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.
No Country for Muslims? Modi Underestimated Indians’ Tolerance for Diversity
7 min read. What India’s Prime Minister forgets – and what the mass protests in Indian cities demonstrate – is that India’s secularist democracy has survived more than 70 years because Indians decided that religion was too personal and too precious to be left to the whims of the state.
Just before Christmas, when thousands of Indians – both Hindus and Muslims – were protesting against a controversial new law that discriminates against Muslims, a court in Pakistan handed down the death sentence to Junaid Hafeez, a 33-year-old university professor who was found guilty of blasphemy. Hafeez had been accused of posting derogatory comments about the Prophet Mohammed on social media. His case is one among many in Pakistan where harsh sentences have been handed out to those perceived to be insulting Islam.
That same week, a court in the Kingdom of Saudi Arabia – Islam’s holiest land – sentenced five men to death for the murder of the journalist Jamal Khashoggi. Critics believe that the trial was a farce and the real perpetrators of the crime, including Saudi Prince Mohamed bin Salman, have got away scot-free. Khashoggi’s brutal murder in a Saudi consulate in Istanbul in October 2018 shocked the world and led many to point fingers at the repressive Saudi monarchy, which is known to torture and detain those opposed to it – and which seems to suffer no consequences for its inhumane treatment of dissidents, not even from Western nations that advocate democratic ideals to the rest of the world
There were no mass protests or riots in either Pakistan or Saudi Arabia – or even outside these countries – against what are undoubtedly flawed and extremely unfair justice systems. On the contrary, the Trump administration congratulated Saudi Arabia for the verdict against Khashoggi’s alleged killers, thereby whitewashing what was clearly a miscarriage of justice.
So the fact that Indians of all religions have risen against the Citizenship Amendment Act (CAA) is perhaps on indication of how resilient India’s democracy and secularist traditions are. The CAA is being opposed because it allows Hindus, Sikhs, Christians, Jains and Parsees who are in India illegally to acquire Indian citizenship if they can prove that they are being persecuted in Bangladesh, Pakistan or Afghanistan, all of which are predominantly Muslim countries. This privilege, however, is not extended to Muslims from these countries. This is viewed by many as grossly discriminatory and contrary to India’s constitution, which was founded on the principle that religion should not determine citizenship.
At least 25 people have been killed by security forces since the protests began, but Prime Minister Narendra Modi has shown no signs of reconsidering the wisdom of the Act; on the contrary he has become more defiant. This could be because, like Donald Trump, he believes he has a strong base that will support him and his policies no matter what. But that base, it seems, is crumbling in Modi’s case. The protests have not stopped; on the contrary, they are getting louder.
Moral high ground
Since independence in 1947, India has prided itself for not being like its neighbour Pakistan, which insisted on forming an independent state for India’s Muslims rather than being part of a united India where both Hindus and Muslims could co-habit peacefully. India held the moral high ground with respect to its neighbour, often boasting that despite being a Hindu-majority country, it had no issue with its sizeable Muslim minority. (There are currently roughly 200 million Muslims in India – almost the same number as the total population of Pakistan.) In fact, until Narendra Modi’s right-wing Hindu nationalist party took over in 2014, successive Indian governments have made it a point to woo and accommodate the nation’s Muslims.
The fact that Hindus in India are fighting to preserve Muslims’ rights is itself a testament to Indians’ tolerance and maturity – even among those who have historical grievances against the Muslim community. Although Muslims have lived in India before the advent of the Mughal Empire, which ruled over India from the 16th century to the mid-18th century, the Islamicisation of India is often attributed to the Mughal invaders/conquerors and their proselytising mission.
There is no doubt that Mughal culture has contributed enormously to the arts, architecture, culture and cuisine of India. Architectural marvels like the Taj Mahal, biriyani, kebabs, and the Urdu language are a legacy of India’s Mughal/Muslim heritage. But the Mughal Empire (which lost power after the East India Company and later the British Empire controlled large swathes of India) is also associated with atrocities, including forced conversions, which India’s Sikhs are acutely aware of as their religion is founded partly on resistance to Mughal hegemony.
Although Sikhism is often viewed as a reaction against Hinduism’s stifling and oppressive caste system, and its first guru, Nanak Devji, is remembered for fusing Islam with Hinduism, thereby creating a monotheistic religion that shunned the worship of gods and goddesses and that bequeathed more rights to women, Sikhs’ resistance to Islam has come to define their religion.
Distrust of Muslims is an instinct that is inculcated in Sikhs and Hindus from childhood, much like the way Kikuyus are taught to distrust Luos. When I was a child, my grandmother reminded me that many Sikh gurus, such as Guru Tegh Bahadur, were tortured or put to death by Mughal emperors for resisting forced conversions to Islam. The sons of Sikhism’s last guru, Govind Singh, were buried alive by the sadistic Emperor Aurangzeb in the late 17th century. Govind Singh formed the “Khalsa” (a militant group of disciples) to wage war against the Muslim rulers.
Northern India’s Sikhs and Hindus thus have an instinctive fear of Muslims that is based on a history where they – not the Muslim/Mughal invading armies – were the persecuted ones, a fact that neither the left nor the right in India is comfortable addressing, but which Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP) have cynically tapped into.
What is happening in India is not your garden variety Islamophobia that emerged after 9/11 but a much deeper instinctive reaction that has its roots in Indian history. While the Mughal period in India is often seen as a golden age when beautiful buildings, poetry, dance forms such as kathak and other fine arts flourished, it is also viewed as a period of intense violence and cruelty. While Mughal emperors like Akbar the Great (who married a Hindu woman) are lauded for fostering harmony between the sub-continent’s largely Hindu population and the Muslim rulers, the atrocities committed by some Mughal emperors has also marred their reign. These atrocities shaped the formation of religions like Sikhism. Yet, the Sikh community’s religious leaders were among the first to oppose the CAA.
A “pure” India
The violence that characterised the Mughal Empire, especially in the 17th century, was reenacted again in 1947 when India attained independence and when millions died or were displaced when the new country Pakistan was born and the Indian subcontinent was partitioned. My ancestral family home in Lahore became part of Pakistan. This is a wound that my great grandparents and grandparents harboured for years.
And yet, India’s Muslims who did not cross the border to live in Pakistan in 1947 have rarely felt like they do not belong to India. Hindu temples sit comfortably next to mosques in most Indian cities as do cathedrals and synagogues. That was the beauty of India…until Modi came along, and told Hindus that India belongs to them and them only.
Modi and his BJP party exploited Hindus’ instinctive distrust of Muslims. The Rashtriya Swayamsevak Sangh (RSS), a militant Hindu organisation formed in 1925 and which Modi belongs to, has an agenda to “purify” India, much like Adolf Hitler sought to “cleanse” Germany. In the 1940s, as World War II was raging in Europe, the RSS leader MS Golwalker spoke of an exclusively Hindu nation: “Ever since that evil day, when Moslems first landed in Hindustan [India], right up to the present moment, the Hindu Nation has been gallantly fighting to take on these despoilers. In Hindustan, land of the Hindus lives and should live the Hindu Nation…”
He then went on to extol the virtues of Nazism: “To keep up the purity of its race and culture, Germany shocked the world by her purging the country of the Semitic races – the Jews. Race pride at its highest has been manifested here, a good lesson for us in Hindustan to learn and profit by.”
In January 1948, five months after India’s independence, Nathuram Godse, a member of the RSS, assassinated Mohandas (Mahatma) Gandhi, who the RSS viewed as being sympathetic towards Muslims.
In an article published in The Caravan and adapted from a lecture she gave in New York last year just before the protests in India began, the Indian activist and writer Arundhati Roy stated:
“If Nazi Germany was a country seeking to impose its imagination onto a continent (and beyond), the impetus of an RSS-ruled India is, in a sense, the opposite. Here is a continent seeking to shrink itself into a country. Not even a country, but a province. A primitive, ethno-religious province…That it will self-destruct is not in doubt. The question is what else, who else and how much else will go down with it.”
To understand the depths of Modi’s fascist tendencies, we need not go very far in time. In the six years he has been Prime Minister, he has taken the country down a path that will not go down well in history.
A few recent examples: In November last year, Modi’s government revoked the overseas citizenship of journalist Aatish Taseer on the pretext that Taseer’s father was a Pakistani. Taseer, who grew up in India with his Sikh mother, but who is now a British citizen, had written a cover story in May 2019 for TIME magazine that described Modi as “India’s Divider In Chief”. The revocation of his overseas citizenship (which is extended to individuals who can prove that they have Indian ancestry or who once held Indian citizenship, and which allows one to travel visa-free to India) was clearly an act of retaliation by a leader who does not take criticism lightly.
In August 2019, Modi’s government annexed Jammu and Kashmir by repealing Section 35A of the Indian constitution, which gave the former princely state semi-autonomous status. This act was viewed by the state’s Muslim majority as a direct attack on them and their territory, akin to what Vladimir Putin did in Crimea. Jammu and Kashmir has been a front line state caught between the crossfire between Indian and Pakistani armies for years. The current and previous governments have often viewed it as harbouring terrorists sympathetic to Pakistan, even though the residents have argued that they have no desire to be part of either India or Pakistan.
Violence against Muslims has also risen under Modi’s regime. According to news reports, more than a hundred Muslims have been killed by Hindu mobs since 2015.
What Modi forgets – and what the mass protests in Indian cities demonstrate – is that India’s secularist democracy has survived more than 70 years because Indians decided that religion was too personal and too precious to be left to the whims of the state. Most Indians recognise that their country’s strength lies in its religious and cultural diversity. If India had gone the Pakistan way, there would be rivers of blood everywhere, like those that flooded the India-Pakistan border at independence when Muslims, Hindus and Sikhs crossing the border were slaughtered in the hundreds of thousands in revenge attacks. Few Indians want to go down that road again.
What Modi and his government have done may appeal to the anti-Muslim instincts of India’s non-Muslim majority, but it goes against the grain of how Indians (except members of the RSS and its offspring the BJP) perceive themselves and their country. With economic growth rates sharply dropping in India currently, it is only a matter of time before the protestors’ anger against the government’s anti-Muslim stance turns into widespread disaffection.
Of Tigers, Debt Merchants and 2020 Vision
8 min read. The former president of the African Development Bank, Donald Kaberuka, has dismissed as “nonsensical” any suggestion that Africa may have over-borrowed, saying instead that with better debt management and higher domestic revenue mobilisation, the continent can take on more debt. But Kaberuka fails to make the link between the increased borrowing and the revenue problem.
The public debt burden has dominated economic debate in 2019. Public debt is likely to be even more topical in 2020, both domestically and globally. As at end November 2019, 31 out of 70 countries in the IMF’s roster of low-income countries are listed as either in or at high risk of debt distress. Another 26 are listed as being at moderate risk, leaving only 13 that are still at low risk. Last week, the IMF approved a $2.9b bailout for Ethiopia, one of the high distress risk countries.
I first called out the Jubilee administration’s borrowing binge six years ago. Up until two years ago, the IMF and the World Bank were still giving it the thumbs up. (Very often we forget that these institutions are lenders and therefore conflicted on matters debt.) A few weeks ago Donald Kaberuka, the immediate former president of the African Development Bank (AfDB) and erstwhile Finance Minister of Rwanda, dismissed as “nonsensical” any suggestion that Africa may have over-borrowed:
“The idea that Africa is drowning in debt is nonsensical . . . If we can improve on our own domestic revenue mobilization, if we can improve on our public debt management and if we can improve on our debt management capabilities, the continent is able to take a bit more debt, especially at this time when the markets are looking for yield.”
This is an interesting argument. You may also have heard it from the Jubilee administration—the problem is not too much debt; it is the Kenya Revenue Authority (KRA) that is failing to meet revenue targets.
Kaberuka, who I gather is an economist, wittingly or otherwise, fails to make the connection between the borrowing binge and the revenue problem. Only a most incurious economist would look at revenue and debt trends such as ours (see chart) and conclude that they are completely unconnected. Although I have written about the connection on more than one occasion, it is worth recapping. There are two dimensions to the connection: an accounting one and an economic one.
Let’s start with the accounting. Let’s say we start with a GDP of Sh10 trillion which is 80 per cent private economy and 20 per cent government. Let’s then say the government is raising Sh2 trillion, which is 20 per cent of GDP, in tax revenue. Suppose the government goes to China and buys a railway worth Sh500 billion on credit. The GDP will now be Sh10.5 trillion. We will be told that the economy has grown by 5 per cent. But the railway has not added anything to the economy, and nor is it paying tax, so the government still collects Sh2 trillion, but which is now 19 per cent of the Sh10.5 trillion GDP. If this is repeated every year, by year five, the GDP will have expanded to Sh12.8 trillion and the tax revenue-to-GDP ratio will be down to 15.7 per cent.
This is a purely accounting view, which assumes that government investment is neutral, neither helping nor harming the economy. This is not as far-fetched as it might at first appear. For example, it could simply reflect government investments with long gestation periods. Indeed, we have been told that the new Standard Gauge Railway (SGR) is one such long-term visionary project whose benefits will be realised by our grandchildren. But for no harm to occur, two conditions need to obtain. First, all the borrowing needs to be foreign. Use of domestic resources means diverting these from the private economy, and that is harmful. We call this crowding out. Second, there are no repayments, because repayment of foreign debt amounts to sucking money out of the economy, also harmful. Neither obtains.
Let us start with repayments. This year, we have budgeted to pay Sh139 billion ($1.39 billion) in foreign interest, a tenfold-plus increase from Sh11b ($130m) in the 2012-2013 financial year, the last year of the Grand National Coalition government. And this does not include the hefty payments of the principal on the SGR loans that kicked in this year. The use of domestic resources is also a very significant factor. Half the debt that the Jubilee administration has accumulated is domestic. The crowding out extends beyond credit. With so much money to spend liberally, trading with the government becomes the most profitable business, diverting other economic services away from, and inflating the costs for the private sector. This could not be better demonstrated than by the case of Kenya’s banking industry.
Last year, the industry made a consolidated profit of Sh110b, and Sh119b in interest from government securities. Considering that lending to government is virtually costless and risk-free, this implies that banks made all their profits from the government, and lost Sh9b on the business they did with the rest of the economy. The contribution of interest on government securities has increased steadily from 37 per cent in 2013 to 108 per cent in 2018 (see chart). But we also see that the banks’ profitability has declined. Profits declined by 40 per cent in 2017, following the capping of interest rates in late 2016. In 2018 profits were 14 per cent lower than in 2013. If banks are not making money from the private economy, it stands to reason that government revenue will also take a hit.
How much public debt is too much?
Debt experts have sophisticated models that are supposed to tell us. These models are built around “present value.” Present value is the sum of a forecast, such as a cash flow, and in this case annual debt repayments, discounted by a rate of interest or other relevant discount factor, used to give an estimate of current worth. If two similar countries borrow the same amount of money on similar terms, one invests wisely, and the other plunders it all, the net present value of the debt will be the same. It should not surprise then that the IMF’s models were giving the Jubilee borrowing binge the thumbs-up even as the Eurobond went walkabout and one Josephine Kabura was mocking us with tall tales of cash stuffed in gunny bags.
For the financial health of a country, a simple rule of thumb is to ensure that debt service does not grow faster than government revenue for too long. If the debt is invested productively, the investments expand the economy, the government generates more tax revenue from the expanding economy, which it then uses to service the debt. How long is too long? That is a matter of exercising sound judgement. As John Maynard Keynes famously quipped, in the long run, we are all dead. But the question becomes moot when the trend looks like what we see in the chart—debt service heading north, revenue heading south. You do not need present value calculations to see that this trend cannot go on for much longer. Sooner or later, something will have to give.
Expect to hear a lot about fiscal consolidation in 2020.
Fiscal consolidation is defined as policy measures that aim to reduce the deficit and stop the accumulation of debt. The substance of it is what we used to call structural adjustment but, following the 2007 financial crisis, it became necessary to invent a new name—it just wouldn’t do to speak of Spain, or the UK for that matter, as implementing structural adjustment.
A fiscal consolidation strategy is predicated on the expectation that governments can find ways of bringing down deficits without hurting growth. Budget deficits are, in essence, the pumping of money into the economy, which ought to stimulate growth. Conversely, fiscal consolidation amounts to withdrawing money from the economy, which would dampen growth. The problem is that economic slowdown hurts revenue, meaning that the government has to constrain expenditure even further to meet its deficit reduction targets.
The first strategy entails counteracting the contractionary effect of fiscal consolidation with expansionary monetary policy. Simply put, what the government takes away, the Central Bank puts back in circulation. The Central Bank has a couple of tools to do this, principally by buying bonds and lowering the cash ratio and liquidity requirements for the banks (the percentages of assets that banks are required to have in cash and near-cash assets such as Treasury bills and bonds). Shovelling money out of the door is also expected to reduce interest rates, which besides making borrowing attractive for businesses and consumers, can substantially lower the interest cost of domestic debt. But unlike fiscal stimulus where the government is the spender, monetary stimulus depends on market response. The policy makers hope the money will stimulate production, but it could just as well suck in imports, or leave the country to seek higher returns elsewhere, thereby depleting foreign exchange reserves and putting pressure on the currency.
The second strategy is to find “off-balance sheet” financing of public investment. The default alternative these days is the so-called public-private partnerships (PPPs). Simply put, PPPs are the public equivalent of equity financing. Instead of the government borrowing to build a hospital for instance, a private investor builds, and the government leases it. But PPPs have their drawbacks. First, to make them attractive to private investors, PPP projects are usually structured in such a way as to ensure that the investors cannot lose money—“de-risked” in financial lingo.
Second, PPPs are seldom commercially viable so, more often than not, the Government usually has to part-finance the project in order to achieve an attractive rate of return for investors. Third, PPP financing cherry picks projects with commercialisation potential, which typically will be projects that benefit more developed areas or better-off people in society. In economics, we call such policies “regressive”, meaning they transfer resources from the poor to the rich. Fourth, PPPs have a very high corruption risk—we need look no further than the stink that is the medical equipment leasing scheme known as the Managed Equipment Services (MES) project.
Another scheme is to shift debt and deficit financing from the national government’s books to quasi-government agencies, such as has recently been done by amending the law to allow the Kenya Roads Board (KRB) to issue bonds leveraged on the fuel levy revenues that are earmarked for road construction. Assuming an interest rate of, say, 12 per cent, each shilling of fuel levy revenue can be leveraged to borrow 8 shillings. Already, the KRB has published an expression of interest for transaction advisors to raise Sh150 billion. Suffice it to say that Greece used financial gymnastics of this nature to first be admitted into the Eurozone and to subsequently fake compliance.
PPPs have a very high corruption risk—we need look no further than the stink that is the medical equipment leasing scheme known as the Managed Equipment Services (MES) project
How much public finance does development require? There is perhaps no better place to benchmark than with the Asian Tigers.
In the 70s, Thailand and South Korea were raising 13 and 15 per cent of GDP in tax revenue, well below Kenya’s 18 per cent, while Malaysia and Singapore were doing better at just over 20 per cent (see chart). But where the East Asians stand apart is that each of them was able to put at least a third of their revenue into investment. The real miracle here is how they managed to keep their recurrent budget to a maximum of 10 per cent of GDP, out of which they were also heavily investing in education. As economists Mahbub ul Haq and Khadija Haq observed, beneath the East Asian economic miracle lay an education miracle.
It is also a miracle of public finance, specifically, public thrift. We hear a lot about the high saving and investment rate part of the story. What we do not hear about is the role of government in that story. In the early seventies, East Asian and African countries had similar national savings rates, but even then East Asian governments were contributing more to national saving and investment, although African governments’ contribution was also significant (see chart). A decade later, East Asian governments were still contributing over a third of national investment, while for African and other LDC governments this contribution fell to 11 and 6 per cent respectively. Consequently, we turned to foreign resources. By the early 80s, Africa was investing 20 per cent of GDP more than half of which was foreign-financed, while the East Asians were investing 30 per cent, 90 per cent of which was domestically financed.
In the 70s, Thailand and South Korea were raising 13 and 15 per cent of GDP in tax revenue, well below Kenya’s 18 per cent, while Malaysia and Singapore were doing better at just over 20 per cent
The East Asian experience is telling us that when people were too poor to save much, it is the government, and not foreign resources, that closed the gap between private savings and investment requirements. In economics, we postulate that saving is determined primarily by income, and investment by rate of return. As these public investments paid off, they boosted private income and consequently private saving. When countries save more, they need less, not more foreign resources to finance investment. Donald Kaberuka is telling us that we need to raise more revenue to enable us to borrow more. Is he ignorant or dishonest?
During his tenure, the AfDB became the lightning rod for infrastructure-led growth, a fallacy that this column has discussed before. In fact, the nonsensical comments echo sentiments in the AfDB’s 2018 Africa Economic Review, to wit:
“For much of the past two decades, the global economy has been characterised by excess savings in many advanced countries. Those savings could be channeled into financing profitable infrastructure projects in developing regions, especially Africa, to achieve the G20’s industrialisation goal. That this mutually profitable global transaction is not taking place is one of the biggest paradoxes of current times.”
You may want to note that the objective is to “meet the G20’s industrialisation goal.” The irrepressibly prescient Franz Fanon read in the tea leaves:
“The national bourgeoisie will be quite content with the role of the Western bourgeoisie’s business agent, and it will play its part without any complexes in a most dignified manner.”
And therein lies the rub.
From the Handshake to the BBI Report, Hope to Disillusionment: My Side of the Story
9 min read. During the political standoff that followed the 2017 presidential election, the National Super Alliance (NASA) espoused a road map that would lead to a political settlement through the formation of a transitional government that would have spearheaded the process of building a national consensus on political reforms. But in place of a Jubilee-NASA institutional engagement came the Handshake, a commitment by Uhuru Kenyatta and Raila Odinga in their personal capacities, which has culminated in the recently released Building Bridges Initiative Report, an underwhelming document that underscores the failure of the two principals to deliver the new political dispensation they had promised.
The much-anticipated release of the Building Bridges Initiative (BBI) report two weeks ago was to be the crescendo of the detente—popularly known as the Handshake—between Raila Odinga and Uhuru Kenyatta after the failed 2017 presidential election. It underwhelmed.
Soon after its release, the rumor mill put its cost at the very unlikely figure of Sh10 billion, which the pundits calculated to be a whopping Sh64 million for each of the 156 pages of the badly drafted, poorly edited rehash of existing documents. In a satirical column, literary scholar Evan Mwangi calls it a reflection of the “low intellectual capacity of the clowns in charge of our country’s affairs,” while Wandia Njoya, another literary scholar, calls it a declaration of war by the political elite on the people. Both Mwangi’s and Njoya’s reading of the political psychology of the report leads them to a similar conclusion—it is a cynical political fraud.
Mwangi: “The report’s aim is to discourage us from seeking fundamental political or social change by pretending to offer avenues for transformation. It suggests that we should continue assuaging demagogues among our political class, so unlike in 2007 they don’t burn us alive in churches, stoke ethnic violence in political rallies in the run-up to the polls, or organise retaliatory attacks by youths who would then be all snuffed out to cover up crimes against humanity.”
Njoya: “Statements from the government and those pundits that slavishly support it often trace the source of any disaster to the public—especially the victims—and to democracy. Government insiders and supporters portray the state as blameless, and fault Kenyans for wanting to participate democratically in the making of decisions that affect them, because by doing so, Kenyans put delays on the good work of the government. If every social challenge we face is caused by us, the people, then the response to the challenge must be to fix the behaviour, the values and the soul of the people. This “fix the people” approach to social problems is the very essence of the Building Bridges Initiative (BBI) document released by the government this week.”
A Swahili tabloid summarised BBI thus: “Ni msitu mpya, nyani ni wale wale.” (same monkeys, different forest). From the ivory tower to street level, the verdict is the same.
How did we get here?
In January 2018, three months into the 2017 presidential election standoff, it was rumored that the formation of a government was being delayed by behind-the-scenes power-sharing negotiations. The National Super Alliance (NASA) issued a statement and held a press conference to refute the suggestion, during which this columnist stated that:
“NASA is not interested in boardroom deals which have not delivered for Kenyans like the 2007 power sharing agreement. We don’t recognise this illegitimate government and we will not give it legitimacy . . . Our nation is deeply divided between two irreconcilable political values namely authoritarian rule and democracy. They (Jubilee) have in fact stated that a benevolent dictatorship is better than a democracy. The way out for the country is to embark on an urgent, honest and far reaching conversation sooner rather than later.”
The key words here are “boardroom deals.” Indeed, I recall belabouring the pledge by analogy, stating that NASA would not go into a “come-we-stay” marriage with Jubilee. Internally, we were developing a more elaborate negotiating strategy. Our preferred road map to a political settlement was a transitional government with a limited mandate, to be established by a constitutional instrument along the lines of the National Accord that established the Government of National Unity (GNU) after the 2007/8 failed election.
The transitional government would have spearheaded the process of building a national consensus on political reforms that would have culminated in what we hoped would be an uncontested constitutional amendment referendum, if one were required, followed by a free and fair election. We had also suggested that Uhuru and Raila commit publicly to retiring, so as to strengthen their hand as honest brokers and the midwives of a new political dispensation, and by so doing, insulate the process from succession politics. This was a reasonable proposition since Uhuru would be retiring anyway, and Raila had signed a one-term deal with the NASA co-principals.
Our preferred road map to a political settlement was a transitional government with a limited mandate, to be established by a constitutional instrument
It therefore came as a bit of shock that Raila had gone ahead and cut a backroom deal with Uhuru, the very thing we had pledged not to do. But in the rough and tumble of politics, you learn to roll with the punches. We saw that the letter of the deal was in the spirit of the road map we envisaged, the main difference being that in place of the Jubilee-NASA institutional engagement we had prepared for, the handshake was a commitment by Raila and Uhuru in their personal capacities. In what was to be our last press release as the People’s Assembly Committee, we applauded this commitment but also pointed out the dangers:
“The memorandum is an initiative of the two leaders in their individual capacities. In the memorandum, they describe themselves not as presidents or leaders of political formations which they are, but as friends and compatriots. The two leaders have acknowledged the historical origins of our current crisis, and the many opportunities over the years that leaders have missed to right the ship. They recognise that they too have a historic opportunity to set the country on the right course, and they do not want to be remembered as another generation of leaders that did not rise to the occasion…We must commend and congratulate the two leaders for this meeting of minds. Acknowledging a problem is the first step towards solving it. The two leaders have asked us to give them an opportunity to spearhead this process. We have been assured that this initiative will be about the people, will involve the people, and will be validated and owned by the people. But we are alive to the painful history of political betrayal. We know that once [crises] subside, leaders can get comfortable and allow the issues of the people to fade into the background. That is how we have ended up where we are.”
This was the spirit as we set about implementing the handshake. But as days went by, it became evident that what was said was not what was intended. The discordance was brought into sharp relief by disagreements on whether or not to gazette the BBI Task Force. The handshake MOU was explicit that the initiative was a personal political undertaking. Gazetting the task force would make it a state project that would be bureaucratised and watered down. And as one colleague opined, it would amount to “kicking the ball into the long grass.” Those pushing for gazettement could not argue a cogent case, but in one conversation, one colleague, in a fit of exasperation, blurted out: “But there is money!”. The cat was out of the bag.
In the corridors, the conversation was dominated by talk of an impending cabinet reshuffle. Indeed, within no time at all, Raila Odinga’s Capitol Hill office had become a beehive of activity with, so I gathered, people bringing their CVs, others seeking help with tenders, pending bills and corruption cases. By end April, the frenzy had reached fever pitch. Week after week, confident predictions were made that the reshuffle would be announced on Thursday, then Monday, then Thursday again. My vehement protestations about these under-the-table dealings elicited a quiet word of advice that I should tone down as my name was on the appointments list.
We had also suggested that Uhuru and Raila commit publicly to retiring, so as to strengthen their hand as honest brokers and the midwives of a new political dispensation
There were two other issues that I found troublesome. The first was the anti-corruption crusade that was mounted immediately after the handshake. My concern was that corruption cartels were the last adversary that the BBI needed, especially as it appeared to be a one-sided assault on Deputy President Ruto’s patronage network. Secondly, I was persuaded that the country was headed into an economic crisis (that is now unfolding). By embracing Uhuru Kenyatta, Raila Odinga was in essence sanitising Jubilee’s economic delinquency, and jumping into a sinking ship. In fact, I postulated that by the time of his departure from office, Uhuru Kenyatta would be more unpopular than Moi was in 2002.
Raila dismissed both concerns. I was particularly bemused by his prognosis that an economic crisis would not hurt because Zimbabwe’s Mugabe seemed to have survived a much more severe one (Mugabe was still in office then). It was not long before it became apparent that an economic storm was brewing and an urgent discussion was convened. At the end of my presentation, Raila came back with what to me was a bolt from the blue: he wanted to know how the president could be helped and went as far as to request that I write a paper that he would discuss with Kenyatta. That is the moment it dawned on me that, in his mind, Raila was already in government, or, as we say in Swahili, tumewachwa kwa mataa (we had been abandoned at the traffic lights). I did not respond and needless to say, no such paper was forthcoming. Looking back, Kenyatta had all along been banking on a personal deal with Raila. Two anecdotes will suffice to illustrate the point—they are by no means the only ones.
On the eve of the declaration of the official results of the August 8 presidential election, the NASA presidential campaign team was holding a quiet vigil of sorts when a muted drama, that went unnoticed by most of the people in the room, played out. A wheeler-dealer known to have business links with the Kenyatta family walked up to Raila and said that “mama is waiting.” Although spoken in low tones, colleagues within earshot became curious and sought to know who “mama” was. The awkward silence that ensued gave the game away. A statement unequivocally rejecting the election results was quickly drafted for Raila to issue; it had not been on the evening’s agenda. It is unlikely that we will ever know whether Raila was in on the plan to meet “mama” and what the rendezvous would have engendered. History oftentimes turns on chance.
The second one was in late November, shortly after we launched the protest movements that included a consumer boycott of Brookside Dairy products, among others. I received a call from a colleague alerting me that he had directed to me a “foreign journalist” who was frantically looking for Ida Odinga (she was out of the country at the time). The name of the “foreign journalist” was Christina Pratt (née Kenyatta). It would seem Ms. Pratt had presumed name recognition as she did not see fit to introduce herself or give her reason for calling and so, not recognising the name, my colleague had brushed her off for a couple of days; he responded once I told him who the caller was. Such was the urgency that Ms. Pratt even sought to know whether she could travel to where Ida Odinga then was, which proposal was declined. I gather that contact was eventually made and a home visit, of the kind we call itega in Gikuyu (gift giving), was arranged.
As observed, the point of these anecdotes is that Kenyatta had been banking on resolving the election impasse privately with Odinga, kinyumbani (domestically) as we say in Swahili; the handshake was the actualisation of Kenyatta’s desire. But by having chosen to personalise a political crisis, Uhuru and Raila would seem to have overestimated their personal power and underestimated their adversaries.
Uhuru and Raila seemed not to realise that refusing to categorically rule themselves out of the 2022 contest was guaranteed to frame the BBI initiative as succession politics. It did not help that the anti-graft war was increasingly being perceived as a political takedown of William Ruto. Economic hardship also began to bite, making the ground less than enthusiastic, particularly in Kenyatta’s central Kenya political base. Raila’s contention, as cocky as it was self-serving, that Kenyatta’s political clout would shrug off the economic distress has not aged well. Week after week, no sooner would the joint nationwide meet-the-people engagements they had promised be announced but they would fizzle out.
The BBI Report is the product of these missteps. What many Kenyans will not know is that the BBI task force was not constituted to produce a technical report. Rather, it was initially envisaged as a team of political advisors to the two principals, in line with the principals’ commitment that they would be personally leading the engagements with the people. It would seem that once the ground became hostile, the task force was repurposed to collect views and write a report—a task that it was clearly neither suited for nor prepared for. Suffice it to say that, given the depth and wealth of talent and experience in governance reform that we have gained in our two-decade constitutional reform struggle, the BBI task force is not in the country’s first or even second eleven.
Uhuru and Raila seemed not to realise that refusing to categorically rule themselves out of the 2022 contest was guaranteed to frame the BBI initiative as succession politics
In the midst of the debate about the flaws of the report, we risk losing sight of the fact that the handshake was a product of a failed presidential election. The real problem is one of incumbents who, sensing defeat, monkey-wrench the election to the point where it is impossible to get an outcome. Without a clear outcome, a power-sharing settlement is negotiated and the incumbent gets to stay in power. This model of retaining power was invented by the Mwai Kibaki administration in 2007 and has quickly gained currency, being copied in Zimbabwe, Madagascar and Togo to name a few countries.
How does the BBI report propose to end this? It makes no mention of the problem, let alone offering proposals; there is, in fact, no mention of free and fair elections in the entire report. There is perhaps no greater indictment of the handshake than the fact that we are now hurtling towards another toxic, high-octane, do-or-die election. Had Uhuru and Raila stuck to the path of honest brokers committed to midwifing the new political dispensation that they had promised instead of the political intrigues and self-aggrandisement that we are now witnessing, things on the ground could have been very different.
A while back, this columnist enumerated four critical historical junctures at which nation-building opportunities were squandered through a failure of leadership. Make that five.
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