The Economic Cost of Conflict of Interest: The Kenyatta Dairy Industry Case8 min read.
The main talking point of his speech to the nation two weeks ago was Kenyatta’s directive asking the national Treasury to release Sh500 million to the New Kenya Co-operative Creameries (New KCC) to purchase milk from farmers, and another Sh575 million to revamp two of its processing plants in Kenyatta’s central Kenya political base. The dairy farmers’ woes are blamed on cheap milk imports from Uganda but why the Kenyan market is attracting Ugandan milk has little to do with Uganda’s demand-supply balance, and everything to do with Kenya’s consumer price which is a reflection of the market power exercised by Brookside.
Two weeks ago, Uhuru Kenyatta called the country to order to make what I gather was anticipated to be a very consequential address to the nation. When a country is in as much political and economic turmoil as Kenya is, it is understandable that a rare formal presidential address to the nation would be highly anticipated.
It is difficult to say whether it met expectations. It certainly did not overwhelm. I don’t get the sense that the country came out of it with a clearer sense of direction of either politics or economics.
The political highlight was without doubt the dismissal of agriculture Cabinet Secretary Mwangi Kiunjuri. Kiunjuri promptly called a press conference at which he intimated that he’d endured a fair amount of humiliation, and had been pretty much prepared for the dismissal. A master of Gīkūyū orature, he shrugged off the sacking by saying mumagari nī wa njũa igīrī (when you leave home it is wise to carry a spare garment), meaning in politics you need to have a “plan b”. Figuratively, it’s the equivalent of a middle finger.
But the main talking point of the speech was Kenyatta’s directive asking the national Treasury to release Sh500 million to the New Kenya Co-operative Creameries (New KCC) to purchase milk from farmers, and another Sh575 million to revamp two of its processing plants in Kenyatta’s central Kenya political base. This was one of a raft of financial bailouts of various troubled agriculture sub-sectors that Kenyatta said were his plan to put money in people’s pockets.
Kenyatta’s family enterprise, Brookside Dairies is the largest milk processor in Kenya. It achieved this through a string of acquisitions executed since Kenyatta became finance minister and subsequently president. The reason why Kenyatta’s directive is a talking point is because, since he assumed power, Brookside has been taking money out of people’s pockets. When he took office, processors bought milk from farmers at between Sh30 and Sh35, and sold it to consumers at between Sh60 and Sh65, obtaining a margin of about the same, i.e. Sh30 to Sh35. By the end of Kenyatta’s first term, the consumer price had increased to between Sh110 and Sh120 (i.e by Sh55 to Sh60 per half-litre packet), while the producer price remained unchanged, raising the processors’ margin to the Sh75-Sh90 range.
Over the last two years, the squeeze has shifted from consumers to producers. In August last year Brookside reduced the purchase price of milk from Sh30 to Sh25 per kilo. By December, the media reported that farm-gate prices had fallen to Sh20, and to as low as Sh17 in some places.
The dairy farmers’ woes are blamed on milk imports from Uganda. It has been alleged that some of this milk is sourced from elsewhere and passed off as Ugandan. Kenya and Uganda being part of the East African common market, there is little Kenya can do to protect its market from Ugandan products, but transhipment would violate rules of origin and give Kenya reason to restrict Ugandan imports. In response to these allegations, the Kenyan government dispatched a fact-finding mission to establish whether Uganda had the capacity to export that much milk to Kenya. The trade Principal Secretary was quoted saying that not only did the delegation not find any evidence of transhipment, it had established that Uganda’s milk production has increased significantly in recent years.
The reason why Kenyatta’s directive is a talking point is because, since he assumed power, Brookside has been taking money out of people’s pockets
There’s plenty of information in the public domain on Uganda’s growing dairy export industry. A paper published by the Economic Policy Research Centre (EPRC) shows that Uganda’s dairy exports have grown steadily from virtually zero a decade ago to $79m in 2017. We did not need to go to Uganda to know this. According to the EPRC paper, the Kenyatta-owned Brookside Dairies is the third-largest milk processor in the country in terms of installed capacity at 500,000 litres/day (19 per cent) but second in terms of production at 450,000 litres/day (29 per cent). Still, the allegations have degenerated into a trade row. Last week the Ugandan government sent a formal protest note objecting to what it termed illegal seizures of Ugandan milk, and demanding immediate release.
More fundamentally, why the Kenyan market is attracting Ugandan milk has little to do with Uganda’s demand-supply balance, and everything to do with Kenya’s consumer price. As observed earlier, the retail price of processed milk has doubled from Sh65 to Sh120. In Uganda, a litre of processed milk retails at between USh2,800 and USh3,000 which translates to an average of Sh80, i.e. Sh40 per half-litre packet, compared to Sh60 in Kenya. Ugandan producers are not obliged to satisfy their domestic market when a more profitable market is available across the border. If consumer prices had increased at the rate of inflation faced by Kenyan manufacturers, as measured by the producer price index (2.5 per cent per year), the retail price in Kenya today would be in the Sh70-75 range, which is well below the Uganda retail price.
In a competitive market, Uganda should sell milk to Kenya until the profits for producers in both markets are equal. But the consumer prices in Kenya are not a reflection of market forces. They are a reflection of the market power exercised by Brookside. Why Brookside? Why not New KCC and Githunguri Dairy, or collusion between the three? The answer is simple enough. New KCC and Githunguri Dairy are public entities, the former a state corporation, the latter farmer-owned. They have nothing to gain from a fat bottom line as their mandates are to maximise farmers’ earnings. Whether they pay a decent producer price or distribute dividends, the money ends up with farmers.
Why the Kenyan market is attracting Ugandan milk has little to do with Uganda’s demand-supply balance, and everything to do with Kenya’s consumer price
But even if in the place of New KCC and Githunguri Dairy we had purely capitalist enterprises in the same market position, Brookside, as the market leader, would still be the culprit. In the economics of industrial organisation, the branch that informs competition policy, we call a market dominated by a few players an oligopoly. In an oligopoly, the market leader is the price maker. When the market leader raises prices, the weaker players benefit also. You don’t need a conspiracy to get a cartel. Each of the players acting in their self-interest can result in cartel-like behaviour. We call this non-cooperative collusion.
In essence then, the problem of the milk industry is not an agricultural policy one. It is not a trade policy one either. It is a problem of competition policy. Having sanctioned the Brookside acquisitions, the Competition Authority was obliged to keep an eye on the market to ensure that cartelisation did not occur. As noted, normal prices should be in the order of Sh75 a litre, Sh80 at most, compared to Sh120 today. This is prima facie evidence of abuse of dominance.
I am frequently asked, including by people close to Kenyatta, what it is that he, Kenyatta should do to turn around the economy. My answer is invariably is that there is a world of difference between what can be done, and what Kenyatta can do. The reasons are clear. Kenyatta is so severely enmeshed in the conflict between his family’s business and the public interest that there is hardly a sector of the economy in which the required reforms do not conflict with his personal interests.
For the last four years, the economy has suffered the consequences of ill-advised populist interest rate regulation. Kenyatta expressed reservations about the law, but he went ahead and signed it anyway. The banking industry vigorously opposed the law, and as a bank owner, Kenyatta may not have wanted to be seen to be on the side on which his bread is buttered. If Kenyatta had no personal interest, he would have been in a much stronger position to argue against, and veto the law.
Consumer prices in Kenya are not a reflection of market forces; they are a reflection of the market power exercised by Brookside
Two years ago, a sugar import scandal of monumental proportions unfolded. Initial reports pointed to traders of Somali ethnicity who were reportedly repackaging contaminated contraband sugar and passing it off as “Kabras Sugar”, a local brand owned by West Kenya Sugar Company. The government was threatening damnation. So much so that the CEO of the Kenya Bureau of Standards (KEBS) was slapped with an attempted murder charge for allowing the contaminated sugar, said to be laced with copper and mercury, to enter the country. But soon, mountains of sugar, way beyond the capacity of the contraband traders, was discovered in warehouses associated with the owners of the West Kenya Sugar Company, who also happen to be Kenyatta family business associates. It turned out that just before the elections the Government had opened the floodgates and allowed in 990,000 tonnes of duty free-sugar. West Kenya Sugar imported a quarter of it. As soon as this was exposed, the matter died.
The convergence of family and state is best exemplified by Stawi, a mobile phone-based lending platform owned by NCBA Bank—another Kenyatta family enterprise—that is being passed off as a national policy initiative to provide affordable credit to small businesses. Kenyatta himself first spoke of it in his 2019 State of the Nation address, and again in his Mombasa address two weeks ago:
“Measures to enable MSMEs access affordable credit include the recently launched Stawi. This will provide unsecured credit to MSMEs, which, because of their informal nature and lack of collateral securities, had been locked out of the formal credit market. Five commercial banks have set aside 10 billion shillings to be lent to MSMEs at an interest rate of 9 percent per annum, in loan amounts ranging between 30,000 to 250,000 shillings.”
This is sleight of hand, also known in trade lingo as mis-selling. First, the Stawi platform belongs to NCBA, the other four banks are agents. Second, the interest rate of 9 per cent per year, while true, amounts to mis-selling. The true cost of credit is given by the Annual Percentage Rate (APR) which combines both interest and other fees. In addition to the 9 per cent per year interest, there is a facility fee of 4 per cent of the loan amount, a 20 per cent excise duty on the facility fee and a 0.7 percent insurance fee. All in all, these add up to an APR of 14.5 per cent for a one-year loan, 20 per cent for a six-month loan, 31 per cent for a three-month loan and 75 per cent for a one-month loan.
"We’re pleased to see the new scheme, Stawi, under which loans will be made available to SME's at 9%. Our young people and our small scale traders hard work and innovation deserve our support; with the Stawi loans, they’ll get it." ~ @KanzeDena pic.twitter.com/VcoqGMBG20
— State House Kenya (@StateHouseKenya) June 18, 2019
Kenyatta has spoken out against conflict of interest on a number of occasions, including quite recently when he made a big hullabaloo about lawyers who are also senators representing county governors in court. The conflict of interest here is actually tenuous, since all that would be required to avoid it is for the lawyers to recuse themselves if their client’s case comes before the Senate. It remains a profound mystery whether Kenyatta is unaware how egregiously conflicted he is, or it is impunity, or perhaps he suffers from multiple personality disorder. Remarkably, throughout his presidency, no journalist has found it fit to ask Kenyatta this question. It needs to be asked.
Whatever the case, Kenyatta cannot have been unaware that personally wading into the dairy industry was inviting scrutiny of Brookside’s role in the dairy industry mess. That he did so suggests that he may be finally waking up from whatever reverie led him to wonder aloud not too long ago why Kenyans are broke. He may even be finally making the connection between the economic despondency in the country, and the popularity his deputy and now nemesis is enjoying in his central Kenya backyard.
Having sanctioned the Brookside acquisitions, the Competition Authority was obliged to keep an eye on the market to ensure that cartelisation did not occur
And of course, that his administration’s borrowing binge has the government in financial dire straits can no longer be denied. Mr Kenyatta has little to show for the debt. The SGR railway, his flagship project, has become a bugbear that is bleeding the country dry. It costs more and is less efficient than road haulage. The only reason it is running is because importers are forced to use it, gutting the Mombasa economy in the process. Even then, it cannot cover the management fees we are paying the Chinese to run it, let alone service its debt. It is bleeding taxpayers, consumers, importers, business and Mombasa—the only beneficiaries are China and whoever was bribed to build it.
A legacy of economic delinquency is one that Kenyatta cannot be relishing. We can expect him to be increasingly preoccupied with salvaging what he can. He has his work cut out. The government is in negotiations with the World Bank and the IMF for a financial bailout. If that goes through, Kenyatta is likely to spend the rest of his term hemmed in between an IMF straightjacket and his myriad conflicting interests, amidst a brutal vacuous power struggle between his deputy and Raila Odinga, neither of whom, if truth be told, inspire confidence in terms of economic stewardship.
Gakīīhotora nīko koī ūria karīina (one does not adorn for dance without knowing how they will dance) which is to say, as you make your bed, so you must lie on it.
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How Bureaucracy Is Locking Kenya Out of Transshipment Business
But for the bureaucracy bedevilling Kenya’s shipping sector, Indian Ocean Island nations could look to Lamu for transhipment while Mombasa has the capacity to attract major shipping lines in order to tap into this emerging business.
The transshipment business, which involves the handling of cargo for other ports, is now an area of keen focus for many ports the world over. However, administrative bottlenecks created by the Kenya Revenue Authority (KRA) have stymied Kenya’s transshipment business even as the Mombasa and Lamu ports face increasing competition from the other regional ports that are modernizing their operations even as new ones emerge.
But the tide is set to change if the new Managing Director of Kenya Ports Authority (KPA) Captain William Ruto makes real his promise to confront the issues that have made it difficult for the port to tap into an emerging business line that has led to the growth of other successful ports.
Ruto has indicated that he will impress upon the KRA to simplify their procedures by adopting industry standards practiced elsewhere—such as at the Tangier Med port in Morocco, where 85 per cent of the cargo handled is for other ports, translating to 7.17 million Twenty-Foot Equivalent Units (TEUs).
In an ideal situation, according to the new MD, the KRA is only supposed to approve the ship manifests once the shipping lines lodges them online, which in not the case in Kenya where the KPA is required to physically handle the transshipment containers that are landed at the ports. According to global standards, however, shipping lines, are only required to give notification of the ships that will carry the transshipment containers from the ports to the final destination. Simplified procedures have seen ports such as Singapore and Salalah in Oman handle over 90 per cent of their cargo as transshipment.
The port of Mombasa handled 1.43 million TEUs in 2021 compared with 1.35 million TEUs handled in the same period in 2020, representing an increase of 75,986 TEUs or 5.6 per cent. However, the KPA’s transshipment traffic was at an abysmal level, recording only 220,489 TEUs in 2021, a slight increase compared to the 175,827 TEUs recorded in 2020.
Lamu Port has the potential to become the biggest competitor to Salalah Port in Oman and the Port of Durban in South Africa in the transshipment business. Mombasa is also better placed than Durban to handle transshipments from Europe, China, and Singapore, all major world exporting countries; smaller vessels can be used to move cargo from the port of Mombasa to others on the Southern African coast.
Lamu Port could attract transshipment cargo for Tanzania, Mombasa, Somalia, and the Indian Oceans Islands of Comoros, Madagascar, Seychelles, and South Africa.
Although the KPA has striven to market Mombasa as a transshipment hub, reforms to tap into the business have been painstakingly slow even though the increased infrastructure at the port of Mombasa—dredging of the channel, rehabilitation of the berths, and the construction of the second container terminal—has increased the potential of the Mombasa port to handle more transshipment cargo.
Over seven years ago, a joint task force of the KPA and the KRA created a working template to increase the transshipment volume after collecting views from all the stakeholders involved in this trade and recommended a major transformation that, once fully implemented, would have seen more shipping lines find Mombasa port attractive for transshipment cargo.
In 2015, the joint task force visited three ports in Europe, Asia, and Africa that were close to Mombasa in size—and which have recorded significant growth in transshipment—to gather guiding lessons for the Mombasa port transshipment initiative. The selected ports were Tangier Med in MorrocoMorocco, Colombo in Sri Lanka, and Malta’s Freeport.
According to the team’s report, one of the major factors for the success of these ports is the manner in which they have simplified the processing of transshipment cargo, a vital lesson that Kenya, which has been associated with lengthy processes, could embrace. When the team visited the three ports iIn 2015, the transshipment process in Malta took less than 24 hours to approve, Colombo and Tangier Med both took less than 12 hours, whereas at the port of Mombasa it took 8 to 10 days.
“The shipping business is a complex affair that rides on predictable trends,” said Captain Ruto, a member of the delegation.
In all the ports visited, the transshipment business has been simplified through the use of Electronic Data Interchange (EDI) for faster clearance and approvals. Shipping lines in the three ports are only required to lodge manifests with customs for approval whereas in Kenya nine steps are involved, causing delays, with the ships earmarked to deliver cargo departing without loading the containers.
“The shipping business is a complex affair that rides on predictable trends.”
Delaying a ship is very costly and the daily average additional vessel operating costs incurred by shipping lines can range between US$20,000 and US$35,000 depending on vessel size, a demonstration of how crucial it is for lines to save time in the shipping industry.
Kenya has made significant strides following the fact-finding mission to the three ports. Vessel processing at Mombasa port went paperless when the Single Maritime Window System went live in June 2021, allowing shipping lines to lodge documents online and thus significantly improving clearing and turnaround times.
KenTrade, which runs the online cargo clearing system, worked with the Kenya Maritime Authority (KMA) to implement the system that facilitates ship clearance procedures by providing a single online portal for the sharing of information on the arrival, stay and departure of ships between the shipping lines/agents and the approving government agencies involved.
Since 8 April 2019, it is a mandatory requirement for national governments to introduce electronic information exchange between ships and ports. The objective is to make cross-border trade simpler and the logistics chain more efficient for the over 10 billion tons of goods that are traded by sea annually across the globe.
The requirement is part of a package of amendments in the revised Annex to the International Maritime Organization’s Convention on Facilitation of International Maritime Traffic (FAL Convention) adopted in 2016. It is intended to reduce or eliminate the manual, decentralized, duplicated, and unnecessarily lengthy processes in the maritime sector, which are affecting ships’ turnaround times and increasing costs at the port of Mombasa.
The FAL Convention recommends the use of the “single window” concept whereby the agencies and authorities involved exchange data via a single point of contact.
Another advantage of Mombasa as a transshipment hub is its capacity to attract major shipping lines. There are over 20 shipping lines currently using the port at Mombasa, the majority of which handle containers.
But what should concern Kenya most is the growing competition that is coming with the development of other regional ports and the emergencemergencee of new ones. Tanzania is inching closer to realizing several plans and strategies that have been initiated over the years to enhance its potential as a maritime country.
There are over 20 shipping lines currently using the port at Mombasa, the majority of which handle containers.
The country has direct access to the Indian Ocean, with a long coastline of about 1,424km at the centre of the east coast of Africa. It has the potential to become the least-cost trade and logistics facilitation hub of the Great Lakes region.
There is the planned expansion and modernization of Dar es Salaam port under the Dar es Salaam Maritime Gateway Project (DMGP). The DMGP will increase Dar es Salaam port’s capacity from the current 15 million metric tonnes annually to 28 million tonnes.
The improvement of maritime hard infrastructure has gone hand in hand with the overhauling of the soft infrastructure. The Tanzanian government has already introduced electronic systems that have made cargo processing and clearing easier. These systems include the electronic single window, which has reduced paperwork and has also removed the need to physically visit multiple government agencies and regulatory bodies to lodge documents as all this can be done digitally through the Tanzania Customs Integrated System (Tancis).
In May 2016, global port mega-operator DP World agreed to develop Berbera Port in Somaliland and manage the facility for 30 years, a move that is set to make it the most modern port in the Horn of Africa. Ethiopia has acquired a 19 per cent stake in the project, the other partners being DP World, with a 51 per cent share, and Somaliland with a 30 per cent share. The total investment of the two-phased project will reach US$442 million. DP World will also create an economic free zone in the surrounding area, targeting a range of companies in sectors from logistics to manufacturing, and a road-based economic corridor connecting Berbera with Ethiopia.
Port Berbera is now the closest sea route to landlocked Ethiopia, a journey of 11 hours by road. It has opened the route needed for growth in the import and export of livestock and agricultural produce.
Djibouti has undertaken significant developments in all its ports. The Djibouti International Free Trade Zone (DIFTZ) was officially inaugurated in July 2018. The initial phase, a 240-hectare zone, is the result of a US$370 million investment and consists of three functional blocks located close to all of Djibouti’s major ports.
The project has also created major business opportunities for Djibouti and East Africa as the region’s export manufacturing and processing capacity is expanded in key sectors such as food, automotive parts, textiles and packaging.
The Djibouti ports of Doraleh Multipurpose, Ghoubet and Tadjourah have all been completed in recent years. Doraleh Port is particularly strategically located, connecting Asia, Africa, and Europe. It can handle two and six million tonnes of cargo a year at its bulk terminal and breakbulk terminal, respectively.
Port Berbera is now the closest sea route to landlocked Ethiopia, a journey of 11 hours by road.
Another key milestone for the Djibouti ports is the standard gauge railway (SGR). A 750-kilometer SGR line connecting Addis Ababa with the ports in Djibouti has been constructed, cutting a three-day journey down to 12 hours.
Djibouti has also received global attention due to its strategic location. Virtually, all of the sea trade between Asia and Europe passes through the Red Sea on its way to or from the Suez Canal. As a result, Gulf and Middle Eastern powers, China, the United States, and France have developed great interest in this route and the country today hosts 5 military bases.
Having made significant gains in automating cargo clearing procedures and also expanded the port of Mombasa by constructing a second container terminal and a new port in Lamu, there is great need for the KRA to work with the other industry players to simplify transhipment cargo procedures. The capacity of Lamu Port—which is ideal for transhipment cargo owing to its deeper channel that can receive bigger vessels—has been under-utilised. In spite of its strategic location as a transshipment hub, the port has received less than 20 vessels since the three berths were commissioned in May 2021.
The Perfect Tax: Land Value Taxation and the Housing Crisis in Kenya
The Kenyan government has proposed a compulsory housing levy from workers salaries to support contractors to build affordable homes for the working class. As incomes are squeezed and living standards collapse, Ambreena Manji and Jill Cottrell Ghai argue that the case for asking workers to bear the cost of housing development has not been made.
The proposal in section 76 of Kenya’s Finance Bill 2023 to amend the Employment Act 2007 so that employers will compulsorily deduct 3% from workers’ salaries and send that, plus a further 3% contributed by the employer, to the National Housing Development Fund has met with widespread consternation.
The levy is expected to raise around £460 million a year for the National Housing Corporation that administers the fund. Following legal action, earlier proposals for a housing levy under the previous regime had been made voluntary and set at a lower rate of 1.5%. Now, the 3% levy will begin with civil servants before being extended to other parts of the formal and non-formal sectors.
The money will be used both to support developers and building contractors to build 200,000 affordable units and to subsidise mortgages for low- and middle-income households who would be offered an interest rate of 7%, half the market rate. By some calculations, affected employees’ net monthly salaries will be cut by about 52% when all statutory deductions including tax, the National Health Insurance Fund and the National Social Security Fund, as well as this new deduction, are taken into account.
Trade unions have spoken out against the levy, arguing that a variation in employment law cannot be imposed without consultations. The Kenya Constitution of 2010, Article 118, says that Parliament must facilitate public participation in its legislative work.
According to the 2022 Kenya Economic Survey, there were 2,907,300 employed in the formal sector and an annual rate of affordable home construction by the national government of around 500 units a year. It is not clear under the Constitution that the national government has this responsibility, as opposed to the devolved government at county level.
Kenya’s skewed land ownership
Whilst there is manifestly a need to address Kenya’s dire shortage of affordable homes, it is important to diagnose fully the reasons for this. Land shortages and the high costs of building materials are important causes as Steve Biko Wafula has argued. Kenya’s skewed land ownership is attributable to long-term land grabbing, going back to the colonial period. Importantly, one constitutional provision designed to address this – which calls for the development of minimum and maximum land ceiling laws – has been studiously ignored, especially the setting of a maximum holding. The housing levy will not address this problem: it cannot increase the supply of land for housing.
The levy is designed to encourage developers to enter the affordable housing market by offering them lower land and construction costs and providing tax exemptions, as well as guaranteeing contracts with the government. However, Wafula has also pointed out that the administration of the housing fund is not clear because it relies ‘on a complex system of collection, allocation, and disbursement of funds that could be prone to errors, delays, and fraud’.
Moreover, Kenyans have seen funds such as the National Housing Development Fund used as a revenue kitty. The 2005 Ndung’u report on Illegal and Irregular Allocation of Public Land detailed how state corporations were in effect forced into buying grabbed land, as ‘captive buyers of land from politically connected allottees’. The primary state corporation targeted to purchase land was the Kenyan workers’ pension scheme, the National Social Security Fund (NSSF). It spent Ksh30 billion (£175 million) between 1990 and 1995 on the purchase of illegally acquired property.
At a time when the government is desperate to increase its resources through raising taxes, Kenyans are also understandably suspicious that some of this money, at least, will end up in general government coffers rather than in the fund for which it is statutorily earmarked – other than that which ends up in party or private pockets, of course.
Whilst some prospective home-owners may be lured by the offer of lower interest rates and longer repayment plans, the proposed fund is also being seen as an unwelcome compulsory saving scheme. Funding can be drawn down after seven years or at retirement whichever is the sooner. But with standards of living being severely squeezed by inflation and with longstanding constraints on wages, as well as existing deductions which yield little benefit, many households will struggle to take a further cut to their take home pay.
Indeed, government workers were not paid their salaries earlier this year due to cash flow problems caused by the country’s mounting debt. It is ironic then that the proposal is in effect asking Kenyans formally to agree to defer a portion of their wages. Furthermore, because contributions are payable from income that has already been taxed and are taxed again when the funds are drawn down, workers are exposed to double taxation.
Workers are being asked to stake their long-term security on the success of a housing fund about which many have unanswered questions. If the promised housing materialises, how can we be sure that it will not be developers and landlords who benefit rather than the intended beneficiaries? There are real prospects that the housing units will be taken up by landlords and that Kenyan workers – having already accepted lower wages because of the housing levy deduction – could still find they have to pay high rents to access housing. What guarantees will there be that the housing will not be financialised in such a way as to put the notion of housing – as shelter and personal security – at grave risk?
Building on Serap Saritas Oran’s work on the financialisation of pensions in Turkey which theorises pensions from a political economy perspective and argues that pensions are fundamental to working class standards of living, we can see how the housing levy proposal similarly financialises a right to housing. Housing is a critical factor in social reproduction, that is, in how life is maintained and labour power reproduced. Turning housing from what Oran calls ‘a social right’ into an individualised personal investment, the levy creates opportunities for speculation and extraction. In this schema, there is a real risk that some who should be the beneficiaries of affordable housing will find that because of interest rates or the accrual of high rent arrears, they in fact become debtors.
We recognise that providing affordable housing is an important goal but we believe other, much fairer ways of raising much needed revenue for housing should be considered.
Might the time have come to have a well-informed national conversation about Land Value Taxation? Given Kenya’s worsening gini coefficient which demonstrates how skewed the country’s wealth is, why should workers bear the brunt of the government’s house building programme?
Land Value Taxation is a progressive tax which ensures that the tax burden is instead borne by landowners who can well afford it. Because land ownership generally correlates with wealth and income, it is much fairer to require those already advantaged to fund the needs of those who do not yet have homes.
Land Value Capture should also be considered. This taxation can be used for example if a road is built or other infrastructure such as a park is improved, causing a rise in the value of neighbouring properties. The principle is that these property owners should share some of their unearned gain with the public.
Elsewhere in the world, funds raised in this way have been used to build lower-cost housing. In addition, the money raised could also be used to fund ongoing operational costs such as maintenance of local roads, schools, and parks. Wouldn’t that be a fair and – given the infrastructure boom of recent years which has bestowed windfall gains on many property owners – very effective way to tackle the shortfall in affordable housing?
A raid on wages
Speaking on Kenya’s NTV news channel Mercy Nabwire, Kenya Medical Pharmacy and Dentistry Practitioners Union National Treasurer, recently described the proposed housing levy as ‘a raid on workers’ wages.’ The economy is in bad shape and public services are threadbare, but the case for asking workers to bear the cost of righting this – especially when their incomes are squeezed and their standard of living plummeting – has not been made. Still less the case for compelling them to surrender their already precarious wages for some nebulous future promise.
This article was first published by ROAPE.
America’s Failure in Africa
It is evident that only an investment of this type – in capital, in human resources and in qualified training – can allow the United States to leave a real mark of progress in Africa, following a counterpoint strategy to that of China.
Gone are the days when Melania Trump traveled to Africa in tropical colonial clothes, showing the complete lack of interest of the United States, led by her husband, in the continent. Since then, official American policy has changed significantly.
Africa is, once again, a continent disputed by the great powers. This dispute results from the new race for raw materials and markets, the search for influence in the world chess, namely African votes in the United Nations, and also the presentation of a social laboratory to show the world which recipe for prosperity works best. : the developmental authoritarian Asian or the liberal western.
All of this, in the context of the new competitive dispute with China, led the United States to once again focus its attention on Africa and place it at the forefront of its foreign policy priorities.
In recent months, American initiatives related to Africa and the trips of high dignitaries have been constant. Vice President Kamala Harris, Secretary of the Treasury Janet Yellen, First Lady Jill Biden, to mention just the most important recent trips (Harris, March 2023; Yellen, January 2023; Biden , February 2023). Only Joe Biden’s tour is missing to culminate this high-level political-diplomatic offensive.
However, the impression that remains from these trips is that, apart from beautiful speeches, splendid photographic opportunities and some circumstantial financial support, they add nothing to the resolution of African problems and, above all, they do not diminish the supposed Chinese influence, nor do they oppose it.
The problem is in the model adopted by the Americans. It is a model that is not very interactive and does not address African structural problems. Essentially, US leaders distribute smiles and marketing, warn of the Chinese danger, announce small foreign aid and refer the big questions to the International Monetary Fund (IMF), talking with greater or lesser intensity about good governance. Janet Yellen’s visit to Zambia was emblematic of this failure. When Hichilema was elected, he became a sort of poster boy for American good intentions.
However, what is certain is that Zambia has a serious foreign debt problem and has defaulted, finding itself in an endless labyrinth between China and the IMF, which ends up greatly harming the population. It is not enough to say that China is to blame and order the IMF to move forward, which in turn makes everything depend on agreements with China, which is waiting for the country to agree with the other creditors, getting into a tailspin – prolonged pong.
This kind of attitude will only lead to the US being criticized for talking but doing nothing.
The truth is that China’s entry into Africa from the 2000s onwards was not due to any historical relationship, practically irrelevant, but to a void, a void left by the West. Now, it is this void that persists, despite the new rhetoric and the countless initiatives, trips and forums held in the American capital or in Europe.
Africa does not need economists with their Harvard and MIT textbooks, which apply recipes from developed market economies unable to serve African populations and leading to their impoverishment. The manual to be applied must be the previous one, that of the very creation and structuring of economies and markets. Bringing consultants, economists, managers and people of intentions ashore doesn’t help – it only complicates things.
Obviously, to be successful, the North American perspective has to be different, resembling what was done in Europe after the Second World War (1939-1945). In other words, launching their money helicopters over Africa, while creating domestic markets on the continent.
Very simply put, the US will only compete with the Chinese in Africa if it replaces them, if it spends money. Arriving in Africa empty-handed or with promises of future private investment, which may or may not materialize, is no use.
Strictly speaking, if they really want to help Africa, the Americans should start by swapping the Chinese debt, that is, lending financial funds to African governments at lower interest rates and higher maturities, so that governments pay China. In this way it would certainly be possible to introduce competition into the African debt market and remove the monopoly from China.
In the same vein is the financial support for structural projects on the continent, from the massification of electricity and basic sanitation to digitization.
It is clear that the American people may disagree with this option and politicians may not want to embrace it, but the only realistic path is this and not another — this is how the US has gained influence in the past.
Furthermore, in addition to real capital, Africa needs specialists: not economists or consultants, which are in abundance, but professionals in essential areas, such as doctors, nurses, engineers, IT professionals, teachers, etc.
It is necessary to recover the initial spirit of the Peace Corps, idealized by President Kennedy, and massively send to Africa “men and women from the United States qualified for service abroad and available to serve, if necessary under difficult conditions, to help people in areas that help countries meet their needs” (Peace Corps Goals).
Finally, good governance should not focus on the constitutional apparatus, but on something simpler and more fundamental: public administration.
What is essential is to prepare public administrations in African countries to function efficiently and effectively, even if governments do not meet their objectives. Shifting the focus of good governance from the executive to the administration is a structuring element of any functioning society, overcoming disagreements and fears of political interference.
It is evident that only an investment of this type – in capital, in human resources and in qualified training – can allow the United States to leave a real mark of progress in Africa, following a counterpoint strategy to that of China. Otherwise, good intentions will be just that: good intentions without results.
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