Uhuru turns to less capital intensive projects in his second term

President Uhuru Kenyatta officially opening first phase of second container terminal in Mombasa

NAIROBI, KENYA: Bogged down by piling public debt, the Government appears to be changing tack in its choice of development projects.

President Uhuru Kenyatta in his second and final term seems to have ditched the big capital intensive projects that characterised his first term in office, racking up debts of monumental proportions in the process.

The Jubilee administration has set out to build a million units of public rental houses in the next five years in a bid to limit the number of informal settlements in the country and also to provide affordable housing to low-income earners.

Besides affordable housing, President Kenyatta has also set his eyes on ensuring food security, job creation and inexpensive healthcare in his final term.

“During the next five years, I will dedicate the energy, time and resources of my administration to the big four,” said the President during his inauguration.

It is not clear how the Government plans to achieve these objectives, but after burdening the country with huge debts in the past five years, analysts project a shift from mega infrastructural projects.

The International Monetary Fund (IMF) and the World Bank have already warned that the Government is running out of wiggle room as far as the huge public expenditure is concerned.

The World Bank is particularly concerned that some of the projects might have been poorly appraised, selected and implemented.

The Bretton Woods institution also raised concerns about land acquisition issues, which it said had also limited the productivity.

“However, despite the sharp  increase  in  development  spending,  inefficiencies  in    public    investment are  limiting  the  requisite  productivity  gains  from  the  development  spending,  and  contributing  to fiscal pressures,” said the World Bank in its latest report on Kenya.

Opinions have been divided on whether the Standard Gauge Railway (SGR) will be able to recoup the investment made as fast as anticipated.

The World Bank itself opposed the construction of a new SGR, arguing that the country would have saved billions of shillings by simply upgrading the old metre gauge railway.

Taxpayers, according to World Bank’s estimates, would have been saved a whooping Sh311 billion had the Government gone with the latter suggestion.

The Government projects that the SGR will increase the country’s Gross Domestic Product (GDP) by 1.5 per cent from savings made on cheaper transport cost and efficiency from ferrying increased cargo volumes.

But some economists, including Kwame Owino tend to differ, describing the fanfare surrounding the project as “Concorde fallacy.”

Concorde fallacy, also known as sunk cost fallacy, refers to the fact that the British and French governments continued to fund the joint development of Concorde even after it became apparent that there was no longer an economic case for the aircraft.

The Government is likely to try to rope in the private sector to help it realise some of these projects.

However, with a narrowing fiscal space, the State is under pressure to get things done without heaping more debt on Kenyans.

When former President Daniel Moi left the reins of power in 2012, each Kenyan owed the country’s creditors Sh19,060.

In ten years of President Mwai Kibaki, the per capita indebtedness doubled to Sh43,488 for every Kenyan.

However, in just five years under the Jubilee Government, the 44 million Kenyans owed the country’s creditors Sh85,304 as at December 2016.

The figure will be higher once the Government concludes the current borrowing calendar that will see it borrow an additional Sh100 billion internationally and Sh113 locally.

Director-General Budget, Fiscal and Economic Affairs Dr Geoffrey Mwau said recently since most expensive infrastructure projects are nearing completion, it will be easier for the Government to cut erratic spending and as a result bring down the high levels of debt.

“Most of the projects are nearing completion or are complete and the investment is bearing fruit so even GDP figures will increase,” he said.

President Kenyatta’s Government has been accused of having too much appetite for debt to a point where it borrows to pay off other debts.

It is in the wake of this that the National Treasury is considering consolidation, trimming the wage bill and instituting austerity measures as well as cutting back on domestically-funded infrastructure projects.

Among the austerity measures recently introduced by Treasury include banning foreign trips as well as cuts on local trips, training and hospitality.

Money saved from these measures have gone into financing the repeat elections and mitigating the drought effects as well as financing free secondary education that was one of the Jubilee Government’s campaign pledges.

Reasonable cost

The Government also wants to increase taxes by reforming tax laws, inlcuding overhauling the Income Tax Act, implementing a new customs management system after phasing out the Simba system that has been losing the taxman money.

Kenya Revenue Authority (KRA) will also seek to make better tax valuations and improve shipment inspection while at the same time mining third-party data, which will be linked to bank accounts, Integrated Financial Management Information System (IFMIS) and the Central bank of Kenya.

One of the reasons the Government may have opted for the less capital intensive housing projects is that they are much easier to excute at a reasonable cost, especially where the Government owns land.

The State department of Housing and Urban Development is in the process of inviting bidders to develop 800 houses on a 55-acre plot in Mavoko, Machakos County.