“Uhuru Kenyatta’s assumption of the presidency has injected fresh energy into his family’s commercial empire, putting a number of its units on an expansion mode that is expected to consolidate its position as one of the largest business dynasties in Kenya”
Business Daily, Monday, November 11, 2013.
A few days ago, the Dairy Board of Kenya published, then recalled, draft regulations that sought, among other things, to outlaw and criminalize farmer-to-consumer raw milk sales. Essentially farmers would be compelled to sell milk to processors or other intermediaries (cooperatives or businesses) licensed and regulated by the Board. The withdrawal was in response to a huge public blowback, including a trending hashtag #Kenyattamilkbill, mobilising for the reactivation of the boycott against Brookside Dairy products. It was notable that the Dairy Board’s reversal of its draft regulations followed a press release by Brookside Dairies objecting to the regulations citing specifically the levies that the Board proposed on dairy businesses. Tellingly, Brookside’s statement was silent on the question of outlawing farmer to consumer raw milk sales.
This story is about an even more audacious scheme in the Kenyatta empire’s “expansion drive”, the most egregious case of policy and regulatory capture I have encountered…
As a previous column, Crony Capitalism and State Capture: The Kenyatta Family Story observed, Uhuru Kenyatta’s presidency has delivered remarkable returns-on-investment for the family enterprise:
“During Uhuru Kenyatta’s first term the consumer price of milk increased 67 percent (from KSh 36 to KSh 60 per half-litre packet), while producer prices remained unchanged at Sh 35 per litre), effectively increasing processors’ gross margin by 130 percent (from Sh37 to Sh 85 per litre). Given the industry’s 400m litre annual throughput and Kenyatta family’s market share, which stands at 45 percent, the consumer squeeze translates to an increase of the Kenyatta Family’s turnover from KSh 13 billion to KSh 22 billion, and gross margin from KSh 6.7 billion to KSh 15 billion a year.”
Not enough, not by a long shot.
The platform will offer micro and small enterprises an overdraft facility of up to KSh 50,000, and a loan of up to 12 months with a limit of KSh 200,000. The initiative targets five million sign-ups, and two million users in the first year. How it plans to do this is a frightening demonstration of the workings of state capture in the Uhuru Kenyatta era.
Kenya’s annual milk production is estimated at 3.5 billion litres, of which 80 percent is consumed or traded informally. Put another way, only 20 percent, about 600,000 litres, is handled by processors. If these regulations were only to double the processors intake to 50 percent, we are talking of growing Brookside’s turnover and gross margin to KSh100 billion and KSh 67 billion respectively.
But this column is not about the milk, at least not literally – even if the milking metaphor is quite apt. This story is about an even more audacious scheme in the Kenyatta empire’s “expansion drive”, the most egregious case of policy and regulatory capture I have encountered, and I have been round this block a few times. What follows is based on an internal document entitled ‘Restoring Credit Access to Micro and Small Sized Businesses’ shared by whistleblowers in institutions that have been corralled into the scheme by force.
The Huduma Number connection starts with an innocuous statement in a slide presentation titled “How Customers will Qualify” that ends with a bullet point stating that “customers that don’t immediately qualify can opt into a credit access plan”.
The name of the scheme is Wezesha (‘enable’). It is a proposed mobile phone lending platform described as a “collaborative initiative to bridge the access to credit by micro and small enterprises”. It will be managed by five banks, namely NIC Bank, Diamond Trust Bank (DTB), the Kenya Commercial Bank and Cooperative Bank under the leadership of the Kenyatta Family-owned Commercial Bank of Africa. CBA is in the process of acquiring NIC, alongside the smaller microfinance oriented Jamii Bora bank. KCB, Kenya’s largest bank by asset base, and Cooperative Bank, are quasi-public banks, while Diamond Trust Bank is associated with the Aga Khan. The platform will offer micro and small enterprises an overdraft facility of up to KSh 50,000, and a loan of up to 12 months with a limit of KSh 200,000. The initiative targets five million sign-ups, and two million users in the first year. How it plans to do this is a frightening demonstration of the workings of state capture in the Uhuru Kenyatta era.
When it was launched we were threatened that Kenyans who did not register would be denied public services. We are compelled to ask whether this threat, and its prominence in this scheme are related. Are the president’s commercial interests the force behind the Huduma Number?
First observation: the contentious Huduma Number initiative features prominently in the scheme. The Huduma Number connection starts with an innocuous statement in a slide (the documentation is a powerpoint presentation) titled “How Customers will Qualify” that ends with a bullet point stating that “customers that don’t immediately qualify can opt into a credit access plan (consumer education).” How so, is elaborated in another slide titled “Customer Education At Huduma Universal Service Kiosk” complete with the Huduma Kenya logo. Further along, in another slide titled “Functional Schema” a bullet point: “Distribution: An integrated network of GoK Huduma Centres, Bank Branches and agent locations to ‘onboard’ customers and offer information and advice to capital and business opportunities.”
When Huduma Number was launched we were threatened that Kenyans who did not register would be denied public services. We are compelled to ask whether this threat, and its prominence in this scheme are related. Are the president’s commercial interests the force behind the Huduma Number?
But perhaps the question is already answered in another slide titled “Phase 2 Support for Scalability”: New Huduma ID to be integrated once it is ready. This scheme could be used as a registration incentive.”
The funding partners propose that the GoK establishes a credit risk guarantee fund, that is administered by the Central Bank of Kenya, to provide mezzanine credit risk cover for any credit losses above three percent, up to the prevailing NPL rate.
Also to be leveraged for scaling: “Moratorium from KRA Pin and Tax payment”. This statement requires some thought. What would give a private business scheme the audacity to propose a tax compliance waiver as a tactic to attract customers?
But the crux, is this:
“The funding partners propose that the GoK establishes a credit risk guarantee fund, that is administered by the Central Bank of Kenya, to provide mezzanine credit risk cover for any credit losses above three percent, up to the prevailing NPL rate.”
Some background is necessary. The cost of bank credit is arrived at as follows:
Cost of funds + Target income + Loan loss provision (NPLs)
Cost of funds is the interest the bank pays on deposits. Target income is the bank’s calculated profit margin that will translate into an acceptable return on investment. Loan loss provision is
the income that the bank sets aside to compensate for loans that are not repaid. Banks are required by the regulator to “provide” from their income equivalent to non-performing loans (NPLs).
Based on this costing, the Scheme’s promoters seem to have arrived at the conclusion that the initiative is not commercially viable. They appear to have determined this in the following way: The lending rate is set at nine percent arrived at by setting cost of funds, target income and a target loan loss provision at three percent each. Next, the Scheme factors in the Kenyan banking sector’s actual NPL rate, which was 11.6 percent at the close of 2018. They then calculate that at 9 percent the initiative would have run at loss of 5.6 percent (9 – 3-11.6 = -5.6).
This is how the case for a public credit guarantee scheme is made. In the computation provided, the public credit risk guarantee would cover the difference between banks’ target and the industry NPL. In the documents that we have seen, an example is provided in which the target NPL is set at three percent as above; the industry NPL at 10 percent and the actual NPL of the lending scheme is set at 12 percent. In this case, the public would pay seven percent (10% – 3%) and the banks would absorb five percent, the target income is projected at three percent, and the additional two percent that is over and above the industry NPL of 10 percent.
Let me illustrate. If for argument’s sake, the scheme lent out KSh 100 billion at nine percent, a 12 percent NPL reduces the performing portfolio to KSh 88 billion, which translates to an interest income of KSh 7.92 billion. A 12 percent loan loss provision (KSh 12 billion) changes that to an interest income loss of KSh 4 billion. But above three percent NPL the public credit insurance kicks in and injects KSh 7 billion, making a total revenue of KSh 14.92 billion (less KSh 12 billion loan loss provision) leaving a net revenue of Sh. 2.92 billion. This translates to a loss of KSh 0.8 million, given that the cost of funds is KSh 3 billion.
What are we missing?
This is a very strange way of pricing a product. The conventional way is to do one of two things: (a) cost the product and compare it with the market price; or (b) take the market price and work backwards to see whether you can beat the price. Sometimes, the product may cost more than the completion, then it becomes a question of whether it can be sold at a premium, like for example, an iPhone, or a Ferrari.
Either way, one arrives at a break-even interest rate of 17.6 percent by adding up the cost of funds (three percent), the targeted income (three percent) and industry NPL rate (11.6 percent).
The next question is whether they would get sufficient uptake of the product at say 18-20 percent. The answer is an unequivocal yes.
For mobile money loans, the money is not in the interest rate but in the transaction fees.
So, why would these banks price the loans to SMEs, the riskiest segment of the market, at 9 percent (about the same as Treasury Bill rate), which for all intents and purpose is the risk-free rate?
For mobile money loans, the money is not in the interest income charged on loans but in the transaction fees. In fact, most products do not charge interest at all. The pricing structure varies widely. To get the actual cost of the loans, we need to calculate a standardized rate known as the Annual Percentage Rate (APR). The APR is obtained by adding up all the cost of the loan and converting them to the equivalent annual interest rate, for example a three month, KSh 10,000 loan with a 5% fee and interest of 2.5% per month costs 1250 (Sh. 500 fee plus Sh. 750 interest) which annualizes to KSh 5000 (Sh. 1250 x 4), which is an APR of 50%. KCB charges a 2.5 percent transaction fee and interest rate of 1.16 percent a month for loans ranging from one to six months which works out to APR of 19% to 44% for the six and one month loans respectively. In general, the shorter the term, the more expensive. CBA charges a 7.5 percent fee for a one-month Mshwari loan. This is an APR of 90 percent. The recently launched Fuliza overdraft tariff range from 5/- a day for amounts below KSh 500 to KSh 30 per day for amounts above KSh. 2500. A Sh.10,000 Fuliza overdraft at KSh 30 per day translates to an APR of 110 percent.
When fees are factored in, the case for public credit insurance collapses like a house of cards.
Let’s go back to the monetary illustration. Assume the scheme achieves its borrowing target of two million customers. Our portfolio of KSh100 billion works out to an average individual loan of KSh. 20,000. Further, assume they churn the funds six times a year, that is, each of the customer borrows and repays a loan every two months on average. A five percent transaction fee translates to an income of KSh12 billion a year, and a total income of KSh19.92 billion — well above the 18 percent required for the scheme to meet its profit target.
So what is going on here? First, Wezesha is simply a scheme to fleece the public. In today’s financial lingo, the Scheme is fully “de-risked”…par for the course in “public-private partnership” (PPP) business, where the profits are privatized, but the losses are socialized (i.e. borne by the public). The second, is to see Wezesha as a strategy to finance undercutting the competition by pricing below cost at entry, with the intention of charging monopoly prices once the competition is driven out of business.
The nine percent interest is a bait. Its purpose is to make the case for the proposed government credit insurance scheme by purporting to offer SMEs affordable credit.
So what is going on here? There are two ways to look at it. First, Wezesha is simply a scheme to fleece the public. In today’s financial lingo, the Scheme is fully “de-risked.” This is par for the course in “public-private partnership” (PPP) ventures, where the profits are privatized, but the losses are socialized (i.e. borne by the public).
The second, is to see Wezesha as a strategy to finance undercutting the competition by pricing below cost at entry, with the intention of charging monopoly prices once the competition is driven out of business. In competition economics, we call this predatory pricing. It is illegal under competition law. In this case, the public insurance serves both as a financial cushion as well as insurance from regulatory scrutiny.
The CBA already controls consumer credit data on account of its Safaricom partnership. This Scheme is designed to make the CBA the gatekeeper for the entire banking and financial services to micro-and small-enterprises.
As students of economics and finance know from the concept of information asymmetry, the most important asset in credit markets is information about customers’ creditworthiness. On the strategy for “scaling up” the documents refer to “integration to other financial institutions and service providers.” The intention is clear. First, use the government machinery and public money to drive customer acquisition. The CBA already controls consumer credit data on account of its Safaricom partnership. This Scheme is designed to make the CBA the gatekeeper for the entire banking and financial services to micro-and small enterprises, and I quote: “CBA Digital shall play a lead arranger role to develop and operate the credit risk management model for the full credit lifecycle.”
Even if there was an economic rationale for a credit insurance scheme of this kind, no government in its right mind would confer such a market advantage to some players. It is instructive that, in what looks like a case of the tail wagging the dog, KCB the crown jewel of public banks has been brought into the scheme. We should not be surprised if down the road, it turns out to be an acquisition target.
Uhuru Kenyatta’s sole accomplishment after extricating himself from the ICC may turn out to be framing the corruption issue exclusively as plunder of the budget, perhaps even deliberately giving his associates leeway in that theatre—recall “mnataka nifanye nini” (what do you want me to do)— as he provides cover for the Family to do the more serious boardroom stuff. Plunder of the budget ends once the thieves leave office. Wholesale enclosure of large chunks of the economy will keep the dynasty in the black long after he has left office.
Welcome to the Kenyatta Republic Inc.
Seeds of Neo-Colonialism: Why GMO’s Create African Dependency on Global Markets
Rather than addressing food scarcity, genetically modified crops may render African farmers and scientists more, not less, reliant on global markets.
As COVID-19 continues to lay bare the deficiencies in the global food system, imagining new food futures is more urgent than ever. Recently, some have suggested that seeds that are genetically modified to include pest, drought, and herbicide resistance (GMOs) provide an avenue for African countries to become more self-sufficient in food production and less reliant on global food chains. Although we share the desire to build more just food systems, if history is any indicator, genetically-modified (GM) crops may actually render African farmers and scientists more, not less, reliant on global actors and markets.
In a paper we recently published in African Affairs, we trace a nearly 30-year history of collaborations among the agribusiness industry, US government agencies, philanthropic organizations, and African research councils to develop GMOs for African farmers. We found that these alliances, though impressive in scope, have so far resulted in few GMOs reaching African farmers and markets. Why, we ask, have efforts to bring GMOs to Africa yielded so little?
One reason, of course, is organized activism. Widespread distrust of the technology and its developers has animated local and transnational social movements that have raised important questions about the ownership, control, and safety of GM crops. But another issue has to do with the complex character of the public-private partnerships (PPPs) that donors have created to develop GM crops for the continent. Since 1991, beginning with an early partnership between the US Agency for International Development (USAID), the Kenyan Agricultural Research Institute, and Monsanto to develop a virus resistant sweet potato (which never materialized), PPPs have become a hallmark of GMO efforts in Africa. This is mainly so for two reasons. The first is that GM technology is largely owned and patented by a handful of multinational corporations, and, thus, is inaccessible to African scientists and small to mid-sized African seed companies without a partnership agreement. The second is that both donors and agricultural biotechnology companies believe that partnering with African scientists will help quell public distrust of their involvement and instead create a public image of goodwill and collaboration. However, we found that this multiplicity of partners has created significant roadblocks to integrating GMOs into farming on the continent.
Take the case of Ghana. In the mid-2000s, country officials embarked on an impressive mission to become a regional leader in biotechnology. While Burkina Faso had been growing genetically modified cotton for years, Ghana sought to be the first West African country to produce GM food crops. In 2013, Ghanaian regulators thus approved field trials of six GM crops, including sweet potato, rice, cowpea, and cotton, to take place within the country’s scientific institutes.
However, what began as an exciting undertaking quickly ran into the trouble. Funding for the sweet potato project was exhausted soon after it began. Meanwhile, cotton research was put on indefinite hold in 2016 after Monsanto, which had been supplying both funding and the Bt cotton seed, withdrew from its partnership with the Ghanaian state scientific council. Describing its decision, a Monsanto official said that without an intellectual property rights law in place—a law that has been debated in Ghanaian parliament and opposed by Ghanaian activists since 2013—the firm could not see the “light at the end of the tunnel.”
Monsanto was also embroiled in legal matters in Burkina Faso, where their Bt cotton had unexpectedly begun producing inferior lint quality. Meanwhile, Ghanaian researchers working on two varieties of GM rice had their funding reduced by USAID, the main project donor. This left them with insufficient resources, forcing the team to suspend one of the projects. The deferment of both the cotton and one of the rice projects dealt a blow to the Ghanaian scientists who were just a year or two away from finalizing their research.
In many ways, the difficulties presented here from both Ghana and Burkina Faso suggest that efforts to bring agricultural biotechnology to Africa are a house of cards: the partnerships that seem sturdy and impressive from the outside, including collaborations between some of the world’s largest philanthropies and industry actors, are actually highly unstable. But what about the situation in other countries?
Both Nigeria and Kenya have made headlines recently for their approval of GM crops. The news out of Nigeria is especially impressive, where officials recently approved a flurry of GMO applications, including Bt cotton and Bt cowpea, beating Ghana to permit the first genetically modified food crop in West Africa. Kenya also approved the commercial production of Bt cotton, an impressive feat considering the country has technically banned GMOs since 2011. Both countries, which have turned to an India-based Monsanto subsidiary for their GM seed supply, hope that Bt cotton will help revitalize their struggling cotton sectors. While biotech proponents have applauded Nigeria and Kenya for their efforts, it will take several growing seasons and more empirical research to know how these technologies will perform.
As the cases described here demonstrate, moving GMOs from pipeline to field is not simply a matter of goodwill or scientific discovery; rather, it depends on a multitude of factors, including donor support, industry partnerships, research outcomes, policy change, and societal acceptance. This complex choreography, we argue, is embedded in the DNA of most biotechnology projects in Africa, and is often ignored by proponents of the technology who tend to offer linear narratives about biotech’s potential to bolster yields and protection against pests and disease. As such, we suggest the need to exercise caution; not because we wish to see the technology fail, but rather because we are apprehensive about multi-million dollar collaborations that seemingly favor the concerns of donors and industry over those of African scientists and farmers.
The notion of public-private partnerships may sound good, but they cannot dispel the underlying interests of participating parties or the history and collective memory of previous efforts to “improve” African agriculture.
The Chira of Christopher Msando Will Haunt His Murderers Until Justice for His Family Is Served
Those who contributed in any way to the abduction, torture and assassination of Christopher Msando will eventually face justice because if there is something that history has confirmed to us time and again, it is that justice is always served, no matter how long it takes.
Lately, I have been thinking a lot about chira. In Luo language and culture, the closest translation of chira is “curse”. It results from an infraction of the kwer (taboos) and can befall an individual, a clan, a community or even a nation. In some cases, ritual cleansing can take away the chira. However, the chira arising from killing a person cannot be removed through rituals. It remains with you, your clan and your community. I am convinced that a chira from the kidnap, torture and brutal assassination of Christopher Msando haunts Kenya to date. The dire state of the economy, socio-economic inequalities, political polarisation, corruption, and state capture, all seem to have gotten worse in the last three years.
To refresh our memories, Christopher Msando was the Information Communications Technology (ICT) manager at the Independent Electoral and Boundaries Commission (IEBC). Msando oversaw key ICT processes, including the audit of the register of voters and the data centre project. Crucially, he was the project manager for the electronic transmission of results for the 2017 presidential elections. Msando was one of the few Africans who had access to the highly sensitive results transmission system set up by the French company Safran/OT Morpho (now renamed IDEMIA). Safran had been single-sourced by the IEBC to deliver the Kenya Integrated Election Management System (KIEMS), in a contract worth close to Sh6b. The deal was so scandalous that even the state-captured Kenya National Assembly’s Parliamentary Accounts Committee on 24 April 2019 banned Safran/OT Morpho/IDEMIA from operating in Kenya for ten years.
Msando had been unanimously nominated by the Wafula Chebukati-led Commission to lead key ICT processes. He was hard working, had superb technical skills, a strong team spirit and excellent communication skills. Msando was an honest man, who at times seemed quite naïve in the trust he placed in his bosses to do the right thing. He was transparent in sharing the loopholes in the ICT system and revealed how some “external” actors had already gained access to it, months before the August 2017 election. He explained complex processes to the Commissioners in layman’s language, without making them feel insecure due to their lack of ICT knowledge. This is probably the singular reason the Commission chose him over his then boss, James Muhati, to be responsible for the ICT operations for the 2017 election. Unlike Muhati, Msando did not show the Commissioners disdain for their ignorance or incompetence.
One of the few defiant actions taken by the Chebukati Commission was to suspend Muhati in May 2017, allegedly for failing to cooperate with an internal audit. But as press reports indicated at the time, there was more to the story than the Commission revealed. The suspension took Muhati’s close friend, then Chief Executive Officer, Ezra Chiloba, by surprise. Chiloba made several attempts to block the suspension from being executed, prompting a reprimand from the Commissioners. Msando was unanimously appointed the officer-in-charge of the ICT directorate.
Within a month of being in charge of the ICT directorate, Msando finalised the register of voters, secured a new data centre, developed the workflow for the electronic transmission of presidential results and sealed some technical loopholes in the KIEMS gadgets that would have enabled “dead voters” to vote. It is probably these measures that he had put in place that gave Msando the confidence to say to John-Allan Namu in an interview in June 2017 that “no dead voters will rise under my watch”. And indeed, with his assassination, potentially, many “dead voters” voted.
Reports indicate that the intention of the Commission had been to keep Muhati suspended until the end of the 2017 elections. However, former Commission staff say that Chebukati received a “dossier” from the Jubilee Secretary-General, Raphael Tuju, falsely claiming that Msando was working for the opposition coalition, NASA. Incidentally, death threats against Msando intensified during this period. He spoke openly about them, showed friends and colleagues the chilling text messages, and with his typical hearty laughter, brushed them off as he went on with his work almost unperturbed. Despite making official reports, no measures were taken to address his concerns. Msando was not even provided with a Commission vehicle and security, which he was entitled to by dint of his functions.
In the meantime, the pressure to reinstate Muhati intensified. There are reports that Deputy President William Ruto and his wife Rachel Ruto called almost all the Commissioners to demand the reinstatement of Muhati, who is a close friend from their University days. Those who did not get a direct call from the Deputy President or his wife, had the message delivered by his Chief of Staff, Ambassador Ken Osinde. Despite protests from two of the Commissioners, Muhati quietly returned from his suspension on 1 June 2017, and from then on, Msando’s days on earth were numbered.
The reports of Msando’s disappearance on 29 July shocked but did not surprise many at the Commission. The threats had been there for many months including on the lives of Chebukati and former Commissioner Roselyn Akombe. One would say that the manner in which these threats were handled by the Commission made the environment conducive for Msando to be assassinated. The silence emboldened his assassins to go ahead with their plan. For their silence, the chira from Msando’s murder will forever remain with Chebukati, Akombe and the other Commissioners.
On that fateful day on 29 July 2017, it is alleged that Chiloba and Muhati asked Msando not to go home after his KTN interview at 7 pm. It is reported that Msando and a friend decided to have drinks at a joint near the Commission’s Anniversary Towers office, as they waited for further instructions from Chiloba and Muhati. Details of what exactly happened to Msando from that Friday night until his bruised body was identified at the City Mortuary on 31 July 2017 will eventually come out. It is clear that there are many colleagues of Msando’s who have more information than they have revealed in public. To many them, chira for their silence will forever hang over them.
But of course, the harshest chira is reserved for those who ordered, aided and executed Msando’s abduction, torture and assassination. If there is something that history has confirmed to us on many occasions, it is that justice is always served, no matter how long it takes. Just this year, we have seen the fugitive Félicien Kabuga, an alleged leader and financier of the 1994 Rwandan genocide arrested. Monuments in honour of those who perpetuated grave injustices including racism, slavery and colonialism for more than 400 years have been brought down in the United States and Europe. And just last month in Germany, 94-year-old Reinhold Hanning was convicted of being “an accessory” to the murder of thousands of Jews while he worked as a guard at the Auschwitz Death Camp. It took 77 years to convict him for crimes he committed at the age of 17, but justice was eventually served.
It does not matter how long it will take, justice for Chris Msando will be served. Msando’s children Allan, Alvin, Alama and Alison deserve to know why their daddy was murdered. His widow Eva has several unanswered questions. Mama Maria needs to know why her last-born son could not have been jailed if he had done something wrong, rather than wake up every morning to his grave in Lifunga. Msando’s siblings deserve closure. But three years on, the investigators have no answers to offer nor have they shown any interest in the case. Politicians like Moses Kuria, Kimani Ngunjiri and Oscar Sudi continue to recklessly play politics with such a painful issue. But Msando’s friends are quietly pursuing the leads. Quietly documenting the facts. For, eventually, Kenya will have to reckon with its history of political assassinations.
In the meantime, over to juok, to continue raining chira on those who contributed in any way to the abduction, torture and assassination of Msando.
Quest for a More Equitable Nation Undermined: CRA’s Mission Aborted
In 2010 Kenya adopted a constitution that promised to address the daunting problem of ethno-regional economic discrimination. The Commission for Revenue Allocation was created to safeguard this intention and put an end to the exclusion of many ethnic communities in Kenya, a legacy of colonial rule and a decades-long centralised, ethicised, and personalised presidential system.
The current contentious debate in the Senate on the horizontal revenue allocation formula between counties, reveals a lack of political goodwill to end legal, systemic and institutionalised marginalisation in Kenya. The fact is that this formula does not exist or emerge in a vacuum, but is rooted in the political machinations and ideologies of those who control the dominant knowledge system that has informed economic policies responsible for sustaining regional privilege.
The proposals on the new revenue sharing formula are a clear sign that although regional discrimination might have been legally terminated, structural, social and systemic discrimination still thrives in Kenya. This is because the dominant philosophy of public policy continues to mirror the same exclusivity and discrimination that were legally institutionalised by Sessional Paper No. 10 of April 1965 authored by Tom Mboya and a cabal of bureaucrats at the post-independence national treasury and planning ministry.
Kenyans must be reminded that the idea of the Commission on Revenue Allocation (CRA) as an independent Commission emerged in response to the (traditionally) skewed allocation of revenue in Kenya. The constitution provides for Commissions and Independent Offices as an avenue to better cushion Kenya’s national interest against transient executive policy choices. Until the enactment of the 2010 constitution, all revenue allocations were centralised under the national government. Because of the pervasive absence of a culture of nationhood in Kenya and the extent of fragmentation in the society, most distribution of national resources has been based on ethnic, regional or political interests.
The exclusion of many ethnic communities in Kenya is the legacy of colonial rule and a decades-long centralised, ethicised, and personalised presidential system. Concerned by the entrenched economic inequalities, the constitution devised the counties to disburse a minimum of 15 per cent of the nationally generated fiscal revenue to the 47 subnational units. Additionally, it sought to ensure that equity was the overriding consideration in sharing revenue among the 47 counties.
The CRA was created to safeguard this intention and mandated to develop a sharing formula every five years. In conceptualising its mandate, the CRA must thus bear in mind this twisted legacy of our economic history and adopt a holistic and not just a positivist approach. Such an approach will integrate an appreciation of historically skewed allocations in favour of some regions the net effect of which has been to render these regions more attractive to diverse economic activities. Factoring in an amortised perspective of an investment in roads in 1960 would provide clarity in what the present value of such an investment could have accrued to a beneficiary region.
To fully understand the institutionalised discrimination patent in the proposed formula, it is important to recognise that, whereas 70 per cent of Kenya’s revenue remains with the national government, the formula does not take this into consideration, yet we know the degree of political expediency that underpins the national government’s distribution of this revenue across various counties through infrastructural and social development programmes. Then, on the basis of only the 30 per cent allotted to counties, the Commission has designed the formula presently before the Senate, where again it proceeds to attach much weight to population and disregards its responsibility to assign equal weight to regional economic disparities and the need for affirmative action in favour of disadvantaged regions.
Why did the formula turn a blind eye on inter-governmental fiscal transfers over and above the amount allocated to county governments as their equitable share of the revenue raised nationally under Article 202(1)? Is it proper for the formula to fail to factor in the impact of five other types of transfers to counties by the national government, namely, conditional and unconditional grants, loans, the equalisation fund, and constituency development funds?
The formula and the range of reactions in its defense reveal gaps in the way marginalisation in Kenya is understood, defined and addressed. In other words those individuals who designed the formula are conditioning Kenyans to only consider the slices of cake and ignore the way the national cake is divided. Under a purposive and holistic interpretation of article 203 (1) (f) (g) and (h), the revenue allocation should consider the distribution of national government projects.
The information on how the national government projects are allocated to the various counties is easily accessible to the Commission and the public through the Presidential Service Delivery Website. Furthermore, the CRA needed to have conducted a structural audit assessment of various counties. Such an audit would assess the kilometres of paved roads, the hospitals, the bridges, power connection, water connection, accessibility to mobile telephony and internet infrastructure, number and quality of schools, among others. Take for example the two counties of Kiambu and Kakamega with a population of approximately 1.6 and 1.9 million people and a landmass of 2,500 km and 3,225 kilometres respectively. Kiambu has 1,145 km of bitumen roads against a mere 700 km for the entire Western Province which has five counties. Kiambu County has 1,145 primary schools against 460 for Kakamega, and a 7/1000 infant mortality rate in Kiambu compared to 65/1000 in Kakamega.
A good formula that accounts for the above reality must involve the conscious use of the normative system called the “Presidential Service Delivery” to examine the extent to which national government programmes comport with the notion of equitable economic development. The lack of conscious use of the process of developing the revenue sharing formula by the CRA to narrow the poverty and marginalisation gap undermines its possible instrumentality to secure a more equitable and just nation. It undermines the use of Independent offices and commissions in promoting checks and balances in the developmental process in Kenya. It is up to the Senate and CRA to consider using the revenue allocation formula not as a ritualistic policy obligation to be undertaken every five years but to deploy it in furthering the entrenchment of economic justice, equality and inclusion in the country.
The argument advanced by those supporting the formula that counties that generate more revenue should benefit from higher allocation is pretentious as it conceals the fact that their present economic advantages flow from the relative deprivation of other regions historically. The justifications mobilised by proponents of the formula as they seek to protect their privileged economic status is a type of absolution (to help them sleep at night) and is aptly captured by Albert Memmi, the Tunisian Jewish writer and one of the most influential theorists to emerge out of the post-World War II African decolonisation movement:
The fact remains that we have discovered a fundamental mechanism, common to all marginalization and oppression reactions: the injustice of an oppressor toward the oppressed, the formers permanent aggression or the aggressive act he is getting ready to commit, must be justified. And isn’t privilege one of the forms of permanent aggression, inflicted on a dominated man or group by a dominating man or group? How can any excuse be found for such disorder (source of so many advantages), if not by overwhelming the victim? Underneath its masks, oppression is the oppressors’ way of giving himself absolution.
In other words, to justify the formula is to totally disregard the important reports on historical marginalisation like the Truth, Justice and Reconciliation Report, that clearly pointed out those who are at the center and at the margin or periphery of national development.
The CRA’s mischief in the current stalemate regarding the formula to be used as the basis for sharing revenue among counties is a continuation of the disdain towards marginalised counties reflected in its recommendations to parliament with respect to the Second Policy on the Criteria for Identifying Marginalised Areas and Sharing of the Equalisation Fund in accordance with its mandate under Article 216(4) of the Constitution. The fund is a constitutional earmark of 0.5 per cent of annual revenue to be used to “provide basic services including; water, roads, health facilities and electricity to “marginalised areas”, as urged by article 204(2).
Under the second policy, the CRA departs from the first policy that had identified 14 counties in northern Kenya as marginalised areas and thus deserving of benefitting from the equalisation fund and instead identifies 1,424 administrative divisions across the 47 counties as “marginalised areas”. The policy choices in the CRA’s approach to the equalisation fund unravel when one realises that a good number of the administrative divisions identified are within the geographical limits of fairly well developed counties. Moreover, the choice of administrative units privileges national government structures and weakens the role of counties in the process. Worse, the choice shifts focus from the 14 historically marginalised counties whose economic exclusion the fund was intended to ameliorate. It assumes that parity in development has been achieved between the 14 counties and the rest of Kenya, a wildly fallacious assumption. Had the equalisation fund mechanism been implemented as envisioned in the constitution—with beneficiary counties managing the allocations—it could have assisted in cushioning marginalised counties in the event a formula favouring population as the overarching basis for revenue sharing is enacted.
In 2010, Kenya adopted a constitution that promised to address the daunting problem of ethno-regional economic discrimination. Its egalitarian tenets are evident in the quiet embrace of the principle of Ubuntu via Article 10 which holds “sharing” and “social justice” as defining values of our statehood.
As such, those at the CRA who developed the contentious formula must review their empirically unsupportable position that Kenya has made substantial progress in addressing marginalisation. We are persuaded by Malcom X’s assertion in his attack on race relations policies in the United States thus, “If you stick a knife nine inches into my back and pull it out three inches, that is not progress. Even if you pull it all the way out, that is not progress”. Progress is thus about healing the wound, and Kenya hasn’t even begun to pull out the knife of inequality. The CRA must stand up to its mission or disband.
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