Economy this, economy that: What State House hopefuls don't tell you
By Judah Ben-Hur
| November 21st 2021
It’s that season, again. After five years, politicians have taken to the sunroofs of their high-end cars, promising economic magic and doling out handouts to entice voters. They have come up with so-called economic models to woo the electorate.
But are the promises workable?
Economists take a look at ODM leader Raila Odinga’s Sh6,000 a month social protection programme and Deputy President William Ruto’s Sh200 billion for his bottom-up economic model.
In October, Raila promised what he termed the largest social protection programme in the continent. His rival, Ruto, has offered another ambitious promise of injecting Sh200 billion into the economy and creating four million jobs for the youth.
“We have a plan. From next year, every family with no source of income will get Sh6,000 every month,” said Raila.
Last month, Ruto said, “We need to change the economy and begin with the youth. We need to put them first and find ways to empower them so that we can eradicate poverty.”
Although the promises tickle the electorate’s ears, Ken Gichinga, chief economist at Mentoria Consulting, argues that the sweet honey dripping from politicians’ lips is far from what is practical and they are just “big statements with no specifics.”
“I get worried when I hear the promises made by our politicians. What they don’t tell you is how they will raise the money,” says Gichinga. “There’s a lot of under-investment in creating a practical economic model but more focus on politics,” he adds.
Ruto’s promise of four million jobs carries a thick curtain of doubt, especially after he and President Uhuru Kenyatta failed to create one million jobs every year – a total of five million – during their first term as outlined in the 2013 Jubilee manifesto.
Less than a year to the end of their 10-year tenure, the assurance of creating those jobs remains an empty promise.
About a fortnight ago, One Kenya Alliance (OKA) principals also promised to slash the tax burden by half and pay the almost Sh7.7 trillion national debt in two years if their alliance leads the next government. OKA has also made headlines with the promise of offering Kenyans free secondary education.
For economists, such promises are “just politics”. Economist Billow Kerrow says the promises are mere attempts by politicians to win votes.
“Our taxes are no longer under the control of this government. Taxes are literally mortgaged because of the public debt. So, forget about providing free secondary education,” says the former Mandera senator.
“It’s a contradiction because how can they promise to reduce revenue and increase expenditure. It doesn’t make sense,” says Gichinga.
According to Gichinga, none of the presidential aspirants has a clear economic model yet for a country to resurrect its economy. He says a clear strategy should be around four factors of production; land, labour, capital and enterprise.
These factors are the building blocks of an economy. Land provides the necessary raw materials in the production process and labour involving the quality of skills wielded by the population. In these two areas, the government has failed in getting maximum return from land and labour but it’s in capital and entrepreneurship through high interest rates on loans and over-taxation that the strive for economic rejuvenation meets its roadblock.
“If we go to the west, you find interest rates at about maybe three per cent. When you come to Kenya, it is close to 20 per cent,” says Gichinga.
“The entrepreneur is at the heart of the economic model because entrepreneurship puts together land, labour and capital. So we need to ask ourselves what are the challenges affecting entrepreneurs?”
At the centre of Kenya’s economic problem, according to the two economists, is our “punitive taxation policy, corruption and public spending on misplaced priorities.”
“I think that’s where the problem lies. Taxation is at the heart of economic policy. In fact, if a candidate does not have a tax policy, they really don’t have an economic model,” says Gichinga.
“None of these presidential aspirants has a concrete plan on how to deal with graft and the problem of excessive public spending,” adds Kerrow.
In the fiscal year 2020/21, the government generated Sh2.2 trillion as of April 2021. In the full fiscal year 2019/2020, government spending amounted to approximately Sh2.6 trillion, consisting of salaries and wages, interest payments, pensions and payments for maintenance, and operations.
In January this year, President Uhuru Kenyatta signed the Tax Laws (Amendment) (No 2) Bill of 2020, which increased Value Added Tax (VAT) from 14 per cent to 16 per cent and corporate income tax from 25 per cent to 30 per cent, among others. Currently, consumers are paying around Sh56.46 as taxes and levy per litre of petrol.
Poor track record
With history proving that governments have a poor track record at creating jobs, politicians’ promise of doing the same seems improbable as shown by Jubilee Party’s promises in 2013 and 2017 in the Big Four Agenda. “The way forward will be for entrepreneurs to survive and create jobs. To do that, they need low-interest rates when it comes to credit. They also need reduced taxation, and a better regulatory environment,” says Gichinga.
The economists also fault the political scene for lacking good governance and weak political parties, which are periodically used as vehicles for scooping votes.
“Political parties have to start mattering, what is our philosophy in economics? What is our philosophy in politics? What is our philosophy?” poses Gichinga.
From an economist’s perspective, governments are to provide security and stability and a level playing field. The rest can be done by private investors and private capital.
Gichinga says presidential aspirants should form a government that packages its policies to deal with the ballooning national debt, change in tax policy and develop a stimulus plan to pay suppliers to inject money back into the economy.
With the ‘promise season’ gaining speed and politicians’ handouts being taken to a grander scale through the promises of support programmes that may never come to fruition, the ball is in the electorate’s court on August 9, 2022.
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