How politicians, bureaucrats milked Kenya dry for 20 years

Central Bank of Kenya (CBK) holds and manages foreign exchange reserves, is charged with the responsibility for formulating monetary policy to achieve and maintain price stability. [Jonah Onyango, Standard]

Kenyan politicians and their cronies stashed away more than Sh300 billion ($3 billion) in foreign accounts between 1990 and 2010, a new World Bank report has revealed.

The money looted from donor aid during the one-party rule and continued throughout the National Rainbow Coalition (Narc) and the Grand Coalition governments, is enough to construct 10 Thika Super Highways.

The study titled Elite Capture of Foreign Aid: Evidence of offshore accounts showed that billions of shillings taken in the name of millions of poor Kenyans ended up enriching a few powerful political figures, bureaucrats and their friends.

The report revealed how, for 20 years, a few individuals appealed for aid money in the name of Kenyans, but pocketed it as soon as it landed. In the end, the report stated, the more aid the country received, the fatter the foreign accounts held by corrupt individuals became.

This loot was either in the form of kickbacks, where well-connected fatcats received illicit payments to facilitate business transactions or was given directly to the corrupt elite, who then swam in opulence as their countrymen went hungry.

“The results are consistent with aid capture by ruling elites: diversion to secret accounts, either directly or through kickbacks from private sector cronies, can explain the sharp increase in money held in foreign banking centres specialising in concealment and laundering,” says the report dated February 18, 2020.

In current exchange rates, the stolen money translates to Sh15 billion per year or Sh1.2 billion per month, enough to fund water and electricity needs for thousands of Kenyans.

To justify the findings, the report found that deposits in offshore accounts coincided with aid disbursements

“Aid capture by ruling politicians, bureaucrats, and their cronies can explain why aid does not trigger flows to non-havens, why the capital outflows occur precisely in the same quarter as the aid inflows and why the estimated inflows are larger for more corrupt countries…” the report reads.

“Disbursements to highly dependent countries coincide with a sharp increase in bank deposits in offshore financial centres known for bank secrecy and private wealth management,” the report noted.

In the early 90s, when Kenya was in the grip of Structural Adjustment Programmes - a series of economic reforms that resulted in inflation, unemployment and massive loss of jobs - Kenyan leaders trooped to Western capitals with begging bowls, ostensibly to alleviate the pain of the suffering masses.

But according to the report, the money received never reached its intended beneficiaries, a trend that was taken up by bureaucrats in successive governments.

Although the Narc government promised a ‘clean break from the past’ when it swept into power in 2002, the report’s findings do not bear out this promise.  

The study was conducted in 22 countries whose aid disbursements were equivalent to more than 2 per cent of their Gross Domestic Product (GDP).

In Tanzania, politicians and their associates siphoned $586 million (Sh5.86 billion) Uganda came next with $ 270 million (Sh2.7 billion) followed by Rwanda $190 million (Sh1.9 billion) and Burundi $ 122 million (Sh1.22 billion)

Among countries identified as safe havens were Switzerland, Luxembourg, Cayman Islands, Bahamas, Hong Kong, and Singapore.

The report ruled out the possibility that some of the money deposited in foreign banks could belong to firms that benefited from aid-sponsored spending.

“We cannot exclude the firms benefiting from aid sponsored spending, receive payments in quarters with aid disbursements and posit the funds in foreign banks; however, this mechanism cannot explain why the money only flows to havens,” the report noted.

But the bank did not escape criticism.

David Ndii, a Kenyan economist, said the report did not reveal anything new and failed to explain why the looting happens with World Bank-funded projects.

“The deposits in the havens increase when the World Bank releases money to countries for projects. This money is given to international contractors who either evade taxes in their countries or pay it as bribes,” he said.