Silver lining in Kenya’s precarious debt situation

During the past year, the issue of debt has dominated national debate. Kenyans from all walks of life have been up in arms, accusing the Government of allegedly biting more than it can chew regarding domestic and foreign debt.

The recent introduction of new taxes on fuel, financial transactions and mobile communication seemed to confirm what Kenyans had feared all along – that the loans obtained for infrastructure projects would come back to haunt them.

The Standard Gauge Railway (SGR), by far Kenya’s most consequential infrastructure project since independence, has stood as the symbol of Kenya’s precarious debt situation. No discussion on debt is ever complete without the mention of SGR.

There is no denying there are things the Government could have done better. There is always room for doing better and SGR and the debt situation are no exception. SGR, however, is not the only project for which the government has borrowed. Many other projects, mostly roads and energy, have also benefited from the loans obtained from different sources.

By 2050, at least 60 percent of today’s population who are under 16 years will be active in the labour market. Many will be seeking better opportunities for themselves and their families. Those who are active in the labour market today will probably be retired or looking to retirement. But with the average lifespan improving over the last few decades, we shall certainly appreciate better social protection for the elderly and expanded economic opportunities for our progeny.

But if we don’t take drastic measures to change our situation, very little will have changed by 2050. Countries that have made significant advances, moving from poor to middle level economic status pushed through what many citizens initially opposed because they had a vision for a better tomorrow, the temporary discomfort notwithstanding.

Rising economies

There are five areas, in my view, in which Kenya must make significant, deliberate, intelligent investments to reach where Singapore, South Korea and other fast rising economies are today. These are agribusiness, education and training, healthcare, manufacturing and connectivity.

Connectivity is the backbone upon which the other four sectors and indeed all the other sectors are built. It is possible for some sort of manufacturing to happen in isolated locations but connectivity makes it cost effective, brings the market closer and exposes it to the rest of the world. Agriculture has existed in remote communities for generations but it is connectivity which has given it the business touch by linking it, for instance, to manufacturing.

Building connectivity is an expensive affair, even for rich countries. For many poor countries, even building a few thousand kilometers of all-weather roads connecting agricultural areas can be a challenge without external support.

Now, when we are talking SGR, running from one end of the country to another, many can only dream about it but cannot, on their own, take the first step to making it a reality. When a country has to make a choice between paying salaries to its civil servants and constructing SGR, the former easily trumps the latter. No government can survive with hundreds of thousands of hungry civil servants in its ranks. This is where credit comes in.

Internal revenues

The idea of credit arises out of a realization that a project is necessary to move a country forward but there aren’t enough internal revenues to support it. The government approaches another country whose level of development allows it to lend, at interest, making it possible for the loan recipient to implement the desired project.

Repayment is usually staggered over a long period of time to allow the government to pay back from internal revenues. Quite obviously, there will be some pain, especially where big loans are involved. Some of these projects, notably SGR, cannot be expected to yield immediate or even medium term return on investment. The benefits are long term and are usually realized through its impact on other sectors of the economy.

Evidently, the decision to invest in SGR was a bold one. Most other governments would have shied away. For this, the Kenyan government must be commended. We cannot, however, close our eyes to reports of impropriety. These must be dealt with in accordance with the law and where money has been lost, it is only fair that it be recovered.

It is heartwarming that amidst all the fears and delays, the project has made tremendous progress with phase 1 completed and phase 2 well on its way to Naivasha.

There is no stopping this project. If we stop midway, we risk having the money so far spent going down the drain.The dream, for any forward looking government, would be to connect the Indian Ocean to the Atlantic.

The debt burden and the resultant high taxation are a temporary discomfort for citizens. It is the price we must pay for a stronger economy which will shield the aging population from old age poverty while providing opportunities to the millions of young people entering the job market.

Mr Otiato is communication specialist. [email protected]