If all goes according to plan, construction work on a 61-storey skyscraper – which is being mooted as the tallest structure in the whole of Africa – will soon start in Watamu, a sleepy fishing village and tourist resort about 20 kilometres south of Malindi along Kenya’s coastline.
But lack of clarity on how the developer managed to get approval for the Sh28 billion ($280 million) project is raising concerns about whether this is another white elephant or phantom project. Questions are also being raised about whether the building is economically feasible and environmentally sustainable.
On its website, Palm Exotjca is marketed as an exclusive development with “chic residential suites, premium commercial space, eclectic restaurants and a vibrant casino”. Three Italians are said to be managing the project: The chairman Giuseppe Moscarino is a veterinarian and neurosurgeon from Rome whose passions are “art, architecture and Africa’s extraordinary beauty”; the managing director is Oliver Nepomuceno, who is described as the manager of several commercial and investment companies and joint ventures; and Lorenzo Pagnini is listed as the lead architect.
The main investors in the project are said to be the Italian billionaire Franco Rosso, along with investors from Switzerland, Dubai and South Africa. According to the developers, an engineering firm in India will handle the structural design aspects of the building while a Chinese company will undertake the construction work. Local engineering and architectural firms will also contribute to various aspects of the construction phase.
When completed, the 370-metre-high building, whose shiny artistic exterior will resemble the trunk of a palm tree, will comprise 270 hotel rooms, 189 luxury suites and apartments and social amenities, such as a shopping mall, a business centre, a theatre, a cinema, a nightclub, a fitness centre, a wellness spa, a children’s play area and four swimming pools – all of which invoke images of Dubai or Las Vegas.
The problem is that Watamu is not Dubai or Las Vegas. This fishing village and beach resort with a population of 14,000 barely has the infrastructure to service a level 4 hospital, let alone a skyscraper of this size. MAWASCO, the water utility company, already has problems meeting the water demand in Watamu and there are no signs that it intends to increase supply during the construction phase of the project or when it is completed. The Kenya Power and Lighting Company has promised to upgrade the Kakuyuni sub-station with a 23 MVA transformer and 25 kilometres of an overhead line, but only on the condition that the developer pays for the upgrade, which will cost Sh161 million.
Moreover, Watamu is hardly a vibrant tourist destination and commercial hub along the lines of Rio de Janeiro or Miami. What were the developers thinking when they came up with the idea and how do they expect to fill up all these hotel rooms and apartments?
Other such projects, such as Flavio Briatore’s Billionaire Club in Malindi – which was marketed as “a club for the world’s richest” – also had ambitions to attract the wealthy from around the world, but Malindians have yet to see Bill Gates or the Saudi Prince Mohamed bin Salman check in. On the contrary, Briatore has threatened to sell his other hotel, Lion in the Sun, in Malindi because he says that the unattractive business environment and poor infrastructure in the town are keeping foreign tourists and investors away.
In an article published in Coastal Guide, Issue 20, July 2019, Damian Davies, the general manager of the Turtle Bay hotel in Watamu, questioned the viability of the Palm Exojca project and whether the investors will get a profitable return on their investment. “There are lots of properties for sale in Watamu that aren’t selling; who will buy an apartment in a tower some distance from the beach when no one is buying beautiful beach properties?” he asked. “We don’t want a start-up that for economic reasons isn’t finished: a partially completed skyscraper.”
Malindi and Watamu are currently experiencing a slump in tourism. Hotels are either shutting down or scaling down.
Many Italian residents are selling their villas to go back to Europe or to move elsewhere. But there is simply no market for these properties. Those that do manage to sell their houses often do so at below-market rates, mainly to Kenyans from Nairobi looking for a holiday home.
Italian and other tourists are flocking to other destinations in East Africa, such as Zanzibar, which have not been tainted by the threat of terrorism, and which have more superior amenities and infrastructure. The idea that this luxury development will be the magnet that will pull in tourists and foreign investors could simply be wishful thinking.
At a public participation meeting organised by NEMA at the site of the building on 3 October, Mr Moscarino, the chairman of Palm Exojca, explained that this exclusive development will bring another type of high-end visitor to the area and is not competing with the hotels in the vicinity. He added that he was very proud to be associated with the tallest building in Africa.
However, let us say that the project is viable and there is a market for it, this question still remains: Why build such a tall structure in a village that is not a commercial hub and where most buildings are just one-storey tall? Wouldn’t it be incongruous with its surroundings? Wouldn’t it be like building a skyscraper in the middle of a desert? If you have to build the structure, why not build a scaled-down version?
The answer perhaps lies in the fact that skyscrapers are more about ego and prestige than about economics. Very tall structures, such as the Petronas Towers in in Kuala Lumpur and the Burj Khalifa in Dubai, are a kind of phallic symbol representing strength and virility. The skyscraper is to the modern world what the obelisk was to the ancient Egyptians – a monument that projects mystical power and status. But is this what Watamu needs?
Kilifi County has given the go-ahead to the project perhaps in the belief that it will generate jobs and stimulate the local economy, but Najib Balala, the Cabinet Secretary for Tourism, is not convinced that this is the kind of project that Watamu requires. He feels that a more suitable location for the project might have been Mombasa or Nairobi. He has also advised the National Environmental Management Authority (NEMA) not to approve the project. “That 61-storey skyscraper on a small plot in Watamu must not be built,” he is reported to have said.
What raises a red flag is the fact that the Palm Exotjca website lists its address as One World Trade Centre, Suite 8500, New York, but that address seems to be a virtual one intended to impress high-end clients. The other address is a plot number and P.O. Box number in Mombasa, but there is no email or phone number provided. The phone number listed on the website is a Washington DC number that goes unanswered. One concerned resident who has been following up on the matter said: “When we call the phone number listed on the website, no one answers it and has not for over a year. So why is it so difficult to find the real phone number if Palm Exotjca really wants to sell high-end apartments?”
According to residents’ associations and other concerned groups in and around Watamu who have raised their objections regarding the project with NEMA, Vitamefin Limited, the company that is listed as the owner of one of Palm Exojca’s plots in Watamu, was previously registered in the US Virgin Islands. However, the Virgin Islands Official Gazette, Volume XLIX, Number 78, shows that this company was struck off the register of companies on 1 May 2015 for non-payment of annual fees.
NEMA says that it has conducted an Environmental and Social Impact Assessment (ESIA) that shows no adverse environmental or social impacts related to the project. But Augustine K. Masinde, the National Director of Physical Planning in the Ministry of Lands and Physical Planning, disagrees. In a letter to the Director-General of NEMA dated 12 July 2019, he raised concerns about the conformity of the proposed development with physical planning laws and zoning regulations. He also said that certain issues, such as the environmental suitability of the parcel of land for the proposed development and availability and adequacy of requisite infrastructure and services, needed to be clarified. “In view of the foregoing, we advise that you suspend the approval of the proposed development to allow proper review and audit to establish its sustainability,” stated the letter.
A memo to NEMA – submitted on 21 July this year on behalf of the Watamu Association, the Kilifi Residents Association, the Kilifi County Alliance, Watamu Hoteliers, Local Ocean Trust, Watamu Marine Association, A Rocha Kenya, Watamu Against Crime, Watamu Property Managers and the Jiwe Leupe Community Association – lists several problems with the project, including:
- The project is disproportionate in scope and scale, both technically and financially. The substrata along the Kenyan coast is highly unsuitable for very tall buildings.
- There has been lack of meaningful public participation by the developers and the ESIA team.
- Watamu lacks the skilled labour force to put up such a structure. The immigration of a large, well-paid skilled workers into Watamu has the potential for significant social, cultural, economic and moral hazards.
- The area lacks the required infrastructure, including water and electricity supply, for such a large-scale project.
Lack of sufficient and meaningful public participation is of particular concern to the residents, as it was with the proposed coal-fired plant in Lamu. In the case of Lamu, lack of public participation was a key consideration in the National Environment Tribunal (NET)’s ruling. In its 26 June 2019 jugement, NET ordered Amu Power, the key player in the proposed Lamu coal project, to halt construction of the plant and to undertake a fresh ESIA for the project. It noted that the ESIA carried out for Amu Power was flawed in one key aspect: it did not involve public participation, which is a constitutional requirement. It noted that lack of public participation was “contemptuous of the people of Lamu”.
Mike Norton-Griffiths, the chairman of the Watamu Association, says that the major flaw in the project is in the planning. He says that nine completely independent projects are buried in the ESIA, each requiring an ESIA and planning permission, and each needing to be completed before the main project. Yet this has not been done.
There are also serious environmental concerns. Watamu is home to the Arabuko Sokoke Forest, the famous Gede ruins and a marine park that is the breeding ground for turtles and other marine life. There are concerns that improper handling of wastewater and sewage from the project – both during the construction phase and when it is completed – could negatively impact the biodiversity in the region.
The above concerns were partially addressed on 3 October at the public participation meeting organised by NEMA, which I attended. A Kenyan engineer recruited by Palm Exojca made a detailed slide presentation explaining how the development will deal issues such as wastewater and even birds who could die accidentally by crashing into the tall shiny structure. (Much of this presentation was lost on the local communities attending the meeting, but that did not deter him from going on with the hour-long presentation.)
The meeting, which was attended by NEMA, county government officials, some representatives of residents associations, and a large group of people from the community, at times appeared stage-managed and intended to allay any fears that the project was unviable or environmentally unsustainable.
But what also came out loud and clear at the meeting was that the local residents view the project as a contest between the national government and the county government of Kilifi and between the (mostly British) expatriate community and the Italian investors. Speakers at the meeting emphasised that this was a project supported by the county government and that the national government should not interfere with it. “Those opposed to this project are enemies of devolution and enemies of the people,” said one very vocal community leader, whose statement was met with roaring applause from the audience.
Supporters of the project, including the governor of Kilifi County, Amoson Kingi, believe that the project will bring in much-needed jobs to the area and will boost tourism. Community members at the meeting repeatedly cited employment as the main benefit of the project. (The majority of the local residents will neither be able to afford the amenities offered at Palm Exojca, but they do hope to find low-paid and semi-skilled jobs in the luxury development.)
It is hard to argue with the sentiments of the majority of the local people, who have been marginalised for decades and who suffer from high levels of poverty and underdevelopment. (Kilfi County is among the six poorest counties in the country.) A project like this could change their fortunes in significant ways by generating hundreds of jobs both directly and indirectly. When you have not seen any real development in your area for years, despite the presence of a large numbers of beach hotels, a project like is hard to resist, even amid environmental concerns. As one speaker at the meeting pointed out, “Nobody talked about how the beach hotels in Watamu would affect turtles. So why should this development, which is not even on the beach (it is 366 metres from the ocean) be of concern?”
The project has also unveiled simmering tensions between the indigenous local residents and the largely British expatriate residents. Kilifi North MP Owen Baya, a vocal supporter of the project, claims that the British people living in Watamu are opposed to the project because it will “block their view of the ocean”. But he does not say how the influx of wealthy foreigners into Watamu when the building is completed will affect the local population. Will it give rise to other types of tensions?
There is also the issue of double standards. Someone I spoke with who did not want to be named told me that the Europeans living in Watamu live there only half the year; they spend the rest of the year in Europe. “These people can enjoy First World amenities, like theatres and nice roads and pavements, whenever they want to. But they want Watamu to remain a backwater whose unspoilt natural environment they can enjoy whenever it is convenient for them. But what about the locals who have never been to a cinema or even travelled outside their county? Don’t they deserve a taste of modernity?”
The locals clearly view the Italian investors as a godsend that will bring much-needed employment and development to the area. One MCA even referred to Mr. Moscarino as “our small God”.
“Even London began as a small village,” said another speaker. “We want Watamu to become a city like Dubai.”
Owen Baya, the Kilifi North MP, told the audience that until a hundred years ago even Nairobi was just a swamp, and wondered why there was so much resistance to this particular project.
At the meeting, Mr. Moscarino gained additional points with the locals when he sold the development as a social responsibility project. He told the cheering crowds that the developers will build a hospitality school and a secondary school in Watamu and that up to 2,000 local people will be hired as drivers, carpenters, construction workers and the like during the construction phase. It was obvious that he was exploiting the fact the majority of residents are too poor and illiterate to refuse such a generous offer. His statement was met with loud cheers.
As I left the NEMA meeting, I did wonder whether if, for any reason, the project is not completed – and the promised jobs and schools never materialise – what effect this will have on the local people. Will dashed hopes lead to even more resentment?
We can only wait and see if indeed the local people’s dreams will be realised in five years when the construction of Palm Exojca is expected to be completed. Palm Exojca could either be the catalyst that spurs development in Watamu or the Trojan horse that introduces vices that threaten to destroy a way of life. It could also be a case study in how economic opportunities often trump environmental concerns when it comes to “development”, especially in areas that are poor and marginalised.
The Broader Implications of the Kibra By-Election
6 min read. Despite the positive outcomes of the recent Kibra parliamentary by-election, the poll confirmed that the country is just as polarised as it was before the 2018 “handshake”. The rabid political rhetoric, the ethnic mobilisation, the violence and allegations of bribery, were not any different from those witnessed during the 2017 election. Kibra laid bare the fractures within the ruling Jubilee Party and confirmed the collapse of NASA. Rather than bridging the political differences in the country, the “handshake” has deepened them. This does not augur well for the country, particularly in these difficult economic times.
Now that the dust has somewhat settled after the Kibra parliamentary seat by-election, let us reflect on its broader implications.
There are some outcomes that stand out as positive. The vigilance of the political parties at polling stations was impressive, despite the violent tactics employed. This was a major improvement on 2017 when most political parties did not have agents present at the polling stations. As confirmed by the High Court, the election results announced at the polling station are final, and the electoral regulations of the Independent Electoral and Boundaries Commission (IEBC) require that these results, signed by the agents, must be posted at polling stations.
Technically, if a candidate has agents at each polling station, he or she should be able to have a sense of their performance even before the IEBC Returning Officer. This is because the Returning Officer has to await the physical delivery of results by the Presiding Officers before embarking on the tallying. It was probably data from his agents which led the Jubilee candidate, McDonald Mariga, to make his call conceding defeat to Bernard (Imran) Okoth long before the official results were announced. For Mariga to concede defeat and accept the results early is indeed commendable and should be the norm. But this is only possible when candidates perceive the electoral process to be fair.
It also requires that stakeholders have reliable information, which appears to have been the case in Kibra. This cannot be said of the 2017 General Election, where the IEBC gave candidates reason to doubt the results it was releasing. In Kibra, the IEBC did not use its electronic results transmission system (although it did use the biometric voter identification system). Does this confirm that technology is not a panacea for the lack of transparency and confidence in electoral results? Indeed, Kibra opens the door for us to engage with the ideas put forward by former IEBC Commissioner Roselyn Akombe in her end of assignment report on the use of technology in elections.
Yet, despite some of these positive outcomes, I would argue that the negative aspects of the process far outweigh the positive ones, for four main reasons.
First, the process confirmed that the IEBC has not learned any lessons from its recent dismal failures. It continues to flaunt clearly laid out electoral laws and acts with impunity in the knowledge that the state—which it has been totally captured by—will protect it.
Take, for instance, the issue of the voters register. The Elections Act requires that the Commission avail a register of voters to ensure transparency, verifiability and accountability. Yet, once again, the Commission failed to make the register available to stakeholders and nor did it make one available online. It only complied with the law once the Orange Democratic Party (ODM) sought relief from the courts.
You will recall that during the 2017 elections, every aspect of the electoral process, from registration of voters to procurement of electoral materials, was subject to litigation. Why is it so difficult for the Commission to comply with electoral laws and with its own procedures? In its own review of the 2017 General Election, the Commission identified over 500 legal cases against it, including Presidential, County and National Assembly petitions. It is important that an independent audit of the 2017 electoral process is undertaken if we are to hold on to the hope of electoral justice. Otherwise, we risk having the same issues repeated in the next electoral cycle.
The IEBC has not learned any lessons from its recent dismal failures. It continues to flaunt clearly laid out electoral laws and acts with impunity in the knowledge that the state—which it has been totally captured by—will protect it.
Second, the Kibra by-election confirmed that the country is just as polarised as it was before the 2018 “handshake”. The rabid political rhetoric, the ethnic mobilisation, the violence and allegations of bribery, were not any different from those witnessed during the 2017 election.
What the “handshake” did was shift the political alliances. We still have two political coalitions, just as we did in 2017. Only that the “dynasties” camp in the Kibra campaign was led by Rt. Hon. Raila Odinga, with the President’s acquiescence, and the “hustlers” team by the Deputy President. Kibra laid bare the fractures within the ruling Jubilee Party and confirmed the collapse of NASA. Rather than bridging the political differences in the country, the “handshake” has deepened them. This does not augur well for the country, particularly in these difficult economic times.
Third, state capture—which many observers including Wachira Maina and David Ndii have written about—is very much alive. For many months now, close aides of Rt. Hon. Odinga have been boisterous about how the “system” has, since the handshake, switched its “loyalty” from the Deputy President to their Baba. They point out that with the “system” or the “deep state” solidly behind Baba, he is the “President-in-waiting” and the de facto co-Principal to the President.
One could argue that the “men in the shadows”, as John Githongo calls them in his article One Week in March: Was the Handshake Triggered by the IMF?, are keen to show that the handshake is working. With the Deputy President’s power withdrawn, he did not stand a chance of imposing his candidate in Kibra, as he is alleged to have done for most of the key positions in the 2017 election. His recent pronouncements are of a bitter man, spoilt by the ease with which he previously wielded power and now finding himself bereft. It is the anger of a man who has been betrayed by the same President whom he helped bring to power.
Second, the Kibra by-election confirmed that the country is just as polarised as it was before the 2018 “handshake”. The rabid political rhetoric, the ethnic mobilisation, the violence and allegations of bribery, were not any different from those witnessed during the 2017 election.
I can imagine his frustration as he watched the security system tacitly approve the violence meted out against his candidate and his confidantes. A man who is alleged to have used the government machinery to terrorise dissenting voices, now watching from the periphery as they worked for his arch-rival. A man who is reported to have made cold, menacing telephone calls, leading senior officials to resign from their positions rather than wait for his threats to materialise, was now seeing these tactics used against his cronies.
In light of this, Rt. Hon. Odinga’s supporters may be tempted to celebrate their ability to benefit from state capture today. However, they should be wary of how the tables may be turned should Baba fall out with Kenyatta. They surely must know the volatility of alliances in this country. There are still many factors that could come into play in the coming months. In cheering on state capture for short-term gain, we have sunk to our lowest level and history will judge us harshly for our acquiescence.
Fourth, Kibra confirmed that women continue to face insurmountable challenges when seeking political office. The two main political coalitions did not consider any female candidate in their “nominations”. Despite the odds, there were three formidable women in the race: Editar Ochieng (Ukweli Party); Hamida Musa (United Green Movement) and Fridah Kerubo (Independent).
Unlike most of the other 21 candidates, these three women live in Kibra and have been involved in community organising. Yet their voices were drowned out as Kibra became the arena for a national supremacy challenge between two men who do not even reside there. Men who visit the constituency for its political symbolism and have done nothing during their time in power to make even minimalist changes to improve the lives of Kibra’s inhabitants.
The sexist undertones of the campaigning were repulsive; the labeling of an entire constituency as one man’s “bedroom”, with another man retorting that he was within sight of invading it, should have been strongly condemned yet even the various organisations and groups purporting to defend women’s rights were eerily silent. They dared not hold either Rt. Hon. Odinga or the Deputy President accountable for their insensitive sexist innuendoes, which continue to undermine the participation of women in politics. The mainstream unfortunately joined the bandwagon, using the same “bedroom” analogy without interrogating how this undermines their own mantras on the use of gender-sensitive language. Sadly, Kibra is a reminder that if we do not change the environment around our electoral process, the gender parity provisions in our constitution will remain a mirage.
Beneath the gender-insensitive use of the “bedroom” analogy in Kibra, is the underlying message of patronage. It trivialises the lives of the residents as dispensable political pawns. It promotes the erroneous perception that one man can own the thousands of residents of Kibra. This is the same outrageous mindset which led Johnstone Kamau to appropriate a country’s name and present himself as it’s light (thus Kenyatta), as he describes this re-naming in his book Facing Mount Kenya. No wonder his descendants see the country as their personal property to plunder.
Sadly, Kibra is a reminder that if we do not change the environment around our electoral process, the gender parity provisions in our constitution will remain a mirage.
Kibra reminds us that we have failed to address the root causes behind the current political polarisation. We have failed to make the changes necessary to end the ongoing state capture of independent institutions such as the IEBC. We pay lip service to the participation of women in politics and marginalise large swathes of our population. We have failed to address the economic policies that have led to our people living in difficult conditions, including in places such as Kibra. We have squandered the future of the youth and left many of them unemployed and disillusioned. It is time that we made serious attempts at addressing these issues. Otherwise, as we have seen in recent months from Algeria to Zimbabwe, the streets will take care of the situation. And the outcome of such popular protests may not be what the political elite might expect.
‘I Don’t Understand Why Kenyans Are Broke’: Mr. Kenyatta’s Debt Distress Revisited
10 min read. Many Kenyans have been wondering why we are told that the economy is growing at a brisk 5 to 6 per cent year after year, yet they are not feeling it. Instead, big companies are issuing profit warnings and laying off people. Kenya’s public debt has increased threefold over the last six years, from Sh1.8 trillion to Sh6 trillion and although the data shows that the economy is growing, the tax base is not expanding and revenue is falling short as debt service charges are rising.
In 2018, following the Raila-Uhuru détente we call the handshake, I went against the grain and argued against the anti-corruption campaign that ensued. My reasons were simple enough; Uhuru and Ruto were jointly culpable for the administration’s corruption, hence my contention that the fight against corruption was being politically weaponised. I postulated that politicising the war on graft would blow back on the handshake (it has).
I voiced my concerns both publicly and privately. The response I got was that the anti-graft drive was strictly economic, and not political, motivated by the realisation that the government was hurtling towards a financial crunch. Different people on both sides of the handshake deal mentioned the figure of Sh300 billion, which they claimed was the amount that could be saved by stopping graft. I tried to explain the nature of the crisis that was unfolding but no one wanted to hear that fighting corruption was not the silver bullet. Heads were firmly in the sand.
The Sh300 billion figure cropped up again a few weeks ago, this time as the amount of tax payments that are in dispute. It was disclosed that the government is proposing legislation that will require the disputed figures to be paid up front. It does not take much imagination to see how such a law could be abused. A government as desperate for cash as this one can make inflated tax assessments—which tax one has to pay first and ask questions later—while also opening another avenue for tax officials to extort taxpayers. It can be used for political persecution or to cripple competitors and businesses targeted for acquisition by our rapacious crony capitalist cartels.
Why is the government clutching at straws? Let’s have a look at the finances. The government plans to spend Sh2.6 trillion in the current financial year (2019-2020). It plans to finance this spending through domestic revenue to the tune of Sh1.88 trillion (Sh1.81 trillion tax and Sh70 billion non-tax, respectively), Sh701 billion of debt, and external grants of Sh19.5 billion. Of the Sh701 billion of debt, it plans to borrow Sh434 billion domestically, and Sh267 billion from foreign lenders—comprising of Sh200 billion in commercial debt and the balance of Sh67 billion in soft loans from development lenders.
Let us put some perspective to these numbers. Over a quarter (27 per cent) of the budget is debt-financed and 90 per cent of this debt will be commercial—30 per cent from foreign lenders and 60 per cent from the domestic market (we often overlook the fact that domestic debt is commercial). The Jubilee administration has been doing this for six years running. When it took office, we had a single $600 million foreign commercial loan, which was paid off using the first Eurobond issue. Today, a third of our foreign debt amounting to $10 billion is commercial. The administration justified the $2.8 billion debut Eurobond issue, the largest African issue to date, on the promise that it would replace domestic borrowing, thereby leaving domestic credit to the private sector and reducing interest rates. It did not. Instead, the administration ratcheted up domestic borrowing as well and crowded out the private sector completely. It is also worth reminding ourselves that the proceeds of that Eurobond cannot be accounted for.
The Sh701 billion deficit translates to the government spending 37 per cent more than its income. This is like a Sh30,000 earner who has just acquired a credit card deciding that she can afford to live large by spending Sh40,000 a month. Now, let us assume that the credit card charges 15 per cent per year, and requires 5 per cent repayment of the outstanding principal every month. A year down the road, the monthly debt service will be in the order of Sh7,500, which is not too bad as she will still be spending Sh2,500 more than her salary after debt charges. But four months later the debt service charge will start eating into her salary and by the end of the second year, she will be paying Sh15,000 in debt charges a month and owing Sh. 240,000. If she were to run into a credit limit at that point, she would have to live on Sh. 15,000 a month— half her salary—and her lifestyle will definitely have to change drastically.
This scenario will be familiar to people who have abused credit cards. It is the situation we are in—six years of abuse of the national credit card. For the country, it is unprecedented; we are one of the few African countries that escaped the 1980s-90s debt crisis that was resolved by the Highly Indebted Countries Initiative (HIPC). But I gather that this is not the first time that the bloke at the helm has over-swiped.
Many Kenyans have been wondering why we are told that the economy is growing at a brisk 5 to 6 per cent year after year, yet they are not feeling it. Instead, big companies are issuing profit warnings and laying off people. A related question is why government revenue is falling short when the economy is supposedly booming. Under Jubilee, the tax revenue as a percentage of GDP has declined from 18 per cent to 15 per cent, the lowest level since the 90s. The three percentage points difference is, surprise, surprise, Sh300 billion.
Jubilee has increased our public debt threefold over the last six years, from Sh1.8 trillion to Sh6 trillion and counting. Unlike our consumer, however, the government will argue that its debt has been invested. But investments are risky, or long term. Moreover, you don’t borrow short-term to invest long-term as the government has been doing. If you do, the debt repayments eat into the working capital, and you will soon be defaulting on your suppliers, as the government is doing.
Under Jubilee, the tax revenue as a percentage of GDP has declined from 18 per cent to 15 per cent, the lowest level since the 90s. The three percentage points difference is, surprise, surprise, Sh300 billion.
Government borrowing is predicated on the expectation that the projects financed will stimulate productive investment that will in turn generate tax revenues to service the debt. But very little of this debt has yielded any economic benefits that would in turn generate tax revenues. The Standard Gauge Railway (SGR)—the largest of these projects—has not stimulated any new economic activity. Much to the contrary, all it has achieved to date is to disrupt port logistics and road haulage while increasing costs and inefficiency for importers. Right now, its net economic contribution is negative. All indications are that the Galana-Kulalu irrigation scheme is a white elephant, and we know for sure that the economic contribution of the Arror and Kimwarer dams is zero.
Moreover, the government shoots itself in the foot by awarding the construction projects to foreign— predominantly Chinese—state-owned firms. This undermines revenue in two ways. First, the companies are exempted from paying tax. Second, the money they make is repatriated, denying the economy the multiplier effect it would have if the money had been earned by domestic firms. I gather that Uhuru Kenyatta was banging tables the other day demanding to know why Kenyans are broke, how come the money spent on government projects is not circulating in the economy.
Let us take his flagship project, the SGR. The man went and swiped the national credit card and the Chinese delivered the goods. The money stayed in China, debited from our loan accounts in the Chinese banks and credited to the suppliers’ bank accounts. We are paying the loans from our pockets. This year, we’ve budgeted to pay the Chinese banks Sh94 billion, up from Sh39 billion last year. Far from circulating it in the economy, foreign debt-financed government projects are draining money from the economy.
Thus, although the data shows that the economy is growing, the tax base is not expanding and revenue is falling short as debt service charges are rising. While tax revenue has just about doubled under the Jubilee administration, from Sh900 billion in the 2012-2013 financial year to Sh1.49 trillion in the last financial year (2018-2019)—translating to 15 per cent per year—interest payments have increased three-fold from Sh93 billion to Sh390 billion, translating to 52 per cent per year. Consequently, from consuming 12 per cent of revenue, interest payments have risen to 26 per cent. It should not come as a surprise that the government is having trouble paying suppliers. It is also noteworthy that the increase in the cost of interest payments is in the order of—here we go again—Sh300 billion.
Last year the government projected that it would raise Sh1.77 trillion in tax revenues, later revised downwards to Sh1.67 trillion. It managed to raise 1.5 trillion, respectively Sh270 billion and Sh170 billion short of the approved and revised budgets. Still, it budgeted to raise Sh1.8 trillion in 2019. At the end of the first quarter of this year the government had raised Sh372 billion. If the trend remains, Sh1.49 trillion will have been raised—about the same as last year—a shortfall of, well, Sh300 billion.
If the government were to borrow the whole amount this would increase debt financing to a trillion shillings, that is, 38 per cent of the budget or 67 per cent of revenue (remember that revenue is projected at just about Sh1.5 trillion). If it were to borrow domestically, that would also suck in the little credit that is trickling to the private sector. Moreover, the interest rate caps imposed three years ago have now been removed. The caps were meant to benefit private borrowers but the only beneficiary was the government—enabling it to borrow while postponing the political price that would have been exacted had interest rates surged to the mid-20s—as they would have. But the economy has paid the price because, by making it difficult for banks to price risk, the rate caps made the government’s crowding out of the private sector in the credit market more severe than it would have otherwise been.
It should not come as a surprise that the government is having trouble paying suppliers. It is also noteworthy that the increase in the cost of interest payments is in the order of—here we go again—Sh300 billion.
With the caps removed, the government’s excessive appetite for debt will now put upward pressure on interest rates, including the government’s own cost of domestic borrowing. The math is eye-popping; the government’s domestic debt is in the order of Sh3 trillion. A one percentage point increase in the cost of borrowing translates to a Sh30 billion increase in interest expenditure. How quickly an interest rate rise is transmitted into actual cost depends on the structure of the debt—the more short-term, the faster. Jubilee has done a good job of borrowing at the short end of the market, and so transmission will be relatively quick. The exchange rate presents a similar conundrum. The annual servicing of external debt is in the order $2.5 billion, and a depreciation by one shilling translates to a Sh2.5 billion increase in the cost of servicing the debt. It should come as no surprise then that the IMF’s contention that the government is propping up the shilling raised a furore.
Belt tightening is the sensible thing to do when a person or a business is over-indebted. For governments it is a little more complicated. The government is the single largest entity in the economy, and what it does has feedback loops that can amplify the problems it is trying to solve. The problem we have now is that the economy has become addicted to expansionary budgets. Five years ago, government expenditure accounted for a fifth of annual GDP growth, meaning that when growth was reported at 5 per cent, it meant that the private sector accounted for 4 per cent and the government for 1 per cent. Today, the share of the private sector is down to 3 per cent and the government’s share has doubled to 2 per cent. In effect, belt tightening has to contend with the economy suffering withdrawal symptoms—a weakening economy feeding into an even bigger revenue shortfall, requiring even more belt tightening.
This whole conundrum is how countries end up in a Greek-style downward spiral of a contracting economy and ballooning indebtedness. The case of Mozambique is instructive. Before the “tuna bond” scandal unfolded, Mozambique’s economy was roaring at 7 per cent per year, riding on post-conflict reconstruction and the discovery of huge offshore natural gas reserves. The loan sharks moved in. In 2013 Mozambique borrowed $2 billion—equivalent to a third of the budget—in privately placed bonds known as “loan participation notes” to finance a tuna fishing fleet and maritime security, of which only $850 million was made public. It has recently emerged from a fraud and money laundering court case in New York that at least $200 million was stolen and shared out between the investment bankers and Mozambique’s who’s who, including the finance minister and the president’s son.
In early 2016, Mozambique defaulted on interest due on the $850 million. Shortly thereafter, the secret loans were exposed. Money dried up. By the end of the year, the currency had fallen 40 per cent, causing the debt-to-GDP ratio to increase from 55 per cent to 120 per cent. Everything unravelled. Serial defaults and debt restructuring became the order of the day. Growth tumbled to 3.3 per cent last year and is now down to just over 2 per cent. It is going to be a long and painful climb out of the mess.
Which brings me to the question that many people are asking: what is the solution? I have opined that our debt distress will be resolved by one of two scenarios: the Ethiopia or the Sudan scenario. This is why:
To dig ourselves out of the debt quagmire requires four things. First, you need a dollop of cheap money to cushion the economy and vulnerable groups as the government withdraws from domestic borrowing so as to release credit to the private sector, restructure government finances, and rebalance the economy more generally. My guesstimate is a minimum of $3 billion (yes, Sh300 billion!) to $4.5 billion. The only source of such money is an international bailout. Second, to get financiers to buy in, you need a bankable plan. Third, you need a credible turn-around team to implement it. It is not a job for yes-men and yes-women—you need people who can stare down Kenyatta and his crony capitalist cartels. Fourth, economic turnarounds entail making tough unpopular decisions and pushing through painful reforms, and that requires political goodwill. It is not the sort of thing you can do with the 2022 political warfare raging—as we witnessed it in the Kibra by-election.
At the end of the first quarter of this year the government had raised Sh372 billion. If the trend remains, Sh1.49 trillion will have been raised—about the same as last year—a shortfall of, well, Sh300 billion.
This is the situation that Ethiopia found itself in two years ago when the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) coalition realised that only a leadership change could save it. Fortunately for Prime Minister Abiy Ahmed, there was a lot of low-hanging political fruit—releasing political prisoners, making peace with Eritrea, appointing women— that he could use to build goodwill, bring in some money and buy time. Still, that’s all he’s been able to do— he is still circling the big economic reform questions, and he now runs the risk of his political honeymoon ending before he gets started.
Sudan’s Omar al-Bashir sought to do the same thing but it was too little too late. Just over a year before he was toppled, amid mounting protests and a deepening economic crisis, he dissolved the government, intending to constitute an economic turn-around team. But the ship of state was already too leaky and his key appointees turned down his overtures (his choice of finance minister is now Prime Minister).
Can the Jubilee administration pull a political rabbit out of the hat like the EPDRF did in Ethiopia? Doubtful. For one, the EPRDF had the advantage of a parliamentary system which enables change of leadership without going through elections. But it is also the case that for a President at the tail end of his tenure, an economic reform programme would be all pain and no gain. Moreover, a lot of what needs to be done means reversing his policies, and he would have to cede a fair amount of power, making him even more of a lame duck than he already is. And having left it until the ship was leaking, there is also the question of who loves him enough to jump in when its owners—the Moses Kurias of this world —are jumping out. So his best strategy is the path of least resistance—kick the can and hope and pray that the bottom does not fall out this side of the election, be that by way of a financial meltdown or people taking to the streets.
Five years ago, I cautioned Jubilee that it had embarked on a reckless fiscal path, to wit, “We cannot afford to continue on the fiscal path that we are on. It is reckless. This mega-infrastructure madness has to stop. If we don’t do it ourselves, the iron laws of economics will do it for us—and that, take it from me, does not come cheap.”
We say in Gikuyu mūrega akīīrwo ndaregaga akīhetwo: a person who rejects counsel will listen when the consequences arrive. That moment is upon us.
What is the Sinister Motive Behind the Mwende Mwinzi Probe?
4 min read. Mwende Mwinzi’s appointment as Kenya’s Ambassador to South Korea is fully within the law as Ambassadors and High Commissioners are not considered state officials. Under Article 78 (3) (b) of Chapter 6 of the Constitution on Leadership and Integrity, she is qualified as a Kenyan whose dual nationality is linked to the laws of another nation.
How did the appointment of a Kenyan citizen as Kenya’s Ambassador to South Korea become so embroiled in controversy as to seem like a personal vendetta?
Early in the year, Mwende Mwinzi, a dual citizen of Kenya and the United States, went through the vetting process administered by the Defense and Foreign Relations Committee as the law requires. From its onset, some Members of Parliament began to question her suitability for the post as they openly questioned the authenticity of her Kenyanness and claimed that she does “not have any unique skills other Kenyans don’t have”.
The Mwende drama started with a delegation that went to the president to whisper in his ear about the problem posed by the nomination of a dual citizen, falsely claiming that her appointment was unconstitutional. As it turned out, her appointment was indeed fully within the laws of Kenya, as Ambassadors and High Commissioners are not considered state officials. Further to this, under Article 78 (3) (b) of Chapter 6 of the Constitution on Leadership and Integrity, she is qualified as a Kenyan whose dual nationality is a result of the “operation of that country’s law, without ability to opt out” (in this case the US).
But the war to dislodge Ms. Mwinzi only intensified and, in a vicious campaign to disqualify her, has gathered the most ardent supporters of the call to remove her even before she has taken up her appointment. Ms. Mwinzi’s loyalty has been loudly questioned, with opinion-shapers peddling doubts about her ability—and by extension the ability of all dual-citizenship Kenyans—to be loyal to Kenya while holding another country’s citizenship.
This narrow thinking completely misses the point that diplomatic spies and sell-outs do not need dual citizenship to act out of greed, dissatisfaction or unpatriotic inclinations. A study of the history of espionage should be exciting and enlightening for those in thrall to this sensationalist propaganda.
Her appointment was indeed fully within the laws of Kenya as Ambassadors and High Commissioners are not considered state officials
It also misses the point that there are other dual-citizenship envoys in office. This is perfectly within the law, and there is no logical reasoning to support calls for the amendment of the constitution in order to disqualify them on the grounds that they are dual citizens.
The Mwende case has been fraught with hypocrisy and dubious intentions on the part of the vetting Members of Parliament who have now insisted that she must surrender her American citizenship in order to take up office as Kenya’s Ambassador to South Korea. This demand is not only unconstitutional but it is also sinister and cruel to require someone with family in the US to shoot themselves in the foot in order to serve their country.
It is also worth pointing out that it is global standard procedure for countries to appoint dual citizens as high-level diplomats. The United States has enough of these examples, starting with former Secretary of State Madeleine Albright who is Czech-American. The generous Internet will yield more good examples from several countries that have discarded the self-defeating and parochial view that dual citizens are to be feared, shunned and their role in nation-building limited.
This fear of dual citizens and Kenyans in the diaspora in general, has often elicited the open disdain of Kenyan legislators for Kenyans living abroad. When this disdain and dismissal translate to a suppression of citizens’ rights and opportunities, then it inevitably becomes a legal battle.
Kenyans in the diaspora have never shied away from the fight for justice and inclusion. They have fought to make it clear that living a few hours away is a silly and unjust reason to be discriminated against and that legally holding more than one passport is not a measure of one’s loyalty or patriotism.
It takes smart leadership to recognise that inclusivity of all citizens regardless of their global residence is visionary in the globalised 21st century and that attempts at exclusion are toxic to the nation as a whole.
It is also astonishing that the oft-quoted diaspora remittances cease to count as a mark of loyalty for Kenyan legislators intent on dismissing the Kenyan diaspora’s fight to belong and to serve. Let us be very clear that recognised belonging is the right of every citizen. Kenyans in the diaspora actively show their belonging by investing their hard-earned billions in their home country and, like every other Kenyan, they partake in nation-building every day.
The familiar pettiness that surfaced about Ms. Mwinzi’s accent during her vetting is an example of what must cease if Kenya wishes to make good use of its citizens who have lived abroad. These irrelevant concerns undermine and detract from the more important issues of character, leadership and accomplishments that might be of benefit to our nation.
It takes smart leadership to recognise that inclusivity of all citizens regardless of their global residence is visionary in the globalised 21st century
The sheer hypocrisy of the case has been exposed by the call to probe members of parliament who hold dual citizenship. The Kenyans for Justice and Development organisation has named eight members of parliament and two senators as state officials who need to be probed. This alone puts the vetting Committee’s credibility into question. It demands that all their recommendations against Ms. Mwinzi’s nomination be thrown out and that the constitution that allows her to be nominated reign supreme on this issue.
Mwende Mwinzi has served Kenya in many different capacities. In 2001 she started Twana Twitu, an organisation that has for 17 years supported over 3,000 orphaned and vulnerable children in Kitui. She was a columnist for Sunday Nation and for 3 years served on the National Economic and Social Council (NESC).
Ms. Mwinzi was also part of the team that devoted itself to improving Kenya’s image in the US at a time when Kenya had been negatively branded and was struggling to attract support to overcome its security challenges, boost tourism and trigger investment. In the last election, Ms. Mwinzi vied for the seat of Member of Parliament for Mwingi West. She has clearly focused her life in Kenya not only in word but also in deed.
This persecution of one person is also a remarkably familiar pattern in the murky and mafia-ridden world of Kenyan politics where backdoor wheeling and dealing is done to secure high-level positions. With the political strategising for the 2022 presidential race already in place, political factions have been seeking to have “their people” in lucrative missions. Diplomatic corruption is both an international and local reality and, South Korea being a coveted station, it requires someone who will not give in to grand corruption schemes.
Editorial note: On November 14, 2019, the High Court of Kenya ruled that Kenya’s ambassador nominee to South Korea Mwende Mwinzi should not be forced to renounce her American citizenship as demanded by Parliament. Justice Makau further noted that an ambassador is not a State officer but a public officer, therefore, Ms. Mwinzi is not required to renounce her citizenship.
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