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2022 candidates' memoir: ABCs of a convincing economic blueprint

NATIONAL
By Patrick Muinde | August 14th 2021

Ford Kenya party leader Moses Wetangula, ANC party leader Musalia Mudavadi, Matungu ANC Candidate Oscar Nabulindo , Wiper party leader Kalonzo Msyoka and KANU Chairman Gideon Moi , at Bulimbo area in Matungu constituency for a political rally.[Kipsang Joseph,Standard]

On a date like today next year, the country will be waiting to swear in its fifth president, all other factors held constant.

In many ways the coming transition is reminiscent of the 2002 one, economically speaking.

Three similarities standout: a huge debt burden in relation to the Gross Domestic Product (GDP); a government deprived of adequate internal resources to run the affairs of the state and drive meaningful development; and a significant voter base disillusioned by failed economic policies of the outgoing regime, and exacerbated by the ongoing Covid-19 pandemic.

It is without a doubt that the economy will be on the ballot. To the ruling class, you must remember there is no lethal weapon like a populace whose socio-economic well-being is on the line. The potential adjustments on voter demographics occasioned by the changed economic fortunes, especially for the middle class, may alter the agenda significantly.

While the political jostling and cajoling continue among the top contenders, we already know their economic ideas for the nation. The four propositions on the table thus far include the bottom-up, ‘Uchumi Bora’, the 1980s equivalent rural development and a five-point agenda models. While they have come in different shades, the main themes gravitate around the same old tired story.

Reality check

The kicker words in all these proposals are the perennial fight against corruption, economic recovery, jobs for youth and women, debt management, inclusion, infrastructure and agricultural revival. With all due respect to the individual candidates, these propositions are a clear manifestation of leaders deluded by the era gone. The ideas lack a breath of freshness, a cogent understanding of the sophistication of the 21st century economies and a demonstrable imagination to re-design the country’s developmental trajectory. These are simply blunt shots at best.

Whoever desires to be our next president must seek the wisdom of economic geniuses of our times and not the lullabies of sycophants. The reason is two-fold. First, as a candidate, you will need a simple, clear, consistent and believable story line that can resonate with the electorates. Second, once in office, you will need to deal with multiple competing priorities with no secure internal revenue base and fiscal space to borrow.

The Kenya Economic Report 2020 by the Kenya Institute for Public Policy Research and Analysis identifies six primary and systemic economic problems facing the country at the moment. These include high poverty rates, low productivity, high income inequality, constrained domestic revenue mobilisation, huge debt service cost relative to government revenues and uninspiring performance on Gross County Products (GCP) nine years into devolution. The evidence adduced in this report must inform the economic ideology of any serious presidential candidate.

On the poverty rates, there have been significant improvements with the incidence dropping from 52.3 per cent in 1997/1998 fiscal year to 36.1 per cent in 2015/2016. Rural poverty is the highest at 40 per cent compared to peri-urban and core urban categories at 27.5 and 29.4 per cent respectively. The high rural poverty incidence is explained by over-reliance and low productivity of agricultural activities. These disparities are reflected in the household consumption.

The basic report on well-being of 2015/2016 shows rich households consume 159 times more than the poorest. Similarly, the consumption expenditure for rich households is 17 times higher than that of the poorest ones. The inequality of income distribution Gini index of Kenya is 40.8 per cent lower than other low middle income countries. Labour is concentrated on the low productivity sector of agriculture. While productivity decreased from 64 per cent in 2000 to 41 per cent in 2019, the employment share for the sector increased from 49 to 55 per cent over the same period.

Employment share declined for industrial and service sectors that had improved productivity from 169 and 124 per cent in 2000 to 249 and 156 per cent respectively in 2019. On domestic revenue mobilisation, actual collection as a share of GDP dropped from 18.2 per cent in 2017/2018 to 17.8 per cent in 2018/2019 fiscal years. While there have been improvements in pro-poor government spending, this has been crowded out by high debt servicing costs.

For instance, spending on education and social protection increased from 15.3 and 3.7 per cent in 2015/2016 to 21.5 and 6.7 per cent respectively in 2018/2019. Over the same period, debt service costs rose from 21.5 per cent to 42.8 per cent of government revenues. This debt service costs accounted for 24.9 per cent of total government spending, more than the combined spending on health, social protection and housing.

Policy interventions

At the county level, 60 per cent of the counties did not meet the constitutional threshold of 30 per cent on development expenditure for the period between 2013/2014 to 2018/2019. This has not only undermined growth on GCP, but also meant the counties are not effectively contributing towards rural poverty alleviation as envisioned under devolution.

To respond to these systemic problems, policy intervention must address the foundational structures that underlie sector specific and economy-wide productivity. Any credible economic blueprint for 2022 must focus on these five broad agendas at minimum.

One, stimulation of local industries to create indigenous value and extend existing value chains. This would require both incentives and protectionist policies. The current punitive and complex tax administrations procedures are unattractive to both domestic and international investors. Even where tax disputes arise, enforcement mechanisms must be pro-business as opposed to destroying the business itself. Sectors where we do not have a competitive advantage like agriculture, textile and tools manufacturing must be protected from second hand imports and anti-dumping policies.

Two, improve the productive capacity in the economy. Prioritise sustainable supply and cost of energy, and facilitate adoption of modern production technologies through incentives and removing monopolies. For instance, it is no longer tenable to maintain monopolies in energy generation, power distribution and manual labour in agricultural production.

Three, there must be radical reforms in conceptualisation, execution and contract administration for big infrastructure projects. This must be as a result of an open and participatory planning process with a justifiable return on investment. A standardised contracting system and costing parameters must be defined before any new contracts are allowed. In as far as possible, only local professionals and contractors must drive these projects. Any foreign contracts must have stringent transfer of technology caveats. Only then can the huge expenditure injections in these projects get to circulate within the local economic system.  

Four, modernise the economy by shifting from an informal sector as a strategy to economic growth. This will demand a multifaceted long-term planning, a robust incentive system for micro and small businesses, and a well thought out linkage system among education, industry, research and innovation.

Finally, there must be a return to the rule of law and sanctity of institutions. It is only through this that the country can assure property rights and a fair business environment. The application of the law cannot be for the poor and at the same time be discretionary for the powerful and mighty.

As a concluding thought, every candidate is breathing hot air on slaying the demons of corruption and stemming lethargy in the public service. Can somebody remind them that in its nature, the civil service is incapable of abetting systemic corrupt practices without premium patronage from highly-placed political elites. Solving the debt and revenue crises will be the inevitable outcome of executing these interventions effectively.

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