The truth of the hunt, it is said, will never be fully known until the lion tells its story. This is particularly useful in the context of international development; the stories that get told tend to focus on the deeds of the “hunters” – in this case, the international do-gooders — that led to whatever outcomes they desire to highlight. The saying certainly holds true for the development of solar energy in Africa, because the coverage too often tells of expat social entrepreneur efforts to spread the technology. Intentionally or not, these Western actors ignore the work done by local players — the “lions”, who actually built the sector.
To better understand both sides of the story of solar in Africa, a global perspective of solar and the forces that drive demand is useful. Today, the worldwide solar energy sector is valued at more than $100 billion annually. In 2018, over 100 GW of solar power systems were installed. Yet despite enormous resources on the continent, less than two percent of this solar capacity was installed in sub-Saharan Africa. Africa is, in fact, a backwater for solar investments.
Today, the worldwide solar energy sector is valued at more than $100 billion annually. In 2018, over 100 GW of solar power systems were installed…less than two percent of this solar capacity was installed in sub-Saharan Africa.
Globally, solar electricity’s growth spurt came after 2000 when the German government supported the energiewinde program and Chinese production of solar modules ramped up in response to sharp spikes in demand. Since the late `90s, solar power projects in developed countries have mostly been grid connected and large scale. Early on-grid developments occurred in Germany and California, where today millions of homes have rooftops covered with solar panels. All over the developed world and in China and India, fields of modules produce gigawatts of power on sunny days. However, though production is over 100 GW per year today, it wasn’t until 2003 that global production surpassed 1 GW per year.
While millions of modules were installed in the global North, on-grid solar’s potential was almost entirely ignored by African governments. It was seen to be too expensive, unsuited for grids plagued by instability, a novelty without a real future. Africa’s power sectors were not ready to experiment with solar, so the line went. But after 1995, in order to placate post-Rio environmentalists, a number of World Bank and UN Global Environment Facility solar projects were set up to fund off-grid rural electrification. If the inattention delayed progress in African on-grid solar by decades, these small projects play an important, if largely undocumented, role in the global solar energy story: they stimulated the use of solar by rural people.
It wasn’t until 2003 that global production surpassed 1 GW per year.
Africa’s different solar path: Solar for Access
Well before grid connected programs were launched in the North, African entrepreneurs were selling off-grid and small-scale solar systems targeted at rural projects and consumers. This goes all the way back to the early days of solar, long before the technology was financially viable or available for grid power.
Today, in Kenya, Uganda and Tanzania, if measurements are made by percentage of households with solar power systems, many rural parts of these countries have a much higher absolute penetration of solar products than Northern countries. Surveys of Kenya and Tanzania populations show that penetration rates surpass 20 percent of all rural households. But the systems in Africa are much smaller and, until recently, of much less interest to the mega green investors that today drive the industry. Depending on who is telling the story, there are different versions of how such high penetration rates among rural populations have been achieved.
Well before grid connected programs were launched in the global North, African entrepreneurs were selling off-grid and small-scale solar systems targeted at rural projects and consumers.
All of the industry actors would agree on a few fundamentals. First, 600 million people lack access to electricity in sub-Saharan Africa. For the small amounts of energy these populations use — in the form of kerosene, dry cells and cell phone chargers — they thus pay a disproportionately high portion of their incomes.
Secondly, the massive funds to roll out rural grid investments for un-electrified populations are neither available to African governments nor the multilateral groups that support grid electricity development. Conservatively estimating grid connection at $500 per household, it would cost in the order of $50 billion dollars to distribute grid electricity to the continent’s unconnected rural population. And this does not include the generation and transmission infrastructure.
Because of these costs, and the lowered costs and technological improvements made in off-grid solar over the past decade, the World Bank, investors, donor partners and the private sector agree that off-grid solar energy is the best way to quickly cover a large portion of un-connected dispersed African populations. Nevertheless, governments still focus their budgetary outlays on grid-based electrification. Their spending has largely ignored the viability of off-grid solar power for rural electrification.
Conservatively estimating grid connection at $500 per household, it would cost in the order of $50 billion dollars to distribute grid electricity to the continent’s unconnected rural population.
Finally, as more and more investors line up to finance the solar electrification of off-grid Africa, all players agree that it is the private sector that has done and will continue to do the heavy lifting to provide solar electricity to rural consumers.
It is here that the story diverges. Who should be given the credit for the widespread use of rural solar in Africa? And, more importantly, how should future investments be made in the sector? The answer depends on who you ask.
The African Pioneers
Off-grid systems were a critical part of worldwide solar sales early on and many ended up in Sub Saharan Africa.
But these days, this remarkable story of the early players is not often told.
In the 1970s, though still expensive, solar became cost-effective for terrestrial applications (as opposed to NASA satellites). In Africa, national telecoms and international development players began using solar to power off-grid applications such as repeater stations, WHO vaccine refrigerators, communication radios in refugee camps and later, lighting in off-grid projects. Solar panels and batteries replaced generators — and the need to expensively truck fuel to remote sites. Because of this demand, traders in cities such as Nairobi began to stock and sell solar systems for these specialized high-end clients.
In the 1970s… on the back of pioneer demand, a lucrative market opened up when television signals spread across cash-crop growing regions of East Africa.
On the back of pioneer demand, a much more lucrative market opened up when television signals spread across cash-crop growing regions of East Africa. Rural people with coffee and tea incomes realized that they could power black-and-white “Great Wall” TVs with lead acid car batteries. Especially in Kenya, traders selling DC TVs quickly realized that car batteries could be charged with solar panels. Since they already had strong rural distribution networks, they added solar to their rural lines and a new industry selling, solar systems, TVs, lights and music systems was born. In the 1990s, East Africa’s off-grid solar market was a small but important slice of global solar demand.
After 1995, when Nairobi traders such as Animatics, NAPS, Telesales, Chloride Solar and Latema Road shops introduced lower cost 10-watt modules and 12-volt lights to the market, demand increased exponentially. Hundreds of technicians were selling systems to rural farmers and teachers. By the turn of the century, this market pioneered by African traders was selling — and even financing — tens of thousands of single panel solar systems per year in off-grid areas of Kenya, Tanzania and Uganda.
These established businesses exploded with the emergence of cell phone markets in the mid-2000s. Suddenly, millions of rural cell phone owners needed a cheap, convenient way to charge their phones. Distribution chains, with over-the-counter sales of solar electric systems already in place, simply added the required kit for charging phones to the wares they offered. Cell phone charging, a business worth tens of millions of dollars per year, tied into the groundwork laid by small retail indigenous companies and businesses. By 2005, enterprises had sprung up in rural areas all over East Africa that were selling these systems — and village SMEs were charging cell phones, video-cinemas and kiosk refrigerators with solar.
Business exploded with the emergence of cell phone markets in the mid-2000s.
Difficulties arose as demand grew. Competition brought poor quality and counterfeit products. Dodgy traders, a lack of skilled technicians and insufficient consumer awareness began to spoil the market. Without standards or regulatory systems in place to police the industry, the reputation of off-grid solar suffered. In those early days, uneducated consumers bought poorly-designed systems and were discouraged. The reputation of solar, especially among policy makers whose energy priorities lay elsewhere, was badly tarnished.
Enter the international development community
Recognizing a market of over 600 million off-grid people, multilateral and national aid agencies (World Bank, DFID, GIZ) realized the potential of solar to support energy access. They saw that rapid changes in technology were making off-grid solar more viable. Prices of solar modules were falling. Super-efficient LED lights were becoming available. Solid state-of-the-art electronic controls, inverters, dc appliances, lithium-ion batteries and well-designed products were coming into the market. These changes, together with rising awareness, did much to improve the choices of consumers.
In 2008, the World Bank and its investment arm, the International Finance Corporation, set up Lighting Africa to support the development of off-grid solar. Lighting Africa raised awareness of solar among African policy makers, developed quality standards and laid the groundwork for corporate investment in solar companies. It stimulated a transition of the sector from NGO/donor domination to foreign investor-based models. By developing a platform that recognized the enormous opportunities for solar businesses, Lighting Africa helped roll out standards for the sector, grew in-country awareness and stimulated investment in a new generation of off-grid solar companies that designed truly innovative products. It also helped set up a trade group — the Amsterdam-based Global Off-Grid Lighting Association, GOGLA — for companies selling approved solar products.
In 2008, the World Bank and the IFC, set up Lighting Africa to support the development of off-grid solar. Lighting Africa raised awareness of solar among African policy makers, developed quality standards and laid the groundwork for corporate investment in solar companies. It stimulated a transition…from NGO/donor to investor-based models…and stimulated investment in a new generation of off-grid solar companies that designed truly innovative products.
Lighting Africa did much to bring on board local policy makers, to help improve equipment quality and to increase market size. With the involvement of the donor partners, investment flooded in and new players, predominantly Western, entered the market. Companies such as D.Light, Greenlight Planet (owner of the Sun King brand), Solar Now, Bright Life, fosera, Mobisol and Solar Kiosk brought innovative high-quality products and services. The new generation of companies revolutionized consumer choice by using professional product designers, manufactured in China and elsewhere in South East Asia, sophisticated business models and Silicon Valley investment to roll out. An industry that had largely been indigenous and self-financed had become an opportunity for big money international investors.
The disruptions accompanying the arrival of Lighting Africa were felt almost immediately. Newly agreed quality standards mostly worked for manufacturing companies with deep pockets. Companies located further down the supply pyramid — the ones near the consumers, and which had built the markets — were by and large shut out as the big money began to flow in. As far as the donors and impact investors were concerned, there were two categories of players; their money would target the first, the international manufacturers. These were the established disruptors, represented by GOGLA members and led by savvy expat social entrepreneurs from Europe and the USA.
The other category, which GOGLA now described as the “grey market”, is composed of “thousands of small businesses and technicians in Africa”: local traders, rural wholesale dukas, small-scale integrators, technicians, import-exporters, ambitious lone wolf entrepreneurs. This group, grappling with the day-to-day of basic survival and incapable of preparing grant proposals for donors or business plans for impact investors, is largely unrepresented in the international conversation. It was this group, rightly or wrongly, that was held responsible for market quality problems that, according to the new narrative, the GOGLA members would solve.
The disruptions accompanying the arrival of Lighting Africa were felt almost immediately. Newly agreed quality standards mostly worked for manufacturing companies with deep pockets. Companies located further down the supply pyramid — the ones near the consumers, and which had built the markets — were shut out as the big money began to flow in.
If the positive product and marketing innovations of Lighting Africa and GOGLA members demonstrably benefitted millions of rural consumers, their market disruption also affected the ‘grey market’ players. In donor-supported conferences, convened mostly in the West, where energy access is discussed, the narrative is that the African solar industry passed from locals to international social entrepreneurs. Even if the international social entrepreneurs had the best intentions of serving African consumers, they were also strategically positioning themselves to win the hundreds of millions of dollars of grant and impact investment finance that was coming to the sector. And everything changed with Pay As You Go.
The Birth of PAYG
Pay As You Go (PAYG) was developed on the back of mobile money. Simply put, PAYG systems are small off-grid solar systems with embedded SIM cards that enable companies to remotely collect incremental payments from consumers. The embedded SIM card can accept payments, monitor the solar system and switch it off if payments are not made. The spending history of each PAYG customer can also be tracked online, much in the same way that credit card customers are tracked.
This group, faced with day-to-day survival and incapable of preparing grant proposals for donors or business plans for impact investors, is largely unrepresented in the international conversation.
When Nick Hughes, one of the developers of M-Pesa for Vodacom, Safaricom’s UK parent company, looked to the future he saw how mobile credit among poor consumers would enable them to access a variety of products. He recognised that solar electricity for phone charging, TV and lighting would be the most sought after rural product. With Jesse Moore, he established M-Kopa Solar. Once they tested their product, M-Kopa launched outlets in Kenya, Tanzania and Uganda, where solar demand was already well-developed.
The difference between PAYG and over-the-counter sales is that PAYG can reach a lower strata of customers and, importantly, the business can be scaled. PAYG enables companies to collect payments from thousands of Base of the Pyramid (BoP) customers — and it enables consumers in turn to finance systems over much longer time periods.
When Nick Hughes, one of the developers of M-Pesa for Vodacom, Safaricom’s UK parent company, looked to the future he saw how mobile credit among poor consumers would enable them to access a variety of products.
Before PAYG, virtually all transactions in solar were cash over the counter. The PAYG business model had the potential to disrupt the old model in the way that cell phones invalidated landlines. Payments could be tracked on-line in real time. Once PAYG technology was in place and investible models established, hundreds of millions of dollars of investment flowed into off-grid companies.
Donors had funded the pilot experiences and multilaterals had established the financial and policy framework for off-grid energy access. Now international patent capital could be enthusiastically invested in PAYG solar. Indeed, since 2015, on the order of a billion dollars of impact investment has been placed in PAYG companies in Africa. M-Kopa Solar alone has attracted well over $100M in venture capital and grant money. They are not alone. Others include Off-Grid Electric (now Zola, in Tanzania, Rwanda, Ghana and Ivory Coast), Fenix (Uganda, Zambia), Mobisol (Tanzania, Rwanda, Kenya), Azuri and others.
The PAYG business model had the potential to disrupt the old model in the way that cell phones invalidated landlines.
Taken together, these PAYG companies have connected millions of customers and brought much needed resources to the energy access sector. The point of this article is not to belittle their accomplishments. In fact, building PAYG companies can only be done with deep pockets, good planning and strong teams. To succeed, companies must build market share quickly and raise multiple rounds of investment. Though PAYG players start as technology and marketing companies, they quickly become finance providers. Snowballing cash demands force PAYG companies to pass through what some call a financial “Valley of Death”. Before they have enough revenue to support a viable business, they have to spend millions on equipment and sales staff to expand their base. It is a risky, high-roller business.
Competition is stiff. Many consumers are unwilling to pay the extra costs of branded PAYG products and will regularly privilege price over international standards. In fact, most products being bought in Africa are not from GOGLA members. Shops operating in “Buy-em-Sell-em” trading streets stock a large array of equipment, much of it substandard. Moreover, PAYG companies that finance Base of Pyramid customers can lose them at any time. Drought, political disturbance or economic downturn will shut down income streams. When there is no money in the economy, vulnerable populations simply stop paying bills for solar gadgets.
Since 2015, on the order of a billion dollars of impact investment has been placed in PAYG companies in Africa.
A further problem faced by PAYG companies is that their products provide electricity services unsuited to the elastic needs of rural families. A typical PAYG solar kit comes in a neat box with a 20W module, a few lights, a charger and a battery. A consumer might be happy with such basic light and cellphone charging service initially, but consumer needs and aspirations evolve quickly. A consumer that wants a 20W system one month might desire a system twice that size six months later. The boxed set units sold by PAYG companies struggle to grow with the aspirations and needs of much of their customer base.
Today, despite the potential of the PAYG model to scale, many of the first generation of companies are in trouble, languishing in the face of ruthless competition and the challenges described earlier. In 2017, Off Grid Electric, a company that pledged to electrify one million Tanzanians, virtually pulled out of their foundation country and rebranded to attract more rounds of desperately needed finance. In Kenya, M-Kopa had to downsize and restructure its business in late 2017. Smaller companies in less lucrative markets also struggle to scale. Fenix, the largest player in Uganda, was able to avoid financial issues by selling majority shares to the global utility company Engie.
Few if any investors are making financial returns on their investments.
Despite the potential of the PAYG model to scale, many of the first generation of companies are in trouble…
In a way, the PAYG players want to have their cake and eat it too. They claim that they offer quality products and they like to say that their data-based business model is best able to deploy resources to the 600 million ‘base of the pyramid’ consumers unserved by the mainstream energy market. Their complaints, mostly to do with quality, are directed at the ‘grey market’. But they are the first in line for Western grant money and super easy-term financing to grow their companies. At international conferences, almost exclusively convened in the West, it is their polite, white faces that own the conversation.
African Traders in the Over the Counter Market Still Dominate
PAYG entrepreneurs do not acknowledge a self-evident truth: the so-called “grey market” is the market. In Africa, for bicycles, sofas, consumer electronics, dishware and roofing tiles, there has always been a range of products for consumers to choose from. Providing consumers with choice is what drives capitalism — those companies that provide the best choices for consumers at the best prices win out. The market for off-grid products was never being ruined by poor quality products any more than the market for cell phones was. Consumers learn, traders improve their product offering and manufacturers innovate.
PAYG entrepreneurs do not acknowledge a harsh truth: the so-called “grey market” is the market.
Today, the same local traders that built the supply chains in the 1980s and `90s still dominate the consumer off-grid solar market. But they do not feature in the international solar discussion. Their sales are invisible to consultants and undercounted in global reports (The GOGLA annual report, now the sectors’ bible, does not count the “grey market” and off-handedly considers it a threat to the “quality” market).
Rural people buy most of their solar from grey market traders. I’ve followed markets and conducted field research in Africa for 20 years and have the data to back it up. In Tanzania, a 2016 national census indicated that over 25 percent of the rural population own some type of solar device – this is more than a million PV systems installed almost exclusively by “grey market” traders. Recently, when conducting demand surveys in Uganda’s Lake Victoria islands, I found that 80 percent of the island populations had purchased solar systems from over-the-counter traders — virtually none had PAYG systems. In Zambia, I conducted surveys of 20 off-grid villages and found that upwards of 60% of households had grey market solar systems. In Kenya, Somalia and Ethiopia, the story is the same.
Of course, Chinese solar modules and batteries dominate over-the-counter trade. But local manufacturing also plays a major role. Kenyan battery manufacturer Chloride sells on the order of 100,000 lead acid batteries per year to the off-grid market. Its partner Solinc, which manufactures 6MW of solar modules per year in Naivasha, provides its modules to Kenyan, Ugandan, Tanzanian and Rwandan over-the-counter players in the region. This commerce, of course, is driven by hundreds of traders and solar technicians.
The driving force for the success of local traders is rural consumers. Rather than being “manipulated” by unsavoury traders, consumers have absorbed lessons; they have become more shrewd. Over decades, they have learnt about solar products and, in true do-it-yourself fashion, they have become better able to put solar systems together. They value price and short-term functionality over quality. They understand that when they want larger systems, over-the-counter players are more responsive to their needs than PAYG sellers. OTC traders can provide larger systems for growing households at a lower cost. In short, rural retailers and their largely Chinese suppliers are still more responsive to consumer needs than PAYG companies. And they are lighter on their feet.
In 2019, solar is holding its own against grid-based rural electrification. Off-grid solar is growing because the technology has numerous advantages over grid extension. If governments have been slow to invest in solar for rural households, rural consumers are voting with their pocketbooks. Solar systems work, there is an infrastructure to supply and rural consumers understand the technology.
Expat social entrepreneurs, using impact investment and international aid assistance, advanced the international agenda for off-grid solar, raised financing, developed new technology and innovated new business models. But despite hundreds of millions of dollars of investment and grant aid, PAYG companies are still losing to local players. Why? Rural traders move more product because they inhabit the markets they work in.
In a market of 600 million consumers, there is plenty of room for different business models and players across the supply chain. But the untold story of local solar traders raises a number of questions about how we should build the coming solar industry.
First, is the issue of ownership and funding opportunities. Many here are uncomfortable with the idea of an industry predominantly owned and controlled by foreigners, even if they are well-intentioned social entrepreneurs. For each successful expat social entrepreneur, there are 20 local entrepreneurs equally capable but lacking support to finance even a modest start-up. Much more can be done to level the playing field for local start-ups if these budding players are given the opportunities that have been handed to PAYG pioneers.
Second is business size. Decentralized and off-grid power is exciting because it democratizes opportunity and lowers entry costs for small players. East Africa is a region where small and medium sized entrepreneurs create the biggest opportunities and drive dynamic economies. Investor interest in scalable businesses worth hundreds of millions of dollars is driven by greed, not by common sense. Smaller players would make for a more exciting and lively solar sector. There is no reason why scores of million-dollar companies shouldn’t be supported in a healthy sector, instead of one or two behemoths.
Finally, planners should reconsider the policy focus which has thus far trained the solar market on poverty alleviation and energy access. Base of the Pyramid off-grid electrification is a race to the bottom. Unless the same subsidies that underwrite most grid-based rural electrification is made available, off-grid BoP solar will remain too risky for real finance. In Africa people are moving into cities and looking for urban-based opportunities. Many who are concerned about climate change know that getting solar on-grid and into urban energy planning will do far more to fight climate change than off-grid solar. These small-scale on-grid opportunities are where the real long-term future for solar is in Africa.
An IMF Straightjacket Is a Fitting End to Jubilee’s Reign of Hubris, Blunder, Plunder, Squander and Abracadabra
8 min read. Six years of fiscal profligacy have finally caught up with the Jubilee administration. Money is short, it now admits, and the begging bowl is out. The IMF has been in town and will be back again. But the cure could be worse than the disease as Jubilee prepares to don an IMF straightjacket for the remainder of its term.
The economic management space has become rather lively of late. A few weeks ago, the National Treasury published an updated national debt register that spooked quite a few people. A couple of days later, it circulated a draft debt policy for comments in whose wake followed a stern memo from State House to all state agencies. The subject of the memo was austerity measures and the following three directives were addressed to state corporations: “(a) to immediately remit the entirety of identified surplus funds to the National Treasury; (b) to assign (transfer ownership) of all the Treasury Bills/Bonds currently held in the name/or for the benefit of the State Corporations/SAGAs to The National Treasury, including any accruing interest by Friday, 15 November 2018; (c) to remit the entirety of Appropriations-in-Aid (AiA) revenues to The National Treasury”
SAGAs stands for Semi-Autonomous Government Agencies. Appropriations-in-Aid is the money that government agencies raise from the public, usually in fees; court fines, licences and payments for services. This money is usually factored into their budgets—for instance, if an agency’s approved budget is Sh1 billion and it expects to collect Sh200 million, the Exchequer will budget to fund the balance of Sh800 million.
It turns out that this memo was the agenda of the event at which Uhuru Kenyatta made his “why are Kenyans broke?” faux pas. Evidently, he had summoned the state corporation bosses to read them the riot act on the directive. Hot on the heels of the State House meeting, it was reported that Parliament had passed an amendment to the Public Financial Management Act requiring that all public agencies centralise their banking with the Central Bank of Kenya.
Why the sudden zeal?
The answer may be found in a press release issued by the IMF on 22 November disclosing that the Fund had concluded a visit to the country to review recent economic developments. It also disclosed that another visit was planned for early next year “to hold discussions on a new precautionary stand-by facility.” A precautionary standby facility is a credit line that IMF member countries can draw on in the event of a shock that affects a country’s ability to meet its external payment obligations, for example, a petroleum price shock, or a global financial crisis of such severity that a country’s foreign exchange resources would not be sufficient to cover both imports and debt servicing.
The previous standby facility, which was due to expire in March 2018, was suspended in the run-up to the 2017 general election because of non-compliance. In early 2018, the administration sought and secured a six-month grace period during which it would negotiate a new one (with no money available during the grace period as the government was not compliant). The grace period was to expire in September, but in August the talks collapsed. Some of the conditions that the IMF sought were the removal of both the interest rate cap and the controversial VAT on fuel. The exchange rate policy may have been another sticking point, as the IMF claimed that the government was artificially propping up the shilling, a contention that the Central Bank has vigorously contested.
It turns out then that the sudden flurry of activity may be all about impressing the IMF. Indeed, the centralisation of government banking—known as the Treasury Single Account (TSA)—is one of the IMF’s latest fads, And just as with IFMIS before it, TSA is supposed to be the silver bullet that will put an end to financial control woes.
There are at least two other developments that are consistent with the sort of demands that we can expect from the IMF.
First, the government has started to make wage bill noises again. The acting Treasury Cabinet Secretary was heard to lament at a conference convened to discuss the wage bill that it is consuming 48 per cent of revenue, way above the maximum of 35 per cent stipulated in the Public Finance Management Act. This appears to be a case of giving a dog a bad name. The total wage bill for the entire public sector including commercial enterprises was Sh600 billion, about 40 per cent of national revenue. But even this is misleading because commercial parastatals (Kenya Pipeline, Kenya Airports Authority, Central Bank, etc.) do not depend on government revenue. The consolidated public sector wage bill as a percentage of consolidated revenues is in the order of 34 per cent. This is not the first time that the government is cooking the wage bill figures.
It has also been reported that Kenya Power has applied for a 20 per cent tariff increase, in part to cover for the national government subsidy for low-income consumers. The IMF takes a dim view of subsidies of this kind and although this has not come into the public domain, I would expect the IMF to similarly take a dim view of the operational subsidy made to the SGR, which is even less defensible than the tariff subsidy.
Given that the same Jubilee administration that found IMF conditions unpalatable last year now appears to be bending over backwards to secure a deal, we are compelled to ask: what has changed?
Money is short. This year the government plans to borrow Sh700 billion. It plans to borrow Sh450 billion domestically, and Sh250 billion from foreign sources. Soft loans from development lenders are budgeted at Sh50 billion, leaving the balance of Sh200 billion to be sourced from commercial lenders, either by way of issuing sovereign bonds (Eurobonds) or by arranging syndicated bank loans. The Sh200 billion foreign borrowing is “net”, that is, over and above what the government will borrow to pay the principal installments on foreign bank loans (e.g. the Exim Bank of China SGR loans), and to refinance or roll-over maturing syndicated loans (thankfully, there are no Eurobonds maturing this year) amounting to Sh131 billion, bringing the total borrowing to Sh331 billion. As a rule, interest payments are paid out of revenue while the government aims to pay the principal by rolling-over or refinancing.
The government has access to three potential sources of this kind of money: budget support (also known as programme loans, issued by multilateral institutions, including the IMF itself), Eurobonds and syndicated loans. Of the three, the multilateral lenders are the cheapest, but they take long, come with conditions and usually require that an IMF programme be in place (although last year the World Bank did extend a programme loan without one).
Eurobonds are the next best option. The Government does not need an IMF deal to go to the sovereign bond market. Indeed, it did not have an IMF programme in place during its previous two bond issues: the debut issue in 2014 and the second one in February 2018. But circumstances do change. With as many as 20 African countries either already in or at high risk of debt distress, it may be that the market has signaled to the government that an IMF stand-by would be “an added advantage.” Indeed, the IMF itself has downgraded Kenya’s debt distress risk from low to medium.
Multilateral lenders are the cheapest, but they take long, come with conditions and usually require that an IMF programme be in place
For what it’s worth, the Jubilee administration is finally owning up to the fact that its finances are in a worse state than it has previously cared to admit. The new narrative heaps the blame on the now-suspended Treasury officials, Cabinet Secretary Rotich and Permanent Secretary Kamau Thugge. I was taken aback recently when a cabinet secretary who has a strong background in finance remarked that they were not aware how bad things were until Rotich and Thugge were booted out, while the central bank governor has been quoted blaming Rotich’s rosy revenue forecasts—which he has characterised as “abracadabra”—for encouraging the government to pile up debt. This is disingenuous because that is not how it is done. The borrowing is decided politically first, and then they cook the revenue numbers to show that we can afford it. The Governor has been part of the racket. It is also mean to mock one’s colleagues when they are in trouble, not to mention that the Central Bank has been deeply implicated in the Eurobond fraud cover-up under his watch. The Governor’s turn to be thrown under the bus may yet come, but I digress.
What is now inescapable is that six years of the most egregious fiscal profligacy has caught up with us. As this column argued a fortnight ago, the government is now hostage to fate—it can kick the can down the road and hope and pray that the crunch does not come this side of the election, in which case an IMF facility seems like a good cushion to have. But it comes with a health warning: the cure may be worse than the disease.
A couple of weeks ago, Lebanese people took to the streets and brought down the government in what has been dubbed the Whatsapp revolution. Those of us who are a bit long in the tooth remember Beirut as the byword for urban warfare. Lebanon’s sectarian warfare ended when its fractious and venal political elite worked out an inclusive eating arrangement of the kind that our equally venal eating chiefs are now crafting with handshakes, bridge building and whatnot. With no agencies of restraint, the chiefs finished the tax money and progressed to eating debt, chomping their way into a 150+ per cent of GDP debt (third highest in world after Japan and Greece) that is consuming half the government revenue in interest payments alone, and causing economic stagnation.
What is now inescapable is that six years of the most egregious fiscal profligacy has caught up with us
On its knees, the government passed an austerity budget in July. The austerity budget coincided with an IMF mission which recommended “a credible medium term fiscal plan aiming for a substantial and sustained primary fiscal surplus.” Primary fiscal balance is the difference between government revenue and recurrent expenditure excluding interest. It is achieved by raising more taxes and cutting wages and O&M (operations & maintenance) spending. These cuts usually fall most heavily on social spending.
As the government set about imposing more austerity and raising taxes, it unveiled a tax on voice-over-IP (VOIP) calls in October, the idea being to protect tax revenue from regular voice calls. It was the last straw. Evidently, the eating chiefs had not realised that this was the social lifeline for the youth. The people took to the streets. Two weeks later, the government fell. Lebanon is now in full financial meltdown. The IMF is nowhere to be seen.
Mozambique had an IMF programme in place when it ran into debt payment difficulties that forced the government to disclose more than a billion dollars of secret “Tuna bonds” debt. Now, the purpose of an IMF programme is to help a country in payment difficulties, but because the secret debt violated the terms of the IMF deal, instead of bailing Mozambique out, the IMF led the other donors in suspending aid to the country. Instead of helping put out the fire, the fire brigade decided that teaching the culprits a lesson was more important than saving the victims. Mozambique’s economy went into free fall, where it remains. This is the very same IMF that cooked our books to cover up the Eurobond theft.
The borrowing is decided politically first, and then they cook the revenue numbers to show that we can afford it
What alternative does Uhuru Kenyatta have? In economics, we talk of the orthodox and heterodox approaches to dealing with a sovereign financial crisis.
The orthodox approach is a formulaic one-size-fits-all approach which adheres to one economic school of thought known as neoclassical economics. Its prescriptions are fiscal austerity and doctrinaire free market ideology. It is, as is readily apparent, the IMF prescription. Heterodox is another name for unorthodox, and refers to a pragmatic strategy that draws from the entire spectrum of economic ideas from Austrian to Marxist political economy and everything in between.
The dilemma governments have to face is that the orthodox cure is sometimes worse than the disease, but it’s the one with the money behind it. Heterodox approaches work better, but they require a resolve and an imagination that many governments are unable to muster, especially when they have their backs against the wall.
Can the Jubilee administration muster the resolve for a heterodox response? Doubtful.
Four years ago I contemplated the Jubilee administration ending precisely where it is headed, to wit: “I cannot think of a more fitting epitaph for the Jubilee administration’s reign of hubris and blunder, plunder and squander, than the rest of the term spent savouring copious helpings of humble pie in an IMF straightjacket. Choices do have consequences. Sobering.
“We Have Failed Kenyan’s”: Lamentations for a Broken Nation
7 min read. When a seasoned Senator tells young people not to look to the National Assembly, the Executive or the Judiciary for answers to the spiraling debt, the closure of businesses, the extra-judicial killings of young people and the run-away unemployment, where else should they look?
I rarely follow the theatrics of Gatundu Member of Parliament Moses Kuria. But I was struck by his recent remarks – widely circulated in the press – that “as Parliament we have failed. Mea culpa. As a member of parliament and a member of the budget committee, we have failed Kenyans . . . We have told Kenyans this romantic story that all is well . . . I want to say that we have lied to Kenyans, first of all. And the second thing is that we have failed in our oversight responsibility . . . .”
One might have dismissed Moses Kuria as that maverick known for saying ridiculous things. But then, shortly after this, there was another admission of failure from another member of the National Assembly. This time it was Senator James Orengo in response to a challenge from the youth attending an event celebrating Prof. Yash Pal Ghai. Mr. Happy Olal of the Dandora Social Justice Centre had put Senator Orengo on the spot for handing the Executive a blank check and failing to play their oversight role on the debt ceiling, unemployment, extra-judicial killings of the youth, and all the many other ills plaguing Kenyans.
“I wanted to appeal here that sometimes we look for solutions where there are no solutions. Like when you are talking about parliament and looking for a solution in parliament. I think you are absolutely mistaken. . . .”, said Senator Orengo.
I can hardly recall a time in our political history when political stalwarts such as Senator Orengo openly admitted to us that they had failed in their legislative and oversight responsibilities. This is the country that produced firebrands like George Anyona, Chelagat Mutai, Martin Shikuku, Jean-Marie Seroney, and JM Kariuki during the repressive regime of Jomo Kenyatta. And in the infamous Nyayo era, Orengo was one of the “Seven Bearded Sisters” (along with Abuya Abuya, Chelagat Mutai, Onyango Midika, Mwashengu wa Mwachofi, Lawrence Sifuna, Chibule wa Tsuma, and Koigi wa Wamwere), who gave Daniel Arap Moi’s regime sleepless nghts.
It is the members of this very same National Assembly that had defied single party autocracy and made the regime quiver with rage whenever they spoke, while the public cheered them on knowing that they were the “people’s watchman”. They braved detention without trial, police harassment and economic sabotage to play their oversight role. And yet here was one of the “Bearded Sisters” now telling young people to look elsewhere for leadership – not to him or to the National Assembly, extinguishing any little glimmer of hope among the youth that those who had fought for the political and socio-economic rights of the people would provide leadership in the struggle for social justice.
This blow might have been less painful had the country not been witnessing sustained assaults on another arm of government – the Judiciary. On 4 November, in a widely televised statement, Chief Justice David Maraga lamented efforts to undermine the judiciary, including through budget cuts. In an unprecedented hour-long speech, the Chief Justice described the ways in which powerful Cabinet Secretaries and Permanent Secretaries were trying to control the Judiciary.
“Kumbe hii nchi iko na wenyewe” (so this country has its owners) . . . People are trying to cripple the Judiciary . . . They want to control the Judiciary. They want to make the Judiciary a puppet”, said the Chief Justice.
Those were profound words coming from the man who made history by nullifying the results of the election of the incumbent president, triggering a return to the ballot. For those who know the Chief Justice well, it took a lot of courage to speak up and defend the judiciary. What was not lost in his long-winded speech was that he was fed up of trying to appease the Executive and yet having his judges attacked and the Judiciary financially crippled.
And yet here was one of the “Bearded Sisters” now telling young people to look elsewhere for leadership – not to him or to the National Assembly
Nothing infuriates a descendant of Mogusii more than open disrespect and it was clear that he was incensed when the Chief Justice deviated from his prepared speech to denounce the abuse endured by his office. His conclusion that he would not go to anybody to beg for money for the judiciary evoked a Kisii saying which, loosely translated, means, “I don’t eat at yours”. It was a statement of defiance. It is no wonder that the budget cuts were reversed a few days later.
But the onslaught on the judiciary is unrelenting. There are moves to remove both the Chief Justice and his Deputy from office. The promised “revisiting” is taking various forms ranging from budget cuts to personal attacks against judges. Further constraining the functioning of the Judiciary, the President has refused to gazette newly appointed or promoted judges. This confirms the statement from the Chief Justice that the Executive is seeking to make the judiciary its puppet. With an Executive that is out of touch with the people and a legislature that has been castrated by the Executive, the Judiciary remains our last line of defence. But for how long?
The Executive has openly shown its inability to lead the country. There are endless speeches from the President asking us, “jameni mnataka nifanye nini?” (surely, what do you want me to do?). This has become the standard refrain from the President, whether in response to the rampant corruption or to questions on delivery of basic services. Lucia Ayela, a young woman living in Nairobi, very eloquently expressed the frustration of many In video clips that have since gone viral.
“Sir, do you even live in this country? . . . are you even aware of what is going on in your government . . . you do not relate to your subjects [sic] at all”, Ms. Ayela lamented.
Ms. Ayela joins a number of Kenyans who have been responding to the President’s questions to his cabinet about why the country is broke. In an interesting twist, these questions seem to be emerging even from media houses reportedly owned by the Kenyatta family. In her strongly worded Punchline in October, Ms. Ann Kiguta castigated the President for being uninspiring and claiming to be tired of his job. She reminded him that he had asked for the job (three times) and he needed to roll up his sleeves and perform it as energetically as when he was going around the country seeking the presidency. This was followed by an even more hard-hitting piece by Ms. Yvonne Okwara-Matole on Citizen TV. The courage we are seeing from the men and women who are directly calling the Executive to order should not be taken for granted. As we know all too well, in our country, such courage can cost careers and, sometimes, lives.
With an Executive that is out of touch with the people and a legislature that has been castrated by the Executive, the Judiciary remains our last line of defence
Observing how the Executive, the National Assembly, county governments and the Judiciary have been operating over the past two years, it is evident that they have, for various reasons, failed to live up to the spirit and the letter of the Constitution. Chapter one of the Constitution bestows “all sovereign power” on the people of Kenya. The organs of State have power vested in them only so that they may act on behalf of the people. In the event that all these organs fail the people, what recourse do we have?
When a seasoned Senator tells young people not to look to the National Assembly, the Executive or the Judiciary for answers to the spiraling debt, the closure of businesses, the extra-judicial killings of young people and the run-away unemployment, where else should they look? When the organs delegated to exercise the will of the people, prove their inability to carry out their mandate, what recourse do the people have? Well, one could think of three possible options for bringing about political change before the 2022 General Election.
First, and as the Katiba Institute has been educating us, we have the option of firing our members of parliament. The Constitution (Article 104) and the Elections Act 2011, provide for a procedure for recalling Members of the National Assembly. There has been no successful bid so far, although there are reports of a petition filed against the Member of Parliament for Molo, Francis Kuria Kimani. In any case, if discontent is with the entire legislature, there seems to be no easy path towards their mass recall.
In the same manner, although article 145 of the Constitution provides for the impeachment of a president, it requires at least a “third of all members” moving a motion for the impeachment, “supported by at least two-thirds of all the members of the National Assembly.” As the ongoing impeachment process of the President of the United States has demonstrated, loyalty to the party tramps fidelity to the Constitution. With our National Assembly completely in the control of the Executive, impeachment is not a word you will be hearing in the corridors of parliament any time soon.
Second, the Executive and the National Assembly, having recognised that they have failed to fulfill their social contract with the voters, could resign. Prime Minister Hailemariam Desalegn of Ethiopia set a precedent in the region when he resigned in February after coming to terms with his inability to govern following violent crackdowns on protesters and a spiraling economy. However, there are no signs at all that this is an option that the Kenyan government is even taking under its considering.
Rather than seeking to renegotiate the broken social contract, the President is aggressively pushing for a change to the Constitution in what some have called a Ka-Putin attempt to return to power in an as yet to be created position of prime minister, at the end of his current term. Some political leaders, including Hon. Martha Karua, have warned the President not to attempt any such manoeuvre. The next few weeks will be critical in evaluating how far he intends to go in his bid to remain in power.
It would seem that the President is deaf to the cries of voters bewailing unemployment, increasing debt, business closures, lack of affordable health care and education, among a myriad grievances. The Building Bridges Initiative (BBI) that he has crafted together with his elder brother Rt. Hon. Raila Odinga, is mere horse trading between elites, an initiative meant to help an illegitimate President to govern, and an opposition leader who has betrayed millions of his supporters by turning his back on electoral justice, to save face
Third and last, the people – who hold sovereign power – could organise themselves to usher in political change. As David Ndii argues, this change could either be through internal realignment as was the case in Ethiopia or through popular mobilisation leading to the toppling of the regime Sudan-style. Whichever mode of change the people choose to use to exercise their sovereign power, it is clear that, like in Sudan and Ethiopia, the young people will have a critical role to play.
The Building Bridges Initiative that Uhuru has crafted together with his elder brother Odinga, is mere horse-trading between elites, an initiative meant to help an illegitimate President to govern, and an opposition leader who has betrayed millions of his supporters, to save face
There are already young people like Happy Olal of the Dandora Social Justice Center, who are showing the power of community organising. Phenomenal women like Jerotich Seii and the Energy 6 (E6) in the #SwitchoffKPLC campaign who are leading the charge. Small-scale traders in Mombasa holding “Black Monday” protests to raise their concerns on the effect of the Standard Railway Gauge (SGR) on their businesses. Students braving police brutality to demonstrate against insecurity around their campuses, very likely caused by the tough economic conditions facing workers who have been laid off, and graduates without jobs.
The Executive and the Legislature have an opportunity to listen to these diverse voices calling for change across the country. Rather than impose the BBI report and a referendum on Kenyans, they need to find ways of addressing the grievances from across the country. Signs that a people is demanding to exercise its sovereign power are apparent all over social media and it is clear that Kenya is a time bomb waiting only for a trigger to explode. It is in our power to either choose a peaceful path or to choose a painful and chaotic one. Time is not on our side.
BBI: From “We the People” to “Fix the People”
5 min read. The Building Bridges Initiative is an ill-disguised attempt at social engineering, a “fix the people” approach to Kenya’s problems designed to veil ours eyes from the massive looting and the privatisation of public institutions. It is meant to dissuade us from expecting social and public solutions to our challenges as a country and to instead shoulder the blame and provide for ourselves the solutions to our problems. It is a declaration of war by the political class against the people of Kenya.
On September 23, Kenyans began their week with the sad news that six children had lost their lives at Precious Talents, a private school in Ngando, a low-income neighborhood of Nairobi, following the collapse of one of the school’s poorly constructed buildings. Our belligerent Education Cabinet Secretary Prof. George Magoha rushed to the scene and, after inspecting the disaster and reading a written statement, fielded questions from the press.
In response to the first question about the provision of education for children from poor neighborhoods, the CS insinuated that the children had died because their parents had chosen not to take them to the public schools in the area. He said: “It comes to a matter of choice for parents. I am duly advised that the nearest public primary school from here is only two kilometers away. But then we are a democratic country and the role of the government must be restricted to ensuring that the . . . public primary schools available are safe enough.”
Magoha’s statement bares the soul and reveals the ideology of the Jubilee administration that is driving Kenya towards collapse. Statements from the government and those pundits that slavishly support it often trace the source of any disaster to the public—especially the victims—and to democracy. Government insiders and supporters portray the state as blameless, and fault Kenyans for wanting to participate democratically in the making of decisions that affect them, because by doing so, Kenyans put delays on the good work of the government. “We have good policies,” the government and business people say, “the problem is implementation.” An insider quoted by David Ndii demonstrates the arrogance and the condescending attitude of the people in government, saying that the president’s view of the public is that “commoners will always be complaining of something.”
The implicit message behind such rhetoric is that nothing can be resolved socially or politically any more. After all, if every social challenge we face is caused by us, the people, then the response to the challenge must be to fix the behaviour, the values and the soul of the people. This “fix the people” approach to social problems is the very essence of the Building Bridges Initiative (BBI) document released by the government this week.
Bridge over Troubled People
This is not the first time that the state has used the “troubled people” rhetoric. Former President Moi often said that in order to save Kenyans who were too tribalistic for their own good he could not allow multi-party democracy to take root. This theme of a troubled people goes as far back as colonial rule, when British missionaries and settlers purported to have come to save us from ignorance, poverty, disease and backward cultures, a policy which the first president Jomo Kenyatta embraced and perpetuated with the only difference that he kept culture off our supposed list of shortcomings.
This “fix the people” approach to social problems is the very essence of the Building Bridges Initiative document released by the government this week
What is different this time is that we are ruled by the most obviously incompetent regime to ever occupy State House. These days, Kenyans first gauge the president’s sobriety before they weigh what he has to say. The regime’s incompetence has been accompanied by massive looting of public coffers, and massive privatisation of public institutions and social services, the latest victim of which is Kenyatta National Hospital. For such an economic mess to be acceptable to the Kenyan public, it must be matched by a corresponding rhetoric.
And so, just like the Reagonomics that produced the portrait of the dysfunctional black family—with the absent black father and the “welfare queen” mother— politicians have pointed to Kenyan families and individuals as the cause of Kenya’s political problems.
These attacks on the family are driven by the need of the political elite to turn the public’s attention away from expecting social and public solutions to the challenges we face, and instead suggest private fixes at the level of our families or our values. If only citizens can manage themselves and their families, the logic goes, everything else will sort itself out.
That is why the BBI, the latest offering from Kenya’s political class in its endeavours to curtail fundamental social change, is largely a declaration of war by the political class against the people of Kenya. The document accuses Kenyans of not knowing their history, of lacking ethical sensibilities, and of not knowing how to raise their children.
Based on its own narrow diagnosis of Kenya’s social problems, the political class offers an even scarier remedy: intervene in our knowledge, our values and our family lives. BBI proposes that the state become the driver of historical memory and culture by providing a “thorough and definitive” history of Kenya supervised by a presidentially appointed “Official Historian.”
If only citizens can manage themselves and their families, the logic goes, everything else will sort itself out
On the cultural front, the document proposes the development of a syllabus by the government for use in religious and cultural initiation ceremonies, and to ape the church marriage programmes by providing its own programmes to “strengthen parenting.” In education, the document seeks to partner with the private sector to create a “national volunteer network” that would play the same role as Teach For America, an initiative that has been accused of undermining public education in the US.
The process of this social engineering has already started with the competency-based curriculum, where the state has used children to manipulate Kenyan parents into accepting the urban, male-led, monogamous, nuclear family as the normative unit of the Kenyan state. Similarly, the control on the arts and humanities is nothing new. Using the deceptive idea of “talent,” the new education system has relegated the arts to the rubbish heap by tying this discipline to commercialisation and confining it to a narrow pathway. Recently, parliament reinforced this view of the arts by passing a Sessional paper that proposes to pay arts and humanities lecturers less than their counterparts in the sciences.
All these proposals are typical of governmentality. Rather than use violence to control the people, governmentality seeks to bend our ideas, our identity and our emotions to the service of the state. As Stephen J. Ball puts it, governmentality now seeks not to change what we do, but our motivation for doing it. The goal is to change our soul and to change who we are. That means that the interest of the political elite is not, as it claims, to change the status quo. The goal is to change the people to accept the status quo as not just natural, but also as moral, if not godly.
And we must understand that attempting to change the people is an act of desperation. Muigai Kenyatta is not just incompetent; he has lacked legitimacy ever since he became president in 2013, and the Kenyan people are getting tired of propping up a family that has nothing to show for having foisted two presidents upon Kenyans except the wealth it has amassed through power, which power it first acquired by an accident of history.
The goal is to change the people to accept the status quo as not just natural, but also as moral, if not godly.
The political elite, led by Raila Odinga, are hoping to use the fictitious numerical superiority of the Kikuyu, and so they are all tiptoeing around Kenyatta in the hope of succeeding him by inheriting his ethnic voter base.
The political elite and their supporting intellectuals are united in trying to save a colonial model of state that is already collapsing around the world, and so they are grasping at straws to manipulate Kenyans into pledging allegiance to them.
But the ruling elite cannot stop the tide that is already building from Chile to Lebanon to Algeria to the UK and the US; Kenyan people are part of that tide. Instead, they are busy building a “blame the people” bridge to each other and their families, hoping that the tide of the Kenyan people will flow under the political elite and leave the status quo intact.
Unfortunately for them, the tides are no respecters of bridges and eventually wash ill-constructed ones away.
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