Saturday, 24 October 2015

‘El Ninomics’ and The Legendary Embezzlers

What happened to the forecasted El Nino rains? Was it a hoax? Or is it on the way? I cannot tell because nature is sometimes unpredictable. The weatherman certainly has a question to answer no wonder a legislator from Narok County plans to sue the meteorological department for allegedly issuing false weather predictions and alerts. This sounds a bit queer.

My main concern however, is on the finances that have been set aside by the national government and the county governments to deal with the El Nino effects. The reports from the national government indicate that Kshs.15 billion is required for the disaster operations but only Kshs.5 billion is available courtesy of the Contingency Fund. This means that Kshs.10 billion is needed to cover up the deficit. Good move! You think so.

Well, disaster preparedness has been an Achilles’ heel for the past and present governments all because of weak disaster management strategies. Surprisingly, the National Disaster Operations Centre has been in existence since 1998 but majority of Kenyans hardly know if such an office exists. This simply means that we have been paying taxes to fund an office that is largely moribund and of course this is a clear sign of no transparency and accountability or this centre is highly incapacitated in terms of limited access to both human and financial resources. May be that is why we depend so much on the non-governmental agencies to handle cataclysmic situations.

Whether these dreaded rains occur or not, the mandarins are going to be a luckier lot. Let us decipher two scenarios, which are of course contingencies, that is if El Nino occurs and secondly if it doesn’t with respect to the allocated funds. If it happens, we expect a lot of destruction. But in the wake of its occurrence the people who are going to largely benefit are the seasoned corrupt government officials. I will not be surprised to see the honchos flying in choppers from one affected area to another in the name of ‘making assessments’ of the resulting damages while the people will be hurled in tents in some ‘safety’ camps somewhere. In the end, large sums of money will be used to fund activities by the government officials other than helping to meet the needs of the affected lot.

Secondly, if El Nino does not occur, then I am prepared in advance for another financial scandal. What will happen to the funds that have been set aside if these rains don’t occur? Certainly, the Treasury will emphasize greatly on how the funds have been taken back to the Contingency kitty. The backslappers will be very defensive on this and then we shall be up in arms against the Auditor General. You should however be aware that the Auditor General sometimes has to be politically correct lest he falls victim to the philosophical ‘Tyranny of Numbers’ rage and brigade. If you doubt this, then reflect on how the Auditor General was silenced by the National Treasury and some Jubilee flunkies after he questioned the whereabouts of Kshs.67 billion some few months ago. Have you ever heard him opening his mouth again?

Either way, the funds that have been set aside for El Nino is a new frontier and a mega opportunity for the chief priests of graft and the lords of corruption to exercise their might on who has a more roaring appetite for public funds. I am not a pessimist, but an expresser of the solemn reality and truth of the matter. What makes it an ideal situation for some to get rich quickly using wrong means are the weak mechanisms and poor structures that have been in place. This is evident because the governments we’ve had have always turned to the international relief agencies to handle emergencies despite the existence of the National Disaster Operations Centre.

As a country, we have experienced calamities in the past and how did the governments fair on? Below par. That is my rating which is a bit rational, logical and reasonable. We’ve had cases of famine but the Red Cross and other relief agencies were at the fore-front to give assistance. I particularly reminisce the Kenyans For Kenya campaign that was run co-jointly between the Red Cross and Safaricom. The IDPs’ situation has been handled very poorly. Is it not sociopathic to witness government officials squander money that is meant to resettle the IDPs? No wonder some are still languishing in the camps. To worsen it all, I have seen cases where relief food is stolen and put on sale. This is totally and out rightly unethical and uncalled for.

The El Nino scam is in the offing. What do you expect of a county that buys ten wheelbarrows at a total cost of a million shillings to do with lump sums set aside for El Nino? Or a county that purchases hospital curtains worth Kshs.7 million? But the ‘mother’ of all the El Nino scams will be by the central government which embodies corruption as its life blood. Expect massive squandering  and plundering of these funds.

Long-term policy solutions are key to dealing with disasters. We need to have in place a vibrant disaster management and operations centre that is operated by the national government. This centre has to be fully equipped with enough resources, both human and financial. A good number of higher learning institutions are currently offering courses in disaster operations and management. This pool of specialists needs to be highly tapped. The county governments also need to establish their own disaster operations centres. They too need to take advantage of the professionals being developed by the institutions of higher learning to effect this.
However, there are two bottlenecks to this advancement: corruption and the Kenyan culture of being reactive to situations and not proactive. It is our responsibility as citizens to seize the opportunity and demand that things be done in a certain fashion because we bear the burden of suffering. Above all we must ensure that leaders are held accountable for the public funds. In the meantime, let’s be ready just in case the monster (El Nino) decides to pay a visit.

Thursday, 15 October 2015

Comprehending Kenya’s Cash Crunch

To some, it seems to be a derisory situation while to others it seems to be a happenstance that generates a bit of worries and spells doom and gloom for their economic well-being. To make it simple, the current tales of a broke government only seem to be a whimsical situation especially for the pseudo-economists/public policy analysts as they view it as a joke taken too far. But for the real specialists in this field, it is a situation that reflects a government that lives beyond its means occasionally oscillating in debts to fund few capital projects and a recurrent expenditure that is quite prodigious. 

The prevailing financial crisis in government is as a result of four significant phenomenological circumstances. Firstly, the government is spending too much money on two things; an enormous recurrent expenditure and few but costly capital projects. Secondly, the spiraling rate of continued misappropriation of finances is ostensibly another cause of the current financial woes that the government of the day is facing. Thirdly, the International Monetary Fund (IMF) recommendation of the adoption and institutionalization of a pre-emptive approach of debt repayment is another cause. This is an expenditure plan that prioritizes debt repayment. Fourthly, the imprudence that characterizes revenue collection is also another causal factor leading to missing the targeted revenue amount largely as a result of the high incidences of tax evasion among other factors.

Revisiting the IMF recommendation of the adoption of the pre-emptive approach towards servicing of debts, implies that the government’s hands are tied since it was a conditionality for the government to receive funds amounting to Kshs.62 billion intended to support the weakening shilling.  The conditions that are pegged on funds and/or loans by the multilateral economic institutions like the IMF normally constrict the plausible gamut of actions and mechanisms that are supposed to be instituted in the event that an economy requires some urgent attention especially for the developing countries. This is certainly a reality that cannot be wished away.

Basically, the pre-emptive approach of debt servicing involves a proactive step of preparing cheques in advance to repay the debts before they are due. In my opinion, this was a measure that was put in place by the IMF in order to check and contain the situations where by governments were taking too long to repay debts or even in some instances defaulting the same and pleading for mercies from the IMF.

Moving forward, the shortfall in revenue collection is a challenge that needs some well orchestrated plan of action to normalize it. The government should devise ways of sealing the loopholes that evidently lead to these occasional shortfalls. For instance, by the end of last quarter (covering July to September) of the current fiscal year 2015/2016, only Kshs.269.7 billion was collected by the Kenya Revenue Authority. This was Kshs.12 billion less of the expected amount. From the Kshs.269.7 billion collected, Kshs.132 billion (approximately 49%) was used to repay the debts. You can now figure out this tight fiscal and economic situation with two complexities; of a revenue shortfall and prioritization of debt servicing.

The current cash crunch is only a tip of the iceberg of the impending economic woes that are bound to happen because of an increasing national debt that now stands at Kshs.2.5 trillion. The primordial causal factor of this high national debt are the overambitious national budgets that have become the zeitgeist of the Jubilee administration since its inception. Take for instance the budget for the current fiscal year which amounts to Kshs.2.17 trillion, and it has a deficit of Kshs.570.2 billion as Kshs.1.43 trillion is to be financed through the tax revenue. And what if the tax revenue targets are not met? It spells more doom because more borrowing has to be made. 

Already, the government has just borrowed Kshs.77.25 billion from three banks namely the Standard Chartered Bank, CFC Stanbic Bank and Citi Bank. The decision to borrow from these banks as opposed to the selling of Treasury Bills was informed by the level of the interest rates. The Treasury Bills’ interest rate stands at 21.35% in comparison to the London Inter-Bank Offered Rates (Libor) + 5% given by the banks which was lower. 

I envisage that for the medium and long-term economic periods we are still going to be grappling with the issues of a rising national debt and debt oscillations of borrowing and continued borrowing. Why? The current budget and economic Medium-Term Plan (MTP) stipulate that Kshs.2.1 trillion should go towards capital expenditure up to 2018. But the total cost of the on-going capital projects that are to be completed by 2018 is Kshs.4.2 trillion, of which Kshs.1.6 trillion has already been spent meaning that Kshs.2.6 trillion is needed to finalize them. I really doubt if a good number of these projects that are 1109 in total will be completed. Picture this, the budget and the MTP stipulate Kshs.2.1 trillion for capital expenditure up to 2018 and at the same time projects amounting to Kshs.4.2 trillion are also supposed to be completed by 2018. This implies that a deficit of Kshs.2.1 trillion is clouding and this means more borrowing and a rising national debt.

When the national debt will get to the “tipping point” is when we shall be able to feel its effects. An increasing rate of borrowing by the government means that the following scenarios are more likely to happen. First, there will be a general increase in the interest rates meaning the level of investment is bound to decline. Secondly, inflation may be a reality that is if the government resorts to carry out ‘monetization’ which is actually printing more money to fund the deficits. This is a situation that we should not get into as a country. Thirdly, higher taxes will also be a possibility in order to raise more revenue to cover the deficits. Fourthly, the ‘crowding-out’ effect will take place. ‘Crowding out’ is an economic situation where continuous and excessive government borrowing leaves limited finances for the private sector hence leading to a small private sector and subsequently low investments and a stagnating economic growth.

Let’s now shift focus and look at this issue from a public debt to GDP ratio. The IMF institutionalized a Debt Sustainability Framework (DSF) which is a measure that determines debt thresholds based on the quality and strength of the institutions of a country. For countries with strong institutions, the debt to GDP ratio is supposed to be 50%, those with medium institutions 40% and those with poor institutions their debt to GDP ratio should be 30%. Our debt to GDP ratio currently stands at 49.8%. Despite our Constitution setting a strong foundation for strong institutions, the current leadership makes our institutions to be classified in between poor and medium along the continuum.

But by keenly observing the following data which outlines the debt to GDP ratio of several countries then we can question and forthwith discard the DSF framework of the IMF. USA 102.98%, China 41.06%, Germany 74.7%, France 95%, Japan 227%, South Korea 35.98%, United Kingdom 89.4%, Italy 132.3%, Brazil 58.91%, Greece 177.2%. In Africa, Nigeria has 10.5%, Ghana 67.6%, South Africa 39%, Botswana 23.1%, Burundi 28.3%, Ethiopia 28.6%, Libya 6.1%, Egypt 90.5%, Rwanda 28%, Tanzania 39.9%, Uganda 34.7%, Zimbabwe 77%.

From the figures, we can observe that lower debt to GDP ratio doesn’t imply a surge in economic development and vice versa except for exceptional situations. What matters are three issues: the effectiveness of debt management practices, how much revenue is collected to finance the development projects and the size of budgetary deficits. Taking a look at Kenya, for instance, in 2000 our debt to GDP ratio was 78% and in 2006 at 58%. For year 2000, the 78% can be attributed to a stagnated growth in GDP and poor debt management occasioned by profligacy of resources that was at its apogee during the Kanu regime. As for 2006, the Kibaki regime had a sound public debt management mechanism and the budgetary deficits were very small and relatively large tax revenue deficits were unheard of. 

The following need to be enacted in order to arrest the situation in the short, medium and long term: the government should do away with overambitious budgets that are characterized by huge deficits, freezing further commissioning of new capital projects other than the on-going ones and fight corruption. All in all, I doubt the capacity of the current government to take the aforementioned actions if past events are to go by. This is a time that calls for financial prudence and efficacy in economic governance otherwise, tough economic times are in the offing. In fact, this week on Thursday the economic forecasts by the World Bank for Kenya were reduced from 6% to 5.4% for 2015 and from 6.6% to 5.7% for 2016. Think about tough economic times ahead.

Saturday, 10 October 2015

Is It The Education System, Lack of Ethics Or Sheer Laziness?

There has been noise all over ranging from castigations and a barrage of criticisms with regards to the Kenyan education system as it is deemed to be churning out half-baked graduates into the job market. Recently, we have seen the lives of several engineering and law students being jeopardized due to the claim that some of the courses are not accredited and do not meet the required threshold to offer scholarly services to students and the society in general. 

The primary question and issue of great concern are the remarks that are made by the employers and other stakeholders who feel that the current cadre of graduates from the institutions of higher learning are half-baked. To them, this simply implies that in as much we have a very high number of graduates today, their professionalism in execution of tasks is wanting.

This dwindling level of professionalism is pegged on the absence of the crucial skills that these institutions of higher learning are supposed to impart to the learners. Methinks that indeed we are ebbing towards a professionalism crisis if certain remedy measures are not going to be instituted. In this country we have put in place a culture that favors academics more than education and so this is the genesis of this professionalism crisis that is evidently showing up.

We tend to treasure and cherish examinations more than the real skills and expertise that these higher learning institutions are supposed to offer. This has cultivated a syndrome of cramming, passing or failing examinations and forgetting about the stuff that had been memorized in the mind. It isn’t surprising to find some “professionals” who tend to know very little about their fields and areas of specialization as a consequence of the above highlighted syndrome.

But what is propagating and precipitating this vitiation of professionalism? In my opinion, the pecuniary rapaciousness is the major cause of all this. Education has become an entrepreneurial opening and opportunity for business people. It isn’t wrong for investments in education to take place but in our case it has presented a gracious opportunity for individuals to make money easily by taking advantage of the education-thirsty people. 

This financial greed has been the cause of the plummeting professional standards. We have seen cases where individuals have collaborated and connived with some purported higher learning institutions by offering fake courses all because some individuals somewhere need to have some quick money to get rich  by wrong means. This is the first case. Secondly, other lewd individuals go to an extent of forging academic and professional certificates and obtaining fake copies. Thirdly, most of the institutions of higher learning give priority to the admission of a higher number of students beyond their capacity instead of improving the quality of education through research and largely through establishment of well-equipped learning facilities. 
A vibrant education system is certainly critical for the economic progress of any given country. Education is the basis for generating the needed critical mass that drives the economy of the nation. If our development blueprint, Vision 2030, is to be attained then as a country we should continue having increasing levels and standards of education. 

However, achieving this grand socio-economic plan will be slow-paced as we have a limited technical work-force in place because many middle-level colleges have been phased out. This phasing out has occurred because universities have acquired them, making them their campuses, constituent colleges and some have even become fully-fledged universities. In Kenya we have generated the mindset that an undergraduate degree equals a technical qualification and this is quite skewed.

Our institutions of higher learning need to prioritize research in various fields if we are to progress economically. In fact, this is supposed to be the core mandate of all these institutions. Most of them however, carry very limited research and this has also greatly contributed to the decline in the standards of professionalism. Coupled with limited research is the challenge of poorly equipped learning facilities. Just check across institutions that offer the technical courses and you will be astonished at how they are poorly equipped.

Higher education is supposed to engender individuals who should spearhead invention and innovation which are some of the prerequisite fundamentals for economic growth and development. The limited capacity and research only serves to create a stagnating economy.

On the other hand, individuals should also strive to make themselves competent. What are you doing to be a competent professional? This is what many people will fumble with and mumble at due to some laziness. To be honest, many students just sit there and wait for the system to shape them into the ideal professionals. Many thrive and survive on reading class work notes and the story ends there. In whatever course that somebody is undertaking, one ought to make an effort to standout from the rest. Even if you detest reading try to do at least something that sets you apart. It can be an invention or innovation all which stem from the logic of having an idea.

So do we choose to blame the education system for all these woes and challenges? We have the duty and responsibility of righting its wrongs lest we forget that we are part of the same system. But all isn’t gloom as we are way ahead of other nations in Sub-Saharan Africa and the Third World league.


Saturday, 3 October 2015

Our Brand of Politics Retards Economic Progress

On 1st of October, Thursday of this week, I happen to have participated in an intellectual discourse and discussion on social media, twitter to be specific, under the hash tag #Economy 254 . I have to say that it was one of the most insightful and thought-provoking engagements that I have seen over social media given that this new communication dispensation has been used by individuals to share and spread negative information. 

The treatise involved Kenyans voicing their opinions on the state of the economy and most importantly what bottlenecks are slowing down our economic growth and the probable solutions to these teething problems. What I learnt is that many Kenyans are literally aware of the current economic situation; an economy where the common folk are enduring lots of hardship to access various basic needs and where the political class and other elites control most of the resources.

It is a well-known fact that Kenya’s economy is the largest in East Africa but it is also one in which the level of income inequalities and disparities is very high. The genesis of this is of course our economic system which is capitalism. But Kenya’s capitalism can be further categorized and classified as “crony” capitalism where a secluded group of elites control much of the economic resources. It is somehow astonishing to realize that 20% of Kenyans control 80% of the economic resources and 80% of Kenyans can only be able to control 20%.

Sometime last year, our economy was rebased and in simple terms this implies the recalculation of the GDP by including other sectors which earlier on were not included. With the rebasement, the effect is that the GDP went up and in Kenya’s case, we joined the league of middle-income economies. Statistically, our economy can be classified as a lower middle-income economy but the economic situation on the ground doesn’t reflect that which is on paper. In any case, methinks that the criteria used to categorize countries as lower, middle and higher income economies needs to be reviewed. The International Monetary Fund (IMF) and the World Bank should restructure the method with which they use to make such categorizations. 

For Kenya to be a truly middle-income economy where the citizens can also feel the impact of a growing and developing economy, then one thing has to be changed; the political pattern and the general political structure. From the discipline of political economy, we cannot separate economics and politics and ultimately this is a knife and fork issue. Bad politics is a precursor and prelude of a poor economy and on the contrary, good politics brings about a sound and performing economy.

Fast- forward, our politics and political structure are characterized by two phenomena. The first phenomena is negative ethnicity and the general tribalism. It is a well-known fact that in most of our general elections especially from 1988, we have been voting on a tribal basis may be with an exception of 2002. The second phenomena is that our politics has been dominated by a small group of elites who have perfected the art of patronage politics in our society.

This kind of politics has been a major hindrance in the transmogrification of Kenya from an economy that  reels from the effects of the vicious circle of poverty to one that should have the virtuous circle of prosperity. In as much as we may make various socio-economic policies to propel Kenya to be an economic powerhouse, without altering this kind of politics, then even the magnificent and well-choreographed Vision 2030 will be a dream-deferred.

Negative ethnicity and political power being in the hands of a few individuals likened to demigods are the primary factors that precipitate corruption. Why? Politics based on tribalism makes people to believe that once they have power, it is their time to be rapacious and in common logic it’s their moment to ‘eat’ before their tenure comes to an end. The political elites also promote corruption as they control most of the economic resources in the country. It is a great misfortune but the bitter truth and the harsh reality that the sanctum sanctorum of political offices and leadership can only be contested for by the economically mighty and wealthy individuals except for extra-ordinary situations.

So for Kenya to prosper economically, the institutional malaise that has embedded the political stratum needs to undergo a holistic change and transformation process. The only time that we have been close to reshaping our politics was way back in 1991/92 when multi-partyism was re-introduced, in 2002 when many Kenyans ganged up to stage a democratic revolution by sending Kanu to the oblivion and overwhelmingly voting for the Narc coalition of parties and in 2010 when we voted to have a new constitutional dispensation in place.

The above three were critical junctures that were to change our brand of politics from tribal-based to principle-based politics but this political hopefulness sooner than later, turned into political hopelessness. In the three afore-mentioned junctures, Kenyans were united to achieve a common good. In the early 1990s, there was unity among the masses to call for changes in the political environment as Moi’s regime was proving to be more authoritarian. The unfortunate thing is that the disunity among the opposition still kept Moi in power and so did the economic meltdown continue because of Moi’s master perfection of the art of crony capitalism.

Between 2003 and 2007 when the Narc government was in power, economic growth was approximately 7% which was impressive. One notable fact during this period of time is that there was some relative unity and the goal to revive the country’s economy; there was common good to attain a common goal. The level of ‘bad’ politics at this time was at a very low level. Then came the political mishap of 2007/08 with the occurrence of the post-election violence ushering in the Grand Coalition government. Evidently, the economic performance between 2008 to 2010 was dismal because of the political ideology of ‘we’ versus ‘them’. The promulgation of the new Constitution renewed the hope for national reconstruction and from that time at least the economy began picking up.

Since 2013 when we had the general election, our rate of economic growth and development has been slow-paced and this can be avowed to the tribal political groupings in the name of political coalitions. No wonder our economy is not performing as expected because the current political scenario epitomizes the apogee of the ‘we’ versus ‘them’ brand of politics. It is hence coincidental that currently there are so many scams and escalating levels of corruption from both the government and opposition sides of the political divide. 

The political expedience that is in Kenya will only serve to stifle any effort made to promote economic prosperity. Thence, we need to advocate and promote a tranche of surrealism for us to wholesomely change the brand of politics and put in a system that will guarantee economic prosperity for posterity.