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RIDING THAT TRAIN, HIGH ON COCAINE: Standard Gauge Railways In Kenya and Tanzania

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China colonises Africa

Kenya has both narrow and standard gauge railways running in parallel between Mombasa and Nairobi. Tanzania is gearing up to build a standard gauge line to Morogoro and beyond while it goes ahead with rehabilitating the existing metre gauge line. The SGR is portrayed as an ambitious regional policy linking the six EAC countries, but without unprecedented cross-border cooperation and financial commitments, it is likely to end up as two costly unfinished initiatives: Luxury passenger trains from Mombasa to Nairobi and Dar to Morogoro and (maybe) Dodoma. As collateral damage, these politically driven projects sound the death knell of the existing railway networks, including moribund branch-lines, which have suffered from decades of neglect and poor management.

For better or for worse, most cross-border freight will continue to be transported by road thanks to the private fleets of trucks built up during the post-liberalisation years in Kenya, Tanzania and Uganda

For better or for worse, most cross-border freight will continue to be transported by road thanks to the private fleets of trucks built up during the post-liberalisation years in Kenya, Tanzania and Uganda. The political influence of the trucking lobbies will help keep the roads in a reasonable state of repair. In theory, China’s One Belt One Road initiative includes the EAC-wide SGR, but in practice the rollout of the new railway will depend on intra-EAC politics, the availability of Chinese loans, or other funding, such as a sovereign “railway bond.” Going further down this route would be a recipe for disaster.

KENYA: A NEW ‘LUNATIC EXPRESS’?

“In terms of industrialisation and job creation, the impact of the SGR will be massive.”[1]

On May 31, President Uhuru Kenyatta inaugurated the Madaraka Express, thus fulfilling one of his 2012 election promises ahead of the 2017 election. If as seems likely, he retains the presidency, he will be looking for funds to continue the Express to Naivasha and beyond. The government has sold Kenyans the notion that SGR is preferable in all respects to the existing metre gauge. It is modern, faster, safer and capable of carrying greater loads, Kenyans are told. The country’s overused and murderous roads will be given a breather as freight and passengers revert en masse to rail.

Implausibly large increases in freight are required to justify the costs involved, particularly if the SGR is to extend beyond Nairobi. At $3.8 billion, the first section of the SGR is considered highly overpriced

More sober analysis suggests that, beyond short-term gains in terms of greater customer convenience, the SGR is likely to be economically and financially unviable. Implausibly large increases in freight are required to justify the costs involved, particularly if the SGR is to extend beyond Nairobi. At $3.8 billion, the first section of the SGR is considered highly overpriced.[2] To continue the line from Nairobi to the Ugandan border would cost an additional $7.2 billion, nearly double the cost of the Mombasa-Nairobi stretch.[3] Speed is not a key issue for freight, which is where the potential profits lie. What matters is cost, predictability and reliability.[4] For the projected freight volumes and axle loads, upgrading the metre gauge would have been quite adequate, some argue, at a fraction of the cost of SGR, and could have been entirely financed through the Railway Development Levy on imports.[5] SGR’s purported advantages over other gauges have been over-hyped: Brazil and South Africa move much more freight than the EAC is ever likely to with metre gauge and Cape Gauge respectively. As to being modern, the standard gauge has been around since the 1840s, when the US government declared it as the standard to be followed in all future railway construction for interconnectivity purposes.[6]

Currently, 95% of the freight leaving Mombasa goes by road and three-quarters of all freight is destined for Nairobi. Extending the SGR beyond Nairobi is unlikely to be economically viable. Trains cannot compete with trucks for scattered destinations in Kenya and further afield.[7] Last, anything near the cost of the Mombasa to Nairobi line ($5.6 million per kilometre) would be difficult to sell to Kenyans or potential financiers, and a more reasonable construction cost per km would lay bare the rip-off of SGR Part 1.

Qalaa Holdings, the main Rift Valley Railway (RVR) concessionaire, are rightly worried that the SGR will put them out of business. In 2014, RVR received a $70 million loan from a consortium of international financing agencies, as part of their $287 million financing plan for the period 2011-16. Though progress has been slow, RVR has at least increased its freight volumes, from under a million tonnes in 2012 to 1.5 million tonnes in 2014.[8] In April, Kenya Railways Corporation served RVR with a termination notice for failing to pay fees and missing performance targets.[9] Uganda is also terminating its agreement with RVR, who are likely to sue the GoK /GoU for the loss of business occasioned by the opening of the new line.[10]

By the standards of political corruption in Kenya, the SGR arguably represents considerable progress. Whereas the Goldenberg and Anglo-Leasing scams involved simple looting of the Kenyan Treasury over largely bogus projects, the SGR gives Kenyans a spanking new railway

There is a view that KRC and Uganda Railways Corporation were never happy with the privatisation of the “lunatic express,” which was heavily leveraged by donors, and that the SGR will serve to kill it off once and for all. If this happens, there will be no freight service to Kampala until the SGR is extended. Moreover, all the narrow- gauge branch lines that could have been rehabilitated will be closed down once and for all.[11]

By the standards of political corruption in Kenya, the SGR arguably represents considerable progress. Whereas the Goldenberg and Anglo-Leasing scams involved simple looting of the Kenyan Treasury over largely bogus projects, the SGR gives Kenyans a spanking new railway that will whizz them between Mombasa and Nairobi in double quick time with (hopefully) minimum risk to life and limb. No wonder wananchi are cheering. Even if the railway is (say) a billion dollars (Ksh100 billion) overpriced, that’s still a snip compared with the cost of Goldenberg (an estimated 10% of GNP)! Unfortunately, the cost of running uneconomic services may in the long-run exceed the cost of Goldenberg and Anglo-Leasing combined.

But equally sobering is the fact that just to build the Mombasa to Kampala SGR would cost in the region of a quarter of Kenya’s 2015 GDP at present estimates. There must be other priorities.

TANZANIA: PLAYING CATCH-UP?

“The new train is expected to travel at high speed of 160 kilometres per hour…”[12]

President Magufuli’s SGR initiative is his flagship infrastructure development project, but finding finance has proven problematic.[13] In January 2014, the SGR process was endorsed enthusiastically by the Davos World Economic Forum, attended by President Jakaya Kikwete. An agreement signed in May 2015 with the China Railway Materials Group proposed a standard gauge line from Dar es Salaam to Mwanza, Kigoma and Msongati in Burundi costing $7.6 billion. China’s Exim Bank would fund 10% of the project, which was partly justified as a means of accessing large mineral deposits in Tanzania and Burundi, while Tanzania was tasked to find the balance from private sources. Rothschild, one of the world’s largest financial advisory groups, was hired as a contract advisor, and it was hinted that a consortium of private financiers was being assembled. No such consortium emerged, and there has been no more talk of private finance. [14] In February 2016, Minister of Finance Philip Mpango “set the record straight,” declaring that “Tanzania cannot afford financing the SGR project using our own funds.”[15]

Why did Tanzania decide that it too wanted to go SGR when the experts warned that it was not a good idea? In a 2009 study, Canadian Pacific Consulting Services concluded that the benefit of replacing metre gauge by standard gauge in East Africa would be ‘marginal.’

Consequently, the contract with the Chinese was cancelled over alleged irregularities in the tendering process. Seeking alternative finance, President Magufuli unsuccessfully approached South African President Jacob Zuma for a loan from the BRICS bank, and the World Bank president Dr Jim Yong Kim for an IDA credit.[16] Turkish President Recep Erdogan was also lobbied during an official visit.

In April this year, Magufuli settled for a Phase 1 SGR from Dar to Morogoro (194km) costing Tsh1 trillion ($450 million), to be financed out of the country’s development budget. The contract was awarded to a Portuguese-Turkish consortium, said to have been the only bidder.[17] Phase 2 should see the line extended from Morogoro to Dodoma (263km), for an additional Tsh1.5 trillion ($675 million).

Why did Tanzania decide that it too wanted to go SGR when the experts warned that it was not a good idea? In a 2009 study, Canadian Pacific Consulting Services concluded that the benefit of replacing metre gauge by standard gauge in East Africa would be “marginal.” The conversion of the rail backbone to standard gauge was considered “cost prohibitive” using “even the most optimistic” traffic and income projections. [18] In a 2013 study, the World Bank concluded that rehabilitating existing lines was the most promising option, with a cost of $0.18 million per km compared with $3.25 million per km for standard gauge, or 18 times more.[19] But earlier feasibility studies claimed the SGR was viable. For example, in 2003, the African Development Fund financed a feasibility study for a standard gauge line from Isaka in Tanzania to Kigali and Bujumbura (1,435km) that declared the project feasible and “attractive to private investors.” This and subsequent detailed engineering proposals costing millions of dollars were based on the assumption that the new line would be built from Dar to Isaka (953km)![20]

Like Kenya, Tanzania has a poorly performing railway linking Dar to the rest of the country.[21] In November 2016, Prof Makame Mbarawa, Minister of Works Transport and Communications, told a transport sector meeting of officials and donors that the government planned to both rehabilitate the existing Central Line and start the construction of the SGR. On June 2, Reli Assets Holding Company Ltd (Rahco), issued tender documents to rehabilitate the existing railway from Dar es Salaam to Kilosa, a distance of 283km, using funds from the World Bank’s $300m Tanzania Intermodal Rail Development Project (TIRP). Launched in 2014, TIRP has had a hard time getting off the ground. It appears that while Rahco was negotiating the rehabilitation project with the World Bank, discussions were also going on with the Chinese for an SGR loan. While rehabilitating the Central Line makes sense, and is long overdue, doing this and launching the SGR concurrently makes no sense at all.[22]

While rehabilitating Tanzania’s Central Line makes sense, and is long overdue, doing this and launching the SGR concurrently makes no sense at all

Tanzania aspires to replace Kenya as the largest economy in the region, and this rivalry spills over into reciprocal trade restrictions and disagreement over the Economic Partnership Agreement with the European Union that hinder rather than promote regional integration. Inter-regional trade is said to be declining.[23] It is to be hoped that the two countries will not get involved in a wasteful beggar-thy-neighbour competition over who can build the swankiest SGR to capture the modest business in the region, especially freight, including that of their landlocked neighbours.

EAC: CO-OPERATION OR COMPETITION?

The completion of the Mombasa-Nairobi section of the SGR does not guarantee that the remainder of the Kenyan portion to Kisumu and then on to the Ugandan border will be financed, let alone the Ugandan and Rwandan sections. Though China’s Exim Bank has financed the major part of the construction to date, it appears reluctant to advance further credit without guarantees that Uganda is committed to the project.[24] Both Rwanda and Uganda are weighing up the pros and cons of the Kenyan and Tanzanian SGR options.

The early promoters of the SGR sold the project as a major step towards East African integration and economic development, including stimulating mineral exports from the EAC, DRC and elsewhere. But the above discussion suggests that, far from constituting a co-ordinated strategy to promote EAC economic integration, the two SGRs in progress are competing for much of the modest cross-border freight business. Dar and Mombasa ports compete for transit traffic. When Dar announced in 2016 that it planned to impose VAT on goods in transit, importers switched to Mombasa.[25] Realising its mistake, the Tanzanian government removed the VAT, and now hopes to attract business back from Mombasa, helped with a $150 million loan from China to upgrade the port’s handling capacity.[26]

The completion of the Mombasa-Nairobi section of the SGR does not guarantee that the remainder of the Kenyan portion to Kisumu and then on to the Ugandan border will be financed

Two-thirds of the cargo arriving in Dar port stays in Tanzania, most of the rest heads for DRC, Zambia, Burundi and Rwanda. Most Mombasa cargo stops at Nairobi, as already pointed out. Thus, given the modest volume of freight destined for landlocked countries, the justification for an EAC-wide SGR cannot be based on facilitating cross-border trade, or its likely increase in volume in the foreseeable future. SGR apologists simply ignore the economics of the huge investments required to capture such little business. If one SGR is less than obviously viable, then two can only be disastrous.

KEEP ON TRUCKING?

One key element rarely discussed in all this is the robustness of road transport throughout the region. Since trade liberalisation, Uganda, Tanzania and Kenya have built up impressive fleets of trucks carrying both fuel and containers, and road haulage has largely replaced rail, reflecting the dynamism of the private trucking sector compared with the inefficiently managed and undercapitalised state railways. Pro-road policies have been lobbied for by business associations with the support of ruling elites, themselves involved in trucking. Passengers have also migrated to privately owned buses.

The question from an EAC transport policy perspective is how state-owned railways can claw back enough trade from the trucking industry to become profitable without state subsidies, the use of force, or additional taxes. In an age where commercial activities are overpoweringly undertaken by the private sector, the move to SGR looks suspiciously like an attempt to replace relatively efficient, competitive private enterprises by state-owned monopolies. Already, importers are getting ready to resist any attempts by the GOK to force traffic onto the SGR.[27] According to one commentator on Tanzania’s proposed SGR, President Magufuli will “have to deal with the truck cartels… that have succeeded for over 40 years in keeping the government out of railway construction and maintenance.”[28] Though perhaps an exaggeration, the concern is real for all three EAC giants. Arguably more important, aid agencies have poured billions of dollars into road construction and upgrading throughout the region, much of the work undertaken by Chinese contractors.

Since trade liberalisation, Uganda, Tanzania and Kenya have built up impressive fleets of trucks carrying both fuel and containers, and road haulage has largely replaced rail, reflecting the dynamism of the private trucking sector

To plan implementable Community-wide infrastructure initiatives for the EAC rather than ad hoc bits and pieces would require an empowered EAC Secretariat with both technical competence and a delegated political mandate. SGR initiatives to date reveal that neither condition holds.[29] In March 2017, Fred Mbidde, the chair of the East African Legislative Assembly’s Committee on Communication, Trade and Investments, complained of “minimal collaboration between the regional projects.”[30] So we can expect more of the same: Dar competing with Kenya for transit trade and economic dominance, while the landlocked countries blow hot and cold on which rival to support, if any.

Politics trumps economics, as is often the case

Our presidential ruling elites are not driven to endorse major investment decisions involving private or state capital on the basis of techno-economic arguments. Their decisions are driven by short-term political considerations. When people like Kiriro wa Ngugi,[31] David Ndii[32] and John Githongo[33] blow large holes in the claims of the SGR apologists on technical, fiscal/financial and governance/corruption grounds, they are met with threats, not evidence-based counter-arguments. “No one and nothing will stop us from building the railway…” stormed Deputy President William Ruto in response to critics.[34]

For the most part, our ruling elites think short-term. Long-term concessional finance for large capital investments is attractive because the current incumbents will be retired by the time the bill arrives for the reckless projects they are committing us to today

For the most part, our ruling elites think short-term. Long-term concessional finance for large capital investments is attractive because the current incumbents will be retired by the time the bill arrives for the reckless projects they are committing us to today.[35] This helps explain why mobilising state power behind the SGR may even appear to undermine the elite’s own business interests in trucking. As long as politics is in control, elites and their supporters are confident that their trucking interests will not be threatened.

WHITE ELEPHANTS IN A CHINA SHOP?

As part of its One Belt One Road initiative, China is busy funding infrastructure, including railways, across Asia, worth up to a trillion dollars. East Africa’s SGRs are perhaps the end of the One Belt line. Beyond this, China is building long-haul and urban railway systems in 35 African countries.[36] Is China overreaching itself? The strict conditions placed on further loans for the Kenya-Uganda line suggest that China is becoming increasingly circumspect in its lending practices, worried perhaps that borrowers will start defaulting on their loans. For Africa, this wouldn’t be the first time. The Africa-wide debt crisis at the end of the last century was the result of decades of borrowing from the World Bank, IMF and other official sources, much of it on uneconomic and unsustainable projects. The debts currently piling up through soft loans from China and other sources are potentially fuelling a second debt crisis that will in turn trigger another round of debt relief. But the Chinese terms for a bail-out are unlikely to be as generous as those of the donors at the end of the last century.[37] Tying debt rescheduling to commodity exports to China, including food, is one imaginable scenario should defaults become an issue.

East Africa’s enthusiasm for the SGR solution to infrastructural constraints, for which China ultimately bears responsibility, is not going to significantly improve the region’s overall transport system or competitiveness, and at tremendous cost

Without an efficient “intermodal’” transport system in place in the region – including ports, roads, and railways – economic dynamism is seriously compromised. East Africa’s enthusiasm for the SGR solution to infrastructural constraints, for which China ultimately bears responsibility, is not going to significantly improve the region’s overall transport system or competitiveness, and at tremendous cost.

The challenge is how to temper politically motivated, short-term decision-making with a strong dose of economic and financial rationality. In this respect, for the moment, the EAC, and most of its external supporters, are failing badly.

By Boyce Sarokin
Mr Sarokin is an independent researcher based in Arusha, Tanzania

 

ENDNOTES

[1] Kenyan Cabinet Secretary for Transport and Infrastructure James Macharia quoted ahead of the opening of the SGR from Mombasa to Nairobi. See: Xinhua 2017. “Kenyans upbeat ahead of new railway launch,” Guardian, 31 May.

[2] http://www.bbc.com/news/world-africa-40171095.

[3] Allan Olingo 2017. “Through Beijing, East Africa is upgrading its roads, railway and ports,” The EastAfrican, May 20. Different sources give different cost estimates.

[4] ‘Freight traffic operations are much more dependent on price and service delivery (predictability of time of arrival at the destination) than on actual speed between stations. The extra speed capabilities of SGR therefore provide limited advantage over a metre gauge operation.’ Africon Ltd 2011. “The East African Trade and Transport Facilitation Project, Part II: Transport Strategy,” East African Trade and Transport Facilitation Project, EAC, November, page 61. The estimated cost (EARMP 2009) of upgrading the entire EAC railway network to SGR was between $13 billion and $29 billion.

[5] See Kiriro wa Ngugi at: https://www.youtube.com/watch?v=IgbARMS1pyY.

[6] https://www.youtube.com/watch?v=hMUP_XMi434. The first commercial train, George Stephenson’s Rocket (1824), ran on what was to become the US standard gauge. http://www.custom-qr-codes.net/history-steam-locomotive.html

[7] Rail costs need to be 15-20% lower than trucks to compete. Unlike trains, trucks provide door to door services on demand.

[8] http://www.railjournal.com/index.php/freight/rail-freight-traffic-increases-in-kenya.html?channel=000.

At its peak in 1973, the railway transported 4.4 million tonnes.

[9] http://www.businessdailyafrica.com/news/Kenya-to-review-RVR-termination-notice/539546-3884948-xjptjf/index.html.

[10] The concession gave RVR a 25-year monopoly of railway services.

[11] Claims to the contrary by the GOK notwithstanding. See: Allan Olingo 2017. “Kenya to maintain sections of metre gauge rail linking old stations with SGR,” The EastAfrican, June 10.

[12] Florence Mugarula 2017. ‘Far reaching socio-economic benefits of SGR’, Business Standard, 18 April.

[13] Samuel Kamndaya 2015. ‘Sh60tr needed for mega projects’, Citizen, 3 September.

[14] Brian Cooksey 2016. ‘Railway rivalry in the East African Community’, GREAT Insights Magazine, Volume 5, Issue 4. July/August 2016 http://search.ecdpm.org/?q=*&fld_posttype=GREAT+insights+magazine&fld_author=Brian+Cooksey

[15] Christopher Majaliwa 2016. ‘High costs stymie standard gauge plan’, Daily News, 6 February.

[16] http://www.theeastafrican.co.ke/business/Tanzania-struggles-to-finance-SGR/2560-3935412-rggugq/index.html

[17] Athuman Mtulya 2017. ‘Issue sovereign bond to fund railway project, govt advised’, Citizen, 30 April.

[18] CPCS 2009 ‘East Africa Railways Master Plan Study’, East African Community Secretariat.

[19] World Bank 2013. ‘The Economics of Rail , Gauge in the East African Community, Africa Transport Unit, August.

[20] Craig Mathieson 2016. ‘The political economy of regional integration in Africa: the East African Community’, ECDPM, January, http://ecdpm.org/peria/eac.

[21] Managed separately, the Chinese-built and heavily indebted TAZARA railway from Dar to Zambia uses the 3ft 6in Cape Gauge. Jointly owned and managed by Tanzania and Zambia, TAZARA had accumulated debts of USD787m in 2016, blamed on ‘weaknesses in management’. See: Jaston Binala 2016. ‘Plans underway to revamp Tazara railway’, East African, 14 May.

[22] To prepare the way for the SGR, many legal commercial structures and over 250 houses in Dar es Salaam worth billions of shillings have been summarily demolished without warning or compensation. See Hellen Nachilongo 2017. ‘Tears, heartbreak as houses near railway line demolished’, Citizen, 12 March; Mwassa Jingi 2017. ‘Why the latest demolitions in Dar were illegal’, Citizen on Sunday, 19 March.

[23] James Anyanzwa 2017. ‘EA states looking outward for trading patners as local ties sour’, East African, 1 July.

[24] Frederic Musisi 2017. ‘Tanzania Starts Construction of Railway Line Link to Uganda’, Monitor, 16 April

[25] Abduel Elinaza 2016. ‘Dar Port in massive transit cargo traffic volume slump’, Daily News, 3 April.

[26] https://eblnews.com/…/china-inks-multimillion-dollar-deal-expand-dar-es-salaam-port

[27] ‘Cargo transportation should be based on what the importer wants, not what the government wants.’ See: Njiraini Muchira 2017. ‘Mandatory SGR use causes unease among importers’, East African, 11 March.

[28] Attilio Tagalile 2015. Blessing and hatred from Chinese aid’, Guardian, 13 December.

[29] Craig Mathieson 2016, op. cit.

[30] Zephania Ubwani 2017. ‘EA states faulted on railway project’, Citizen, 11 March.

[31] https://www.youtube.com/watch?v=IgbARMS1pyY; https://www.youtube.com/watch?v=rk4lJKgB4RU.

[32] https://www.kenya-today.com/politics/david-ndii-jubilee-spent-sh4-5b-19th-century-old-school-chinese-locomotives.

[33] https://www.standardmedia.co.ke/article/2000218960/eurobond-sgr-heists-to-finance-2017-election-campaigns-claims-githongo.

[34] Quoted in Cooksey op. cit. In Tanzania, neither civil society nor the media has challenged SGR decision-making.

[35] ‘The loan … from EXIM Bank of China comprised of a concessional loan of USD 1.6 billion and a commercial loan of USD 1.63 billion. The concessional loan is for 20 years and has a grace period of 7 years and an interest rate of 2% per annum while the commercial loan is for 10 years and grace period of 5 years…’ http://bankelele.co.ke/2017/05/funding-the-sgr.html.

[36] According to SMARTRAIL WORLD: ‘the most crucial factor in the developing African rail industry is … the influence of China, who despite warnings on their own domestic economy, are continuing to invest huge sums in the continent.’ See: Smartrail World 2016. ‘Special report: How five major African rail projects are supported by China’, 10 November. https://www.smartrailworld.com/five-major-african-projects-supported-by-china.

[37] That is, prepare and implement Poverty Reduction Strategy Papers, underwritten with more aid.

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DEBT AND TAXES: Kenya is living large on borrowed money

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DEBT AND TAXES: Kenya is living large on borrowed money

Kenya’s fiscal policy – the means by which the government adjusts its spending levels, revenue generation and collection, and debt to monitor and influence the economy- has been a defining feature of the current administration. The three have been characterised by almost consistent features and trends.

Some background information is useful. Kenya has had an annual growth rate of about 5.46 percent from 2004 until 2016. Initially, the economy was slated to grow at around 6 percent in 2017 but this has since been revised to 5 percent. According to Genghis Capital, it will actually be between 4.25- 4.75 percent due to the drought-induced contraction in agriculture, the negative effects of the interest rate cap on the financial sector and the prolonged electioneering period. The Government thinks the economy will grow by over 6 percent next year though the World Bank projects a lower rebound to 5.8 percent in 2018 and 6.1 percent in 2019.

Kenya’s economy is primarily services driven and according to the Kenya National Bureau of Statistics (KNBS), under the Kenyatta administration, growth has largely been on the back of government spending on infrastructure projects such as the Standard Gauge Railway (SGR), the expansion of the road network as well as electricity generation and transmission projects. Other significant contributors to growth include a resurgent tourism industry and growth in information and communication, real estate and transport and storage.

Over the past 6 years, government spending has grown at an average of 14.7 percent, yet revenue growth has only increased by 12.7 percent. Under the current administration, spending has gone up by two-thirds, from Sh1.6 trillion in 2013/14 to Sh2.64 trillion in 2017/18.

Back to fiscal policy, we will address each component separately: expenditure, revenue generation and collection, and borrowing.

EXPENDITURE

Over the past 6 years, government spending has grown at an average of 14.7 percent, yet revenue growth has only increased by 12.7 percent. Under the current administration, spending has gone up by two-thirds, from Sh1.6 trillion in 2013/14 to Sh2.64 trillion in 2017/18. While some of this can be explained by inflation reducing the value of money, there is a consistent trend of notable increases in government spending.

Public spending as a % of GDP

(Source: Institute of Economic Affairs)

 

A fundamental problem in analysing fiscal policy at both national and county levels is determining the intended recurrent vs development budgets and comparing these to the actual expenditure pattern. The image below from the Institute of Economic Affairs Kenya (IEA) details this for the National Government:

Share of Recurrent and Development Budgets in Total MDA Budget.
(Source: Institute of Economic Affairs)

Overall, two key trends are clear, the first of which is that the national budget is still geared towards recurrent spending. Indeed, as the Treasury itself has admitted in the past, recurrent expenditure is reaching unsustainable levels.

There are several factors behind this aggressive growth in expenditure, the first of which is devolution. In 2010 Kenyans enacted a new constitution, which established a bicameral Parliament and 47 county governments. At the beginning of the implementation of devolution, a parliamentary report indicated that it would cost at least Sh36 billion to set up. Prior to devolution, it cost Sh6.6 billion per year to run Parliament, but that figure is expected to rise to Sh14.3 billion. The Parliamentary Budget Office has also stated that it will cost Sh21.75 billion annually to run the 47 county assemblies. Thus, while welcome, the reality is that devolution is expensive.

At the beginning of the implementation of devolution, a parliamentary report indicated that it would cost at least Sh36 billion to set up. Prior to devolution it cost Sh6.6 billion per year to run Parliament, but that figure is expected to rise to Sh14.3 billion. The Parliamentary Budget Office has also stated that it will cost Sh21.75 billion annually to run the 47 county assemblies. Thus while welcome, the reality is that devolution is expensive.

Linked to the point above is the public wage bill which, according to the Salaries and Remuneration Commission (SRC), has ballooned from Sh465 billion when the Kenyatta administration took over to Sh627 billion in the 2015/2016 financial year, an annual average growth of 9 per cent. SRC’s projections show that it will be Sh676 billion in 2016/2017. Earlier this year, the International Monetary Fund (IMF) raised concerns, stating that Kenya is among countries that exhibit large increases in the wage bill, particularly in the run-up to elections. IMF is of the view that given Kenya’s rising debt levels (more on this later) the decision to increase spending on public sector wages is a concern as less funds are left over for economically productive development expenditure. The SRC pooh-poohed the IMF’s concerns, stating that wages were actually falling as a proportion of GDP: from 10.3 per cent in 2012/2013 to 9.5 per cent in 2015/2016.

A second factor behind the growth in expenditure, which the government has been eager to finger as the primary reason, has been the investment in infrastructure. According to the Capital Markets Authority (CMA), Kenya’s current estimated infrastructure funding gap is USD 2-3 billion per year over the next 10 years. To address this, government has allocated nearly a third of total budget expenditure to infrastructure between the 2016/17 and 2019/20 financial years.

The World Bank makes the point that the infrastructure investment drive in Kenya needs to be done in a way that is both efficient and sustainable. With such a robust commitment, key questions must be asked. For example, is Kenya investing in the right infrastructure? The Brookings Institution makes the point that a push for more infrastructure only raises economic growth and people’s well-being if the focus is on quality and impact, rather than quantity and volume. Has Kenya fallen short here? Has the government conducted an audit of infrastructure investment and the development it has engendered thus far? Has there been an audit of its quality? How efficient is our investment? Without an answer to these questions, the country risks wasting resources on aggressive infrastructure expenditure that generates no real benefits for its people.

Indeed, the link between infrastructure and economic growth is more tenuous than previously assumed. According to the London School of Economics, most recent studies on infrastructure’s contribution to growth tend to find smaller effects than those reported in earlier studies; this is linked to improvements in methodological approaches. Kenya, therefore, shouldn’t assume that infrastructure investment and development will automatically lead to significant improvements in economic growth. It is time for a fundamental rethink of the scale, nature and efficiency of the government’s spending on infrastructure.

Kenya, therefore, shouldn’t assume that infrastructure investment and development will automatically lead to significant improvements in economic growth. It is time for a fundamental rethink of the scale, nature and efficiency of the government’s spending on infrastructure.

The final issue regarding expenditure is linked to the mismanagement of public funds at both national and county levels. At the national level, allegations of corruption and financial mismanagement are legion and include: the National Youth Service (NYS) affair where the Auditor General stated a loss of Sh1.9 billion; Sh5.2 billion misappropriated at the Ministry of health according to an in-house audit report; mobile clinics valued at Sh1.4 million each being sold to the government at more than 7 times the price then abandoned in an NYS yard; inflated rig charges at the Geothermal Development Company (GDC) in which the Ethics and Anti-Corruption Commission (EACC) found the tender committee culpable and six managers were sent on compulsory leave.

At county level, there are rising concerns with expenditure considering that the national government has sent to the counties more than Sh1 trillion since their establishment in 2013. Research by the International Budget Partnership Kenya (IBPK) reveals that county governments are not making available fiscal documents required by the Public Financial Management Act (PFMA). Only about 20 percent of key budget documents, including fiscal expenditure documents, meant to be online had been uploaded. Indeed, IBPK reports that in some cases, budget allocations are based on lists of projects drawn up by Members of County Assemblies (MCAs). There is no clarity on the criteria governing such allocations, and even less clarity on how county funds are actually spent. There is a distinct air of mischief informing this laxity. It is not a secret that the first iteration of devolution revealed how much autonomy county governments have in the planning and use of funds they receive and generate. This lack of transparency seems to be aimed at facilitating a culture of financial mismanagement and corruption at the county level in an environment where, frankly, no one is holding them accountable.

Further, county governments see themselves as expenditure units, not development units. This needs to change. Rather than concentrating on how much they have to spend, they ought to focus on the development dividends they are responsible for generating. Without this fundamental shift in thinking, county governments will continue to be like spoilt children, forever crying over what they are owed, but with nothing to show for the development they ought to deliver.

For example, 16 firms listed on the Nairobi Stock Exchange issued profit warnings in 2016, which meant less corporation tax could be collected. Additionally, the 7000 jobs lost to downsizing and shuttering of firms, mainly in the banking sector, reduced Pay As You Earn receipts.

The greatest concern beyond the moral question of the financial mismanagement of the public funds of a poor African country, is the issue of how corruption affects spending efficiency. As will be explained later, Kenya is getting into significant debt, particularly to finance development expenditure. If such debt is not being used as efficiently as possible and instead funds are stolen or dubiously spent, the country will be saddled with onerous debt without he means – the improvements in economic performance that were to come from debt financed development projects – to pay it.

Given the factors detailed above, there are several broad changes that ought to be made. At national level, the first recommendation is for government to commit more money to development expenditure and put more effort into actually absorbing the allocations given to the docket.

Secondly, the national government ought to be more consistent in the manner in which it presents data and should make it easier to track planned versus actual expenditure, particularly across the recurrent and development dockets.

Thirdly, large allocations to infrastructure projects need to be audited and a determination made on the effectiveness of the allocations, how funds can be better spent and recommendations on how to improve efficiency.

Finally, national government has to clamp down on financial mismanagement and prosecute and punish culpable officials. Without this, the government’s commitment to ending corruption will be seen as insincere and ineffective.

At county level, there are several issues that ought to be addressed the first of which is that there needs to be a very clear hierarchy of accountability for county expenditure. Governors and the County Ministers of Finance must be held accountable for their spending and individuals need to be punished if found guilty of corruption.

Secondly, counties must comply with the PFMA and provide breakdowns of their expenditure which includes a delineation between recurrent and development expenditure.

Thirdly, the principle of fiscal discipline should carry considerable weight when national government makes county allocations such that responsible use of resources is rewarded and poor performers are punished.

Finally, a citizen-led effort to create a ranking of county governments according to fiscal transparency with a focus on expenditure would likely create pressure on county governments to adhere to their legal obligations. Included in the ranking should be how well they comply with PFMA stipulations, with the top and bottom performers widely publicised.

REVENUE GENERATION AND COLLECTION

Kenya Revenue Authority (KRA) has been falling short of its revenue targets for some time. For example, in 2016/17 total collection stood at Sh1.365 trillion representing a performance rate of 95.4 percent, and a shortfall of Sh66.64 billion- a significant number. In the first four months of this fiscal year, KRA has already fallen behind by Sh40 billion. There are questions as to why revenue collection consistently underperforms. I am of the view that KRA is given unrealistic targets, more informed by aggressive increases in government expenditure and oblivious to the serious constraints that mute tax collection.

Without this fundamental shift in thinking, county governments will continue to be like spoilt children, forever crying over what they are owed, but with nothing to show for the development they ought to deliver.

Revenue generation targets tend to be revised upwards over the course of the year. KRA’s original revenue target for the 2016/17 was Sh1.415 trillion which was later revised to Sh1.431 trillion, an increase of KES 16.24 billion. This is a concern because motivations behind the increases in targets are not clear. Do they perhaps stem from a realisation in Treasury that it cannot raise as much as anticipated in borrowing?

The second constraint is that the macroeconomic environment informs the extent to which revenues deviate from targets. For example, it is estimated that a 1 percent reduction in GDP growth reduces revenue by Sh13.4 billion and as noted earlier, this has been something of a tough year. A similar increase in inflation also requires that revenue targets be raised by Sh13 billion.

This is linked to sectoral issues which can affect the ability of KRA to collect tax. For example, 16 firms listed on the Nairobi Stock Exchange issued profit warnings in 2016 –a rising trend since 2013– which meant less corporation tax could be collected. Additionally, the 7000 jobs lost to downsizing and shuttering of firms, mainly in the banking sector, reduced Pay As You Earn receipts.

Third, government policy decisions, particularly those related to tax policy, affect the ability to generate revenue. For example, the non-implementation of changes to specific excise rates in 2016/17 reduced revenues by nearly Sh5 billion. Additionally, the duty-free importation of essential foods (maize, milk, sugar) led to a revenue loss of over Sh4 billion in the fourth quarter of the same financial year. Indeed, it is estimated that government policy decisions cost it Sh13 billion in lost revenue that entire year. The government tends to shoot itself in the foot in other ways too. For example, delays in remitting income tax from public institutions costs it Sh823 million.

Finally, revenue generation and collection in Kenya like the rest of Africa is negatively affected by illicit financial flows from the country. According to the UN, Africa loses more than US$50 billion through illicit financial outflows per year. Companies evade and avoid tax by shifting profits to low tax locations, claiming large allowable deductions, carrying losses forward indefinitely, and using transfer pricing.

The main reason why consistent subpar revenue collection is worrying is because the national treasury continues to construct budgets based on the unrealistic targets. For example, revenue generated was meant to play a bigger role in the current budget, financing 60.7 percent of the overall deficit and 58.7 percent of the development expenditure. Since it appears as though targets will again not be met, government will have to borrow more than anticipated.

 

There ought to be fundamental rethink of revenue generation and collection in order to effect a sustained increase. There are several factors to address, the first of which is improvements in the business environment that increase profits and thus taxable revenue. A key component that is often ignored here is the environment for the informal economy. Current assessments largely ignore the sector in which 90 percent of employed Kenyans earn a living. More ought to be done to make informal businesses more profitable.

At the same time, the government ought to seek to expand the revenue base by encouraging the formalisation of these businesses. Concerted efforts must be undertaken to pilot schemes that remove barriers to – and create incentives for – formalisation, particularly of larger businesses that easily evade tax yet are robust enough to consistently pay.

As recommended by the Africa Progress Report 2013, alongside demanding the highest standards of propriety and disclosure from their government, Kenyans should push citizens of the developed world to demand similar standards from their governments and companies.

Finally, Kenya needs to work on curbing illicit financial outflows. The UN makes the point that G8 leaders have committed to the 2013 Lough Erne Declaration, a 10-point statement calling for an overhaul of corporate transparency rules. Among other things, the declaration urges tax authorities to automatically share information to fight evasion. It states that poor countries should have the information and capacity to collect the taxes owed to them. Kenya should join other African countries in lobbying rich countries to enact stricter laws against tax evasion. As recommended by the Africa Progress Report 2013, alongside demanding the highest standards of propriety and disclosure from their government, Kenyans should push citizens of the developed world to demand similar standards from their governments and companies.

BORROWING AND DEBT

In 2013, the Jubilee administration inherited a debt of Sh1.7 trillion after a decade of the Kibaki government. Less than 5 years later, that has ballooned by nearly 250 percent to Sh4.4 trillion. This year’s borrowing has been particularly aggressive. The Central Bank of Kenya (CBK) says that the government is borrowing an average of Sh86 billion per month, the highest level since the bank started listing public debt in 1999, and over Sh30 billion more than the monthly averages of 2015 and 2016.

Despite this, it seems the government’s debt appetite won’t wane any time soon. The Treasury recently announced that it is seeking to issue another Eurobond, which could be used to repay the outstanding US$750 million syndicated loan the government raised in 2015 and which came due in October. What seems to be clear is that given expanding expenditure and subpar revenue collection, borrowing from both foreign and domestic sources will continue to grow. Further, as a Bloomberg analyst points out, Kenya has among the highest debt levels in sub-Saharan Africa, partly a result of having neither the commodity revenue sources of Nigeria and Angola nor the budget support from donor countries enjoyed by neighbouring Tanzania and Uganda.

Before looking at the specific features of Kenya’s debt, it is important to state that debt itself is not necessarily a problem. If used wisely, it can fund investment into activities and projects that catalyse economic development, GDP growth and growth in per capita incomes. Concerns only start being raised when the pattern of debt accrual and servicing seems headed in an unsustainable direction. If expenditure is growing in the context of muted revenue generation, that creates momentum for more debt than cannot be sustainably serviced. Further, if debt is not used efficiently and linked to increases in productivity and GDP growth, it also saddles countries with burdensome repayments. At the moment, Kenya is on the cusp where the government can either take decisive action to put the country on a better debt path, or continue with current trends that are edging the country closer to an unsustainable position.

 

The IEA points out that as of June 2012, total public debt was composed of 52.9 percent domestic debt and 47.1 percent external debt. However, the share of external debt has been steadily growing and recent statistics show that today the situation is reversed, with external debt taking up more than half (52.3 percent) of total debt.

The National Treasury Report 2015 indicates that the external debt stock for Kenya is composed of multilateral debt (54.7 percent), bilateral debt (27.1 percent), export credits (1.5 percent), commercial banks (0.6 percent) and International Sovereign Bonds (16.1 percent). As the IEA points out, a large part of the external debt remains concessional (i.e. on terms substantially more generous than market loans) and mainly from multilateral creditors; however, the share of concessional loans has been falling over the last three years which means external debt is becoming ever more expensive for the country.

There are several factors affecting the composition of debt, the first of which is Treasury’s desire to reduce domestic borrowing in order to release domestic credit for the private sector. This was a major reason given for issuing the Eurobond. As shown by the statistics above, he government has stayed true to this intent in some ways. However, the cap on interest rates introduced last year, has perversely facilitated government’ ability to raise domestic debt as banks, reluctant to lend to the general public due to profit margin and risk concerns, have more aggressively pursued government securities. The attractiveness of government debt is thus pushing the domestic private sector out of the domestic debt market, which contradicts government’s original intent.

The Central Bank of Kenya (CBK) notes that the government is borrowing an average of Sh86 billion per month, the highest level since the bank started listing public debt in 1999, and over Sh30 billion more than the monthly averages of 2015 and 2016.

It is important to note that, as reported in The Standard, World Bank data indicates that the average grace period on repaying new external debt has shrunk by half in the last four years. On average, in 2013, the country was given 8.2 years before starting to repay loans. This had reduced to 4.6 years by 2016. Shorter grace periods reduce the government’s room for flexibility and could be an indicator of jittery lenders keen on getting their money back as soon as possible. Indeed, Bank of America Merrill Lynch notes that Kenyan debt underperforms its peers as evidenced by the fact that yield premiums over U.S. debt have not narrowed as much as those of other sub-Saharan debt. In short, Kenya is seen as riskier to lend to than other African countries.

Informed by the expansion in borrowing, Kenya’s fiscal deficit has also grown. Its ratio to GDP has widened significantly from 6.4 percent in 2013/14 to 10.4 percent in 2016/17. The IEA points out that the large increase in deficit partly reflected the financing of the first phase of Standard Gauge Railway (SGR) project.

Fiscal deficit as a percentage of GDP

Fiscal deficit as a percentage of GDP
(source: IEA)

The government is targeting a fiscal deficit of 5.9 percent of GDP, in the 2018/19 fiscal year, down from an estimated 7.3 percent this fiscal year. Others however do not expect this will be met. Genghis Capital thinks Kenya’s budget deficit for this fiscal year will likely reach 8 percent of GDP. Further, the government doesn’t always hit its fiscal deficit projections. Indeed, according to Cytonn Investments, in the 2016/2017 fiscal year, the government’s deficit actually widened to 8.3 percent of GDP, some way above its revised target of 6.9 percent. In any case, despite the efforts it may be making to reduce the deficit, current government targets and performance are still higher than its own preferred ceiling of 5 percent.

 

The IEA points out that as the amount of debt held increased, the cost of debt has also gone up with debt servicing increasing from about Sh19 billion in 1990 to Sh400 billion by the end of 2015. A larger component of debt servicing emanates from servicing of domestic debt, but since the proportion of domestic and external debt to GDP are almost at par, it may indicate that it is costlier to service the former.

Debt service 1980 – 2016, KES billions

Debt service 1980 – 2016, KES billions
(Source: IEA)

There are growing concerns as to how much revenue is being committed to servicing debt. In the first nine months of the 2015/16 financial year, the government spent four out of every 10 shillings it collected as tax to settle debts. In April, the IMF estimated Kenya’s debt-service to revenue-ratio at 34.7 percent against a threshold of 30 percent, and a report in the Business Daily pointed out that in the last fiscal year, the country spent more money to settle debt (Sh435.7 billion) than it did to finance development (Sh394.2 billion). If more and more revenue has to be locked into servicing debt, government will either have to ramp down spending on development (given the relatively fixed burden of recurrent expenditure) or borrow even more, none of which is good.

The IEA also notes that the ratio of debt to GDP rose from 40.7 percent in 2012 to 56.4 percent in June, which merited a ranking of 78 out of 138 countries on the World Economic Forum’s Global Competitiveness Index.

Government Budget and Public Debt as % of GDP

Government Budget and Public Debt as % of GDP
(Source: IEA); GDP is for full year (FY) and measured in thousands; * Provisional estimates

As borrowing continues to grow aggressively, it will lead to higher imbalances that will raise concerns about sustainability.

Views differ on whether Kenya’s debt is sustainable. Some are of the view that given the massive gaps in key sectors such as energy and transport infrastructure, the country must continue to do everything possible to finance and address the gaps and that debt accrued now will pay off in the long term. Kenya remains below the World Bank’s debt-to-GDP ratio ceiling (or tipping point) of 64 percent. The IMF, in its review of Kenya a year ago, said Kenya’s risk of external debt distress remains low but notes there is need for reduction in the deficit over the medium term. While the IMF has raised concerns about Kenya’s public debt, it is below what they view as the applicable ceiling for Kenya – 74 percent of GDP.

The IEA points out that as the amount of debt held increased, the cost of debt has also gone up with debt servicing increasing from about Sh19 billion in 1990 to Sh400 billion by the end of 2015.

Others, however, are of the view that a debt-to-GDP ratio beyond 40 percent for developing and emerging economies is dangerous. The IMF itself envisages fiscal consolidation that targets a 3.7 percent of GDP deficit by 2018/19 (compared to the government’s own target of 5.9 percent) which it says is critical to maintaining a low risk of debt distress while preserving fiscal space for development priorities.

I disagree with the Treasury’s assertions that the national debt is manageable and that there is headroom for more. Kenya’s debt is only manageable if decisive action is taken to reduce expenditure, boost revenue collection and reduce borrowing. If this does not happen within the next three years, the country will start feeling the effects of debt distress.

The credit rating agency Moody’s has already raised concerns about the country’s accumulating debt. Indeed, the agency is currently assessing whether it needs to downgrade the country’s credit rating from the current B1 status on grounds of its weakening ability to repay debt. Moody argues that unless a decisive policy response is introduced, the upward trajectory in government debt will see the debt-to-GDP ratio surpass the 60 percent mark by June 2018, pushing financing costs for the private sector even higher. Its assessment points to the fact that in the latest fiscal year, the government spent 19 percent of its revenues on interest payments alone, up from 10.7 percent five years ago. It notes that persistent, large, primary deficits and high borrowing costs continue to drive government indebtedness ever higher. Further, government liquidity pressures risk, the danger that the government may not have enough readily available cash to settle its immediate and short-term obligations, is rising in the face of increasingly large financing needs.

Another credit rating agency, Fitch, has also indicated that it could downgrade Kenya’s rating due to its debt position. Fitch noted that the country was spending a larger proportion of its revenue on paying debt compared to its economic peers such as Uganda, Rwanda and Ghana.

Fitch gave Kenya a B+ rating, with a negative outlook. These credit ratings are important as a fall in rating will mean any new foreign debt taken on by the country will be more expensive.

 

There are several broad strategies Kenya can use to better manage its debt the first of which is to aggressively reduce expenditure. Government must implement austerity budgets and limit unnecessary expenditure. I also think here should be a fundamental downward review of salaries of those in government. While those of technocrats such as Cabinet and Permanent Secretaries as well as professionals such teachers and doctors should remain attractive, there are far too many people in elected office on overly generous terms, and the related wage bill is not sustainable for a relatively poor African country.

Secondly, government needs to improve its recurrent vs development expenditure allocations. As elucidated before, year after year, more money is allocated to recurrent expenditure which is not economically productive. A reduction in recurrent expenditure is crucial and this can be partially addressed by a downward review in wages as explained above. The IEA points out that although in relative terms the proportion of recurrent expenditure to GDP has slightly declined while that of development expenditure has nearly doubled from 5.7 percent of GDP in 2007/8 to 11.0 percent in 2016/17, recurrent expenditure still remains comparatively high.

In April this year, the IMF estimated Kenya’s debt-service to revenue-ratio at 34.7 percent against a threshold of 30 percent, and a report in the Business Daily pointed out that in the 2016/17 fiscal year, the country spent more money to settle debt (Sh435.7 billion) than it did to finance development (Sh394.2 billion).

Development expenditure should be prioritised by considering projects which bring immediate returns to the economy. More money must be committed to spurring the growth required to pay debts, if Kenya is to avoid a repayment crisis.

Thirdly, government has to create strategies to ensure more development expenditure is absorbed. A November 2017 report by Controller of Budget showed the use of development funds for the financial year ending in June was at 70 percent, the highest since 2013. While this is good news and higher than the 66 per cent rate recorded in the previous year, it is not good enough. Indeed, the organisation Development Initiatives notes that the 2017/18 fiscal year actually saw a decline in total allocations to development spending by 12.3 percent, as a result of lower absorption of development spending by ministries in 2016/17. The problem is at both national and county levels. As Price Waterhouse Coopers points out, if the entire amount allocated is not being absorbed, it defeats the purpose of the budget especially around development expenditure. Given that the country is getting into a great deal of debt for development expenditure, it is crucial that absorption rates in this docket increase in order to spur economic growth.

Fourthly, government needs to better track how the debt which is financing the development docket, is being used. Given concerns with financial mismanagement of public funds at both national and county levels, it is crucial that the debt spending is meticulously tracked. This is because financial mismanagement of debt funds poses the dangerous risk of pushing the country into debt unsustainability as money is pocketed rather spent to generate growth.

 

CONCLUSION

This article has elucidated Kenya’s fiscal policy and position in terms of expenditure, revenue generation and debt accrual. It is important that the country reduces expenditure, increases revenue generation and better manages debt spending to put the country on a more sustainable fiscal path. We are in a position where Kenya’s fiscal health can be dramatically improved by taking decisive action as per the recommendations herein. It is my hope that the government takes the required action to improve the country’s fiscal path so that fiscal policy plays the positive and important role it can in driving the country’s development.

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MIND YOUR LANGUAGE: Roots of the crisis in Cameroon

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MIND YOUR LANGUAGE: Roots of the crisis in Cameroon

Since October 2016, Cameroon – one of the most stable states in a volatile subregion – has been making international headlines. A political crisis – the Anglophone Crisis – is shaking the country to the core. It started as a sectoral crisis – with lawyers and teachers demanding for English to remain the primary language of the education and judiciary systems of the English-speaking part of the country – but later turned into a political crisis after the protests were met with military violence, mass arrests and torture.

A country in turmoil

In November 2016, hundreds of people took to the streets in Bamenda after violence was inflicted on lawyers asking for Common Law and English to remain the basis of the judiciary subsystem and on teachers asking for the non-Francophonisation of the Anglophone education subsystem. At first, many people from the northwest and southwest regions were not for separation or violence; people were peacefully protesting for change. However, denial in official statements and the continuous violent responses from the government led to the emergence of small secessionist groups that are taking advantage of the situation to radicalise local activists and non-activist citizens.

Local groups and parts of the Anglophone diaspora have revived the separatist agenda: some demand federalism, others secession.

On October 1st, thousands of people in the English-speaking regions of Cameroon took part in a peaceful march to symbolically proclaim the independence of Ambazonia, the name of an independent country that would be located in the northwest and southwest regions.

According to an International Crisis Group report, security in Cameroon has deteriorated in the Anglophone regions of the northwest and southwest. To protest against the government’s marginalisation of Anglophones, protestors set fire to seven schools and several shops and, for the first time in Cameroon’s post-independence history, homemade bombs were detonated in mid-September 2017. Between 14th and 20th September, two bombs exploded in the northwest region; there were no casualties. On 21st September, another bomb was detonated at a police station in Bambenda, injuring three police officers. A fourth bob nearly exploded in Douala.

After the explosion, the governors of the northwest and southwest regions imposed a de facto curfew, cutting off the Internet for 24 hours, barring movement between Anglophone divisions, and banning gatherings and demonstrations until 3rd October. Despite these measures, around 50,000 people took to the streets in tens of towns and communities in the northwest and southwest regions on September 22nd, demanding the departure of President Paul Biya, the release of Anglophone political leaders and separation. The date chosen coincided with the president’s speech at the United Nations General Assembly. However, what was supposed to be a peaceful march turned violent in some areas. According to local newspapers, some protesters in Buea vandalised the home of the town’s mayor, who is Anglophone but against the protesters. In Mamfe, a police station was set on fire. Four protesters were shot to death by police forces and several more were injured.

On October 1st, thousands of people in the English-speaking regions of Cameroon took part in a peaceful march to symbolically proclaim the independence of Ambazonia, the name of an independent country that would be located in the northwest and southwest regions. This also coincided with the anniversary of the reunification of Cameroon under French mandate and British Southern Cameroon in 1961.

The response of military forces to the march was the most repressive to date. According to Amnesty International, 17 people were reported dead and more than 200 people were arrested during demonstration. The government put the figure at around 10 deaths, but according to locals, the army killed about 100 people on that day. In total, since the beginning of the crisis in October 2016, at least 55 people have officially been reported dead.

These repressive measures led to retaliation by the populace. People burnt vehicles belonging to the sub-prefect and prefect in Boyo and Fundong (in the northwest), snatched weapons from gendarmes in Kumba (in the southwest), ransacked police stations in Ikiliwindi, Mabanda Teke and Kongle, and threw stones at police and military officers in Buea and Bamenda. Since the beginning of November, four military men have been killed in conditions that are still not clear. Cho Ayaba, a leading member of the political wing of the separatist movement who lives abroad, told Reuters, “Cameroon soldiers are enforcing an occupation. The only thing that will make us stop these attacks is if the regime withdraws. If they stop using the military to impose political exclusion and systematic terror on our people.”

The so-called Anglophone Crisis is not something new, as the international media suggest; it has its roots in the decolonisation era.

Currently, the English-speaking regions of Cameroon have become ghost towns due to general strikes – an initiative taken by the Cameroon Anglophone Civil Society Consortium as part of their long-term protest against a government they deem biased towards French speakers. For a year now, schools have not been fully operational, a lost year for students. In September, the so-called Ghost Town operations continued for three days each week. Several stores and seven schools were burnt down to protest against them opening despite the ban. Paul Biya agreed to release some Anglophone leaders and activists to stop the operations and to prevent the school year from being jeopardised for the second year in a row. However, the releases had little or no effect; enrolment rates remain very low and the ghost town operations are still ongoing.

The root of the crisis

The so-called Anglophone Crisis is not something new, as the international media suggest; it has its roots in the decolonisation era. Despite the fact that the current crisis started as a language issue between Anglophones and Francophones, the problem is not really about language; it is about people fighting for respect, integration and identity.

In July 1884, the German government and the traditional Douala chiefs signed a treaty that established a protectorate called Kamerun. After Germany lost in World War I, the victorious powers imposed punitive territorial, military and economic provisions that led to Germany losing her colonies. Kamerun, which was a former German colony, was partitioned between Britain and France under a League of Nations mandate, which appointed France and Britain as joint trustees of Kamerun. France gained the larger share and ruled its territory Cameroun from Yaoundé. Britain’s territory, Northern and Southern Cameroon – a strip bordering Nigeria from the sea to Lake Chad – was ruled from Lagos. During the period of the mandate and the trusteeship, each colonial power shaped their territories in their own image.

 

A report from International Crisis Group describes the situation clearly:

This resulted in major differences in political culture. English was the official language in the territory under British administration. The justice system (Common Law), the education system, the currency and social norms followed the British model. The system of indirect rule allowed traditional chiefdoms to remain in place and promoted the emergence of a form of self-government to the extent that freedom of the press, political pluralism and democratic change in power existed in Anglophone Cameroon prior to independence. The territory was administered as though it was part of Nigeria and several members of British Cameroon’s Anglophone elite were ministers in the Nigerian government in the 1950s.

 In contrast, the Francophone territory was directly administered by France following the assimilationist model, although colonisers and the traditional elites also practised a form of indirect government, especially in the north of the country. French was spoken and France’s social, legal and political norms shaped the centralist political system of successive regimes. Bogged down in a total war against the nationalist movement (Union des populations du Cameroun – UPC), which challenged French presence, the Francophone territory was less democratic.

Being used to self-administration, Southern and Northern Cameroon were in many ways more developed than French Cameroun, with several industries and a sense of democracy. French Cameroun accessed independence before English-speaking Cameroon on January 1, 1961. British Cameroon was aspiring to independence as an autonomous state, but former colonial powers believed that it would not be economically viable and advocated for not creating microstates. So a referendum took place on February 11, 1961: British Cameroon was supposed to choose between joining Nigeria or the new Republic of Cameroon. Northern Cameroon chose to join Nigeria and Southern Cameroon chose to join the Republic of Cameroon. This led to the independence of Southern Cameroon in October 1961 and the creation of a federal state with a flag with two stars symbolising the two territories coming together – West Cameroon being the former Southern Cameroon and East Cameroon being the former Republic of Cameroon. Both territories were now one under the name United Republic of Cameroon.

Problems started when, despite the constitutional provision stating that English and French were both official languages, French became the language of administration.

A federal constitution approved by the National Assembly of the Republic of Cameroon in August 1961 and promulgated by the then president Amadou Ahidjo in September 1961 was imposed when negotiating the terms of reunification. (Southern Cameroon was then still under the trusteeship of Britain since as it obtained independence on October 1, 1961.)

Centralisation was the governing mode of the former French territory, and the federated state was administrated from Yaoundé, where political leaders held all powers in their hands to the detriment of traditional chiefs whose authority was recognised and respected during the trusteeship. The assimilationist model the former French territory experienced under French trusteeship became its way of governance. In line with the constitutional provision stating that the vice president must be from West Cameroon if the federal president comes from East Cameroon and vice versa, John Ngu Foncha became vice president of the country and prime minister of West Cameroon.

Problems started when, despite the constitutional provision stating that English and French were both official languages, French became the language of administration. Then Amadou Ahidjo divided the country into six administrative regions and appointed federal inspectors in each region. English- speaking Cameroonians were not happy because West Cameroon could not at the same time be a federated state according to the constitution and be an administrative region by decree. The appointed federal inspector had more powers over the region than its prime minister. At the economic level, Ahidjo imposed an exchange rate of £1 to FCFA692 instead of the normal FCFA800, which reduced the purchasing power of the region that still had strong ties with Britain. Then he demanded for West Cameroon to cut ties with Britain, which made the region lose export duty advantages.

Though the southwest and northwest regions play an important role in the economy, especially when it comes to agriculture and trade, and though most of Cameroon’s oil, which accounts for one-twelfth of the country’s gross domestic product (GDP), is located off the coast of the Anglophone region, these regions are still lagging behind.

The economic decline of West Cameroon became evident. Reunification came with the dismantlement of the federal state/region’s economic structures, such as the West Cameroon Marketing Board, the Cameroon Bank and Powercam, as well as abandonment of several projects (the port of Limbé, and airports at Bamenda and Tiko), with investments in the Francophone part of the country having more advantages. The problem still persists to date.

Though the southwest and northwest regions play an important role in the economy, especially when it comes to agriculture and trade, and though most of Cameroon’s oil, which accounts for one- twelfth of the country’s gross domestic product (GDP), is located off the coast of the Anglophone region, these regions are still lagging behind.   As Amindeh Blaise Atabong declared on Quartz, “In Cameroon’s 2017 public investment budget, home region of president Paul Biya, in the south, was allocated far more resources than the northwest and southwest regions put together. Going by the country’s government project logbook for the year, the south region was accorded over 570 projects at a total sum of over $225 million (FCFA 126 billion). For its part, the northwest region had no more than 500 projects to be executed with over $76 million (FCFA 42 billion), while the southwest region had slightly over $77 million (FCFA 43 billion) for over 500 projects.”

When Paul Biya succeeded Amadou Ahidjo in November 1982, he further centralised power. On August 22, 1983, he divided the Anglophone region into two provinces: North-West and South-West provinces. The following year, he changed the country’s official name to the Republic of Cameroon and removed the second star representing the English-speaking part of the country from the flag. (The Republic of Cameroon was the name of the former Francophone territory.) These decisions symbolically killed West Cameroon and assimilated it within the Republic of Cameroon.

The separatist agenda and the way forward

As previously mentioned, the separatist agenda is not a new one. In 1993, English-speaking Cameroonians organised the All Anglophone Conference (AAC) and called for a return to federalism. During this period, Anglophone political leaders Muna and John Ngu Foncha went to the United Nations to demand independence for former Southern Cameroon. The position of the Social Democratic Front (the main opposition party then and now with a strong contingent of English-speaking Cameroonians) was judged to be ambiguous since it was against secession, which led to the creation in 1995 of the Southern Cameroons National Council (SCNC). Since 1996, the SCNC has been demanding secession and has taken its case to the UN, the African Court of Banjul, the Commonwealth and national embassies.

Cameroon cannot afford another armed conflict. The country is already engaged in the fight against Boko Haram in the far north and militias from the Central African Republic in the east. The president has to take drastic and lasting measures to solve the crisis.

Despite the situation being a stalemate, measures have been taken to solve the crisis: there have been several attempts to dialogue; about a thousand English-speaking teachers across the southwest and northwest have been appointed; a Commission for the Promotion of Bilingualism and Multiculturalism has been created; and leaders of the separatist movement have been released. In reality, however, these measures were doomed to fail from the start. Dialogue was actually the government trying to impose its conditions on the English-speaking leaders at the table. And the Commission is nothing but the recycling of former members of government or people with close ties to it.

Cameroon cannot afford another armed conflict. The country is already engaged in the fight against Boko Haram in the far north and militias from the Central African Republic in the east. The president has to take drastic and lasting measures to solve the crisis.

Firstly, the president should act as if he cares about the situation and spend more time on national soil instead of abroad. Secondly, a mediator should be appointed to negotiate high-level talks between the government and the separatists, be they on national soil or from the diaspora, since the diaspora is playing a major part in the movement. Thirdly, each official who has ever been publicly disrespectful when addressing or talking about English-speaking Cameroonians should apologise and resign.

The law on decentralisation promulgated in 2004 should be enforced, not for regions to operate autonomously, but for each of them to be in charge of social and financial development of the region for the sake of the region and of the country as a whole. English-speaking regions of the country are not the only ones suffering from bad governance, so this will be an opportunity for the government to solve the crisis and improve the desperate situation of the country as a whole. The best way to go about this is to work on these issues before the next presidential election that is supposed to take place in 2018.

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CHANGING FACES: How Zimbabwe’s Liberation Movement is Re-Inventing Itself to Hold on to Power

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Changing Faces: How Zimbabwe’s Liberation Movement Re-Inventing Itself to Hold on to Power

Zimbabwe has a new president thanks to what its military chiefs called an “intervention” to “weed out criminals” that were negatively affecting the work of the President.  The actions of the army generals ended up leading to a popularly, if not emotionally, supported removal of President Mugabe, the man they had initially pledged to be acting to protect.

The new president, Emmerson Mnangagwa was sworn in on Friday 24 November 2017.  The state media glowingly called it an inauguration at Harare’s National Sports Stadium at a ceremony attended by at least 60,000 people, including serving presidents from the Southern African Development Community (SADC) member states, Ian Khama, Edgar Lungu and Filipe Nyusi of Botswana, Zambia and Mozambique respectively.

There are multiple reasons why the army and those sympathetic to the ruling party within SADC would not out rightly call the tumultuous political events in Zimbabwe over the last two weeks a coup.  Or why the commander of the Zimbabwe Defence Forces (ZDF) General Constantino Chiwenga and his subordinates would reach such alarming levels of national popularity.

The most obvious reason is that a lot of people in Zimbabwe, the region and the continent were genuinely tired or annoyed by Mugabe’s long stay in power.  His wife most certainly did not help matters in a patriarchal society by insulting those who were long time loyalists (including Mnangagwa) in public. The move by the military, well-choreographed as it was, invariably had a popular veneer to gloss over what it really was, a decision by the military to defy their commander in chief and hold him in captivity. Also generally known in political science studies as a military coup d’etat.

There are multiple reasons why the army and those sympathetic to the ruling party within SADC would not out rightly call the tumultuous political events in Zimbabwe over the last two weeks a coup. Or why the commander of the Zimbabwe Defence Forces (ZDF) General Constantino Chiwenga and his subordinates would reach such alarming levels of national popularity.

The other more significant motivation for the military intervention is that the ruling ZANU-PF party had failed to deal with its succession politics via the clearer political route.  And that the veterans of Zimbabwe’s liberation guerilla war which run from the late 1960s to 1979 and who are recognized in the national as well as the ruling party constitutions, were beginning to stake a claim on who they thought should succeed Mugabe. Initially, and this is to their credit, the Zimbabwe National Liberation War Veterans Association (ZNLWVA) sought the political route to resolving this issue. They were the only members of the ruling ZANU-PF party that consistently asked Mugabe to appoint his successor, much to the latter’s chagrin. Mugabe would insist that his successor would come from the people via congress and that it was only the people who would tell him to go.

The decisive factor to consider, therefore, is how the war veterans eventually got to the stage where their preferred successor, Emmerson Mnangagwa, got fired and made what is with hindsight a startlingly prescient claim as he left for exile in South Africa that he would be back to lead Zimbabwe.  He would also cheekily refuse to meet Mugabe before the latter resigned because the ‘people have said so’.

The war veterans are not only former guerrillas in Zimbabwe’s liberation war. They are also still serving in key command positions in all sections of the National Army, the Police Service, the Airforce and the Prisons Services.  The commander of the ZDF, General Chiwenga is himself a war veteran, and so are all of his subordinates.

In the corridors of the ZNLWVA, it is an open secret that the veterans felt it was the turn of one of their own, or at least one who had undergone military training during the war to take over. This, it was argued by some of the war veterans leaders, was because the nationalists (such as Mugabe, Joshua Nkomo and others) had had their turn at the head of the liberation movement and, more significantly in Mugabe’s case, as head of state and government.

Their consistent argument was that as a liberation movement, due recognition should be given to those that went to war but are still alive and still capable of playing a leadership role in the post-independence ruling ZANU-PF party and its government.  And quite literally, this role meant having ‘one of their own’ being the first secretary and president of the ruling ZANU-PF party. (Mnangagwa is viewed as exactly that by the war veterans.)

And that the veterans of Zimbabwe’s liberation guerilla war which run from the late 1960s to 1979 and who are recognized in the national as well as the ruling party constitutions, were beginning to stake a claim on who they thought should succeed Mugabe.

Zimbabwe’s military is therefore led by those that were and are part of ZANU-PF in two specific respects.  First as a liberation movement and secondly as a contemporary ruling party.   It is also important to note that unless they have been unwell, all service chiefs, including the commander of the ZDF, have religiously attended, the ruling ZANU-PF party’s annual conferences and periodic congresses.

Though they will claim neutrality in politics, their actions clearly indicate that the military top brass is embedded in the liberation struggle claim of being the military wing of what once was a revolutionary movement prior to independence.

When Mugabe used to claim that his party had committed itself to the Maoist dictum that it is ‘politics that always leads the gun’, he probably assumed that those holding the gun had no vested interests.  Nor thought that they could carry out an internally (to the party) and externally (nationally) popular coup.

They did this using a combination of understanding national constitutional and internal ruling party processes and procedures, knowing the then first lady Grace Mugabe’s lack of popularity, and reaching out through cultural events/music to younger Zimbabweans.  (There is a popular musical outfit called Military Touch Movement that, as its name suggests, is rumoured to have close ties to the military establishment).

On the national party processes and procedures, they knew that SADC would never accept anything that they referred to as a coup.  Their carefully choreographed public statements – referring to Mugabe as being confined to his home, and as still being in charge of the country while allowing him to appear at a graduation ceremony and undertake a “State of the Nation” address where he conceded that their actions had his permission – were testament to that. Allowing and urging Zimbabweans, through the ZNLWVA to march on the capital’s streets and closely controlling the domestic media narrative, the veterans managed to get the American and British governments to support their cause through issuing positive statements even as SADC dithered.

The subsequent roping in of the ZANU-PF Central committee to dismiss Mugabe and recommend Mnangagwa to succeed him until not only their extraordinary congress scheduled for early December 2017 but also the harmonized general elections for 2018, entrenched a civilian dimension in what was a military-led deposing of the party leader.

After it turned out Mugabe was ‘refusing’ to resign, a process of parliamentary impeachment that ZANU-PF embarked upon, ironically with the support of the mainstream opposition Movement for Democratic Change-Tsvangirai (MDC-T), sanitized the military change of ZANU-PF leadership.

The generals had however not stopped trying to persuade Mugabe to resign and through a mediation process facilitated by a Catholic priest, eventually got the letter they wanted on 21 November 2017 as parliament sat to impeach their Commander in chief.

When Mugabe used to claim that his party had committed itself to the Maoist dictum that it is ‘politics that always leads the gun’, he probably assumed that those holding the gun had no vested interests. Nor thought that they could carry out an internally (to the party) and externally (nationally) popular coup.

Emmerson Mnangagwa upon his return was well aware of this and made it apparent in his first remarks to his supporters at a rally held at the ZANU-PF headquarters.  He however indicated that he had all along had a hand in this ‘intervention’ by staying in ‘constant touch’ with the generals even though he was in exile.

He also made it clear in his first address as president of Zimbabwe, that he owed his ascendancy to the ruling party.  This is a point that the generals would have no problem with, as they were acting, in the final analysis, in tandem with their role as what General Chiwenga has referred to in previous interviews with the state media as ‘stockholders’ of the liberation struggle and therefore the country. All via the party.

SADC could do little else.  Not least because of the fact that apart from Malawi, Zambia, Seychelles and Mauritius, all of the current governments in the region are led by former liberation movements (Kabila’s in the DRC claims Lumumbist origins to his government).   And they tolerated this military action on a serving president so long there was deference to the ruling party and a modicum of constitutionalism could be salvaged from the process.

For now, with Mnangagwa sworn in as a president to finish off Mugabe’s term as outlined in the sixth schedule of Zimbabwe’s constitution, this would appear to be the case. I am certain that SADC will probably follow up with the new president on the holding of free and fair elections in 2018 as scheduled, which Mnangagwa confirmed in his first speech as president and when he will pursue a full five-year term.

This is not to say ZANU-PF’s military-political complex does not understand the need for ‘performance legitimacy’ despite having the capacity to deploy force for a political outcome. They understand this entirely hence Mnangagwa’s new focus is on the national economy.

SADC will definitively seek a greater role in supervising these elections and closely monitor the role of the military in how they are conducted.  But the ruling party will not worry too much about this as it is already riding on a peculiar wave of popularity that while it is surprised by, it is still very keen to consolidate, not only to renew its stay in power, but also to make it unthinkable for the opposition MDC-T, or any new opposition parties for that matter, to realistically hope to wrestle away power. Also, because the war veterans actively serving in the defence forces have become the guarantors of the ruling party’s succession politics and its ability to stay in power at a time of political crisis.

This is not to say ZANU-PF’s military-political complex does not understand the need for ‘performance legitimacy’ despite having the capacity to deploy force for a political outcome. They understand this entirely hence Mnangagwa’s new focus is on the national economy.  His government intends to introduce free market economic policies and probably do so within the ambit of Chinese-style ‘state capitalism’ which will court foreign direct investment and introduce property rights to the controversial issue of the Fast Track Land Reform Programme (FTLRP).

One of the first acts of his government will be to ease the liquidity crisis and seek the effecting of what Mugabe had referred to as ‘mega deals’ with the Russians and the Chinese in order to create a massive influx of jobs. The American and British governments will be courted to invest in the economy in return for the removal of sanctions and the re-integration of Zimbabwe into Western investor circles. And the Australian government will get promises to protect its mining interests again in return for support in other areas of the national economy.

What is apparent is that in the aftermath of this military intervention, there is limited scope for a value based politics in Zimbabwe. The now very popular actions of the ZDF in tandem with the political endorsements of ZANU-PF have left a void that the opposition cannot fill.

While this temporary and highly politicized economic shift is underway, the opposition will be courted with carrots such as support for the livelihoods of some of its leaders along with deferential treatment.  But essentially, they will be a divided lot that will be unable, barring a miracle, to defeat Mnangagwa’s militarized but popular version of ZANU-PF in what the latter will be at pains to prove to SADC, the African union and the world, is a free and fair 2018 election.

What is apparent is that in the aftermath of this military intervention, there is limited scope for a value based politics in Zimbabwe. The now very popular actions of the ZDF in tandem with the political endorsements of ZANU-PF have left a void that the opposition cannot fill. That void is the inability to articulate what would have been a democratic alternative to ZANU-PF rule, especially given the backing of war veterans in the military and the neo-liberal global west and east in their pursuit of markets, minerals and military dominance.

As it is Zimbabweans must brace themselves to be governed by a military–political complex that claims legitimacy on the basis of national liberation and assumes it can re-create itself in subsequent generations of not only civilians, but also those that would serve in the defence forces.  All in aid of an intended perpetuation of ZANU-PF’s hold on political power and the cosmetic maintenance of a hapless and long suffering political opposition.

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