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2010 Budget scorecard

FINANCIAL STANDARD
By | June 7th 2011

By John Njiraini

A lot can happen in just 365 days. This will definitely be the message ringing in Finance Minister Uhuru Kenyatta's mind when he takes to the floor of Parliament on June 8, to unveil the Sh1.15 trillion 2011/2012 Budget, the largest in the country’s history.

A year ago on this day, Uhuru was cheerful, enthusiastic and in high spirits when presenting the just concluded financial year’s budget.

The circumstances then granted him all the reasons to feel proud for being the man of the moment. On the economic front, all indictors showed the country had recovered from the effects of the post-election violence and was back on a strong footing.

Every indicator from macro-economic stability, inflation, interest rates to foreign exchange reserves was oscillating at the right equilibrium.

On the political front, and particularly regarding his presidential ambitions, Uhuru’s star was first rising and the drums of support for him to succeed President Kibaki were getting loader by the day.

But that was then. Today, the clock has gone full circle and the country is experiencing the opposite of how things were a year ago, while his personal ambitions have been dealt a major blow after he was named by the International Criminal Court of allegedly being among the masterminds of the post-election violence.

Thus, when he takes to the floor of Parliament Wednesday after overcoming threats by MPs to block the budget because of breaking the law, many will not be surprised to see the man being in low spirits and with little cheer, albeit the fact that the man has mastered the art of putting a brave face even when faced with tough scenarios.

After presenting two budgets in a relatively optimistic environment, and which were largely praised for their innovativeness, Uhuru’s third budget comes at the worst of times.

The situation in the country is depressing. Where Kenyans last year were optimistic, this year many are pessimistic and many will be hoping that Uhuru does not worsen their predicaments while presenting his budget.

Today, the country is grappling with food shortage, high cost of fuel, rising inflation, rising interest rates, weakening shilling, rising unemployment, depreciating foreign reserves and generally runaway costs of living.

In his budget last year, Uhuru was buoyed in projecting the economy will grow by 5.1 per cent in 2010/11, driven mainly by increased investments in key sectors including agriculture, services, infrastructure, health and education.

"The overriding policy is to consolidate the economic recovery and put the economy back onto a firm foundation of high and sustainable growth path back to the seven per cent growth achieved in 2007," said Uhuru then.

On growth, the economy has outperformed the projections after the just released 2010 Economic Survey showed gross domestic product grew by 5.6 per cent last year.

"Real GDP expanded by 5.6 per cent in 2010, compared to a growth of 2.6 per cent in 2009," said Planning Minister Wycliffe Oparanya when he released the Survey.

But while growth surpassed projections, Uhuru’s assertion of the economy getting back on a firm foundation remains a pipe dream after the country was hit by numerous shocks that have forced downgrading of growth projections for this year to between 3.5 and 4.5 per cent.

Besides, though Uhuru was optimistic the country was back on track to realising the 10 per cent growth envisioned in the Vision 2030 blueprint, the reality is that achieving this goal now looks like chasing shadows.

Inflation

On inflation, Uhuru literally blew the trumpet stating the Government had managed to contain the level at which the prices of goods and services were rising from 14.6 per cent in February 2009 to 3.9 percent in May 2010.

Yet, it did not take long before the situation started to reverse. An exponential rise of crude oil prices in the international market and food shortages has seen inflation rate steadily increase to 12 per cent by April this months. Analysts predict it could hit 18 per cent by the fourth quarter of this year.

Business Environment Reforms

Over the years, the business community in the country has continued to complain of unfavourable environment. Thus Uhuru promised to enact laws that would significantly enhance the investment climate.

Unfortunately, these Bills that include the Companies Bill 2010, the Insolvency Bill 2010, the Partnership Bill 2010, the Limited Liability Partnership Bill 2010, have only been tabled in Parliament but none is yet to be passed into law.

Tax Reforms

One of the perennial problems that businesses have been forced to contend with rotates around the issue of Value Added Tax (VAT) refunds. In his budget last year, Uhuru promised to streamline VAT administration as an important component of overall strategies to improve the business climate.

Uhuru said that with effect from July 1, 2010, the Kenya Revenue Authority (KRA) would refund all new claims that meet the low risk criteria within 120 days, while corrupt KRA officials would be forced to face the full force of the law.

Yet a year down the line, businesses are still complaining about delays in VAT refunds and KRA seems unable to find a lasting solution to the problem.

Food Security

The country has always faced a worrying circle whereby every bumper harvest is always followed by food shortage, because of failure by the Government to plan accordingly.

Thus, in last year’s budget, Uhuru committed to address the agriculture supply chain in order to deal with post-harvest management and reduce losses to farmers.

He allocated Sh400 million for purchase of fixed maize driers to be installed in maize growing areas, Sh360 million to purchase 30 mobile maize driers to ensure as many farmers are facilitated and Sh525 million to purchase and install 15 rice milling plants in rice growing areas.

The measures, which were seen as critical in guaranteeing food security, are yet to be implemented and today some 2.5 million Kenyans are facing severe food shortage despite the country recording a good harvest last year. The worst hit area is North Eastern Province, where more than 30 Kenyans have die from hunger related causes.

Developing arid and semi arid lands

Neglected for years by respective governments, Uhuru promised in the last budget to put in place measures to address some of the challenges in arid and semi arid lands (ASAL) particularly with regard to water scarcity.

"Despite the challenges that ASAL areas face, there is enough socio-economic potential that can be exploited to uplift livelihoods and address regional disparities," said Uhuru.

He went on to allocate Sh16 billion for financing various projects including expansion of water supply, construction of district hospitals, low cost boarding primary schools and provision of alternative sources of energy and in particular, solar power.

Unfortunately, these projects are yet to kick off, while life in these areas continues to be unbearable.

Infrastructure development

Among the key projects contained in Uhuru’s last budget revolved around committing enormous resources towards infrastructure development. Though these are long-term projects, the controversies and delays surrounding some of them shows that Kenya will be waiting for a long time before they can be implemented.

In particular, the Minister promised that the Government would accelerate measures to improve the efficiency of the Mombasa Port through the implementation of a single window port community-based system to facilitate faster, efficient and competitive clearance of cargo.

"This and other reforms, including dredging of the port to enable larger vessels to dock are expected to position Mombasa as a preferred port," he said, adding the Government would also push ahead with plans to privatise the port.

A year down the line, plans to privatise the port have been shelved, while other measures to improve efficiency are moving at a snail pace to a point where importers are resorting to using other ports like Port of Dar es Salaam.

Regarding improving the railway system, plans to build a standard gauge railway line from Mombasa to Malaba and the upgrade of Nairobi Commuter Railway system continue to be dogged by lack of finances and procurement debacles. Yet the cost of transport continues to skyrocket, while traffic jams have become the order of the day.

Corruption

Another large drag on Kenya’s economy is corruption. Poor governance and corruption also have had a negative impact on growth, making it expensive to do business in Kenya. According to Transparency International, Kenya ranks among the world’s half-dozen most corrupt countries. Bribery and fraud cost Kenya as much as Sh86 billion ($1 billion) a year. Most Kenyans live on less than Sh86 per day ($1 per day); pay some 16 bribes a month to local governmental officials, nearby militias, or other oppressive people.

Understanding Kenyan governmental corruption is also key to understanding why aid to Kenya is so tricky: indirect monetary aid, while useful as a general rule in stimulating lagging economies, runs into serious trouble in a country as oppressively corrupt as Kenya. Monetary aid from foreign countries or humanitarian NGO’s oftentimes goes straight into the pockets of corrupt bureaucrats in charge of its disbursement. The higher the level of corruption, the less impact that monetary aid can have on a country.

Political risks

Events in the political arena still pose the greatest risk to the Kenyan economy, a deterioration of which could hurt business even as the country shows signs of recovery.

Uhuru Kenyatta is doing his third year as Finance Minister with a mixed score card, given the heavy political baggage he carries as the man President Kibaki prefers as his heir in Central Kenya and ostensibly, at State House.

Other than concentrate on his demanding portfolio taking care of the nation’s coffers, Uhuru spends substantive time scheming political intrigues to undermine the perceived front runner in the Kibaki succession race, Prime Minister Raila Amolo Odinga, hence his groggy marriage of convenience with self styled Kalenjin kingpin, William Samoei Ruto and his dabbling in the discredited KKK (Kikuyu, Kamba, Kalenjin) alliance that has in latter days metamorphosed into G7 to disguise its repulsive face.

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