Hurdles in the way of shared prosperity

The steady infusion of donor and private sector investment funds into the country’s economy gives Kenyans a right to celebrate. The investments have the potential to lift millions of people out of poverty and propel them into prosperity in a single generation.

The World Bank’s planned injection of Sh340 billion into the economy over the next four years promises to unlock the country’s economic potential in significant ways because it is designed not only to eliminate poverty, but also share the gains more equitably among the key players, including farmers long-forgotten in the rural areas.

Inadequate infrastructure

According to Deputy President William Ruto, the money from the World Bank will be used to address the high energy costs, weak agricultural productivity and inadequate infrastructure, all of which have held back the country’s competitiveness.

Expansion and improvement of the existing feeder roads in rural areas is particularly important because it will ease the movement of goods and services, which will, in turn, increase farmers’ incomes while also reducing the cost of food items in urban areas.

The bank’s investment comes on the heels of Kenya’s debut Eurobond, which was oversubscribed by over 300 per cent, and last week’s signing of a Sh52 billion grant from the European Union.

At the very least, the foreign capital inflows could mean that Treasury will not have to borrow the projected Sh300 billion locally to finance the Budget deficit and thereby push up banks’ interest rates.

But before Kenyans can uncork the champagne bottles to celebrate the good news, it may be necessary to take a closer look at the factors that have bedeviled the country’s economic growth over the years. These range from a lack of capacity to absorb development funds set aside in the ever-expanding annual budgets to corruption in all its myriad forms.

The underutilisation of budgeted funds was graphically captured in the last financial year. Out of the 2012/2013 Budget allocation of Sh1.4 trillion, the Government managed to spend slightly over 70 per cent of both development and recurrent expenditure. Ministries, departments and agencies (MDAs) spent less than 50 per cent of their development budgetary allocations.

Not surprisingly, the gross domestic product (GDP) expanded by an anaemic 0.1 per cent from 4.6 to 4.7 from 2012 to 2013, respectively.

Analysts are unanimous that the Government’s failure to tackle the issues underpinning the slow uptake of development funds casts a shadow over its forecast of 5.8 per cent growth in 2014.

Funds absorption

According to a Budget Implementation Review Report for the third quarter of the current financial year, absorption of development and recurrent funds stood at 51 per cent of the 2013/2014 annual Budget estimates.

While optimists might take comfort from the fact that this is an improvement from the 36 per cent recorded by the end of the second quarter, realists cannot help but take a dismal view of the entire year.

After all, there would be little public good to be gained by skirting the procurement process simply to speed up the utilisation of the funds as past evidence has shown this leads to rampant waste. No. What is needed is a change in the law.

The Government is fully aware of the steps it needs to take to unclog the system, as demonstrated by President Uhuru Kenyatta when he promised to review the bureaucratic procurement laws last year. It has not been lost on observers that little has been heard of the promised overhaul since then.

Yet another area that requires a second look is the country’s growing love for loans from the public purse. While the women and youth development funds are laudable in principle, there is need for closer scrutiny of the projects into which the borrowed funds are being channeled.

Importing consumer goods from China or elsewhere could, for example, undermine the local industrial base — and hence employment and wealth creation — without doing much to increase the country’s overall development growth.

The individuals dishing out the loans should be directed to give preference to potential borrowers planning to invest in agriculture, whether for local or external markets.

The scandal of importing onions from Egypt and Tanzania, and spending about Sh50 billion a year to import raw materials used in the manufacture of cooking oil should be addressed as a matter of priority.

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