Many businesses in Kenya are experiencing 'the great depression' barely four years after the Jubilee administration inherited a boisterous economy.
Jubilee has degraded the economy into pathological atrophy with runaway corruption, mismanagement and sleaze.
Atrophy is the general physiological process of reabsorption and breakdown of tissues, involving apoptosis. When it occurs as a result of disease or loss of trophic support due to other disease, it is termed pathological atrophy.
Many companies have closed down operations and laid off staff, citing corruption at Kenya Revenue Authority's customs department, unsustainable high energy costs and haphazard tax policies.
Manufacturing companies like Yana tyres, Cadbury, Eveready, HSBC, Colgate Palmolive, Reckitt Beckiser and Tata Magadi have closed down over the past four years and laid off over 2,000 workers. Considering that one well-paying job in the manufacturing sector creates six more jobs in other sectors, Kenya may have lost over 120,000 jobs so far, and counting, because other companies, including banks and media have recently been retrenching.
It is now generally accepted that many cross-cutting factors have led to an under-performing economy at a persistent 5.6 per cent range down from the 8.4 per cent peak in 2010, the highest since independence. Before the rates capping law, banks had impoverished many businesses with killer rates averaging over 20 per cent, creating a lag which has made a turnaround take longer.
Corruption has also contributed to stagnation from abuse of the Integrated Financial Management Information System and disregard of procurement laws. Businesses have also suffered from low budgetary absorption of development funds leading to long periods before suppliers get paid, some taking years before getting money from national and county governments.
It has not helped that most of development money is borrowed after rigging of budget by civil servants. The 2016/17 budget is estimated at Sh2.23 trillion out of which 56 per cent (Sh1.25 trillion) will go to recurrent expenditure.
This colossal amount includes civil servants' perks like travel and hotel allowances, per diem, imprests and other wastage the country can do without. This wastage is estimated to cost you and me Sh450 billion annually.
We pay extortion allowances to State actors, leaving nothing for development from ordinary revenue. This is why the World Bank said "although public debt remains sustainable, margins for maneuver are rapidly narrowing". This means that Kenya might go bankrupt in the near future unless budget rigging is stopped.
A key problem appears to be tax revenue. Whereas KRA expects to collect Sh1.39 trillion, that money will be collected from among only two million taxpayers out of 21 million adults representing a compliance rate of only 9.5 per cent out of best practice of 85 per cent. A further 2.2 million registered with itax platform are not active.
This calls for tax reforms (including reforms at KRA) like graduated VAT, daily collection methodologies among SMEs who consist 35 per cent of gross domestic product (GDP) and mapping of properties using GEOCRIS. Total collections will be 20 per cent of GDP, meaning that those who comply are overtaxed.
All this might have political consequences for re-election of Jubilee on August 8 next year. Remember August is usually a bad month for Kenya.
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