Some glaring inconsistencies that undermine Rutonomics

To take stock of government performance after 100 days in office, President William Ruto and his Cabinet retreated to the exclusive Mount Kenya Safari Club for a four days session of bonding and strategising. While the idea of a strategy session is commendable, for a government that claimed to have inherited empty coffers, the choice of such an expensive venue exemplifies the contradictions of this administration.

Misgivings about the venue aside, more pertinent concerns are the contradictions that have characterised policy choices to address high consumer prices and unemployment. In general, the contradictions reflect attempts by the administration to translate populist campaign promises into coherent economic policies.

Some policy contradictions illustrate the point. For instance, while the idea of providing cheap credit to SMEs is laudable and timely, it contradicts CBK efforts to tame inflation by increasing interest rates. Similarly, while government effort to raise revenues by expanding the tax base is welcome, the exercise will lead to high prices and shrink household disposable incomes at a time the government is focused on stimulating demand and creating employment.

The policy contradictions were best captured in a cartoon in The Standard where the president is portrayed as a gym instructor assisting a hustler who was bench pressing. To characterise the insensitivity of raising taxes, the gym instructor adds more weights to a hustler whose chest is already crushed by high prices.

To be fair, many governments have found themselves under such a conundrum when trying to surmount high inflation and unemployment. The US government under President Carter found itself in similar circumstances in the late 70s when confronted by the twin evils of high unemployment and inflation. Like Kenya, efforts to reduce inflation by raising interest resulted in undermining efforts to promote employment. Carter's inability to resolve the economic riddle cost him a second term in office and was replaced by President Reagan whose platform promised to jump-start the economy by focusing on supply side variables instead.   

Unlike Reagan, the challenge for Ruto government will be allowing economic fundamentals to shape policy rather than political consideration. A look at a few specific initiatives illustrates the point. To bring down prices of consumer goods, President Uhuru introduced subsidies for maize, fuel and electricity aiming to give relief to suffering Kenyans. On assuming office, however, Ruto’s government removed the consumption subsidies arguing that they were ineffective, expensive and only affected by Uhuru to placate voters during 2022 elections.

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In their place, the government introduced subsidies on fertilisers on the assumption that subsidising agricultural inputs would provide a lasting solution to high prices. Interviews with farmers however show that the price of fertiliser is just one of the many factors that have contributed to the high cost of food. Other contributing factors include high fuel prices, impact of climate change, exploitation by middle men and uncoordinated importation of maize by the government.

On employment, the government primary initiatives comprise the Hustler Fund and affordable housing.  During the campaigns, Kenya Kwanza promised to put money in the pockets of those at the bottom of the pyramid so that they can start businesses. On assuming office, however, reality check set in and the Fund quickly mutated into a credit facility much to the chagrin of the poor who expected to get free cash.

Like the fertiliser subsidy, the Hustler Fund is also characterised by a number of conceptual challenges. For a start, the financial sector suffers when politicians provide banking services. The attending political risks from the Hustler Fund were illustrated when the new administration sought to compel Credit Reference Bureau to moderate ratings of loan defaulters to justify giving them Hustler loans. In addition, the government sought to compel lenders to forgive some Sh11.25 billion of mobile banking debt. Not only is such interference with the private sector ill-advised it amounts to gross violations of the rights of corporate institutions.  

The second government strategy to create employment through affordable housing is equally problematic. Ideologically, provision of houses by the government makes every taxpayer a philanthropist against their will. Moreover, even if Kenyans were sufficiently philanthropic, the question that begs is whether many Kenyans can afford the houses in the first place. If the opinion of the government is that hustlers are only good for a Sh500 hustler credit, how does it expect the poor to afford houses costing millions?

Mr Githieya is a political and economic analyst. [email protected]