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Shopping Mall Economics: A Note on the Value of the Kenya Shilling

8 min read. What does a recent spat between the IMF and the Central Bank’s Prof Patrick Njoroge, himself a veteran of the Fund, tell us about the state of the Kenya shilling? By DAVID NDII.

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Shopping Mall Economics: A Note on the Value of the Kenya Shilling
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Is the Kenya shilling overvalued or not? According to the IMF it is currently overvalued by 17 percent. In an unusually combative response to his former employer the Central Bank governor says that is only off-kilter by 5 percent and accuses the IMF of making Kenya a “guinea pig in its new approach.” The offensive claim, contained in the IMF’s latest report on the country dated October 2018, states as follows:

“The EBA-lite methodology for the exchange rate suggests that the external position is weaker than fundamentals. The current account approach shows that the current account deficit (both actual and cyclically adjusted) are above the norm (the CA gap is -2.5 percent), suggesting an overvaluation of about 17.5 percent of the real exchange rate. This can only marginally be explained by the policy gap. The REER approach also shows a similar-size of overvaluation, equivalent to about 18.0 percent. Again, the policy gap is marginal. Given the continued appreciation of the real exchange rate, the external position is assessed to be weaker than fundamentals. Regarding the last approach, the external sustainability approach, it was not possible to use it as the international investment position data is not yet produced by the authorities.”

This needs a fair amount of disambiguation. EBA is a needless acronym that stands for external balance approach for exchange rate assessment. The methodology is described in an IMF paper published in 2013 as an update of a previous methodology known as CGER. CGER is another needless acronym for consultative group for exchange rate assessment. This EBA thing appears to be what the CBK governor is referring to as a new approach.

The methodological spat is a red herring. Economic models are tools, not oracles. What we have here is workmen quarrelling over tools. Our top three economic mandarins are former IMF staffers. Surely, as former colleagues, they can sit together with their colleagues and their models and converge on an assessment as to whether the shilling is overvalued or not?

The IMF refers to three methodologies: the Real Effective Exchange Rate (REER), the current account and external sustainability approach. Of the three, the REER is the most intuitively understandable and also the one for which we have data. But what is this animal the REER?

The methodological spat is a red herring. Economic models are tools, not oracles. What we have here is workmen quarrelling over tools. Our top three economic mandarins are former IMF staffers. Surely, they can sit together with their colleagues and their models and converge on an assessment as to whether the shilling is overvalued or not?

Suppose bananas are retailing at KSh 100 shillings a bunch in Kenya. The Kenya/Uganda shilling exchange rate is one to ten. At this exchange rate and banana price, 20 percent of bananas are coming from Uganda. Suppose price of Kenyan bananas goes up to KSh 125 a bunch (e.g. because of increase in taxes), and exchange rate remains the same. Ugandans can continue to sell bananas in Kenya profitably at KSh 100 while many Kenyan producers cannot. In fact, Ugandans are likely to hike their price to let us say KSh.110 making Kenya an even more profitable market than their home market. Uganda bananas will flood the market and put Kenyan producers who are not profitable at Ksh. 110 out of the banana business. For the market to remain at the old equilibrium (i.e. 20/80 Uganda/Kenya market share) requires Kenya shilling to fetch USh. 8.00 so that to get USh. 1000 as before, the Ugandans will also have to sell their bananas at KSh125.

Its readily apparent that if our domestic prices go up faster than those of our trading partners, then foreign goods will keep becoming cheaper. But you cannot tell by just looking at the dollar shilling exchange rate. We need to factor in the price movements with every trading partner. The REER is an index that combines the relative exchange rate and price movements of all our trading partners.

If the REER is rising, our goods are becoming more expensive. We can expect to import more and export less. If this happens our trade deficit will widen. If the trade deficit continues to widen, we run the risk of defaulting on our international obligations in particular debt service and repatriation of profits and capital. This is where the IMF comes in. The IMF’s mandate is to maintain international financial stability. The IMF is a financial cooperative whose job it is to ensure members do not run into external payments difficulties, and to bail them out when they do, in order to keep global finance and commerce going.

The spat between the IMF and the CBK is therefore about our external creditworthiness. The key indicator for this is the current account balance. The current account balance has two components: trade and income. The trade account I have already mentioned. The income account consists of payments for “factor services” such as interest (use of capital), labour (e.g. for services of Kenyan troops abroad) and another component we call unrequited transfers (meaning money we have not earned) such as diaspora remittances, grant aid and such like. The external account in turn, has a third component, the capital account where, as the name suggest, we record investment transactions.

The spat between the IMF and the CBK is…about our external creditworthiness. The key indicator for this is the current account balance.

This is how it works. Kenya Airways buys an aircraft using a foreign loan. The aircraft is entered in the trade account as an import and simultaneously in the capital account as a capital inflow. The following day it ferries passengers from Lagos to Dubai. The income is recorded in the trade account as a service export. At the end of the month it remits repayment on the loan. The interest is recorded in the income account as a factor service payment and the principal is in the capital account as a capital outflow.

The net of the current account and the capital account are added together to give the overall balance. An increasing overall deficit depletes foreign reserves, while a surplus leads to a build up of reserves. Current account surpluses mean that a country’s savings exceed its investment; it can, therefore, export capital, like China. A current account deficit means that a country is investing more than its savings, in other words, it is importing capital (either debt, FDI, remittances, grants etc).

The country’s creditworthiness thus depends not just on trade but also on other financial flows, that are determined by factors other than trade competitiveness, both economic and non-economic. Complicated stuff.

Both the IMF and CBK agree that the shilling has appreciated, but they disagree on the magnitude. The IMF also implies that the appreciation is a reflection of policy action while the CBK maintains that it is a reflection of market forces. The IMF view translates to accusing the CBK of misleading the public by espousing a monetary policy that claims to target inflation, while in practice it is actually targeting the exchange rate. The IMF’s “smoking gun” is the fact that the NEER has flatlined for the past six years (see Chart).

Recently the IMF re-classified the Kenya shilling from a “floating” (meaning market determined) to “other managed arrangement.” This means the IMF is convinced that the Central Bank is propping up the shilling. What reason would the Central Bank prop up the shilling especially if it undermines the country’s competitiveness and solvency?

Foreign currency debt exposure is one reason. The interest payments on the first Eurobonds issued in 2015 ($185 million a year) has increased by KSh 3 billion, KSh 16 billion to KSh 19 billion on account of the depreciation of the shilling. Translate that to the total interest payments this year which are in the order of $1.4 billion dollars. The shilling has weakened by about three shillings to the dollar since the beginning of the financial year. The total interest payments this year which are in the order of $1.4 billion. This translates to a KSh 4 billion squeeze on a government that is already living way beyond its means. The last thing the Treasury wants to hear is that the shilling should be trading at about 120 to the dollar.

Recently the IMF re-classified the Kenya shilling from a “floating” (meaning market determined) to “other managed arrangement.” This means the IMF is convinced that the Central Bank is propping up the shilling. What reason would the Central Bank prop up the shilling especially if it undermines the country’s competitiveness and solvency?

Another reason is pressure to keep low interest rates. Interest rate is the policy instrument in an inflation-targeting monetary policy regime such as we claim to have. Central Banks are given statutory independence over the conduct of monetary policy to insulate them from such pressure so that they can raise interest rates when they need to, even when it is politically costly for the government of the dayParliament’s capping of interest rates two years ago is ample demonstration that political pressure on Central Banks is real.

Keeping interest rates artificially low puts pressure on the exchange rate. A weakening currency creates inflationary pressures, which is what the Central Banks are mandated to control in the first place. The Central Banks end up trying to meet incompatible objectives, low interest rates, low inflation and a stable currency.

This is precisely what happened from mid-2009 to September 2011. The Central Bank bent over backwards to accommodate the government’s economic stimulus meant to respond to both the post-election violence and the global financial crisis. Interests rate were driven to the floor. From mid-2010 to mid-2011 the benchmark 90-day Treasury bill rate was kept below 3 percent. The IMF’s charts show how this ended— with a very hard landing. The shilling which had been propped up at about 80 to the dollar, started unravelling in April peaking at KSh100 to the dollar in September. The Central Bank was forced to jack up interest rates in a hurry. By the end of 2011, the T-bill rate was heading to 20 percent.

The IMF seems to believe that, left to market forces, the shilling will depreciate in real terms. The IMF’s REER chart covers eight years, from 2010 to 2017. A longer timespan does not necessarily support this contention (see Chart). My chart goes back to the beginning of the liberalized regime in 1994. What do we see? The shilling has been appreciating in real terms since it was liberalized. Overall it has appreciated 157 percent, by 9 percent per year on average. This could mean that the Government has been propping up the shilling all these years, or that market forces are not working the way the IMF expects.

Many Kenyans have observed that we have become an importing country. One also hears policymakers lamenting that we are losing our markets in the region and blaming all manner of things. There is no mystery to it.

My [assessment is that] the shilling has been appreciating in real terms since it was liberalized. Overall it has appreciated 157 percent – by 9 percent per year on average. This could mean that the Government has been propping up the shilling all these years, or that market forces are not working the way the IMF expects.

But is the Central Bank propping up the shilling? That we cannot be able to tell that easily. There are lots of moving parts. It can also be on account of some trading partners manipulating their currencies: China, for example, is regularly accused of maintaining an artificially weak currency. China has a big weight in our REER and it’s been growing over time.

The ultimate question is whether it is sustainable. There are two parts to this, financial and economic. The widening trade deficit has been plugged by remittances and portfolio inflows (money flowing into the stock exchange and government securities), not all of it honest money, and lately, government commercial borrowing, the ubiquitous eurobonds and syndicated loans. As long as these keep flowing, the show can go on.

Why are we told the economy is growing and yet we cannot feel it? This is the shopping mall economy. How long can we keep that going?

The economics is a different story. This is the shopping mall economy. It is not good for employment and equity. It is not good for employment, or equity, or sustainable growth. It is part of the answer to the question that Kenyans keep asking: why they are told the economy is growing and they are not feeling it. This is the shopping mall economy. How long can we keep that going? Your guess is as good as mine. Governments are known to manipulate currencies and to distort financial markets generally. The IMF is known to (a) have more faith in market forces than warranted and (b) get the workings of those market forces wrong. What to do?

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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