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Between the Hammer of the Markets and the Anvil of Politics: Mr Kenyatta, in Debt Distress

8 min read. Recently released Treasury figures paint a frightening picture: not only is the government broke and struggling with declining revenues, it is now spending the equivalent of 90 percent of the wage bill on interest repayments and in July, failed to remit any monies to the Counties. Interest payments on debt are eating into recurrent expenditure, threatening to grind daily government operations to a halt. The low-down: big projects – including Uhuru Kenyatta’s legacy projects, the ‘Big Four’ Agenda and the Standard Gauge Railway – are off the table. And for Jubilee, the prospect of collapse is very real. By DAVID NDII.  

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Between the Hammer of the Markets and the Anvil of Politics: Mr Kenyatta, in Debt Distress
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A few weeks ago the CS Treasury was kind enough to publish and gazette the government’s income and expenditure statement for July, the first month of the current financial year.  They are only a few numbers, but they are quite revealing.

The government opened the year with KSh 102.8 billion in the bank. It raised KSh 99 billion from taxes, and borrowed KSh 30 billion locally, that is, total inflows of KSh 129 billion during the month. How was the money spent? Debt took KSh 68 billion, just under 70 percent of the tax raised.  The counties and development budget got no money at all. The Treasury closed the month with KSh 110.7 billion, KSh 8 billion more than the opening balance.  Why did the Treasury hoard money when the counties and development projects were starved of cash? I will come back to that question shortly.

It is tempting to think that this was only the first month of the financial year, and things will look up. Not quite. Treasury puts revenue for the full financial year at KSh 1.34 trillion which translated to a KSh 112 billion monthly average, so the July revenue figure is low but not far off the mark.  The debt service budget for the year is KSh 870 billion, which works out to KSh 72.5 billion per month so the July figure of KSh 68bn is also consistent. The domestic borrowing target for the year in the budget is KSh 270 billion, which works out to KSh 23 billion per month, so the July borrowing of KSh 30 billion is well above target. 

In essence, the July statement is a good snapshot of the state of government finances. Unless revenue increases dramatically, the only way the government will be able to stay afloat is by excessive domestic borrowing.  Borrowing more than it is doing already will put paid to any chances of recovery of credit to the private sector, which stalled three years go.  And one does not have to be an economist or finance expert to appreciate that a person, business or government spending 70 percent of income to service debt is distressed.

How did we get here? Binge borrowing.

 

 

 

As at end of June 2018, our total public debt was KSh 5.2 trillion, up from KSh 1.8 trillion five years ago, an increase of KSh 3.3 trillion. Jubilee has borrowed close to double the debt it inherited. The debt has increased more or less equally between domestic and foreign borrowing.  The second is cost of debt.

Unless revenue increases dramatically, the only way the government will be able to stay afloat is by excessive domestic borrowing.  Borrowing more than it is doing already will put paid to any chances of recovery of credit to the private sector, which stalled three years go.  And one does not have to be an economist or finance expert to appreciate that a person, business or government spending 70 percent of income to service debt is distressed.

The stock of debt has increased 187 percent but debt service outlays are up 230 percent, from KSh 264 billion to KSh 870 billion. The standout figure here is foreign interest, which has increased sevenfold from KSh 14 billion to KSh 114 billion. This in turn, is explained by two factors, foreign commercial and China debt.  Five years ago, foreign commercial debt was inconsequential— we owed only one syndicated loan and that was an exception. We were not in the habit of taking on foreign commercial debt. Five years on, commercial debt is the single largest item on foreign debt accounting for 36 percent of it.  We owed China KSh 63 billion accounting for seven percent of foreign debt. Debt to China is now up to KSh 550 billion accounting for close to 30 percent.  Commercial debt and China combined account for 80 percent of the increase in foreign debt.

We, of course, expect commercial debt to be more expensive than the soft loans from bilateral and multilateral development institutions. But Chinese debt is not cheap either.  Last year’s debt service figures show that we owed China 21 percent of foreign debt, but we paid them 32 percent of the interest. Multilateral lenders account for 33 percent of the debt but only 15 percent of the interest payments (See chart). The interest rates implied by these payments, although only a rough approximation, show that China’s debt is the most expensive at 4.8 percent, followed by commercial debt at 3.9 percent, other bilateral lenders at 2.4 percent and multilateral lenders are the cheapest at 1.4 percent. But as I said, these are implied rates, not the actual ones, as they do not reflect the debt movements within the year.

Jubilee has borrowed close to double the debt it inherited. The debt has increased more or less equally between domestic and foreign borrowing. The stock of debt has increased 187 percent but debt service outlays are up 230 percent, from KSh 264 billion to KSh 870 billion. The standout figure here is foreign interest, which has increased seven fold from KSh 14 billion to KSh 114 billion. This in turn, is explained by two factors, foreign commercial and China debt.

Different components of debt affect the budget differently. Interest comes out of the recurrent budget, and in effect from revenue. Working with a realistic figure of KSh 1.4 trillion revenue, the interest burden this year takes 29 percent of revenue up from 14 percent five years ago. In fact, interest cost is now equivalent to 90 percent of the wage bill as compared to 40 percent five years ago.  Interest on debt is crowding out the Operations and Maintenance (O&M) budget. O&M is what makes government work. It is the money that enables the police to move around, and health facilities to treat patients, government laboratories to test food and drugs and so on.

On this trajectory, it will not take long for the recurrent budget to consist of only salaries and interest

The foreign debt consists of market debt (the Eurobonds), syndicated loans and term loans.

Eurobonds and syndicated loans are similar. The key difference is that syndicated loans are short-term notes, typically sold in two-year cycles, which banks typically hold to maturity. Amortization of bonds and syndicated loans (i.e. repayment of principal) is financed by new market debt, and is known as re-financing. The principal on bank debt has to be repaid. The key concern with market debt is the refinancing risk. The government has to be able to sell new bonds as old ones mature.  The market conditions can change, or the investors risk-perceptions can change to the extent that the government is unable to sell enough bonds in which case it defaults. Alternately, it may have to offer such high returns that sooner or later, it cannot afford the interest, which amounts to the same thing— default.

Which brings me to the  KSh102 billion shilling cash hoard— the money that government had but did not spend in July. This is half the money that the government raised in the second Eurobond six months ago. It was not spent because it was raised to refinance the maturing debt, KSh 250 billion this year.  The balance has to be raised. 

The key concern with market debt is the refinancing risk. The government has to be able to sell new bonds as old ones mature.  The market conditions can change, or the investors risk-perceptions can change to the extent that the government is unable to sell enough bonds in which case it defaults. Alternately, it may have to offer such high returns that sooner or later, it cannot afford the interest, which amounts to the same thing— default.

The preferred option is to float another Eurobond, preferably a long dated one that does not come up for refinancing soon. The alternative is more syndicated loans which will cost more and come up for refinancing in two years. The market environment that they will be doing this is not favourable.  When we raised the first Eurobond in 2014, the market was awash with “Quantitative Easing” (QE) money the US Federal Reserve and European Central Bank were “printing” in order to shore up their banking systems following the 2007 financial crisis, as well as “petrodollars” accumulated by oil exporters—recall that oil was selling at over $100 a barrel). The returns on financial assets in advanced markets were close to zero or negative.

Money managers were looking for higher returns wherever they could find them. Emerging markets were growing fast, and news out of Africa was dominated by the “Africa Rising” story.

Zambia was one of the first countries to jump onto the Eurobond bandwagon.  Zambia floated a debut bond, looking to borrow US$500 million. It was heavily oversubscribed, attracting offers in excess of US$ 12 billion. Zambia accepted $750 million.  Kenya’s stated objective was to issue a US$500 million “benchmarking” bond and use the proceeds to offset a syndicated loan that was due. How this turned to a US$ 2.8 billion is a story for another day— where it went is already the stuff of legend.

Our political class seems not to have understood the paradigm shift that becoming a sovereign borrower in international markets entails. Going to the market is analogous to a business going public. When a company is private, its affairs are dealt with behind closed doors. The only way unhappy investors can express their views is with their voices, or voting out directors during the annual general meetings, and this is usually quite difficult as typically, the insiders usually have more shares than outsiders. When a company gets listed on the stock exchange, investors don’t have to wait for AGMs. They communicate with the company every day by either buying or dumping the stock. Facebook’s share price fell 11 percent (US$134 billion) in the wake of the Cambridge Analytica scandal—and that’s all the shareholders needed to say.   

Prior to “listing” in the international sovereign bond market, our financial affairs were discussed behind closed doors between the government and its external financiers led by the IMF, and enforced through “conditionalities.” Sanctions for non-performance were flexible and negotiable, and influenced by political considerations. We call this programme discipline.  After “listing”, the bond yields work the same way as share price, punishing or rewarding the country for good or bad economic management as the case maybe. We call this market discipline. The IMF continues to have a role, but a different one— providing a form of credit enhancement to the markets.

Our political class seems not to have understood the paradigm shift that becoming a sovereign borrower in international markets entails. Going to the market is analogous to a business going public. When a company is private, its affairs are dealt with behind closed doors…When a company gets listed on the stock exchange, investors don’t have to wait for AGMs. They communicate with the company every day by either buying or dumping the stock.

But Zambia’s government does not seem to have gotten that memo. Sometime ago it organized national prayers for the Kwacha, hardly a confidence building measure.  A quarrelsome negotiation with the IMF broke down in February. Last week, the government kicked the IMF out of the country for “spreading negative talk”.  The markets responded accordingly. Zambia’s bonds are trading at a bigger discount than Mozambique which has already defaulted.

As of last week, Zambia’s bonds were trading at a yield of 15 percent.  An increase in the yield corresponds to a decline in value of a bond, and vice versa. Zambia’s debut Eurobond carries a coupon of 5.375%, and was issued at a yield at 5.625%, meaning that investors paid $93.50 for $100 of face value.  A yield of 15 percent means that the bond is now trading at $36, a 60 percent fall in value.  As summed up by an investor in Zambian Eurobonds: “It’s not a place that investors would rush into even if emerging markets become popular again. People will be cautious about Zambia until it produces better numbers or gets an IMF deal.”

Why our Treasury mandarins have been bending over backwards for a deal with the IMF is now readily apparent.  IMF deal or no-deal, the government will have to produce better numbers. Healthy foreign exchange reserves are good, but reserves don’t service debt; revenues do. The markets want to see fiscal consolidation. The markets do not send missions. They dump your bonds. 

The low-down: Mega projects are off the table, as is the “Big Four.”  The SGR is not going past Naivasha anytime soon. The only order of business is crisis management – that is, if the government survives. Looking around, the odds are not good.  The Greek crisis consumed five governments. Argentina went through five presidents in two weeks following imposition of the “corralito” (small enclosure) austerity measures in December 2001. The EPRDF autocracy in Ethiopia, erstwhile poster child of Africa’s new breed of authoritarian developmental regimes, did not run out of bullets or prisons. It ran out of money, and unravelled. Sri Lanka, Pakistan and Malaysia have ejected the mega-project mega-corruption governments that corralled them into China’s debt trap. Earlier this week Sudan’s President Omar al Bashir dissolved his government and appointed a new prime minister tasked to form a leaner government “as part of austerity measures to tackle economic difficulties.”

Mega projects are off the table, as is the “Big Four.”  The SGR is not going past Naivasha anytime soon. The only order of business is crisis management – that is, if the government survives. Looking around, the odds are not good.  The Greek crisis consumed five governments. Argentina went through five presidents in two weeks following the imposition of austerity measures in December 2001. The EPRDF autocracy in Ethiopia, erstwhile poster child of Africa’s new breed of authoritarian developmental regimes, did not run out of bullets or prisons. It ran out of money, and unravelled…It is fair to say that Mr. Kenyatta is now caught between the hammer of the markets, and the anvil of politics.

It is fair to say that Mr. Kenyatta is now caught between the hammer of the markets, and the anvil of politics. That comes with the territory.

David Ndii
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David Ndii is a leading Kenyan economist and public intellectual.

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‘I Don’t Understand Why Kenyans Are Broke’: Mr. Kenyatta’s Debt Distress Revisited

10 min read. Many Kenyans have been wondering why we are told that the economy is growing at a brisk 5 to 6 per cent year after year, yet they are not feeling it. Instead, big companies are issuing profit warnings and laying off people. Kenya’s public debt has increased threefold over the last six years, from Sh1.8 trillion to Sh6 trillion and although the data shows that the economy is growing, the tax base is not expanding and revenue is falling short as debt service charges are rising.

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‘I Don’t Understand Why Kenyans Are Broke:’ Mr. Kenyatta’s Debt Distress Revisited
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In 2018, following the Raila-Uhuru détente we call the handshake, I went against the grain and argued against the anti-corruption campaign that ensued. My reasons were simple enough; Uhuru and Ruto were jointly culpable for the administration’s corruption, hence my contention that the fight against corruption was being politically weaponised. I postulated that politicising the war on graft would blow back on the handshake (it has).

I voiced my concerns both publicly and privately. The response I got was that the anti-graft drive was strictly economic, and not political, motivated by the realisation that the government was hurtling towards a financial crunch. Different people on both sides of the handshake deal mentioned the figure of Sh300 billion, which they claimed was the amount that could be saved by stopping graft. I tried to explain the nature of the crisis that was unfolding but no one wanted to hear that fighting corruption was not the silver bullet. Heads were firmly in the sand.

The Sh300 billion figure cropped up again a few weeks ago, this time as the amount of tax payments that are in dispute. It was disclosed that the government is proposing legislation that will require the disputed figures to be paid up front. It does not take much imagination to see how such a law could be abused. A government as desperate for cash as this one can make inflated tax assessments—which tax one has to pay first and ask questions later—while also opening another avenue for tax officials to extort taxpayers. It can be used for political persecution or to cripple competitors and businesses targeted for acquisition by our rapacious crony capitalist cartels.

Why is the government clutching at straws? Let’s have a look at the finances. The government plans to spend Sh2.6 trillion in the current financial year (2019-2020). It plans to finance this spending through domestic revenue to the tune of Sh1.88 trillion (Sh1.81 trillion tax and Sh70 billion non-tax, respectively), Sh701 billion of debt, and external grants of Sh19.5 billion. Of the Sh701 billion of debt, it plans to borrow Sh434 billion domestically, and Sh267 billion from foreign lenders—comprising of Sh200 billion in commercial debt and the balance of Sh67 billion in soft loans from development lenders.

Let us put some perspective to these numbers. Over a quarter (27 per cent) of the budget is debt-financed and 90 per cent of this debt will be commercial—30 per cent from foreign lenders and 60 per cent from the domestic market (we often overlook the fact that domestic debt is commercial). The Jubilee administration has been doing this for six years running. When it took office, we had a single $600 million foreign commercial loan, which was paid off using the first Eurobond issue. Today, a third of our foreign debt amounting to $10 billion is commercial. The administration justified the $2.8 billion debut Eurobond issue, the largest African issue to date, on the promise that it would replace domestic borrowing, thereby leaving domestic credit to the private sector and reducing interest rates. It did not. Instead, the administration ratcheted up domestic borrowing as well and crowded out the private sector completely. It is also worth reminding ourselves that the proceeds of that Eurobond cannot be accounted for.

The Sh701 billion deficit translates to the government spending 37 per cent more than its income. This is like a Sh30,000 earner who has just acquired a credit card deciding that she can afford to live large by spending Sh40,000 a month. Now, let us assume that the credit card charges 15 per cent per year, and requires 5 per cent repayment of the outstanding principal every month. A year down the road, the monthly debt service will be in the order of Sh7,500, which is not too bad as she will still be spending Sh2,500 more than her salary after debt charges. But four months later the debt service charge will start eating into her salary and by the end of the second year, she will be paying Sh15,000 in debt charges a month and owing Sh. 240,000. If she were to run into a credit limit at that point, she would have to live on Sh. 15,000 a month— half her salary—and her lifestyle will definitely have to change drastically.

This scenario will be familiar to people who have abused credit cards. It is the situation we are in—six years of abuse of the national credit card. For the country, it is unprecedented; we are one of the few African countries that escaped the 1980s-90s debt crisis that was resolved by the Highly Indebted Countries Initiative (HIPC). But I gather that this is not the first time that the bloke at the helm has over-swiped.

Many Kenyans have been wondering why we are told that the economy is growing at a brisk 5 to 6 per cent year after year, yet they are not feeling it. Instead, big companies are issuing profit warnings and laying off people. A related question is why government revenue is falling short when the economy is supposedly booming. Under Jubilee, the tax revenue as a percentage of GDP has declined from 18 per cent to 15 per cent, the lowest level since the 90s. The three percentage points difference is, surprise, surprise, Sh300 billion.

Jubilee has increased our public debt threefold over the last six years, from Sh1.8 trillion to Sh6 trillion and counting. Unlike our consumer, however, the government will argue that its debt has been invested. But investments are risky, or long term. Moreover, you don’t borrow short-term to invest long-term as the government has been doing. If you do, the debt repayments eat into the working capital, and you will soon be defaulting on your suppliers, as the government is doing.

Under Jubilee, the tax revenue as a percentage of GDP has declined from 18 per cent to 15 per cent, the lowest level since the 90s. The three percentage points difference is, surprise, surprise, Sh300 billion.

Government borrowing is predicated on the expectation that the projects financed will stimulate productive investment that will in turn generate tax revenues to service the debt. But very little of this debt has yielded any economic benefits that would in turn generate tax revenues. The Standard Gauge Railway (SGR)—the largest of these projects—has not stimulated any new economic activity. Much to the contrary, all it has achieved to date is to disrupt port logistics and road haulage while increasing costs and inefficiency for importers. Right now, its net economic contribution is negative. All indications are that the Galana-Kulalu irrigation scheme is a white elephant, and we know for sure that the economic contribution of the Arror and Kimwarer dams is zero.

Moreover, the government shoots itself in the foot by awarding the construction projects to foreign— predominantly Chinese—state-owned firms. This undermines revenue in two ways. First, the companies are exempted from paying tax. Second, the money they make is repatriated, denying the economy the multiplier effect it would have if the money had been earned by domestic firms. I gather that Uhuru Kenyatta was banging tables the other day demanding to know why Kenyans are broke, how come the money spent on government projects is not circulating in the economy.

Let us take his flagship project, the SGR. The man went and swiped the national credit card and the Chinese delivered the goods. The money stayed in China, debited from our loan accounts in the Chinese banks and credited to the suppliers’ bank accounts. We are paying the loans from our pockets. This year, we’ve budgeted to pay the Chinese banks Sh94 billion, up from Sh39 billion last year. Far from circulating it in the economy, foreign debt-financed government projects are draining money from the economy.

Thus, although the data shows that the economy is growing, the tax base is not expanding and revenue is falling short as debt service charges are rising. While tax revenue has just about doubled under the Jubilee administration, from Sh900 billion in the 2012-2013 financial year to Sh1.49 trillion in the last financial year (2018-2019)—translating to 15 per cent per year—interest payments have increased three-fold from Sh93 billion to Sh390 billion, translating to 52 per cent per year. Consequently, from consuming 12 per cent of revenue, interest payments have risen to 26 per cent. It should not come as a surprise that the government is having trouble paying suppliers. It is also noteworthy that the increase in the cost of interest payments is in the order of—here we go again—Sh300 billion.

Last year the government projected that it would raise Sh1.77 trillion in tax revenues, later revised downwards to Sh1.67 trillion. It managed to raise 1.5 trillion, respectively Sh270 billion and Sh170 billion short of the approved and revised budgets. Still, it budgeted to raise Sh1.8 trillion in 2019. At the end of the first quarter of this year the government had raised Sh372 billion. If the trend remains, Sh1.49 trillion will have been raised—about the same as last year—a shortfall of, well, Sh300 billion.

If the government were to borrow the whole amount this would increase debt financing to a trillion shillings, that is, 38 per cent of the budget or 67 per cent of revenue (remember that revenue is projected at just about Sh1.5 trillion). If it were to borrow domestically, that would also suck in the little credit that is trickling to the private sector. Moreover, the interest rate caps imposed three years ago have now been removed. The caps were meant to benefit private borrowers but the only beneficiary was the government—enabling it to borrow while postponing the political price that would have been exacted had interest rates surged to the mid-20s—as they would have. But the economy has paid the price because, by making it difficult for banks to price risk, the rate caps made the government’s crowding out of the private sector in the credit market more severe than it would have otherwise been.

It should not come as a surprise that the government is having trouble paying suppliers. It is also noteworthy that the increase in the cost of interest payments is in the order of—here we go again—Sh300 billion.

With the caps removed, the government’s excessive appetite for debt will now put upward pressure on interest rates, including the government’s own cost of domestic borrowing. The math is eye-popping; the government’s domestic debt is in the order of Sh3 trillion. A one percentage point increase in the cost of borrowing translates to a Sh30 billion increase in interest expenditure. How quickly an interest rate rise is transmitted into actual cost depends on the structure of the debt—the more short-term, the faster. Jubilee has done a good job of borrowing at the short end of the market, and so transmission will be relatively quick. The exchange rate presents a similar conundrum. The annual servicing of external debt is in the order $2.5 billion, and a depreciation by one shilling translates to a Sh2.5 billion increase in the cost of servicing the debt. It should come as no surprise then that the IMF’s contention that the government is propping up the shilling raised a furore.

Belt tightening is the sensible thing to do when a person or a business is over-indebted. For governments it is a little more complicated. The government is the single largest entity in the economy, and what it does has feedback loops that can amplify the problems it is trying to solve. The problem we have now is that the economy has become addicted to expansionary budgets. Five years ago, government expenditure accounted for a fifth of annual GDP growth, meaning that when growth was reported at 5 per cent, it meant that the private sector accounted for 4 per cent and the government for 1 per cent. Today, the share of the private sector is down to 3 per cent and the government’s share has doubled to 2 per cent. In effect, belt tightening has to contend with the economy suffering withdrawal symptoms—a weakening economy feeding into an even bigger revenue shortfall, requiring even more belt tightening.

This whole conundrum is how countries end up in a Greek-style downward spiral of a contracting economy and ballooning indebtedness. The case of Mozambique is instructive. Before the “tuna bond” scandal unfolded, Mozambique’s economy was roaring at 7 per cent per year, riding on post-conflict reconstruction and the discovery of huge offshore natural gas reserves. The loan sharks moved in. In 2013 Mozambique borrowed $2 billion—equivalent to a third of the budget—in privately placed bonds known as “loan participation notes” to finance a tuna fishing fleet and maritime security, of which only $850 million was made public. It has recently emerged from a fraud and money laundering court case in New York that at least $200 million was stolen and shared out between the investment bankers and Mozambique’s who’s who, including the finance minister and the president’s son.

In early 2016, Mozambique defaulted on interest due on the $850 million. Shortly thereafter, the secret loans were exposed. Money dried up. By the end of the year, the currency had fallen 40 per cent, causing the debt-to-GDP ratio to increase from 55 per cent to 120 per cent. Everything unravelled. Serial defaults and debt restructuring became the order of the day. Growth tumbled to 3.3 per cent last year and is now down to just over 2 per cent. It is going to be a long and painful climb out of the mess.

Which brings me to the question that many people are asking: what is the solution? I have opined that our debt distress will be resolved by one of two scenarios: the Ethiopia or the Sudan scenario. This is why:

To dig ourselves out of the debt quagmire requires four things. First, you need a dollop of cheap money to cushion the economy and vulnerable groups as the government withdraws from domestic borrowing so as to release credit to the private sector, restructure government finances, and rebalance the economy more generally. My guesstimate is a minimum of $3 billion (yes, Sh300 billion!) to $4.5 billion. The only source of such money is an international bailout. Second, to get financiers to buy in, you need a bankable plan. Third, you need a credible turn-around team to implement it. It is not a job for yes-men and yes-women—you need people who can stare down Kenyatta and his crony capitalist cartels. Fourth, economic turnarounds entail making tough unpopular decisions and pushing through painful reforms, and that requires political goodwill. It is not the sort of thing you can do with the 2022 political warfare raging—as we witnessed it in the Kibra by-election.

At the end of the first quarter of this year the government had raised Sh372 billion. If the trend remains, Sh1.49 trillion will have been raised—about the same as last year—a shortfall of, well, Sh300 billion.

This is the situation that Ethiopia found itself in two years ago when the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) coalition realised that only a leadership change could save it. Fortunately for Prime Minister Abiy Ahmed, there was a lot of low-hanging political fruit—releasing political prisoners, making peace with Eritrea, appointing women— that he could use to build goodwill, bring in some money and buy time. Still, that’s all he’s been able to do— he is still circling the big economic reform questions, and he now runs the risk of his political honeymoon ending before he gets started.

Sudan’s Omar al-Bashir sought to do the same thing but it was too little too late. Just over a year before he was toppled, amid mounting protests and a deepening economic crisis, he dissolved the government, intending to constitute an economic turn-around team. But the ship of state was already too leaky and his key appointees turned down his overtures (his choice of finance minister is now Prime Minister).

Can the Jubilee administration pull a political rabbit out of the hat like the EPDRF did in Ethiopia? Doubtful. For one, the EPRDF had the advantage of a parliamentary system which enables change of leadership without going through elections. But it is also the case that for a President at the tail end of his tenure, an economic reform programme would be all pain and no gain. Moreover, a lot of what needs to be done means reversing his policies, and he would have to cede a fair amount of power, making him even more of a lame duck than he already is. And having left it until the ship was leaking, there is also the question of who loves him enough to jump in when its owners—the Moses Kurias of this world —are jumping out. So his best strategy is the path of least resistance—kick the can and hope and pray that the bottom does not fall out this side of the election, be that by way of a financial meltdown or people taking to the streets.

Five years ago, I cautioned Jubilee that it had embarked on a reckless fiscal path, to wit, “We cannot afford to continue on the fiscal path that we are on. It is reckless. This mega-infrastructure madness has to stop. If we don’t do it ourselves, the iron laws of economics will do it for us—and that, take it from me, does not come cheap.”

We say in Gikuyu mūrega akīīrwo ndaregaga akīhetwo: a person who rejects counsel will listen when the consequences arrive. That moment is upon us.

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What is the Sinister Motive Behind the Mwende Mwinzi Probe?

4 min read. Mwende Mwinzi’s appointment as Kenya’s Ambassador to South Korea is fully within the law as Ambassadors and High Commissioners are not considered state officials.  Under Article 78 (3) (b) of Chapter 6 of the Constitution on Leadership and Integrity, she is qualified as a Kenyan whose dual nationality is linked to the laws of another nation. 

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What is the Sinister Motive Behind the Mwende Mwinzi Probe?
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How did the appointment of a Kenyan citizen as Kenya’s Ambassador to South Korea become so embroiled in controversy as to seem like a personal vendetta?

Early in the year, Mwende Mwinzi, a dual citizen of Kenya and the United States, went through the vetting process administered by the Defense and Foreign Relations Committee as the law requires. From its onset, some Members of Parliament began to question her suitability for the post as they openly questioned the authenticity of her Kenyanness and claimed that she does “not have any unique skills other Kenyans don’t have”.

The Mwende drama started with a delegation that went to the president to whisper in his ear about the problem posed by the nomination of a dual citizen, falsely claiming that her appointment was unconstitutional. As it turned out, her appointment was indeed fully within the laws of Kenya, as Ambassadors and High Commissioners are not considered state officials.  Further to this, under Article 78 (3) (b) of Chapter 6 of the Constitution on Leadership and Integrity, she is qualified as a Kenyan whose dual nationality is a result of the “operation of that country’s law, without ability to opt out” (in this case the US).

But the war to dislodge Ms. Mwinzi only intensified and, in a vicious campaign to disqualify her, has gathered the most ardent supporters of the call to remove her even before she has taken up her appointment. Ms. Mwinzi’s loyalty has been loudly questioned, with opinion-shapers peddling doubts about her ability—and by extension the ability of all dual-citizenship Kenyans—to be loyal to Kenya while holding another country’s citizenship.

This narrow thinking completely misses the point that diplomatic spies and sell-outs do not need dual citizenship to act out of greed, dissatisfaction or unpatriotic inclinations. A study of the history of espionage should be exciting and enlightening for those in thrall to this sensationalist propaganda.

Her appointment was indeed fully within the laws of Kenya as Ambassadors and High Commissioners are not considered state officials

It also misses the point that there are other dual-citizenship envoys in office. This is perfectly within the law, and there is no logical reasoning to support calls for the amendment of the constitution in order to disqualify them on the grounds that they are dual citizens.

The Mwende case has been fraught with hypocrisy and dubious intentions on the part of the vetting Members of Parliament who have now insisted that she must surrender her American citizenship in order to take up office as Kenya’s Ambassador to South Korea. This demand is not only unconstitutional but it is also sinister and cruel to require someone with family in the US to shoot themselves in the foot in order to serve their country.

It is also worth pointing out that it is global standard procedure for countries to appoint dual citizens as high-level diplomats. The United States has enough of these examples, starting with former Secretary of State Madeleine Albright who is Czech-American.  The generous Internet will yield more good examples from several countries that have discarded the self-defeating and parochial view that dual citizens are to be feared, shunned and their role in nation-building limited.

This fear of dual citizens and Kenyans in the diaspora in general, has often elicited the open disdain of Kenyan legislators for Kenyans living abroad. When this disdain and dismissal translate to a suppression of citizens’ rights and opportunities, then it inevitably becomes a legal battle.

Kenyans in the diaspora have never shied away from the fight for justice and inclusion. They have fought to make it clear that living a few hours away is a silly and unjust reason to be discriminated against and that legally holding more than one passport is not a measure of one’s loyalty or patriotism.

It takes smart leadership to recognise that inclusivity of all citizens regardless of their global residence is visionary in the globalised 21st century and that attempts at exclusion are toxic to the nation as a whole.

It is also astonishing that the oft-quoted diaspora remittances cease to count as a mark of loyalty for Kenyan legislators intent on dismissing the Kenyan diaspora’s fight to belong and to serve. Let us be very clear that recognised belonging is the right of every citizen. Kenyans in the diaspora actively show their belonging by investing their hard-earned billions in their home country and, like every other Kenyan, they partake in nation-building every day.

The familiar pettiness that surfaced about Ms. Mwinzi’s accent during her vetting is an example of what must cease if Kenya wishes to make good use of its citizens who have lived abroad. These irrelevant concerns undermine and detract from the more important issues of character, leadership and accomplishments that might be of benefit to our nation.

It takes smart leadership to recognise that inclusivity of all citizens regardless of their global residence is visionary in the globalised 21st century

The sheer hypocrisy of the case has been exposed by the call to probe members of parliament who hold dual citizenship. The Kenyans for Justice and Development organisation has named eight members of parliament and two senators as state officials who need to be probed. This alone puts the vetting Committee’s credibility into question. It demands that all their recommendations against Ms. Mwinzi’s nomination be thrown out and that the constitution that allows her to be nominated reign supreme on this issue.

Mwende Mwinzi has served Kenya in many different capacities. In 2001 she started Twana Twitu, an organisation that has for 17 years supported over 3,000 orphaned and vulnerable children in Kitui. She was a columnist for Sunday Nation and for 3 years served on the National Economic and Social Council (NESC).

Ms. Mwinzi was also part of the team that devoted itself to improving Kenya’s image in the US at a time when Kenya had been negatively branded and was struggling to attract support to overcome its security challenges, boost tourism and trigger investment.  In the last election, Ms. Mwinzi vied for the seat of Member of Parliament for Mwingi West. She has clearly focused her life in Kenya not only in word but also in deed.

This persecution of one person is also a remarkably familiar pattern in the murky and mafia-ridden world of Kenyan politics where backdoor wheeling and dealing is done to secure high-level positions. With the political strategising for the 2022 presidential race already in place, political factions have been seeking to have “their people” in lucrative missions. Diplomatic corruption is both an international and local reality and, South Korea being a coveted station, it requires someone who will not give in to grand corruption schemes.

Editorial note: On November 14, 2019, the High Court of Kenya ruled that Kenya’s ambassador nominee to South Korea Mwende Mwinzi should not be forced to renounce her American citizenship as demanded by Parliament. Justice Makau further noted that an ambassador is not a State officer but a public officer, therefore, Ms. Mwinzi is not required to renounce her citizenship.

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Trump, Ukraine, and the Whistleblower: Why Reporting Wrongdoing Remains a Perilous Activity

9 min read. The American media and Democrats have hailed the anonymous whistleblower who reported the US president’s shady dealings with his counterpart in Ukraine as a hero. However, most whistleblowers are not so fortunate; the financial and emotional price they pay is extremely high, and can even lead to collateral damage.

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Trump, Ukraine, and the Whistleblower: Why Reporting Wrongdoing Remains a Perilous Activity
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“I think we will not understand what is happening in our society until we listen to the tears, the screams, the pain, and horror of those who have crossed a boundary they did not even know exists. To be a whistleblower is to step outside the Great Chain of Being, to join not just another religion, but another world. Sometimes this other world is called the margins of society, but to the whistleblower it feels like outer space.” – C. Fred Alford, Whistleblowers: Broken Lives and Organizational Power (2001).

President Donald Trump’s thinly veiled attacks against the anonymous whistleblower who reported his shady dealings with the President of Ukraine, Volodymyr Zelensky, have once again highlighted what a dangerous activity whistleblowing can be. The US president is reported to have stated: “I want to know who’s the person who gave the whistleblower the information because that’s close to a spy. You know what we used to do in the old days when we were smart? Right? With spies and treason, right? We used to handle them a little differently than we do now.”

By equating whistleblowing with treason, Trump is doing exactly what many people in power do when confronted with a revelation that shows them in a bad light – they shoot the messenger by accusing him of being disloyal – a traitor – or of having damaged an organisation’s reputation. For this, the whistleblower is either fired, ridiculed or psychologically tortured. (In the case of Trump, he would prefer that the Ukraine scandal whistleblower be hanged.)

What most people don’t understand is that no one wakes up one day and decides to blow the whistle on their employer. I am sure that the Ukraine saga whistleblower, who is believed to be working for the US intelligence services, did not make the decision to report Trump’s “quid pro quo” request to the Ukrainian president because he sought notoriety. He probably believed that US national security was being compromised by the US president and that some law or code of ethics had been violated. So he reported it internally, which is how most whistleblowers report wrongdoing.

He probably also felt that he would not be able to live with himself if he had done nothing. Now, after being declared a whistleblower, he has to contend with the wrath of the most powerful president on the planet. Imagine the pressure of that.

The media and Democrats in the United States have hailed the Ukraine whistleblower as a hero. But I fear that this designation will not be enough to protect him from harm. I fear for this person, not so much for his life, but for the grim future that lies ahead of him, even within the intelligence community where he works. (I am assuming that the whistleblower is male, although there is a high likelihood that a woman made the official complaint against Trump.)

He may find that after this episode is over and President Trump is allowed to continue as president, he will be sacrificed – in what ways, I am not sure.

Alternatively, if Trump is impeached, a bright future might await him. His bosses within the intelligence services and Democrats in Congress might make a commitment to protect and reward him, as they did with Mark Felt, the “Deep Throat” whistleblower who exposed the Watergate scandal that led to President Richard Nixon’s downfall. He could be among the lucky few.

Most whistleblowers are not so fortunate; they suffer severe retaliation for reporting wrongdoing. Most lose their jobs. They do not receive any medals or awards for their whistleblowing, nor do they get their jobs back after they have been exonerated of any wrongdoing. On the contrary, the financial and emotional toll of whistleblowing affects their physical and mental health. Many lose their families or sink into depression. Others pay the ultimate price for speaking truth to power. For example, not long after the human rights activists Oscar King’ara and Paul Oulu released a report on extrajudicial killings by Kenyan state security authorities, they were gunned down in March 2009 by unknown assassins on a street in Nairobi not far from the State House.

Some whistleblowers do become famous – not because they want to be famous but because someone thought it was important to tell their stories. Some of them have featured in Hollywood films like The Insider and The Whistleblower; the most recent film is the just released Official Secrets, which tells the story of Katherine Gun, a translator who blew the whistle on America’s illegal spying activities at the United Nations prior to the Iraq war in 2003. (Dictionary definition of a whistleblower: a person who reports or discloses information of a threat or harm to the public interest in the context of their work-based relationship.)

Most whistleblowers end up finding out that institutional whistleblower protection policies will do little to protect them, even in institutions that claim to be protecting human rights and enforcing labour laws. For instance, no one protected me when I reported to my supervisors at the United Nations Human Settlements Programme (UN-Habitat) that some $350,000 of donor money was unaccounted for. Not suspecting that the people I reported this to might have been responsible for the theft or inappropriate use of this money, I found myself at the receiving end of various forms of psychological torture, which forced me to leave the organisation. I was publicly humiliated in office meetings; friends and colleagues stopped talking to me; I was threatened with non-renewal of contract and was denied a promotion. In retrospect, when I think of the things that I was forced to endure, I now believe that the amount stolen or “diverted” could have been as high as $1 million – the total amount of funds given by the donor country Bahrain to UN-Habitat the previous year.

The cost of whistleblowing

Many whistleblowers naively believe that their revelations will earn them kudos from their seniors, but usually the very opposite happens; the entire system conspires to make their life so miserable that they quit voluntarily, or comes up with trumped-up charges of impropriety that lead to their dismissal.

It is estimated that between half and two-thirds of all whistleblowers lose their jobs. In general, the more systematic the wrongdoing within an organisation, the greater the reprisal against those who expose it. Most find that their job prospects dwindle significantly after they report wrongdoing; career pathways are blocked, promotions are denied, rumours are spread about their state of mind, which deters others from hiring them.

Most whistleblowers are not so fortunate; they suffer severe retaliation for reporting wrongdoing. Most lose their jobs. They do not receive any medals or awards for their whistleblowing, nor do they get their jobs back after they have been exonerated of any wrongdoing.

Whistleblowers around the world have consistently reported feelings of isolation, betrayal and abandonment after they have denounced incidences of corruption, malpractice or abuse of office. One World Bank whistleblower said that the culture of conformity, silence and fear was so pervasive at the Bank that “as soon as you are seen blowing the whistle, your own colleagues won’t even sit next to you in the cafeteria”.

The case of the Kenyan whistleblower David Munyakei is illustrative of the fate that befalls whistleblowers. Munyakei is credited with bringing to public attention what is known as the Goldenberg Scandal that cost the Kenyan economy about one billion dollars in the early 1990s. Munyakei was arrested and charged with contravening the Official Secrets Act. He was denied bail and taken to remand prison.

While the case against Munyakei was later dismissed by the then Attorney General, the whistleblower found himself on the streets; the Central Bank had fired him on the grounds that they no longer had confidence in him.

Munyakei spent the next few years flitting from one casual job to another. While Transparency International and the Kenya National Commission on Human Rights recognised him for blowing the whistle on the biggest scam in the country’s post-independence history, he was not financially compensated by the government, nor did the awards bring him any financial security. He was clearly a broken man. He died penniless in 2006 at the age of 38.

Whistleblowing is extremely risky business in any place where governments or corporations have something to hide. It can also cause deep anguish to the whistleblower. In his book Whistleblowers: Broken Lives and Organizational Power, C. Fred Alford, a Professor of Government at the University of Maryland, College Park, provides a chilling and deeply pessimistic account of whistleblowers who have exposed corruption in high places. Most whistleblowers, he says, are unable to assimilate the experience of whistleblowing or to come to terms with what they have learned.

Whistleblowers see the truth, and that truth shakes their belief in the world they live in. “For many whistleblowers this knowledge is like a mortal illness. They live with it, and it with them, every day and night of their lives,” says Alford.

John Githongo, Kenya’s most famous whistleblower who is the subject of Michela Wrong’s book It’s Our Turn to Eat and who uncovered what came to be known as the Anglo Leasing Scandal in 2005, told me that for him the meaning of “normal” changed forever after he realised that the people he worked most closely with were involved in the theft of public funds, and when friends and colleagues disappeared from his life after he made the scandal public. “It is like post-traumatic disorder,” he explained. “The memories keep coming back and stay with you for the rest of your life.”

It is estimated that between half and two-thirds of all whistleblowers lose their jobs. In general, the more systematic the wrongdoing within an organisation, the greater the reprisal against those who expose it.

Ten years after I blew the whistle at UN-Habitat I still have nightmares about what was done to me, how easily I was sacrificed, and how the perpetrators and defenders of the wrongdoing suffered no consequences (though one of them was later removed from her cabinet position after she was implicated in a major corruption scandal in her country after she had left the UN).

My attempts to seek justice from the UN have so far come to naught. I have used every official internal channel available to me to seek justice, but I have been blocked every single time. Usually my complaint has ended up in the UN’s web-like bureaucracy, a labyrinth that ensures that there is no accountability. Meanwhile, my prospects of returning to a job that I loved – editor of UN-Habitat’s State of the World’s Cities report (which ceased to be published after my departure – because I was no longer at the helm, I would like to believe) – are getting dimmer by the day.

I have since spent a considerable amount of time learning and writing about whistleblowers, and have come to the conclusion that most whistleblowers report wrongdoing not because they hate their organisations, but because they love their work and are loyal to their organisations’ mission and mandate. I concur with the writers of a TIME magazine article on the three female whistleblowers – Worldcom’s internal auditor Cynthia Cooper, Enron’s vice president Sherron Watkins, and FBI agent Coleen Rowley – who the magazine named as “Persons of the Year” in 2002, when they wrote, “Sometimes it is the keepers of the flame who feel most compelled to set their imperfect temple to the torch.”

Alford says that whistleblowers are tortured and sacrificed “so that others might see what it costs to be an individual in this blighted world”. They are also political actors in a world that has been depoliticised by euphemisms such as “development” instead of social justice, “diversion of funds” instead of theft, “national security” instead of gross violation of privacy. Ask Edward Snowden.

Quite often the torture and retaliation will continue even after the whistleblower has left the organisation. Githongo faced libel cases after he left government and went into exile and, thirteen years after he first exposed the Anglo Leasing scandal, he is still fighting these cases – which have drained him both emotionally and financially – in Kenyan and UK courts. In May 2019, the High Court awarded Sh27 million ($270,000) to one of the people he had accused of being one of the masterminds of the Anglo Leasing scam – a ruling that many viewed as excessively punitive and a chilling message to those who might be tempted to expose corruption within the Kenyan government.

John Githongo, Kenya’s most famous whistleblower who is the subject of Michela Wrong’s book It’s Our Turn to Eat and who in 2005 uncovered what came to be known as the Anglo Leasing Scandal, told me that for him the meaning of “normal” changed forever after he realised that the people he worked most closely with were involved in the theft of public funds…

Whistleblowers threaten the very foundations upon which power rests. The very act of whistleblowing is, therefore, a deeply political act. This explains why whistleblower protection policies rarely work. Once a whistleblower is taken seriously, he becomes a threat to the entire power structure. He must, therefore, be sacrificed.

Collateral damage

Sometimes whistleblowing can lead to collateral damage; not only is the whistleblower harmed but the perpetrators of the crime go on to commit more crimes that harm other people, especially when they believe that they can get away with them. This further damages the organisation, and creates a toxic work environment where anything goes. These crimes can even lead to innocent people being killed.

I believe that President Trump is an irrational, narcissistic, and dangerous man. I think that he gave Turkey the green light to invade Syria because he wanted to “wag the dog” and divert attention from his impending impeachment. He doesn’t care how many innocent lives are lost as long as he comes out smelling like roses. His belated call to Turkey’s president for a ceasefire is nothing but a lame attempt to exonerate himself when the war gets really ugly and he is blamed for the mass killings. (I have yet to see the UN Security Council reprimand him or Turkey’s President Recep Tayyip Erdogan for waging this illegal and highly dangerous war.)

Whistleblowers threaten the very foundations upon which power rests. The very act of whistleblowing is, therefore, a deeply political act. This explains why whistleblower protection policies rarely work. Once a whistleblower is taken seriously, he becomes a threat to the entire power structure. He must, therefore, be sacrificed.

As a result of this totally senseless war in Syria, hundreds, if not thousands, of people will be killed or displaced, and the world will become a much more dangerous place, just as it did when George Bush and Tony Blair ordered an invasion of Iraq without UN Security Council approval in 2003. Not only has Trump betrayed America’s Kurdish allies in the fight against the Islamic State (IS), he has made the region and the world at large much more unstable and unsafe. Just when the world believed that IS had been vanquished, Trump threw the terrorist organisation a lifeline.

As the New York Times commented:

“President Trump’s acquiescence to Turkey’s move to send troops deep inside Syrian territory has in only one week’s time turned into a bloody carnage, forced the abandonment of a successful five-year long American project to keep the peace on a volatile border, and given an unanticipated victory to four American adversaries: Russia, Iran, the Syrian government and the Islamic State.”

Is there a link between the Ukraine whistleblower and Trump’s decision to support this war despite having claimed that as president he will end America’s military incursions in foreign lands? I believe so.

Will the whistleblower who exposed the Ukraine scandal be sacrificed? I hope not, but I do wish him all the strength he can muster to survive what will most likely be a very trying period ahead.

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