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The ‘tenderpreneur’ legacy that is destroying Kenya's private sector

By Dominic Omondi | Published Tue, July 17th 2018 at 07:35, Updated July 17th 2018 at 07:40 GMT +3

When the Jubilee government introduced major changes in the way the State dished out tenders, the noble idea was meant to ‘spread wealth across all cadres’ - youth, women and the disabled who had all along been left out of the ‘empowerment matrix’.

A few years down the line, the State seems to be reading from a different script.

The Devolution ministry bought 18 male and female condom dispensers at a cost of Sh450,000 in 2015 - compared to a market price of Sh4,500 per piece.

The ministry, then headed by current Kirinyaga Governor Anne Waiguru, also acquired 20 ballpoint pens at Sh174,000, which translates to Sh8,700 apiece compared to a market price of Sh300.

And as the rains wreaked havoc in the same year, the Government proposed to spend Sh37,500 per bar of soap to be distributed to Kenyans who would be affected by El Niño rains. The same piece goes for about Sh150 apiece in local shops and supermarkets

It was not just at the National Government that money seemed to be falling from the skies.

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Tenderpreneurs - as the new breed of opportunistic brokers who cash in on Government contracts came to be known - also enriched themselves by supplying just about everything to the 47 county governments.

Supply goods

Some would hide under the rule empowering youth, women and people with disabilities to win tenders and supply goods and services to key State departments as well as counties.

So in 2015, a wheelbarrow was sold at Sh109,320 to the County Government of Bungoma. Meanwhile, Kirinyaga County Government spent Sh1 million “to open a Facebook account” - work that any county government official would have easily completed while sitting at their office desk as long as they were connected to the Internet - and catapulted someone into the millionaire’s club. 

And to grease the relevant palms, vendors are forced to inflate costs so that the contract value includes the kickbacks. This could be the reason why exorbitant prices are quoted as more money ends up in individuals’ pockets than what was actually spent on servicing the contract.

This is the new reality inadvertently entrenched by what was supposed to be President Uhuru Kenyatta’s egalitarian policy of spreading Government tenders to everyone irrespective of their stature in the society.

There were days, long before former President Mwai Kabiki ascended to power and during his presidency, when it was difficult for Wanjiku to do business with the Government.

It was an unfortunate state of affairs where the Government loot was restricted to a few individuals - the elite.

Then Uhuru and his deputy William Ruto swept to power five years ago with a promise to change this. And change they did. 

Suddenly, more ordinary Kenyans were supplying spoons, plates, curtains, steel, explosives, computers, cars... just anything, to various Government agencies.

But something else changed, for worse: the nascent belief diligently watered by Kibaki that the private sector should be the first and main buyer of any goods and services produced in the country began to wear off.

David Ndii, an economist and critic of the Jubilee Government, called it the “casino economy.” He said even as the Government went about taxing gambling, it should realise that the “biggest casino in Kenya is public procurement.”

This game of lottery, which Dr Ndii says some Kenyans wrongly believe is entrepreneurship, is so serious that people are being trained on how to fill the tender documents.

He says a lot of Kenyans have been diverted from doing productive work to gambling for Government tenders; with stationary, for example, being sold to various Government offices by people who are not even traders of the items.

“It is very unproductive. It yields returns but they are not producing goods and services,” says Ndii.

Suddenly, there was a mad rush by almost everyone to set up briefcase businesses and use them to supply things to a well-paying Government. They sneered at a hard-nosed private sector that was obsessed with minimising cost.

The private sector, the biggest employer and taxpayer, shrunk as Government snapped up much of the credit from banks to buy a good chunk of the goods and services. The Government grew really big.

This year, the Government is expected to spend over Sh2.1 trillion compared to Sh1.3 trillion spent by President Kibaki in the last year of his term.

The increase is not entirely due to more development activities or inflation. Much of this cash is extra cash that will be gobbled up by tenderpreneurs.

The Sh2.1 trillion will also include paying Sh100,000 for a piece of towel sold to NYS, an item that is being sold at the market rate of Sh2,000.

President Kenyatta in 2015 increased the budget of NYS, currently in the thick of a Sh9 billion scam, to Sh25 billion, an allocation that many tenderpreneurs welcomed warmly. 

 “Any system cannot have an almost 100-fold increase in cash without leakages happening. So for us, we are not surprised that we are having money falling and people just grabbing,” said Kwame Owino, chief executive of Institute of Economic Affairs, a public policy think-tank.

Uhuru also increased the budget of the National Cereals and Produce Board (NCPB), another Government agency that has been dogged by corruption with cartels lining their pockets at the expense of farmers and the result, just as with NYS, has been disastrous.

In October 2017, as the country prepared for the repeat presidential elections, Uhuru Kenyatta increased allocation to NCPB to a record Sh6.5 billion.

Food security

He said the money would be used to buy all the maize offered for sale by farmers in that season under the Government’s Strategic Food Reserve programme, in what was aimed at boosting food security and sustaining affordable prices for maize flour.

 “We had to take steps to cushion consumers against high food prices,” said the President. Unfortunately, the Government could not possibly buy all the maize from farmers.

In a year, the country produces about 39 million bags of maize. The Government would have to buy a bag of the cereal at an exceedingly low price of Sh166 with the amount it allocated to be able to mop up all the maize from the market.

But far from paying farmers and traders such a low price, the Government generously pays them, offering them a higher price than that prevailing in the market.

This is even after having subsidised mostly the large-scale farmers who sell to Government, with cheap fertilisers and seeds.

This had had the effect of distorting the market as everyone tries to move all their produce to the Government. 

“They (Government) say that the quantity of maize they buy is too small to distort the market,” says Timothy Njagi, a research fellow at Tegemeo Institute, an agricultural policy think-tank associated with Egerton University.

“But we have done some studies which have shown that the price always goes up when the Government announces its price,” he says.

Dr Njagi says the current NCPB structure also “creates a huge incentive for corruption.” He explains that because the Government is always giving a price that is higher than the market price, it creates a situation where everyone wants to cash in, including those who are not farmers.

Spurred on by an irresistible offer of Sh3,200 per bag from the Government, a few opportunistic brokers, not registered with NCPB, hastily crossed the Kenya-Uganda border, snapping up any grain of maize they could lay their hands on.

They also went around with lorries aggregating all the harvests from small farmers at a throw-away price.

Despite not being registered, their maize was accepted, faster and furiously than that of registered farmers with title deeds or leasehold.

Of the total cost of maize purchased by NCPB, Sh376.8 million out of Sh3.5 billion had failed vetting and was not supposed to be paid, according to an audit.

The distortion that occurred in the maize market reverberated throughout the economy.

“If you are looking for transport services, you will be competing with these tenderpreneurs. So they will want to charge you as much as they charge Government,” said Ndii.

And because the private sector was in limbo as the economy was driven by public expenditure, tax revenue underperformed. The World Bank said growth in revenues had not kept pace with robust GDP growth.

 In the 2016/17 financial year, tax-to-GDP (gross domestic product) ratio fell to 16.9 per cent, the lowest in a decade, according to the global lender.

The bank noted that even though more goods and services have been traded, very little of the economic activities resulted into taxes, bringing into question the source of the country’s economic growth. 

“If the private sector is not borrowing to spend and invest, what is actually driving growth?”  wondered Mark Bohlund, Bloomberg’s Africa and Middle East economist in reaction to data released by the Kenya National Bureau of Statistics.

Analysis done by Financial Standard showed that in the last five years, the profits of most Kenyan companies had shrunk by a third, a situation that saw managers execute painful cost-cutting measures including shedding jobs or just shutting down.

The analysis revealed that 2013 was the best year for most listed companies in Kenya. Cumulatively, since 2013 when the Jubilee Government came to power, 56 companies whose results Financial Standard analysed had lost Sh61.27 billion from their earnings.

To be fair to Uhuru, a number of factors, and not just increased Government activity in the market, are to blame.

Moreover, the President was only trying to be magnanimous: ensuring that Government tenders were evenly distributed to every Kenyan, unlike initially when it was all about the old-boy system.

So in 2013, he directed that the procurement rules be amended to allow 30 per cent of contracts to be given to the youth, women and persons with the disability without competition from established firms.

And just like the Ndegwa Commission (under the watch of Uhuru’s father) decided to allow civil servants to get involved in business in a bid to jump-start the then-lacklustre private sector, the President’s decision to open the doors to more individuals might have also resulted into making corruption more pervasive.

The Access to Government Procurement Opportunities (AGPO) initiative was launched at KICC on June 29, 2012.

It was supposed to enable historically disadvantaged groups - the youth, women, and persons with disabilities - to also get a share of Government’s cash.

“It is an affirmative action aimed at empowering youth, women and persons with disability-owned enterprises by giving them more opportunities to do business with Government,” explained the Government.

But things went bad, as the country woke up to yet another scandal at the Ministry of Health where politically connected individuals were listed on the Public Procurement Oversight Authority’s (PPOA) 2014 roll of “disadvantaged groups.”

Even lawmakers were not amused by National Treasury’s announcement that more than Sh56.4 billion worth of State tenders had been awarded to these special interest groups since 2016.

“We are aware that the real people who should be benefiting from these tenders are actually being used by wealthy individuals to apply for the tenders on their behalf,” said Kipkelion East MP.

“The Access to Government Procurement Opportunities law spells out that at least 70 per cent of a company must be owned by one of the special interest groups. We still feel that this is too much. We want the law amended to make ownership 100 per cent by the special interest groups,” he added.

Now Ukambani is grappling with a green grams (ndengu) glut - which is quickly taking a political shape that threatens to erode Kitui Governor Charity Ngilu’s clout in regional politics.

Because she had promised farmers that she would get them a market, Ngilu has turned to what most Kenyans believe is their first market: The Government.

“I met the President recently and he committed to direct institutions such as National Youth Service, Kenya Police, Kenya Prisons and Kenya Defence Forces among others to buy our produce,” said the governor.

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