Ergo, the issue is not a lack of money, the issue is what priorities are absorbing public finances.

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(source: http://pathfindersrcd.org/wp-content/uploads/2016/05/spend-or-save-300×300.jpg)

Thus, while there are financial and economic implications to the demands being made by doctors, I fundamentally agree with their demands. This is not only because the country can only develop on the foundation of a healthy and productive population, fiscal policy is wanting. It is wanting not only in terms of fiscal mismanagement but also through the prioritisation of wages for some while failing to better equip hospitals and ensure the adequate compensation of doctors and other health staff.

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

How corruption in exams distorts national economy

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

Cabinet Secretary for Education, Matiang’i, stunned the country when he released the results of the Kenya Certificate of Secondary Education (KCSE) late last year. Only 141 As were earned compared to over 2500 in 2015. The pattern was similar in all other grade classes, with far fewer students earning the top grades when compared to previous years. Some schools that were top performers barely managed to garner top grades this year. While this has surely aggravated some schools, students, teachers and even parents, the importance of how Matiang’i supervised and structured the entire KCSE exam process should not be underestimated.

(source: http://buzzkenya.com/wp-content/uploads/2016/04/KCPE-And-KCSE-Registration-Deadline-extended-1.png)

Firstly, it seems clear the rot of dishonesty and cheating had overtaken the education system with ominous results; corruption had become a way of life in Kenya’s education system. When schools, teachers, students and parents all collude to cheat their way into earning top marks, the very core of the future of the country is compromised as cheating becomes an accepted way of life. Students witness adults devising schemes to cheat as normal. How then can a country expect to create a generation of honest, hardworking Kenyans when the young see such profound deviousness embodied by their elders? If anything, the dubious manner in which previous exams were conducted cemented the culture and essential acceptance of cheating and corruption in the minds of future generations.

Secondly, the culture of cheating was crippling the country; students were no longer interested in learning. An analyst made the point that the culture of cheating had eroded the importance of learning in the minds of millions of students. Many students saw no need to pay attention in class as they were assured of being leaked the final exam papers just before the exams. Consequently some saw no need to focus and absorb what they were being taught as they were assured of As regardless of whether they understood the content or not. This attitude then would follow students into further education, where again schemes were created to earn the top marks without having learnt the content required for the course. This has had serious consequences: firstly, transcripts presented to potential employers mispresented the students’ competencies and strengths. As a result, employers had no tool with which they could select the best and position them in relevant positions. Secondly, cheating meant many students entered the workforce as essentially incompetent as they had not truly learned the full body of knowledge expected of them. As a result, employers quickly realised that top marks account for nothing and thus had to spend millions more training job entrants in basic skills. This is a waste of millions of shillings that could have been better spent had honesty been the norm. Additionally, those who cheat their way through school bring with them a culture of eating where they have not planted, of reaping where they did not sow and of viewing corruption as a legitimate tool to use in professional life.

(source: http://www.businessdailyafrica.com/image/view/-/1080426/medRes/225595/-/maxw/600/-/14hkeoy/-/students.jpg)

Thirdly, cheating has a detrimental effects on economic development. If the country has a distorted means of assessing student performance, how can the country assess where the country stands in terms of the literacy and educational competence of the youth? How can the country determine subject and geographical areas that need special attention and strategy? Cheating in the education sectors makes it impossible for the country to develop relevant strategy to improve the education sector and better position the sector to be a catalyst for the development of the country.

Matiang’i and his team should be applauded for having the grit to take on the culture of corruption that had riddled the country’s education system. The next step should now be a thorough assessment of curricula to ensure that education at all levels equips the youth with relevant skills to earn a fruitful living and push the country’s development forward.

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

Tribalism and Corruption: The Dark Side of Social Capital

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This article first appeared in my weekly column with the Business Daily on December 12, 2016

Social capital can be defined as the networks of relationships among people who live and work in a particular society, enabling that society to function effectively. The positive aspects of social capital are selflessness, generosity and compassion. In countries that are not social market economies with a robust government funded security net, social capital is a crucial means through which the vulnerable are supported to have a better quality of life. We see this in Africa everyday: supporting friends and family with school fees; fundraising for the medical care of others or providing monthly stipends for unemployed loved ones. Social capital is a crucial part of the fabric of African communities where many still feel a sense of responsibility for others. Indeed, there is a theoretical possibility that the introduction of social market economies in Africa may lead to an erosion of this social capital.

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(source:https://opinionjunction.com/media/ojarticleimages/551ba55e4eae35725f7ea107/292791427875166538.jpeg)

However, there is a dark side to social capital; a side that enables cronyism, tribalism and corruption. A side where oneself and a select group of associates or beneficiaries have priority over collective well-being. The self, not the other is the core of negative social capitalism; a core where the self and a limited circle are the intended beneficiaries of generosity, often at the cost of the welfare of others.

Kenya’s best known expressions of negative social capitalism are tribalism and corruption. In the case of tribalism, the tribe to which the self belongs is deemed as rightfully superior to the tribe of the other. Kenyans tend to (silently) condone tribalism as long the tribe of the self is benefitting from unearned favours and undue favouritism. Uproar only ensues when the tribe of the other is accruing the benefits.  This has resulted in a lack of commitment to end tribalism in in the country. Kenyans are happy to benefit from this beast when it’s their turn to eat and only refer to the need to adhere to principles of justice and fairness when it is not their tribe benefitting from cronyism. Kenyans will bemoan tribalism from the tribes of the other but fervently defend individuals who are conduits of tribalism in the tribe of the self. As a result this version of negative social capital expands as the circle of beneficiaries contracts and does not extend beyond tribe.

A worrying, emerging reality in the context of devolution, is that negative social capital is being expressed as the devolution of tribalism. Speaking to county officials has made it clear that at county level, the circle of beneficiaries of Kenyans is narrowing from tribe to clan. Kenyans are keeping an eye on how positions at county level are divided among clans. Discontent arises if one clan is seen to be benefitting from county appointments more than others. This is a worrying form of self-obsession because it is rooted in a sentiment of exclusion not inclusion.

Image result for corruption in government (source: http://www.economicnoise.com/wp-content/uploads/2012/08/government-fraudd.jpg?x37744&x37744)

Corruption is an interesting phenomenon because it is the conduit through which negative social capital is expressed. Corruption is the means through which cronyism and tribalism are brought to life. What is fascinating is that those engaging in corruption feel justified in engaging in it because they have beneficiaries who rely on them, who are better off due to their pilfering. Their children go to better schools, their parents live in better houses and their spouses drive better cars. Thus, in the warped world of negative social capital, the individual engaging in corruption feels justified in their embezzlement. And the irony is that what should be the positive aspects of social capital, caring for others outside the self, emboldens corruption and thus what ought to be positive is turned into an ogre that pillages the other to benefit the self.

Tribalism and corruption cripple the ability of the country to work towards a common goal rooted in an incentive to work hard. Tribalism and corruption allow individuals to reap where they did not sow. How then can a country truly develop if honesty, diligence and hard work are not rewarded?

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

Key themes for Kenya in 2016

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This article first appeared in my column with the Business Daily on November 27, 2016

The year is coming to an end; what have been the key economic themes that defined 2016?

The first, and most obvious was heightened political tension going into an election year. Once the budget was read mid-year, election mode kicked in fully. Sadly this means the economic realities linked to an election year started early. Elections in Kenya tend to be associated with two phenomena: instability and dampened economic growth. Politically charged rallies, demonstrations and related civil instability occurred over the course of the year, all of which negatively informed economic growth. The fact that economic performance still seems tethered to election is a reflection of the immaturity of socio-political and economic institutions in the country.

The main means through which this can be addressed is for major politicians to refrain from tribally oriented, inflammatory and irresponsible comments across the political and related tribal divide. Further, political parties should be aligned to ideology not tribe so that analysts can anticipate what type of administration the winning party would likely espouse. Sadly, this year made it clear that the tribal formula still reigns supreme with regards to political alignment and related electioneering.

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(source: http://rewire.news/wp-content/uploads/2013/08/election-ahead-sign-375×250.jpg)

Secondly, financial mismanagement was a central theme. Over the course of the year and stemming from last year, numerous, large scale cases of allegations of grand corruption in government have been highlighted in the media; and opposition has made it clear that at national level, accusing the national government of corruption will be a major election platform. However, bear in mind financial mismanagement is at both national and county level. Indeed, my experience indicates that there is gross mismanagement of funds at county level headed by individuals aligned to the ruling party as well as opposition.

However, the attention of Kenyans is fixated on national government, and although this is warranted, county governments deserve such scrutiny as well especially because there is no real pressure on the latter to be financially accountable. This is due to a number of factors; firstly the theme has been to ‘go gently’ on county governments and give them the benefit of the doubt so that devolution can take root in the country. Secondly, there are serious capacity constraints with regards to financial expertise at county level which makes embezzlement easier and tracking of financial performance more difficult. The final factor behind the lack of robust monitoring on county spending is linked to the fact that national government is not willing to highlight corruption at county level not only because it will turn attention to an issue that has bedevilled them, but also because they do not want to be seen to be speaking in a manner that can be interpreted as attempting to stifle devolution.

As we go into December and an election year, corruption is likely to gain more attention. Kenyans can expect to hear pledges at both national and county level from aspirants sharing plans on how they can finally kill the beast called corruption. Kenyans should not be distracted by such antics but rather work with local and international partners to create and strengthen institutions that monitor spending.

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(source: http://www.monitor.co.ke/wp-content/uploads/2015/03/stock-footage-a-sign-at-the-university-of-nairobi-in-kenya-proclaims-a-corruption-free-zone.jpg)

Finally, a key theme of the year has been the disconnect between GDP growth figures and the lived reality for Kenyans. Major factories have shut down, thousands of jobs have been lost in key sectors and Kenyans feel as though they are not reaping the fruits of economic growth. As I have stated previously this seems largely linked to the neglect of the informal economy and related micro and small enterprise where most Kenyans earn a living; this must change.

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