As Kenya politics turns to mudslinging towards the 2027 General Election, forgive one for thinking power is the only oxygen the political class fights for, not the people.
The Treasury and Parliament help them tear the Kenya economy apart in sales of public assets, corruption and borrowing unaccounted for as well as untraceable billions of shillings cover for medical expenses of Kenya’s civil servants, as per the Auditor-General.
A Cabinet Secretary proposes the auctioning of Kenya’s unprecedented wealth in natural resources. In Wanjiku’s households meanwhile, millions go hungry. Livestock is destroyed and floods terminate livelihoods.
The opposition (supported by Gen-Z) seems too angry to plan the revitalising changes required to secure Kenya’s future.
It must plan calmly a recovery like never before, carrying and publicising a macroeconomic template or shorthand to guide the economic resuscitation. Essential shorthand and critical lens for structural and policy transformations to prevent collapse are set out in an illustration that I used recently at Strathmore University.
It provides five vital handles for change:
1) structure and employment of the labour force;
2) engineering poor revenue performance devoid of inequity/inequality of taxation;
3) reform of the financial system (doomed by perpetual ‘crowding out’- the collusion of government/banks to exploit Kenyan depositors for record profits each year);
4) redress sectoral biases in fiscal support: Kenya ignores the sectors most of the population subsists on – agriculture and MSMEs; and
5) the country has a golden window: Rebuild a modern economy from recent and rich natural resource discoveries.
The mismatch of labour force vs unemployment: The principal duty of government in macroeconomic activity is to raise investment and employment of its labour and skills to optimal levels for growth and a stable economy, applying both fiscal and monetary tools and regulation.
The current government scores zero out of 100. Instead, it exploits its labour via migrant bureaus and operatives, including embassies propelling Kenyans to work in foreign countries (pity the Middle East window now closing).
Yet, following Mwai Kibaki’s education reforms, we boast world-class skills and capacity. Leaders couldn’t be bothered, in a labour force of 23.8 million, according to KNBS, some 82 percent is unemployed or in the informal sector in MSMEs.
Only 3.1 million (12 percent) have formal jobs. Embarrassing evidence of failure to grow employment is revealed repeatedly. Kenya’s decorated Prof Patricia King’ori at Oxford University, in her You-tube documentary, Shadow Scholars, expounds how at least 40,000-50,000 highly educated Kenyans, in Nairobi alone, work as academic ghostwriters for major western universities.
They earn as little as $1 per hour, while rivalling expert professors globally.
Again, the Kibaki macroeconomic reforms from 2002, by expanding domestic private sector economic activity where Kenyans make their livelihoods, is the pipeline to grow the future economy with these experts, not ghost-writing, or financial sector forays by government in asset sales and borrowing.
Fiscal inequity and inequality in taxation: Of the formal workers, only 387,418 (12.5 percent of the 3.1 million constituting only 12 percent of the total labour force in formal employment) earn Sh100,000 or more monthly.
This group not only supports unemployed masses with subsistence, but also, it is pressured and raided by government to pay stiff taxes, including ones bordering on illegality, such as the housing levy.
Is anyone surprised that the KRA’s revenue collections miss targets, latest by a whopping Sh84 billion? Or that a widespread perception dogs a corrupt fiscal system, of exploiting workers? To add salt to injury, revenue leakages coexist with poor accountability at national and county government levels.
The Auditor-General and the Controller of Budget have grown hoarse from repeatedly documenting theft and misappropriations, including embarrassments like ‘the billions for breakfasts’ at the hill.
The government responds to revenue weaknesses by sales of public assets and forays into issuance of domestic and external debt (whose repayments will fall on future generations, including the children of unemployed Gen-Z. Kenya today pays top shilling on debt, with yields bordering on illegalities.
The impact of Debt repayments are 68-80 percent of revenues. It leaves only about 30 percent of total revenues to address budgetary spending meant to grow sectors such as education, health, agriculture et cetera.
Surprisingly, we have been there before and survived misrule and waste. When Moi engineered similar malfunctions in the economy, for over two decades, Kibaki from 2002 showed how to coordinate fiscal/monetary policy space towards the population by triggering a massive economic revival to awaken a stagnating economy.
Kenya became one of Africa’s fastest-growing economies, with GDP growth rising from 0.4 percent in 2002 to approximately seven percent by 2007.
Revenues rose by 290 percent from Sh211 billion in 2002 to Sh823 billion in 2013. Kenya financed over 90 percent of its budget locally and left debt servicing at a level of only 18.7 percent of revenue.
The current challenge of Gen-Z and the United Opposition is to frame and enforce a new economy primed to create jobs in the high-potential sectors. Incomes will rise with revenues as pesa mfukoni raises incomes in tandem with tax collections. The Treasury should appoint high-level experts to manage the economic revival.
‘crowding out’ – the CBK/Treasury monetary/fiscal policy duplicity: In February, for the 10th consecutive rate cut, the CBK lowered the Central Bank Rate (CBR) by 25 basis points to 8.75 percent.
Meaningless in idioms, these rate cuts are for the birds. Kenyans owning customer deposits in the banking system (who should be able to borrow for economic activity in financial intermediation) have little or no access to credit.
They even have better access from saccos. Banks and even foreign portfolio investors offered Treasury bills and bonds lending to government, earning heart-stopping profits. Kenyan banks largely pay customers peanuts but trade the deposits for extraordinary returns on equity (ROE of 20 percent).
This index is over double the earnings of major US banks (earning ROE of about 10 percent). The world over, private sector credit is the driver of GDP – with credit/GDP ratios topping over 190 percent for the US, China and Japan.
While Kenya shoots itself in the foot, its financial sector fails the real sectors by perpetual denial of capital accumulation, decimating even leading sectors with growth potential. Kenya’s private sector has a lower access to credit than sub-Saharan Africa (SSA): 31.6 percent versus 33.1 percent.
Sector policy support mismatch: Gen-Z and United Opposition must reject tax exemptions, the easy favourite that smart-suited lobby groups exact from the political class instead of raising productivity. The largest sectors like agriculture, where most Kenyans subsist, now operate in crisis.
Fertile agricultural land lies idle while Kenya imports 80 percent of its wheat, 75 percent of rice, and 90 percent of edible oils.
The neglect exposes Kenya to global vulnerabilities. Early in the life of current regime, discriminatory tax exemptions and debt write-offs were signified as a key complaint of the incoming World Bank Country Director.
Excess exemptions extracted by the manufacturers’ lobby group, and on the sugar sector debt write-offs for western Kenya, amounting to over Sh100 billion were exceptional fiscal inequalities, distortions for removal.
Exploit Kenya’s serendipity of natural resources with smart policies: Kenya shines like God’s country, up to now having sat on significant natural resources recently discovered-coltan, niobium, gold, manganese etc.
The surprising news is the resources are worth trillions if we capture the moment- as in Nigeria’s oil, Botswana’s diamonds and rare earths, Zimbabwe, Namibia, DRC, Morocco, Gabon: Unlike the Cabinet Secretary cited, the key to the future is moving up the global manufacturing value chains, not auctioneering.
As I analysed for Strathmore University recently while launching the MSc (Econ) at the Institute of Mathematical Sciences (SIMS) the new serendipity combined with Kenya’s capacity could move Kenya to Singaporean heights, much faster, while clarifying investor climate.