Budget 2015: The five sectors drawing

Last week, the Treasury released the 2015 Budget Policy Statement (BPS), which spells out how the Government intends to spend Sh1.9 trillion in the 2015-16 financial year.

The expenditure framework is the first one since the Government officially re-calculated Kenya’s gross domestic product (GDP), which elevated the contribution of several sub-sectors to the value of the country’s goods and services. The BPS is to be presented to the National Assembly for approval before February 15.

In the first Budget since the rebasing, the Government has retained its focus on the capital-intensive sectors of health and education.

However, energy, infrastructure and ICT have emerged as new enablers of GDP growth, with the Treasury making allocations to these three sectors the second-largest after education.

The Government has also proposed that these three sectors benefit from a quarter of the cash in its Sh105 billion strategic intervention fund. The fund provides for additional cash, aside from annual allocations, for sectors considered a priority to GDP growth.

In the 2015-16 financial year that starts in July, energy, infrastructure and ICT are expected to receive Sh25.7 billion from the fund, if the BPS is approved. This amount is projected to increase to Sh28.8 billion in 2016-17, and Sh32.2 billion in 2017-18.

Other sectors drawing a large share of State spending are security and education. We delve deeper into why these five sectors are drawing special Government attention, and some of the opportunities that will be created as a result for the ordinary Kenyan.

Education

Kenya’s education sector has traditionally received the lion’s share of the country’s national budget to cater for teachers’ salaries, and primary and secondary school subsidies.

In the current financial year, the Government has kept up with this tradition by allocating Sh324 billion for recurrent and development expenditure.

This presents a 5 per cent increase from the Sh308 billion the sector received in the 2014-15 financial year.

County governments have also been allocated Sh935 million, which is expected to finance village polytechnics that are currently under the Ministry of Education.

The Treasury has further proposed an additional Sh17.5 billion from the strategic allocation fund to go towards development expenditure in the sector.

“The sector faced a number of challenges during the implementation of its programmes,” the BPS notes.

“These included shortfalls in funding of crucial programmes, a shortage of manpower, inadequate facilities and slow pace of ICT integration.”

The Treasury also noted that the establishment of several institutions in the restructuring of the sector has presented significant operational and administrative costs.

Further, the Government is yet to fully execute the Jubilee campaign promise to deliver free laptops to primary school pupils after the initial project was marred by tender disputes for the better part of last year.

The initiative is expected to place more focus on e-Learning, presenting significant opportunities for content, software and curriculum developers.

Infrastructure

As one of the sector beneficiaries of the special interventions funds, Kenya’s roads, rail and airport infrastructure is set to undergo massive development over the next two financial years.

The Government has also proposed an annual allocation of Sh125.5 billion for the maintenance of existing road networks and building of new roads.

It expects to construct and rehabilitate 5,500 kilometres of road through traditional financing, and build another 20km in each constituency by 2017.

Aside from this, the Ministry of Transport and Infrastructure earlier this year kicked off a 10,000km roads programme, calling for bids for more than 40 multi-billion-shilling road construction tenders to be developed under the private-public partnership formula.

The Government’s aim is to facilitate the faster movement of goods and people in the country, and across the East African region.

Larger investment in infrastructure means there are more opportunities for companies in road transport, rail and airlines.

These infrastructure investments are expected to attract global logistics companies to set up their regional base in Kenya, creating more jobs. Panalpina, a Swiss company that provides forwarding and logistics services, opened its regional office in Nairobi this month.

As a further boost to the country’s local manufacturing industry, the Government has stated that road contractors need to source at least 40 per cent of their materials from the local market.

The Sh125 billion allocation is further expected to fund construction of the Jomo Kenyatta International Airport (JKIA), which is the region’s air transport hub, and further fund the implementation of the single window clearance system.

The on-going construction of the standard gauge railway from Mombasa to Malaba, and the Lamu Port and South Sudan-Ethiopia Transport (Lapsset) corridor are also earmarked among projects in the upgrade of Kenya’s national transport infrastructure.

Security

In the past three years, Kenya has seen an escalation in the threats coming from the Al-Shabaab militia group, following the Kenya Defence Forces’ crossing into Somalia in 2011.

This has led to an increase in funds allocated to the ministries of Defence and National Security.

In 2010, Kenya spent Sh61 billion on internal security. Last year, the national security spend jumped to Sh74 billion.

In the 2015-16 financial year, the Treasury has allocated Sh90 billion towards the docket to help security agencies battle internal and external aggressors.

The Treasury has also proposed the establishment of the Security Integrated Infrastructure Development Fund to improve the country’s security status, and therefore, enhance economic growth. The fund is expected to come into force by March.

The fund is meant to ensure better co-ordination and sustainability of security projects and will consolidate monies that are raised from budgetary allocations, multinational and bilateral partnerships and locally generated revenues.

The fund shall also mobilise resources to finance development of housing, office blocks, and installation of infrastructure for the National Police Service and other uniformed officers.

Prefabricated options offer cheaper and faster housing construction, with players in this sector set to benefit from the increased infrastructure spend in security, as are those offering surveillance equipment and security risk assessments.

Energy

With Kenya rolling out its plan to have 5,538 megawatts of installed electricity capacity.