Memories, the budget and all our tomorrows

Joseph Njoroge Waweru sharpening a slasher near Mweiga using a homemade machine: We should not forget such industrialists in big 4. Photo by XN Iraki

The budget reading has lost the former mystery and mystic. When growing up, we waited in anticipation for the budget reading. Days to budget day, lots of things disappeared from shelves. That included sugar, cigarettes, beers, and anything else whose price was controlled. Traders hoarded goods to get a higher price.

That ended in early 1990s when the economy was liberalised. In the countryside, they used the term soko huru. In its wake, cooperative societies which nurtured a generation through school into work place died as middlemen took advantage of the liberalised market. They paid on the spot, but gave lower prices. The death of cooperative societies and its consequences has not been well documented. What happened to the societies’ assets?

The liberalisation of the Kenyan economy closely mirrors the same in Russia, without oligarchs. May be Kenya already had oligarchs. The splintered nature of cooperatives, with each sub location having a society ensured there was no concentration of wealth or its transfer. The cooperatives mirrored the “African socialism“. Liberalisation ushered the modern era of individualism; capitalism without the human face.

Economists cheered. They argued that finally the invisible hand of the market had been let lose. For the vast majority of citizens, it meant higher prices, no more free services like health or school. Looking at Big 4 Agenda, it seems the invisible hand had swung too far and needs the countervailing hand of the government.

Enough digression

The end of the government control over the prices meant less fanfare for the budget; no more surprises. Let us have a glimpse into the budget speech.

It started by congratulating the elected leaders; they now have more say in budget process than in the past. Budgeting has a political side. Inclusion of more players in the budgeting process has also reduced its mystic. Then key achievements are highlighted including higher economic growth, SGR, Green energy, more power connections, better security, rebound in tourism, more inclusive education, and cash transfer to senior citizens, orphans and vulnerable children, and persons with disabilities.

The latter would go a long way in creating social harmony. We need one more transfer, unemployment. While that might appear far-fetched it would go a long way in stimulating the economy and ensuring decent life for the vast majority. The big 4 is also highlighted.

Jobs are Kenya’s number one priority and would transform lives as the employed know. Jobs further ensure prosperity. Getting a job often opens intergenerational opportunities. Imagine a family where the grandfather was a graduate (and employed) with a family where the first person to get into the university has not yet graduated.

The President’s commitment is not surprising; he needs to leave a lasting legacy. Are the rest of politicians from MCA upwards also committed? The favourable global economic and trading environment is buoyed by prospects of peace in Korean peninsula, but damped by rising oil prices. Is collapse of Iran deal one of the causes?

Though domestic economic outlook is presented as positive, the slow down last year to 4.9 percent, needs reversal. To give credit where it’s due, macroeconomic indicators like exchange rate, inflation and interest rates have been stable.

But we need to attract more investors like Ethiopia. The most soothing condition for growth is “creative and enthusiastic home-grown entrepreneurs ready to expand their opportunities”.

Young men and women now dream of owning firms and being global players. If we can build on this and fire up the optimism of our youth instead of portraying them as new members of corrupt club, they would be a big catalyst of economic growth.

The focus on manufacturing, making it contribute 15 percent of GDP by 2022 is noted. What is not clear is our model of achieving that target. Will it be the Chinese, the Japanese or Korean? The budget seems to suggest power, skills, attack on counterfeits, reduction in tariffs and setting up leather and textiles as the seedbeds of industrialisation. What of the soft industrialisation based on software, like California’s Silicon Valley.

The focus on Blue Economy is long overdue. We have argued that our coastline, 500k and 200 nautical miles exclusive economic zone is one of our greatest natural resource, and least exploited. It has more resources than oil. All great nations of the world have a coastline. The provision of land to potential manufacturers is a great incentive.

How do you make money when your first billion was used to buy land? But the greatest input to manufacturing is our mindset. Can we be proud of buying locally made goods, without labelling them “Made in XYZ?” We need to come up with a home grown model on manufacturing; the world has changed a lot since the rise of East Asia.

The focus on small scale holders in food security is appropriate. We should go ahead and make the small holdings more productive. One simple option is making use of organic fertilisers. We must also set a limit to which land can be subdivided. When are we resolving the long lasting debate on GMOs?

Housing remains the focus of every budget and manifesto. The setting of National Housing Development Fund and Kenya Mortgage Refinance Company (KMRC), reduction of corporate tax to 15 per cent for developers of more than 100 units sets the stage for spurring further growth in housing.

But as we all know, land is a big input into housing and a costly one in urban areas. Devolution never tamed land prices? Who will benefit from the houses build under the new fund?

On healthcare which is devolved, Linda Mama and NHIF are key areas to focus by the year 2022. We can reduce the cost of healthcare by making Kenyans healthier through sports, better nutrition and even less stress. How did Canada succeed? Universal healthcare is also connected to economic growth; a healthy nation is a productive nation.

Domestic borrowing

On the revenue side, the budget proposes a reduction in deficit to 5.7 per cent of GDP from 7.2 per cent the previous budget cycle and to 3 per cent by 2022. That can be done through collecting more taxes or reducing expenditure which is not popular politically. The establishment of unit to streamline public projects is another deficit reduction measure. A deficit of Sh558.9 billion is expected in the next financial year to be financed by both external and internal borrowing on almost equal basis.

We would prefer more external borrowing because the interests are lower. Domestic borrowing will reduce funds available to you and me. Of great concern is that recurrent expenditure is 15.9 percent of GDP, while development is 6.4 percent of GDP. That needs some rebalancing. 3.9 percent of GDP goes to the counties. The use of the term percentage of GDP is an interesting vocabulary. What is the intention?

There are bold steps to protect local industries including an increase in tariffs on steel, paper, timber and vegetable oil. Also joining the list of beneficiaries with no duty are makers of acaricides, licensed tour operators for sightseeing buses and overland trucks.

The budget speech also allows inputs and raw materials for assembly of clean energy cooking stoves to be imported under duty remission 100 per cent. Grain storage building materials, animal feeds inputs and parts for assembly of computers will benefit from no VAT. One hopes entrepreneurs read the budget.

The Government knows where the money is --big cars and has increased duty on high capacity engine cars. Might that reduce carbon emission? We transfer money all the time, the taxman increased tax on that and increased duty on kerosene to stop adulteration. Getting tax from informal sector has remained difficult and the budget proposes the “use of presumptive tax based on the business permit or trading license fees at a rate of fifteen percent.”

Proposal to channel tax money from winnings to development of sports, arts and cultural activities for the youth is a step in the right direction-they bet and gamble. It’s their money.

The budget proposes to widen taxation revenue by taxing demurrage, capital gains on transfer of property in insurance and premium paid to non-residents. Several Acts on taxation are under review including extending tax amnesty to 2019. Penalties on late payment of taxation are also being raised. Export levy of 20 per cent on copper waste and scrap metals is to be imposed to reduce vandalism.

The rest of the budget outlines specific allocations, with winners and losers. Big 4 gets lots of attention with a massive Sh460 billion.

Lastly, there are proposed reforms in governance (including corruption), procurements, IFMIS, parastatals, public investments and public-private-partnerships and strengthening financial sector regulators.

Interestingly, the budget speech says little about the previous budget such as level of absorption. But more importantly there is no mention of a key economic factor, our behaviour.

Why do you think behaviour economics won a Nobel? Please go through the budget and see where you fit. That could change your economic fortunes tomorrow. After all, you can’t completely escape the visible hand of the Government seen through the budget, no matter who you are.

—The writer teaches at the University of Nairobi.  

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