Kenya has a huge budget deficit of Ksh. 600billion (US$6bn), roughly equivalent to a fifth of the Ksh. 3 trillion (US$30bn) Budget for the FY 2018/19. Analysts reckon that we are breaching the global benchmark for debt to GDP ratio. Government is unperturbed. Lenders, analysts, business and private-citizens citizens on the other hand, are worried stiff.
Were we ready for the Big Four Agenda?
This budget deficit is all the more pertinent given that government has to mobilize domestic financing to underwrite, and achieve President Kenyatta’s ambitious ‘Big Four Agenda’ by the end of 2022, when his second, and final five-year presidential term ends. The Big Four Agenda, President Kenyatta’s legacy project, has identified four goals – attainment of universal healthcare, increasing the share of the manufacturing sector’s contribution to GDP from the current 9% to 15%, building 500,000 affordable homes and achieving food security for the 45 million Kenyans by the 2022 – as a panacea to the overcome the endemic socio-economic factors that hinder the attainment of the annualized 10% gross domestic product (GDP) growth that the country needs as base to become a middle-income economy by the year 2030.
Government avers that these priority sectors, and enablers like the digital economy and the massive investment in infrastructure undertaken over the last decade, are what underpin Kenya’s quest to become a middle-income economic status by 2030, lifting millions of Kenyans out of poverty, as laid out in the second Medium Term Expenditure Framework (MTEF) 2018-2022 of the Vision 2030 Development program.
To achieve these lofty goals, and to meet its domestic revenue targets to finance these projects, the national government has identified the digital economy as a potentially lucrative corporate and individual tax base, amongst a handful of other sectors like the construction industry and the ‘sin’ industry – alcoholic beverages, tobacco manufacturers and distributors, and the betting, gaming and lotteries industry. Private-sector and analysts opine that further taxation will only drive the sectors to their knees, kill innovation and jobs, outrightly killing the goose that lays the golden egg, further expanding the untaxed, unregulated, informal, grey economy, killing the very essence of this initiative.
Sections of the private-sector and general public are skeptical of the viability of the Big Four Agenda projects and targets. And they point out that there is ample evidence to back their claims. That though public-private-partnerships (PPPs) are a great avenue for mobilizing cheap private-sector capital, excellent professional competencies and economies of scale to implement these projects, the robustness of the preferred Public-Private-Partnership (PPP) implementation models, tight lead times and implementation deadlines place onerous demands on the sector and shift the burden to the sector without adequate information about the Big Four Agenda.
Further, they argue that the limited public and private-sector participation in the identification of the priority sectors, and formulation of the flagship projects; a mixed track record of success in Kenya’s structuring and implementation of other PPP projects, including the robustness of the existent PPP policy and legal framework; rampant corruption in government tendering and award of projects; limited balance sheets of implementing agencies and ineffectual exit strategies for investors; inadequate risk-sharing between government and the private-sector; rising country borrowing leading to indebtedness and raising the default risk; unresolved stakeholder issues around land; and a shaky financial forecasting as government contribution is based on projected tax revenues that focus on the existing, thin and already over-taxed tax base all elevate the risk profile of these projects and government is unwilling to commensurately insure against these elevated risks.
However, government and technocrats are confident about the projects financial and technical feasibility. Government avers that these priority sectors, and enablers like the digital economy and the massive investment in infrastructure undertaken over the last decade, are the what is needed to achieve middle-income economic status by 2030, lifting millions of Kenyans out of poverty, as laid out in the second Medium Term Expenditure Framework (MTEF) 2018-2022 of the Vision 2030 Development program.
What does the government need to do to win over sceptics?
To allay these fears, and win over skeptics and the growing list of naysayers, government, especially the President’s Delivery Unit (PDU) under which the Agenda falls, needs to climb from its high hobby-horse and address these concerns. Citizens and the private sector need assurances that these are not conduits for corruption and that the projects will not turn out to be white-elephants. This can be achieved through targeted, believable, open-minded communication and engagement.
The PPP Amendment Bill needs to be fast-tracked, aggressively and widely disseminated so that the sought-after amendments capture the letter and spirit of what the Kenyan people aspire to in the PPP Framework. We have interfaced with PPPs and concessions for over a decade and have varied experiences – why has this worked in the energy sector? Why did it fail in the Kenya Railways-Rift Valley Railways? Why have the 73 PPP projects stalled over the last four years?
Government needs to show unwavering commitment to, and tangible results, for its much-talked about anti-graft purge and lifestyle audit. Without high profile convictions, and asset-recovery to show for this purge, this will remain another Kenyan talk-shop, and no right-thinking Kenyans will part with their hard-earned money for another nebulous government adventure.
Lastly, government needs to be open and transparent about the level of indebtedness and types of contacts signed with different lenders, especially the Chinese. Under the Access to Information Act 2016, and the commitment to the second phase of the Open Governance Initiative, what would be more assuring than an open audit of the debt, contracts entered into, repayments and value-for-money disclosures?
By Hezron Gikanga,
Government Relations/Public Affairs