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Kenya’s top two per cent eating half of our revenue

By XN Iraki | April 9th 2017 at 12:00:00 GMT +0300

In his State of the Nation Address, President Uhuru Kenyatta alluded to 2 per cent of the Kenyan population that takes half of the national revenues in salaries and allowances.

Salaries and Remuneration Commission (SRC) chairperson Sarah Serem had alluded to the same earlier. With a population of about 45 million, Kenya has about 718,400 public sector employees.

It was curious that their comments did not elicit much discussion or anger. The popular refrain is that by diverting most revenues to salaries, we deny development its share and fail to build economic potential of the country and counties. Could that explain the borrowing binge to build infrastructure and other projects?

What no one says loudly is that governments have a bloated workforce. Most county governments seem to have taken advantage of the transition to hire more employees. I overheard one MCA saying his county hired 167 drivers. The national government has too many employees too.

Create more efficiency

Despite reducing the number of ministries, no one lost his or her job. Despite devolution, no one in the national government lost his or her job. It has been suggested the high number of idle workers created a fertile ground for corruption. Yet, retrenching those people will be politically costly. If you recall, in the run up to 2007 polls, one political party almost took over Rift Valley by claiming that Mwai Kibaki government had sacked their people from government.

Lots of government jobs would be abolished if it was sold! That would not only create more efficiency, but free up resources for other sectors of the economy. The last time government retrenched (diplomatically called right sizing) was through the infamous golden handshake with unintended consequence, the best employees were the first to leave.

For now, it seems 2 per cent will continue taking 50 per cent of the revenue. It does not matter who wins in August 2017, I do not foresee anyone being sacked from the Government in a country with such high level of unemployment.

After all, which firms employ 718,000 people in Kenya like the government? Elsewhere they do with Walmart employing about 2.2 million people. The other big employers will surprise; G4S has about 618,000 people. Randstadt Holding NV of Netherlands has 595,730, Volkswagen AG has 555,097 and PetroChina Co. Ltd has 544,083 employees (data for 2014).

There would be no problem if the salaries and wages were commensurate with their productivity. The huge public wage bill masks another factor; most of the revenues that pay them come from the private sector, through taxes. Is it fair to use private sector sweat to pay people who work less hard in the public sector? Some observers will add that, the less work in the public sector translates into less pay and there is no need of worrying.

Unemployment in Kenya is quite high meaning that the few who work in stable public sector jobs are “lucky.” About 15 per cent have formal jobs in the private sector. About 83 per cent of the total employed people in Kenya are in the informal sector, according to data from KNBS. They work under the uncertainties of the market, job insecurity and often insecurity in old age. Kenya is really the land of hustlers.

Clearly, there is a good case for reviewing the wage bill so that the revenues generated by all citizens, assuming everyone pay taxes can be more equitably shared. Who can take the political risk of doing that in an election year? It is instructive that the president pointed out that the salary cuts, better called harmonisation will take place after 2017 polls.

Economic productivity

How about making the employees more productive instead of reducing their salaries? Would that be a better option? How effective was performance contracting which was geared towards making employees more productive?

A better question would be what do the 2 percent do with their wages and salaries? It is instructive to note that about 41 percent of the 2 percent are teachers. Now you know why the Government had to negotiate with them. Teachers take about 36 percent of the public wage bill.

The 2 percent use the money either in consumption, buying food, paying rent and other activities or they invest it to create more potential for economic productivity. But money the 2 percent get is too dispersed to have a noticeable multiplier effect leaving us in a rut.

Too much effort is focused on the 2 per cent. Most government policies are about them from pension to healthcare to infrastructure. Noted the number of roads without pedestrian walkways, yet only about 1.5m Kenyans own cars. They get loans, housing, and children for their kids and prestige that goes with less toil and drudgery. That is why government jobs should be given out as fairly as possible. I have always suggested through lottery. Get the all the minimally qualified and use lottery, its less subjective.

Does 2 per cent exist beyond public sector? Does a similar 2 percent exist in the private sector? I think it does. This is espoused by some well paid men and women against the majority who take home just enough to keep them alive. You see the 98 percent walking to work on Waiyaki way, Lang’ata and Thika roads in the morning, they can’t afford bus fare.

To investigate if a 2 per cent exist in the private sector, we cloud sourced data on the ratio of the highest paid to the lowest paid employees in private sector. The sources were assured of confidentiality.

Interestingly, The USA security and exchanges commission (SEC) has mandated that from 2017, public firms must disclose the ratio of CEO pay to median worker pay. We need to follow suit. Walmart ration is about 1,133; Discovery Communication is 1951 and Chipotle 1522. It would be higher if we compared CEO pay against the lowest paid.

Conspicuous consumption

These figures portray inequality, where a few get lots of money and the rest very little. Such inequality breeds crime, instability and death of innovation. The 2 per cent have it too easy and see no reason to go beyond the call of duty, hence minimum innovation and the urge to maintain status through dominance of social discourses in the media, assemblies and other institutions.

Thorsten Veblen long wrote about the leisured society and their conspicuous consumption. If he wakes up today, he would be very surprised how right he was a century ago. Noted how show off, riding on materialism has become a big business in Kenya?

Upward mobility is thwarted through exclusion based on clubs, schooling and more recently marriage. Rarely do the 2 percent intermarry with 98 percent. The status quo is further maintained by the fact that the 2 percent’s economic power translates to political power.

In other countries, the 2 percent (it can be 1 per cent), mitigate the effects of inequality by taxation which spreads the benefits to the other 98 percent. Philanthropy and welfare checks are other avenues through which 2 percent help the 98 percent. The checks to the elderly is a step in the right direction.

—The writer is senior lecturer, University of Nairobi. [email protected]

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