inequity

Kenya’s budget making flawed

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This article first appeared in my weekly column in the Business Daily on September 25, 2016

Last week I attended an event organised by International Budget Partnership (IBP) Kenya that analysed whether National and County budgets share resources fairly. IBP made the point that one of the key drivers of constitutional reform was to enhance the fair distribution of resources in the pursuit of equity.

IBP defines equity and fairness in the context of budget as constituting six principles: need based on the idea that people who need more should get more; capacity considers the extent to which a person/population can meet their own need; effort is rooted in the idea that people deserve more when they make more of an effort; efficiency that argues that resources should be allocated where they will be used most effectively to increase total welfare; basic minimum principle that everyone deserves at least some minimal share of resources and finally, fair process where resource allocation outcomes are decided in an open and transparent way and justifications are given for decisions.

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(source: http://cdn.publishyourarticles.net/wp-content/uploads/2015/06/equity.jpg)

These principles are by no means exhaustive and do not include elements such as fiscal responsibility, however IBP’s analysis of county budgets with these principles in mind revealed glaring problems. First of all, budgets in Kenya are dominated by the notion of equal share. In the case of  the Constituency Development Fund (CDF) in which KES 35.2 billion were dispersed in 2015/16, 75 percent of the fund is shared equally among the 290 constituencies and only 25 percent is distributed based on the proportion of all poor people in Kenya that reside in a particular constituency. The massive portion in equal share is fundamentally problematic because the current CDF provides each geographical unit with a similar amount regardless of the size of the population in the constituency. So in densely populated areas, much less is received per person (per capita allocation) than in sparsely populated areas. An example, is Kitutu Masaba and Mwatate which both have a poverty rate of 50 percent, yet there are three times as many poor people living in Kitutu Masaba than in Mwatate.

Even in cases where proportions are used, problems emerge. Allocations are made to Level 5 hospitals which have a regional catchment area and serve as referral hospitals for more than one county, yet are managed by individual host counties. So a conditional grant was introduced to finance Level 5 hospitals. According to IBP, in 2015/16 the single criterion for allocating the grant among the 11 hospitals was the bed occupancy rate. The concern is that given the wide variation in the actual number of beds in each facility, using bed occupancy rates introduces a distortion. For example, both Meru and Nakuru had occupancy rates of 77 percent so both were allocated KES 356 million. Yet Meru has 306 beds and Nakuru, almost double this amount with 588 beds. https://i0.wp.com/www.the-star.co.ke/sites/default/files/styles/new_full_content/public/articles/2015/10/02/1215234.jpg

(source: http://www.the-star.co.ke/sites/default/files/styles/new_full_content/public/articles/2015/10/02/1215234.jpg?itok=uKtZ9WXQ)

Finally the issue of process in budget allocation, particularly at county government level, is worrying. Political power and considerations routinely trump the fair distribution of resources at county level. In some cases, county cabinet secretaries skew allocations towards their village areas at sub county level. Thus communities with no representative in county level cabinets are financially marginalised. In some counties, budget allocations are based on lists of projects drawn up by Members of County Assemblies (MCAs). How those projects were chosen, why they were chosen, whether they are in line with County Development Plans is not clear. And allocating funds based on MCA lists facilitates nepotism and fiscal indiscipline. Further, presently at county level, little or no justifications are made as to why resources have been allocated as they have been.

Clearly there are fundamental problems with how public funds are allocated in Kenya. A key step that would make budget making a tool that facilitates equitable development is to reduce the amount allocated in equal share and rather base most allocations on well thought through weighted criteria. Further, given the mismanagement of funds especially at county level, the principle of fiscal discipline should carry considerable weight and reward demonstrated responsible use of resources.

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

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What the latest economic growth data in Kenya really mean

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This article was first published in the Business Daily on January 11, 2015

Last year’s Q3 gross domestic product (GDP) figures show the economy expanded by 5.5 per cent compared to a revised 6.2 per cent in the same period in 2013. The growth was mainly supported by strong activity in construction, finance and insurance, trade, information and communication, and agriculture and forestry.All sectors recorded positive growth except accommodation and food services (hotels and restaurants) that have consistently been on a decline since last year.

GDP KENYA

But what do these growth figures really mean? Underlying the GDP growth snapshots are some long-term structures that should be analysed and of which Kenyans must be cognisant.The first question is the extent to which all Kenyans are benefiting from growth. The latest UN Human Development Report ranks Kenya 147 out of 187 countries and although there has been a rise in human development since the 1990s, only a small section of the population has gained.To illustrate, the incomes of the richest 20 per cent have risen steadily and now stand at 11 times more than those of the poorest 20 per cent.In fact, a country report by the Africa Development Bank states that the biggest challenge is not raising GDP but ensuring inclusion.There is a widening gap between the rich and poor with the creation of a dual economy where the rich prosper and the poor continue to struggle.This can be attributed to an underdeveloped social security net that does not provide consistent and sufficient income support to the poorest.The core concern with inequitable growth is not just the ideological issues around fairness and justice but the reality that while the poor have a high propensity to consume, they lack the disposable income to engage in many of the spending and profit-making activities that spur investment and growth.

(source: http://buzzkenya.com/wp-content/uploads/2013/12/poverty-in-kenya2.jpg)

As a University of Nairobi analyst said, this creates a vicious cycle in which low growth results in high poverty that in turn abets low growth.Today, each of the 42 million Kenyans would earn Sh189,624 ($2,158) yearly if income was distributed equitably. Sadly, the manner in which GDP growth is currently structured only encourages economic dualism.In addition, the growth structure ensures that the youth are at best fringe beneficiaries of the economic largesse, which elicits the feeling that they are in a no-win situation with the older generation.The International Labour Office (ILO) points out that while young women and men account for 37 per cent of the working-age population, their participation in employment is less than 20 per cent.Due to difficulties in securing jobs, the youth feel the best option is to leave the labour market. This leaves them more vulnerable to chronic unemployment or eking out a living in a tough economy.The result of this skewed system is frustration and dissatisfaction, coupled with security concerns as the jobless youth engage in crime to survive. Their exclusion from mainstream economic activity can create discontent and another “Arab Spring”.

(source: http://nextcity.org/images/made/NairobiForefrontPhoto5_600_398_80.jpg)

Linked to the youth issue is the fact that these relatively healthy GDP figures mask the reality of jobless growth. This is where the economy experiences growth amidst decreasing employment.Indeed, the ILO released a report last year stating little progress is being made in reducing working poverty and vulnerable forms of employment such as informal jobs and undeclared work.Unemployment in Kenya stands at more than 13 per cent, masking the enormity of the labour market challenges where a significant proportion of the population is inactive rather than unemployed. Of the employed, many are engaged in informal jobs.So while GDP figures are important, it is crucial we foster equitable and inclusive growth as well as develop job creation strategies to address the burgeoning chronic unemployment and underemployment.