IEA POLICY MAGAZINE - DEVOLUTION

Policy Magazine

Inside

6

12

Editorial

Devolution and Socioeconomic Inequalities Cover story

26 VAT Act: The good, the bad and the ugly Doing business

35 Exploiting Turkana water Science and technology

resources

W E N

Devolution Kenya's long journey ahead

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From the CEO

Devolution is an opportunity

D

evolution is the most significant political reform in Kenya since independence.

For the nation – and for Institute of Economic Affairs (IEA) – it is of singular importance.

While resolving distributional grievances will be a tremendous step forward for Kenya, we must not see the sharing of resources as a panacea.

Devolution is not a solution; it is an opportunity.

It is not a map to our destination; it is merely a new terrain – and we still have to decide where we will go, and how we will get there.

The articles in this first issue of Policy Magazine remind us of the important lesson that geographic distribution of resources will not necessarily lead to faster and more equitable economic development.

The articles here highlight four factors that are likely to make a crucial difference as to whether we will see real development under the new dispensation.

1.County governments need to follow a legal and transparent process for resource allocation

While much of the focus to date has been on the share of national revenues that will be distributed to counties, there has been less attention paid to the process by which counties will formulate their own budgets. This is in part because county governments did not come into effect until March 2013, too late to conduct a proper budget planning process. Still, the challenge for 2014 will be to get this process in order. Dr Jason Lakin lays out the basic tenets of budget transparency.

Without a freedom of information act that requires counties to routinely report these aspects of the budget, we are relying – naively – on the good will of county governments.

2. Success of devolution requires greater demand for accountability from local groups

We often talk about the need to build county government capacity. What about the capacity of citizens? In his article, Abraham Rugo says even a highly skilled and motivated Nairobi government cannot save the city from a fractured and indifferent citizenry.

The media too will need to play a role, yet as Luke Mulunda warns, media houses have made only tentative steps towards producing quality county-level news. A troubling concern is that the financial incentives may not be there at all for private media houses to play a watchdog role.

3.The future of each county depends on good collaboration and communication at all levels

Perhaps the greatest myth surrounding devolution is that we are now in separate boats; we are in this together. County governments will not succeed in promoting equitable development without the collaboration of central government agencies, among others. Take the example described in this issue of Turkana’s water crisis. Even with the discovery of water reserves, the county will be unable to exploit this resource without big investments in energy and ICT infrastructure – investments that will require resources, planning and good policies by both the county and central governments. Turkana cannot go it alone.

The Konza City initiative, addressed in this issue by two articles of contrasting opinions, illustrates this point as well.

As Dr Andrew Riechi explains, even an apparently clear division of responsibilities between central and county governments on education,

the sector is endangered by a failure of all stakeholders – national and sub-national – to work towards common goals using well-defined procedures.

4.Greater clarity and a better understanding of devolution by all stakeholders, especially though politicians

Devolution is still shrouded in myth and misunderstanding, and there is a risk that this situation will only be aggravated by a politicisation of the issue. Every article on devolution in this issue highlights some key misconception, or inability of actors to understand one another. All actors – governmental, private sector and civil society – have some responsibility to inform themselves and others. We at IEA will do our part through our research and outreach (including efforts such as this magazine) to promote a productive and evidencebased policy debate on the most important policy issue of our time.

We hope you enjoy and benefit from this issue. We will continue publishing more insightful and balanced commentary from researchers and experts in the future. We also invite you, the readers, to share your ideas and opinions in the issues to come.

Kwame Owino, CEO, Institute of Economic Affairs

January - March 2014 The Policy Magazine 3

Contents

Policy Magazine INTRODUCTION 06 Editorial

Devolution and Socioeconomic Inequalities News Briefs 08 Budget 2013/14 and the

hurdles ahead 08 Role of agriculture in county economies 09 Nairobi City dialogues

COVER STORIES 12 Education offers hard lessons on

devolution 16 Media at a crossroad 20 Empowering leaders to run devolved units 4 The Policy Magazine January - March 2014

12 REPORTS 26 VAT Act: The good, the bad and

the ugly 30 Nairobi in 2040 35 Exploiting Turkana water resources

16

Contents

35 26 42

January - March 2014 The Policy Magazine 5

Policy Magazine Managing Editors Zilper C. Audi Kwame Owino Consulting Editor Carole Kimutai Technical Editors Nicholas Benequista Dr Jason lakin Editorial Assistant Oscar Okoth Ochieng Contributing Writers Chrispine Oduor Owino Dr Andrew Rasugu Riechi Luke Mulunda Carole Kimutai Abraham Rugo Muriu Joseph Gichuki John Nyakawa Dr Bitange Ndemo Kwame Owino Mustansir Barma Conrad Bosire Design and layout Wilbur Alusiola PUBLISHED BY: The Instiute of Economic Affairs, P.O.Box 53989 - 00200:

The Institute of Economic Affairs (IEA-Kenya) is a Public Policy think tank based in Nairobi, which seeks to promote pluralism of ideas through open, active and informed debate on public policy issues.

The IEA-Kenya undertakes research and conducts public education on Key economic and topical issues in public affairs in Kenya and the region, and utilizes the outcomes of the research for policy dialogue and to influence policy making. The IEA-Kenya is independent of political parties, pressure groups and lobbies, or any other partisan interests.

DISCLAIMER:

The views and opinions expressed in the articles published in The Policy Magazine are the respective author's own and do not necessarily reflect those of the Institute of Economic Affairs,which seeks to publish a diverse range of perspectives on any given issue. Authors are fully responsible for and legally liable for their own work. The Institute of Economic Affairs assumes no responsibility or legal liability, express or implied, for the content of any work of the Author. Every effort has been made to ensure the accuracy of all the information (the content) contained in this Magazine.

6 The Policy Magazine January - March 2014

Contributors Luke Mulunda

Mulunda is a media consultant based in Nairobi. He has held positions in the Kenyan media, including Business Editor of the Daily Nation, chief editor of the Nairobi Law Monthly and Nairobi Business Monthly. He is currently the lead media and editorial consultant at Media One International.

Chrispin Oduor

He holds a Bachelor of Arts degree in Political Science from the University of Nairobi and currently works as an Assistant Programme Officer in the IEA Futures Programme. His main strength is in governance and democratisation.

He has also facilitated training s on public participation in devolution, county and constituency strategic planning and social Audit of public funded projects. Chrispine has co-authored a number of constituency strategic plans and written several articles on devolution.

Carole Kimutai

Carole is a practising journalist based in Nairobi, with over 10years experience in print and online media. She holds an MA New Media and Society from the University of Leicester. She is the editor, Management magazine, a business, management and leadership publication. She is widely published in various local and international magazines and online new sites.

Dr. Jason Lakin

Lakin is a Senior Program Officer and Research Fellow at the International Budget Partnership and he is based in Nairobi. His areas of focus are budget transparency, increasing public engagement with matters of public finance, and devolution. He has lived in the United States, Mexico, India, Zimbabwe and, most recently, Kenya.

Joe Gichuki

Joe is currently the CEO of Kawai Consulting Limited, an audit and financial consulting consultancy firm which he founded after leaving PKF Eastern Africa, where he was the Regional Head of Audit and partner.

He is a member of ICPAK and a life member of the Institute of Economic Affairs and has over 27 years experience in performing audit and assurance work.

Mustansir Barma

He is an economic and business policy analyst.

He works as a political risk consultant, advising companies on market entry and expansion opportunities. He has published on a range of subjects, including analysis of economic platforms of political parties, international economic support, corporate social responsibility, new business trends, women’s economic rights, and balancing worker and employer interests.

Dr Bitange Ndemo

Dr Ndemo is the immediate former Permanent Secretary of Kenya’s Ministry of Information and Communications. He holds a PhD in Industrial Economics from the University of Sheffield in the UK.

John nyakawa

John nyakawa ondari is an Economist and a senior Water, Sanitation & Hygiene advisor at SNV Netherlands. He has over 15 years’ experience in development – specifically in developing strategic options for sustainably financing infrastructure in Africa. He was the lead advisor responsible for the UN-Habitat funded Lake Victoria Region Water and Sanitation Programme. He has also worked in various government ministries in Kenya.

Abrahan Rugo

Rugo holds a Master in Public Management and a Bachelors of Education (Science). He has a great passion for devolution and governance, and believes that every person in Kenya has what it takes to reach their highest potential, and that what is needed is an enabling environment. His research interests are in devolution, citizen participation in devolved governance, intergovernmental relations and development planning.

Dr Andrew Rasugu Riechi

Dr Riechi is a researcher and policy analyst. He has over 15 years of work experience in education administration, research and consultancy, and education development. He holds a Phd in Economics of Education. Dr Riechi is currently a senior lecturer, Department of Educational Administration & Planning, University of Nairobi. He has also been a policy analyst at the Institute of Policy Analysis and Research (IPAR).

Setting the agenda – The role of the 'Policy Magazine'

T

he Institute of Economic Affairs (IEA) is delighted to be reviving the Policy Magazine shortly after Kenya celebrated 50 years of Independence in 2013. The agenda is now on the next 50 years and we will continue to proactively play a role in ensuring the success of Kenya.

Before 1991, there was hardly any space for alternative views on public policy. Years of authoritarian single-party rule had silenced all but the most determined dissenting voices. The culture of active and open debate had been so suppressed that innovative and creative ideas would not reach a public forum from where they could be tapped for the benefit of the country and its people. Kenya’s brain drain had taken a heavy toll on the utilisation of existing professional capacities. Such was the scenario when the IEA began its work.

The IEA is Kenya's first public affairs dialogue forum which grew out of the 1992 Post Election Action Programme (PEAP), a joint effort by Kenyan professionals and academics. The IEA was formally established in 1994.

Our mandate straddles both economic and political issues, as the two are inextricably linked. The IEA was conceived on the basis of professional commitment and integrity as opposed to commercial motives, which more often than not infringe upon quality, independence and sustainability.

This Policy Magazine will be used to create a wider informed participation of the citizenry and institutions in public policy issues in line with our vision and mission.

This will be a quarterly publication which we intend to use to shape the agenda of this country and we invite articles on topical issues. We also acknowledge our core donor International Development Research Centre (IDRC) for their support that has enabled the publication of this magazine. We look forward to your feedback and engagement.

Happy reading.

Zilper C. Audi PR & Communication Officer (IEA -Kenya) zilper@ieakenya.or.ke January - March 2014 The Policy Magazine 7

Editorial

By: Chrispin Oduor

Devolution and Socioeconomic Inequalities

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enya’s socio-economic and political inequalities are ingrained in the country’s historical and structural uniqueness.

The inequalities manifest in diverse forms, including differences in share of income and social services across regions, gender and even specific segments of the population.

Socio-economic inequalities may be attributed to several factors, first being colonial heritage, where the colonialists expropriated prime land for settlement in which they invested a lot in infrastructural development.

The government through the Sessional Paper Number 10 of 1965 on African Socialism and its Application to Planning, further balkanised the country as it focused resources to areas with absorptive capacity, effectively locking out some parts of the country from development.

Inequalities may also be attributed to regional variations in resource endowment and the different agro-ecological zones that have determined development patterns.

Liberalisation under the Structural Adjustment Programmes also deepened inequalities in the country by undermining access to basic public services by discontinuing free and subsidised services.

Another contributing factor is the politics of patronage, which resulted in the allocation of projects to politically correct areas. Bureaucratic manipulations and official corruption have also influenced resource distribution, thereby creating distortions in resource allocation to the regions.

Kenya experiences both intercounty and intra-county inequalities.

Regional inequalities in the country have persisted for decades since

Independence, despite attempts by successive governments to address the inconsistency through policies and programmes such as the decentralised funds policy, most notably the Constituencies Development Fund.

These funds have, however, been spread too thinly with minimal impact. Inequality, therefore, remains a key challenge even as the country embarks on the implementation of the devolved framework of governance, which underscores equity and equality of rights to basic needs across the country.

Kenya has considerable regional disparities in access to essential services resulting in regional variance in socio-economic outcomes. For instance, Kajiado the richest county has a poverty headcount index of 12 per cent, while Turkana the poorest has 93 per cent. Whereas 20 percent of the population in Nyeri county complete secondary school, only 6 per cent do so in Tana River county.

Available data confirms that there is a strong link between volume and quality of infrastructure, and economic growth and poverty prevalence. Regions with better access to potable water and higher density of bitumen roads have lower poverty prevalence (SID, 2006).

Kenyans have a lot of hope in devolved governance, as it provides opportunities to enhance equitable development of the country. One of the key objectives of devolution, provided for in Article 174 (g) of the Constitution is that of ensuring equitable sharing of national and local resources throughout Kenya.

Devolution also holds a promise, as it is premised on dealing with past challenges of centralised governance, inequitable distribution of resources,

8 The Policy Magazine January - March 2014

inequitable development and poor delivery of public services.

It is, however, debatable as to whether Kenya will tackle inequality through devolved governance, appreciating the fact that the inequality experienced in the country may be as a result of socio-economic factors that are unique to Kenyan communities.

Devolution may accentuate horizontal inequalities between rich and poor counties as a consequence of the ability of counties to raise local resources. Article 209 (3) of the Constitution provides that county governments may raise revenue by imposing property rates, entertainment taxes and any other tax that is authorised by an Act of Parliament, among other sources. It is apparent by now that some counties will not raise much revenue from the first two options. This can be attested to by variations in revenues raised by the now defunct municipal councils in

Illustration by Kenny Kaburu

Editorial

their respective counties. This implies that some counties are likely to have more resources at their disposal, making it possible for them to develop and improve service delivery, thereby widening the gap between them and counties with weaker revenue bases.

Devolution may also exacerbate horizontal inequalities as a consequence of differential levels of administrative capacity of the counties. Counties may not have the necessary capacity and infrastructure to enable the administration of programme in ways that make it possible for them to achieve the efficiency gains from decentralisation (IEA, 2010). Counties with visionary leadership are likely to prosper as a result of policies that will spur development, as the leadership is able to leverage on the county’s potential, thereby resulting in economic growth and prosperity. The appointment of officials, including members of the

County Executive Committee and recruitment in the county public service, will be key, as the ability of persons elected or appointed into these offices will definitely have a bearing on the performance of their respective counties.

There is the danger of devolving inequality to the counties, as some will maintain a majority and a minority community, yet it is not clear how counties will ensure minority representation and right given the above trend. Local groups, as has been witnessed in appointments in a number of counties, will most likely seek to maximise their representation in county leadership. This scenario, if not properly checked, may result in the marginalisation of minority communities and skewed allocation of resources, which may ultimately exacerbate intra-county inequalities.

Minorities or majorities in the counties may be as a result of one’s ethnicity, clan and religion among

others. Counties are also at the risk of elite capture ,whereby the ruling or dominant local political class uses its power to influence county government action and policy. This may result in the concentration of resources in specific areas ,thereby increasing inequality in the counties.

The local elite may capture most of the power and benefits that decentralisation provides, and as a result, reducing the opportunities for improving the welfare of the poor (Manor, UNDP, 2003). This calls for the development of political capabilities of the poor, to lobby for the formulation of pro-poor policies.

There seems to be an assumption that powers and responsibilities have been devolved to leaders who are accountable and responsive to their constituents, and that this will definitely translate to improved service delivery. This may, however, not be the case in all counties.

Resources in counties may yield different results for different regions, depending on how and where they are spent. Kenyans have expressed fears of corruption being devolved to the county level. Concerns have also been raised about the budgets developed by some counties raising the red flag on the prudent use of public funds. This challenge can however be addressed, through active engagement of the public in devolved governance processes and in ensuring accountability in the formulation of policies as well as the use of resources.

The Constitution channels higher resources to underprivileged areas. It establishes an equalisation fund for the provision of basic services, including water, roads, health facilities and electricity in marginalised areas. The fund accounts for one half per cent of all the revenue collected by the national government each year. The fund, however has a sunset period of 20

>>> Continued on page 11

January - March 2014 The Policy Magazine 9

News brief

Compiled By Oscar Ochieng

Budget 2013/14 and the hurdles ahead

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he Institute of Economic Affairs (IEA) convened a stakeholders meeting in 2013 to discuss the implications of the devolved government on the Budget.

The forum, whose theme was The onset of the devolved government and the hurdles ahead, pointed out some items in the estimates of the national government’s recurrent and development expenditures that contain allocations for some functions that are supposed to be in the jurisdiction of the county governments.

The objective of the meeting was to share the Institute’s analysis of the budget and sensitise the public about the proposals and their implications. IEA gave a critique of the Budget 2013/2014 framework based on the economic environment, budget financing

sources, fiscal implication and a view of the taxation proposal as outlined in the Finance Act, 2013.

Role of agriculture in county economies

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he Institute of Economic Affairs (IEA) in collaboration with ActionAid conducted a study on the role of agriculture in the counties. The aim of the study conducted in Baringo, Migori, Kakamega and West Pokot was to strengthen farmers’ participation in the economic planning of the counties and review national policies in agriculture in line with the new units of government. The study determined the significance of agriculture on the county economies, and its relevance to investment in interests of women and communities living in exclusion. It also determined the agriculture-related economic drivers in respective counties with regard to economic empowerment of women and smallholder farmers.

The study also generated recommendations for county development plans, putting into context the role of women as smallholder farmers in the agricultural sector, and generating a bottom-up review of the Agricultural Sector Development Strategy.

10 The Policy Magazine January - March 2014

News briefs

B

y 2040, two out of every three people in the world will be living in a city. Of those people, one out of every three will live and work in the informal city, yet the informal city is often excluded in urban policy planning.

Urban informality, or the “informal city,” comprising a number of actors and activities within the urban environment, cannot be overlooked and it is important to ensure that plans to make future cities sustainable take into account the people living and working in the informal sector. Towards this end, the Rockefeller Foundation has funded a project on Informal City Dialogues (ICD), which is being implemented in six cities: Bangkok (Thailand), Chennai (India), Manila (Philippines), Lima (Peru), Accra (Ghana) and Nairobi. The project was part of Rockefeller Foundation’s centennial celebrations under the theme "Innovation for the next 100 years."

This is in partnership with Forum for the Future and Next City.

IEA organised a series of activities under this project, including walkabouts (visits to the

informal sector and spaces in Nairobi) and thematic meetings. These pre-workshop activities were used to identify participants for the scenarios building workshop, which was held in February 2013, at Enashipai Resort and Spa in Naivasha. The workshop brought together 29 participants who work or interact with the formal and informal sectors of the city.

The work shop enabled them initiate conversations on how Nairobi will look like in 2040, and to come up with innovative ideas that need to be put in place in the informal spaces to create a City where everyone enjoys quality life and this resulted in four scenario stories depicting the future of Nairobi in 2040.

These scenarios are Najivunia City, Bonoko City, Vulture City and Big Brother City.

See story on page 26

Photo: Shutterstock.com

Informal City dialogues: Nairobi in 2040

The workshop helped participants initiate conversations around how Nairobi will look in 2040 January - March 2014 The Policy Magazine 11

News briefs

Compiled By Oscar Ochieng

Making Laikipia a model county T he Institute of Economic Affairs, with support from ACT!, has been offering technical assistance in the development of the county budget and the County Integrated Development Plan (CIDP) 2013-2018 for Laikipia county, to serve as a model for other counties.

Five meetings were held with the Budget and Appropriations Committee where the IEA helped them review the 2013/2014 budget.

Through several consultative forums, in which public input into the budget review was received, the IEA sought to set up a benchmark of participatory budget-making as envisioned in the devolution agenda. Collation of all input and available data into the draft County Integrated Development Plan (CIDP) 2013-2018 served as a high point of the effort in the development of a citizen participation framework for the county.

While the national budgeting process has been characterised by grand ideas, its implementation has been wanting. To avoid this, the IEA sought to empower Laikipia county’s civil society organisations on the national and county budget processes, implementation and tracking. The proximity of these organisations strategically places them to play an oversight role for the devolved government in the grass-

Photos:www.laikipiacounty.go.ke 12 The Policy Magazine January - March 2014

roots. To take stock of the three-month exercise, the IEA in collaboration with the Laikipia county government organised a conference for sensitisation on devolution and validation of the CIDP. The plan is near completion and will greatly inform development plans in other counties as IEA steers the process to find solutions to the challenges of devolution.

Devolution's and socio-economic Enequality

>>> Continued from page 7

years. The debate has been whether the amounts provided will actually bring the quality of the identified services to the level generally enjoyed by the rest of the nation as desired in the next 20 years.

Just how many kilometres of road can a marginalised county construct with the amounts allocated?

Devolved governance provides opportunities for improving public service delivery, as local communities have the opportunity to engage in policy making through structures that have been established in the Constitution and various legislations.

This will only be possible if the public is vibrant and engaging meaningfully, and whether local leaders develop policies that are responsive to the needs of locals.

Devolution will increase equality only if resources are utilised more efficiently than under a centralised

system of governance. Reducing inefficiency may allow counties to divert resources into more productive areas or alternatively increase economic development. Diverting resources to less efficient uses, in either productive or allocative sense, as was the case in some of the 2013/2014 budgets developed by counties, would increase inefficiency and lead to an increase in inequality within regions.

The Constitution entrenches the requirement for the government to involve citizens in the planning, implementation and oversight of public service delivery. By operationalising the constitutional provisions for public participation in service delivery, the risks of capture of county government by local elites can be minimised. Counties with a vibrant civic society are likely to benefit more from collaboration in policy formulation.

There is a need to develop political capabilities of the poor if devolution is to have the desired impact.

This can be observed when policy makers and politicians engage directly with organisations of the poor; and the public exerting political pressure on the state for pro-poor policy outcomes, which require active civic society organizations, and third party alliances with organisations of the non-poor.

There is need for a national monitoring and evaluation framework for the evaluation and co-ordination of the devolution framework. Such a framework would enable the government to monitor development in counties as well as the use of county revenue funds.

Counties should also desist from thinly spreading projects as this may not have the intended impact.

Chrispin Oduor works at the Institute of Economic Affairs

Why wananchi should engage in budget-making

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he Institute of Economic Affairs (IEA) organised a workshop on participatory planning and public finance management to educate the public, especially at the grassroots level, on the importance of taking part in the budget-making process, both at national and county levels, since it is their constitutional duty. The workshop, which was held in September 2013 brought together more than 100 participants from the civil society organisations, local communities, church leaders, an Uwezo Fund representative and the Mwiki county representative.

The aim of this workshop was to create awareness on how the devolved system of governance works in Kenya and some of the opportunities it offers. The importance of participating in budget-making is to hold the government and county leaders to account on their policy and financial commitments. From the presentation made by the Insti-

tute, it was evident that there was a need to hold more similar workshops across the country, as most participants not only asked questions but also acknowledged that they had no idea how devolution works. Many said they did not understand the role of the governors.

January - March 2014 The Policy Magazine 13

Education offers hard lessons on devolution The devolution of education is already beleaguered by many problems, but it is not too late to fix them, or for other sectors to learn from education’s example, writes DR. ANDREW RASUGU RIECHI

T

he education sector offers many lessons about devolution, but perhaps the hardest lesson to learn is that the transition is sowing distrust and resentment where it should be cultivating mutual understanding and co-operation.

It did not have to be this way. Given the 14 The Policy Magazine January - March 2014

Photo: Shutterstock.com

Cover story

autonomy that public schools have enjoyed for years in Kenya, it is a sector that could draw on its own long history of decentralisation.

The 2010 Constitution of Kenya is also more cautious in the devolution of education than of other sectors. The Central government retains control of all but pre-primary education, village polytechnics, childcare facilities and home craft centres. By comparison, counties are taking on much greater responsibilities in sectors such as health.

With the long history of local autonomy in schools, and the limited breadth of devolution in the sector, the current challenges are all the more concerning. But it is not too late. If we

Cover story Education in Kenya at a glance

• A key achievement in Kenya’s education

sector is improved early childhood development and education gross enrolment rate from 57.7per cent in 2005 to 66.3 per cent in 2012.

• The Kenyan government faces several challenges like inadequate transition rates from primary to secondary schools shortage of classrooms especially in primary schools (leading to congestion) and low cognitive achievement.

• By granting that education be managed through a devolved system, the Constitution envisages that the national government will continue to carry out its oversight as well as policy development roles, with county governments taking responsibility for exclusive, concurrent and residual functions.

Director, the County Executive in charge of Education and other relevant stakeholders at the county level. It is hoped that devolution of the management of education will institutionalise an education management information system (EMIS) that will lead to the establishment and maintenance of the much-needed database for education, science and technology at the county level.

There is also a need to support and be accountable to the devolved institutions as spelt out in the 4th Schedule of the Constitution.

Legal and policy frameworks

Education should be managed through a devolved system as prescribed in the Constitution, but the roles and responsibilities of county governments in the devolved education functions must be discharged through a consultative process. This should be accompanied with the development and enactment of relevant legal and policy frameworks. Clearly, the advent of devolution and the institutions established by the Constitution has provided a good opportunity for development of new policies.

In particular, there is an opportunity and a compelling desire to design appropriate policies specifically to meet the needs of county governments. The formation of county assemblies provides a unique context for policy-making, for example, through the distinctive composition of the executive and assembly committees with a formal policy-

making role. As part of the process of effective devolution, active citizen participation requires urgent dissemination and review of the ten existing policy frameworks besides the Sessional Paper No. 14 of 2012 on a Policy for Reforming Education and Training.

Finally, as already pointed out by several organisations like the IEA, IBP, Hakijamii, which have consistently advocated transparency and accountability in the management of Kenya’s public affairs, successful devolution will depend on both county governments and the national government. The on-going innovations in some counties in a bid to make them viable economic units should be encouraged by the national government and the development partners so as to strengthen their economic bases. These governments must supplement resources from the national government to make devolution of education possible, otherwise, it will be suicidal to depend on the resources from the national government, which are subjected to intense inter-sectoral competition against a growing population.

Though the devolution of education is presently beleaguered by a raft of problems, it is not too late to address them. We simply need to emulate our nation’s best students and learn from our mistakes.

Andrew Rasugu Riechi, PhD, is a Policy Analyst and Senior Lecturer, Department of Educational Administration and Planning, University of Nairobi.

January - March 2014 The Policy Magazine 15

Cover story can fill the current communication gaps with honest dialogue, and put in place a raft of missing legal and policy frameworks, education can still provide an example to follow rather than a cautionary tale.

A national priority

Over the years, it has been officially acknowledged that the provision of education and training to all Kenyans is fundamental to the success of the government’s overall development strategy. Indeed, the long-term objective of the government is to provide every Kenyan with quality basic education and training, including two years of early childhood development and education (ECDE), eight years of primary and four years of secondary/technical education.

The development of quality human resources is central to the attainment of our national goals for industrial development and the realisation of universal access to basic education and training ensures equitable access to education for all children, including disadvantaged and vulnerable groups.

Government interventions

The recognition of education as a priority, has provided the rationale for the longstanding policy commitments that have seen education in Kenya funded out of public resources, with donor funding constituting about two percent of the total annual education budget. The Government of Kenya has implemented appropriate demand-side as well as supplyside interventions, including Free Primary Education (FPE), Free Day Secondary Education (FDSE) and the Secondary Education Bursary Fund (SEBF) programmes that have seen a rapid quantitative expansion of the education sector.

Some of the key achievements in the sector include improved ECDE gross enrolment rate from 57.7 percent in 2005 to 66.3 percent in 2012; primary education net enrolment ratio (NER) from 82.8to 95.3 percent; secondary NER from 20.5 to 33.1 percent; primary school completion rate from 77.6 to 80.3 percent and primary-to-secondary education transition rate from 57.3 to 73.3 percent during the same period. One would say that Kenya is doing relatively well in terms of the level of access to basic education, but there are major inequalities across regions in terms of access, learning 16 The Policy Magazine January - March 2014

attainment and literacy.

Despite these impressive achievements following policy interventions aimed at enhancing equity and access, the government faces several challenges. These include inadequate transition rates from primary to secondary schools; shortage of classrooms, especially in primary schools (leading to congestion); low cognitive achievement; an escalating teachers wage bill that absorbs close to 80 percent of the Ministry of Education’s recurrent budget; inadequate teaching and learning materials; inadequate teaching staff; high teacher-pupil ratio; inadequate capacity for both quality assurance and standards and education officers in the field.

Education should be managed through a devolved system as prescribed in the Constitution, but the roles and responsibilities of county governments in the devolved education functions must be discharged through a consultative process.

Bloat and inefficiency

Most of these challenges have been attributed to a bloated administrative staff at the top and a cumbersome management structure — six directorates, two autonomous agencies and 10 semi-autonomous agencies — which has made the provision, promotion and co-ordination of education, training, research and science, technology and innovation services a nightmare. With a weak monitoring system, the consequences have been inefficient education system that boasts of quantitative outputs but limited outcomes.

There is consensus among stakeholders that these challenges have led to inefficient use of resources and regional disparities in access to education. For a long time, Kenya’s education system has almost exclusively emphasised academic specialisation, where technical, vocational and other talents, skills and aptitudes are given secondary priority.

However, the Sessional Paper No. 14 of 2012 on Framework for Reforming Education and Training advocates an education system that

Cover story

Photo: mission2maua. blogspot.com

bridges the gap between the rich and poor.

This can only be achieved by addressing inequalities in education service delivery, reducing wastage, improving teacher development, and focusing on learning outcomes and retention of pupils.

Despite the Government of Kenya spending about 6.5 per cent of GDP on education, which is supposed to be a catalyst for socio-economic development, it has not generated optimal returns. It is against this backdrop that the Constitution created devolution after persistent calls for reforms in the governance of public affairs.

expected to manage pre-primary education, village polytechnics, childcare facilities and home craft centres. It is regrettable, however, that the roles and mandates of the sub-national organs that are expected to manage education have not been clearly understood before they can be proactively pursued. From discourses on the management of education in the new dispensation come high and worrying ignorance levels among most stakeholders, from the legislative organs to county officials, district education officers and institutional management boards.

Devolution and management of education

This paper is informed of ongoing conversations for restructuring the Ministry of Education, Science and Technology (MoEST) with a possibility of establishing a Directorate of County Education, Science and Technology that will cascade the technical functions of the ministry to the grassroots in line with the provisions of the Constitution and the Basic Education Act, 2013. If done, this will be a good thing, but there are communication gaps between the national education office and stakeholders at the sub-national level, which is creating confusion, anxiety and unhealthy speculation. The restructuring process should have been finalised by now, with active participation of all stakeholders, including the Transition Authority. There is a need to clear the air regarding the roles of the TSC County

By granting that education be managed through a devolved system, the Constitution envisages that the national government will continue to carry out its oversight as well as policy development roles, with county governments taking responsibility for exclusive, concurrent and residual functions.

The 4th Schedule of the Constitution specifies that the national government should be in charge of language policy, education policy, standards, curricula, examinations and granting of university charters, universities, tertiary educational institutions and other institutions of research and higher learning, primary schools, special schools, secondary schools and special education institutions.

On the other hand, county governments are

Communication gaps

January - March 2014 The Policy Magazine 17

Cover story

Media at a crossroad

A number of media houses are considering the potential of regional markets under devolution. Early indications however suggest that the market cannot support quality local journalism. LUKE MULUNDA says it is time for policy-makers to think about how they can help ensure that devolution facilitates media to reach all Kenyans.

O

ne of devolution’s strengths is that it brings government closer to the people, which in theory improves transparency and accountability. I say in theory because this presumes that it is easy for citizens to know what their local government is doing.

Indeed, there are new local forums contemplated by the Constitution that allow county governments and citizens to communicate.

People may also communicate fairly well with local governments through elders or grassroots associations like women’s groups; local leaders are usually only a few steps removed from citizens.

But when a county government has something to hide: when it fails to achieve its goals, when it is stealing public funds, when it is abusing rights, what then? Who then would help citizens to navigate the various viewpoints and opinions on the most controversial issues?

The success of devolution, like any democratic system, relies on a strong and independent media. The problem is that this does not exist at the county level and, by all indications, it will not, unless there is a bold policy that encourages it. This is because there

are no incentives for the media houses to invest heavily in quality journalism at the county level. This is a textbook case of market failure. Complaining about it will not fix the problem; only good policy will.

Regional markets

Before the promulgation of the Constitution in August 2010, media companies frowned at regional markets. It did not make economic sense for Standard Group (SG), for example, to have an extra newspaper competing against its Standard daily and weekly newspapers, which have a national appeal. The Nation Media

18 The Policy Magazine January - March 2014

Group (NMG), too, saw little potential in these “small” markets, and kept its focus on the national pie.

However, when devolution began taking shape with the implementation of the new Constitution, media companies began to contemplate the possibilities. It appears that the two main media houses, NMG and SG, had to think really long and hard on how to snare the counties market.

Newspapers and television stations toyed with the idea of going regional, featuring each county in the hope of winning audiences and squeezing cash out of advertisers as soon as the Constitution was promulgated. This, it

Cover story seems, did not work out well, as the county focus was reduced to a small section in the newspapers and TV bulletins. Nation newspapers featured all the 47 counties in a special report format week after week, as its sister television station NTV. The trick was to hold audiences in the respective counties captive and sell their attention to advertisers.

Media response to devolution

Television remains almost impervious to devolution, perhaps because of the high costs involved. The TV market is also not popular in rural counties, where TV set ownership is limited due to poverty levels and low penetration of electricity. However, with rural electrification growing, localising of TV news could be an opportunity in the future.

All the five local daily newspapers – Nation, Standard, Business Daily, The Star and The People – have dedicated more editorial space to county stories and increased the number of reporters in the regions. Among the newspapers, The Standard has gone for broke in its efforts to commercialise this market. It has launched two independent weekly newspapers targeting the counties. The Nairobian serves the capital and its environments while The Counties (formerly County Weekly) focuses on the 47 counties. Nation Media Group (NMG) also recently launched its own Nairobi-centric newspaper, Nairobi News, ostensibly to counter The Nairobian.

The County Weekly, started in anticipation of the counties in July 2011 on the early-bird gamble, was rebranded to The Counties and re-launched in August 2013 with expanded content. It covers each of the 47 counties deeper than your average national newspaper. Both The Nairobian and The Counties are yet to find their footing in the market, with circulation figures still low and advertisers shying away.

Policy options In order to curb the challenges highlighted, the following policy options may give a solution: 1. Regulation: As part of their statutory responsibility, perhaps media houses should be obliged to provide the kind of media reporting that can enable citizens effectively participate in local governance. This kind of regulation will ensure quality and ethics in practice.

2. Subsidies: If one agrees that the market simply cannot support local journalism, then it may be a question of subsidising the industry is such a way to make it viable in the short term — until the market grows to a size that can support quality local journalism.

3. State media: Another approach, given the evident market failure, is to carry out the long-awaited reforms at state owned Kenya Broadcasting Corporation (KBC) and to give it the resources it needs to produce and disseminate local content.

The one option that we should not take is to ignore this problem.

More indirectly, devolved money may also stimulate growth of these economies and boost per capita incomes, and in turn, increase demand for extra newspapers and magazines.

Local businesses benefiting from this inflow of cash are expected to be sources of advertisements and other media partnerships. But that may take years, if it happens at all (other articles in this issue cast doubt on devolution’s potential to stimulate economic growth). Meanwhile, the experience of The Counties has made it clear that the market will presently not support anything other than a token effort at regional journalism.

Some hope for radio?

When it comes to radio, the segmentation is more pronounced.

The country has 102 FM radio stations, according to Communications Commission of Kenya figures for July 2013. A huge proportion of these radio stations are

The experience of The Counties has made it clear that the market will presently not support anything other than a token effort at regional journalism.

Market failure

A number of investors are coming up with county-specific publications, including weekly newspapers, monthly magazines, and even online portals, but the market is ruthless in the print section. Some newspapers that started off after the elections, for example the Karen-based Governor Daily, folded barely six months into business. More county publications will come up in 2014 after investors find profitable entry points, but their “mortality rate” will be high.

Funds have been devolved in the billions of shillings to the counties, but it is not yet clear whether any of these will be spent on advertising in a way that could promote local media.

sectarian, serving the niched audiences across the country. Nairobi has the biggest share of radio stations, both national and niched, vying for a share of the capital’s audience.

The Kenya Broadcasting Corporation (KBC) has expanded its vernacular radio stations to more communities in different counties, but still retains its flagship Kiswahili and English services. Most other media houses, such as NMG and Radio Africa, have focused more on the urban audience. An attempt at niching by big media – such as QFM for NMG and Radio Jambo for Radio Africa Group tends to target the not-sosophisticated national audience. The king of radio broadcast devolution is

January - March 2014 The Policy Magazine 19

Cover story Royal Media Services (RMS). S.K. Macharia, who owns the broadcast giant, saw the devolution before everyone else did.

RMS runs a radio empire unrivalled in terms of reach and geographical distribution. Besides Radio Citizen, which is a market leader in national audience, RMS has radio stations targeting ethnic communities and broadcast in their languages.

Since devolution started, RMS has been trying to further segment the market based on counties, especially in Western Kenya among the Luhya who have many dialects. From Mulembe FM, which served all Luhyas, RMS has launched Isulwe for the Bukusu in Bungoma and Vuuka for the Maragoli in Vihiga.

Looking closely at the content in these stations leaves a lot to be desired in terms of quality journalism. Local correspondents of vernacular radio stations are poorly (if at all) trained and underpaid. If RMS, with its extraordinary efforts at regionalisation, cannot see it fit to invest properly in local news, who will?

SMS news alerts are becoming more popular, with media houses attracting subscriptions to deliver news on mobile phones at premium costs.

Initially, it was general news but the classification is going into specifics, where one chooses to receive news from their regions of interest. This however is just a channel for delivering the news; you still need someone to produce quality local journalism. For those who would hold out hope for some kind of new media solution to this too, I would simply suggest that they name one – just one – prominent blogger based in a Kenyan city that is not Nairobi.

The author is a media consultant based in Nairobi. Email: info@ mediaoneke.com

BY CAROLE KIMUTAI

Kenyan media and devolution: The market dynamics

A

ny media manager will tell you that a media organisation is first and foremost considered as a commercial entity. Even if some claim not to be in the business of generating profit, their success is measured by their capacity to deliver large or well defined audiences to advertisers or sponsors.

The Kenyan media is still struggling over how to commercially leverage on devolution.

For print media, we have seen a few county newspapers and magazines launch and fold in the last two years while the national newspapers have only managed to allocate a few pages to county news. Vernacular radio, on the other hand, is reaping the commercial rewards of regionalisation. I am yet to see more bold entrepreneurs placing their money on television broadcasting in the counties.

Market dynamics

The social composition of the audience reached "sold" to advertisers is important because of differences in purchasing power and in type of goods advertised. There is a logic in the advertising-based mass media that favours a convergence of media tastes and consumption patterns (less diversity). The argument is that homogenous audiences are often more cost-effective for advertisers than heterogeneous and dispersed audiences (unless they are very large mass markets for mass products).

The only time that diversity is considered to work (from a commercial perspective) is when a medium is able to accurately deliver a small but profitable niche market. A media manager will most likely argue that the county market is not a profitable niche market for newspapers and television, and that only radio can work. So why has radio and specifically

20 The Policy Magazine January - March 2014

Cover story vernacular radio, worked so well in Kenya? In Kenya, radio, as a medium is at the centre of people’s lives.

According to the Kenya Audience Research Foundation 2012 report, radio is a leading source of news and other current affairs, followed by television and newspapers. On average, 90 percent of the Kenyan population listens to radio at least once in seven days.

Media buyers and advertisers would rather advertise on radio to reach this mass audience than use a publication. Kenya being highly rural, literacy levels are low and poverty high compared with urban areas, ,where people can read and have a television set at home.

The mass media is closely tied to the economic development of a country. An example is a developed country like Canada with a communication infrastructure that is modern, extensive and highly interconnected.

The country has a 97 percent literacy rate and one of the world’s highest rates of newspaper circulation. On average, one in every 4.5 Canadians gets a daily newspaper.

Canada’s advertising market is the fifth largest in the world, with revenues for cultural industries alone totalling $13.4 billion. Canada has an interconnected telecommunication system that connects 98 percent of Canadian households, 2,124 cable systems that pass by 95 percent of Canadian homes, 250,000 satellite dishes, and radio and TV stations that serve 99 percent of the population.

Media cost structure

For traditional media like television and newspapers, there is the potential imbalance between "fixed costs" and "variable costs" of production. The higher the ratio of fixed costs (land, physical plant, equipment and distribution network) is to variable costs, the more vulnerable a business is to a changing market environment.

Television and newspapers typically

have a high ratio with heavy capital investments, which have to be recouped by sales and advertising revenue. If that market is not profitable, then a media investor will definitely shy away.

In the case of Royal Media Services, one of the media houses with a large footprint of FM vernacular stations, all their stations broadcast from the headquarters in Nairobi. The only investment they have made is in one-off costs like communication masts and getting local frequencies.

Their variable costs are labour. With technology like computers and the internet, journalists in the counties do not have to be in an office.

Newspapers on the other hand have to contend with fluctuations in demand and advertising revenue.

Publishers have to ensure they print enough copies that can pay for themselves.

Rising consumer market

The single-biggest business opportunity in Africa is the continents rising consumer market. McKinsey’s Rise of the African Consumer report cites several attributes of the African consumer: - they are brand conscious and demand quality plus they also spend more on food than their counterparts in Brazil, India or China.

This shift in consumption shows Africa’s erratically paced shift from a population largely engaged in subsistence agriculture to an

urbanized one of wage earners, small business owners, and even entrepreneurs. Urbanisation is a central feature of this new landscape – and especially so for the media.

Devolution will definitely spur urbanisation.

For media to thrive in a devolved environment, it is important to review the dominant media structure. The Kenyan media is invariably related in some way to the prevailing structure of political and economic power. The majority of the media organisations are owned or controlled by a small number of powerful interests. Their content is often similar in type and purpose and they disseminate a limited and undifferentiated view of the world shaped by the perspectives of ruling interests. You will find that the content of the mainstream media is often dominated by politics, not because it is newsworthy or fascinating, but because of the political interests of the media owners.

It is, therefore, worth looking at media at the counties from a commercial perspective by investing in media that will give more people access to mass media.

January - March 2014 The Policy Magazine 21

Cover story For devolution to succeed, the actors in both national and county governments need training on planning, service delivery and monitoring and evaluation. How is this possible? ABRAHAM RUGO MURIU provides the answers.

Empowering leaders to run devolved units T

he advent of the devolved system of government has come with various challenges in terms of implementation.

Although the national and the county governments have their mandates spelt out in the Constitution under Articles 185 and 186 and Schedule 4, for devolution to succeed, capacity needs to be developed for both national and county institutions, especially on planning, service delivery and monitoring and

22 The Policy Magazine January - March 2014

evaluation. In aggregate terms, the national government is assigned 35 functions and county governments 14. Each government has exclusive functions and concurrent functions that are to be carried out by both levels. Then there are residual functions that are not assigned to any level and will thus be carried out by the national government. Each government is mandated to deliver the highest level of affordable services within its

Cover story jurisdiction. Article 6 of the Constitution, for instance, requires the national government to ensure reasonable access to its services in every part of the republic.

But how are these functions similar or different?

Under Schedule 4, the national government is allocated policy-making responsibilities. But in education, security and defence, the national government has a greater implementation role. The counties have a greater implementation role and less policy making. Each level has a legislative mandate and is expected to develop policies and laws for effective governance.

The focus

It is thus expected that each level of government will have the requisite capacity to perform their functions. The delivery of high quality public goods and services will be based on the plans and budgets made and passed. To track progress, monitoring and evaluation will be essential. The public (people and organisations) is expected to play a critical role. Public participation will be based on timely access to state information based on Article 35 of the Constitution. The supreme law commits every actor to deliver on their responsibilities.

There is, therefore, a need to build capacity targeting four key actors: The national government, county government, the intergovernmental relations and the public (especially the citizens). While the focus is always on putting systems in place, there is a need for greater focus on the human component of development.

This has to do with values, attitudes and ethics of public service. The key values are provided for in Articles 10, 201 and 232 of the Constitution. The process should appreciate that these values can only be upheld at a personal as well as corporate level. The values are critical to achieving the new constitutional spirit.

What has been done

After the March 4 election, there have been various efforts at building the capacity for effective devolution. Key implementers were the Kenya School of Government (KSG) and the Centre for Parliamentary Studies and

Training (CPST). The Transition Authority, the Council of County Governors and thereafter the Ministry for Devolution and Planning provided the overall direction of capacity building.

The CPST model seems to have delivered results. This was based on the efforts of the County Speakers Forum that divided the counties into six clusters. In each cluster, the Members of County Assemblies (MCAs) were trained on specific aspects of their work based on the committee system.

How can it be done?

The Ministry of Devolution has developed a comprehensive National Capacity Building Framework for Devolution. In this, the ministry hopes to streamline and better co-ordinate training for the government and the public.

The focus will be largely on government actors. The training will be managed in the context of Devolution Sector Working Group,

To make capacity building effective, it must be geared towards the achievement of specific public good such as health and agricultural production. which also comprises development partners.

There however is a need to ensure that it does not duplicate what has been done. A needs assessment would be most beneficial, as different counties are at different levels of competence. To an extent, there may be a need for customised programmes for various counties. Thus, while the national government has a clear mandate for building the capacity of county governments, that should be managed in consultation and co-operation.

That is the spirit of devolution.

What has not been clear is how the training for the public will be managed and implemented. The law requires the Ministry of Devolution and Planning to develop implementation guidelines. This is especially critical for the public participation to harmonise what the various counties are doing.

To make capacity building effective, it must be geared towards the achievement of specific public good such as health and agricultural production. This requires performance management plans.

January - March 2014 The Policy Magazine 23

Thought leadership

The right to participate must be claimed by all

Kenya’s Constitution enshrines the rights of citizens to participate in decision-making.

However, a successful policy of citizen participation will depend on whether Kenyans claim this right, writes MIKE ELDON.

T

he March 2013 elections challenged Kenyans to implement a major transfer of power from the national to the sub-national level. An important component of devolution, as spelt out in the 2010 Constitution, was that the public was that of public participation.

To date, however, not all the structures have been put in place to allow for citizen participation and counties are not clear about when and how to allow the citizenry to comment on local legislation.

In my experience, however, if Kenyans wait for the laws and structures to be in place, and an invitation to participate, they may end up waiting indefinitely. The right to participate must be claimed, since it wont be offered on a silver platter.

Before analysing what needs to be done to encourage constructive citizen

participation, we must acknowledge that in the past, there were few or no avenues through which people could seek reliable, up-to-date and user-friendly information, and the the views of the public if welcomed by officials, was not taken into account.

Some progress, but still far to go

When politicians and public service technocrats settle into office, it is natural for them to consider public participation as a nuisance. We don’t even need to label it “the arrogance of power”, for the intention of arrogance may not exist. Hostility to public involvement could just be irritation over the inefficiencies that inevitably result from time-consuming consultation. But the whole point of democracy is not that it is efficient. To the contrary, it is slow, messy and imperfect. The idea is that it should be effective, enabling stakeholders to

24 The Policy Magazine January - March 2014

influence and hence own decisions about their future.

The past decade has seen the government open up to public scrutiny and involvement, and in raising expectations regarding service delivery, a new Constitution, the publishing of Vision 2030 and of many other subsidiary strategic plans; the proclamation of Service Charters and the signing of Performance Contracts. All these, an indication that the government is committed to transparency and accountability.

Kenyans similarly have undoubtedly become more aware of their rights. Such awareness, however, though necessary for participation, is far from sufficient. Becoming active citizens requires an array of special knowledge, skills and attitude.

However, a closer look at the factors most voters take into account when voting in elections gets you worried

Thought leadership about the likelihood of an enlightened style of broader public participation.

Lessons from the private sector

One positive example that is instructive of citizens taking their own initiative – through their own means of organising – comes from Kenya’s private sector, where Business Member Organisations (BMOs) have over time evolved into highly effective advocacy bodies. Both within sectors and through its umbrella body KEPSA (the Kenya Private Sector Alliance), business leaders have learned to gather together around common challenges and opportunities, and to articulate their policy needs in a constructive and unconfrontational way. On their part, top government leaders have come to accept the benefits of meeting regularly and collaboratively with the private sector.

The institutionalisation of the engagement, with agreed agendas and serious follow up on decisions and agreements, has reached levels that can be replicated at the County level. Indeed towns like Nakuru have for several years seen effective business associations working with government to create a more enabling environment in which the private sector, and the community as a whole can thrive.

Mindful of the benefits of institutionalising public-private partnerships at both national and sub-national levels, several years ago the government started working on a policy for Public Sector Stakeholder Partnerships. The process stalled but it is now being revived, and given the urgent need to stimulate such partnerships around the Counties, that is most welcome.

The reality

It is good to have policies for effective citizen participation; but it’s far from certain that such engagement will work well. A recent initiative the

government is encouraging is the Nyumba Kumi bottom-up approach.

The reasoning is that citizens will only be empowered if they come together in inclusive and representative structures. It also recognises that to function as intended those elected to represent their groups of ten households, and those they choose to speak for their villages, will be sober individuals of good character. (The pilot initiative in Kirinyaga is worth examining, to see how such representatives have indeed been emerging.)

We however know it’s not hard to spend money gathering people together at public fora: all you need is an adequate sitting allowance and a

individuals (including within the County Professional Fora that were formed prior to the 2013 election), and through their functional associations and the umbrella Association of Professional Societies in East Africa (APSEA), many of Kenya’s professionals have been taking their community responsibilities seriously.

And, just like KEPSA, APSEA is more than aware of the need to make its contributions countrywide.

rent-a-crowd is yours for the asking.

The people who show up never really contribute or benefit. Does their participation lead to meaningful outcomes or merely to putting a tick in the box of compliance with stipulated requirements?

Yes, the people’s representatives must be sober: that’s absolutely necessary. But the partners with whom they interact, the Chiefs and Assistant Chiefs of the Provincial Administration and others in government, must also be men and women of goodwill and good intent.

It is not only the will of elected leaders, but also the quality of local administration officials that will together ensure a productive dialogue, generating healthy development.

Having mentioned the success of private sector mobilisation, and the nascent emergence of a bottom-up approach, let me turn to other groups, especially the professionals. As

Most societies are not too good at constructive engagement. People’s natural styles are too often confrontational, as we assume a world of scarcity in which the more you have the less is available for me. It is only a few visionaries among us who imagine a world of possible plenty, where the focus is on wealth creation and not merely on its distribution, and where a balance exists between instant and deferred gratification.

Some Counties will do much better than others in bringing forth citizens who will contribute to a better life in their part of the country. And some County leaders will do better than others in taking advantage of positive citizen participation. It is vital to learn from such counties that will develop and apply best practices.

Let us not forget that the productiveness of public participation will depend on the will and initiative not only of those in power, but of all of us.

Room for everybody

Civil society groups and faith-based organisations, women’s groups and youth groups, peace committees and others, must all find their place at the County and other levels.

Most societies are not too good at constructive engagement. People’s natural styles are too often confrontational, as we assume a world of scarcity in which the more you have the less is available for me.

January - March 2014 The Policy Magazine 25

Public finance

4 ways to look at county government budgeting

Devolution gives counties the opportunity to budget and spend, based on local needs and correct historical inequity that resulted in developmental inequalities, writes JASON LAKIN

L

ast year, there were complaints about county budgets being done poorly. While it was a difficult year for counties to budget— since counties are new entities, and governors were only elected in March, and budgets had to be tabled in April and approved in June. The Controller of Budget has always sent a strong signal that counties will be expected to meet new regulations that define how budgets are prepared, what they contain, and how money is used. This reflects a new level of scrutiny of public spending and higher expectations for the quality of public budgets.

The last 15 years, have seen a tectonic shift at the global level in norms around public finance management, with an increasingly stable set of international good practices around the presentation and release of budget information. These norms are codified in global frameworks produced by organizations like the International Monetary Fund (IMF) and are increasingly monitored using the Open Budget Survey (OBS), a biannual metric that assesses how much budget information governments make available to the public and the legislature.

The following are a set of questions a government budget has to answer.

Only by so doing, would it have gone some way toward best practice in budget presentation.

1. On what basis has the government estimated its costs and its revenues?

Ultimately, all government plans and budgets, just like in the private sector, are based on guesswork about what the future will bring.

Governments must particularly guess what the cost of goods and services will be in the future, and how much money they are likely to take in from taxes, grants and other financing.

These guesses should be based on models of how the economy works and past trends. It is generally useful to compare public estimates against private forecasts, or those of international bodies, like the IMF or World Bank. It is also useful to compare past guesses against past experiences to see how good the government is at making these guesses in general.

A good budget must make very clear its assumptions about the economy, including economic growth and inflation. Since it is impossible to know the future, a good budget also discusses the potential for error in these estimates, and the implications.

For example, if economic growth is lower than expected, what will this mean for revenue collection? If inflation is higher than expected, what will this mean for government’s ability to pay for goods and services? The budget should also indicate what is

26 The Policy Magazine January - March 2014

likely to be cut (or added) in the event that there is too little (or too much) money compared to estimates.

While many budgets do include estimates for growth and inflation, they less frequently explain the basis for these estimates. Good budget presentation, here as in all areas of the budget, requires substantial and substantive narrative, not only tables, to ensure that the logic of the numbers is understood by the reader.

2. How is the government’s spending priorities in one year similar to or different from another year’s? Why?

This sounds like the most basic question, but essentially the entire budget must be dedicated to answering it. The first implication for budget presentation is that spending categories must be consistent from year to year. If the government decides to collapse ministries or shift programmes around in the budget, it must provide a very clear indication of how this has been done and a way to compare last year’s spending and this year’s spending in spite of the

Public finance reorganisation.

The second implication is that the budget must present information on the most recent year of final, audited spending for which there are figures, and then estimates of final spending for all other years prior to the current year. For example, if the most recent audited year is 2011/12, then the final results for that year, by spending category, must be provided, and then provisional figures for 2012/13 and 2013/14, in addition to the 2014/15 estimates. This is the only way to understand what has been happening to spending.

The third implication is that the budget must be organised in a way that provides meaningful on its spending. The use of line-item, input only budgets confuses the readers as it often appears that all the government does is pay salaries, buy and maintain vehicles, and procure materials. Even with well-named sub-programmes, however, the budget will still require a narrative explanation of the mission and activities of the various sub-programmes for a reader to understand what is being prioritized.

Finally, a good budget should summarize information that allows readers to understand by how much the overall budget has grown, and which programmes and sub-programmes have seen increases, as well as decreases, in order to understand how the weight put on certain activities of government is changing. Many budgets are multivolume monsters, and it should not require a scavenger hunt to capture the major changes in spending from year to year. Since these decisions have implications for more than a single year, it is also critical to show multiple years of spending going forward in the budget (usually, at least two additional years is considered good practice).

3. How much of the budget is dedicated to investment for future growth and why?

Typically, we can think of the way

More than rules Good budget presentation is more than just following a set of rules. It should be guided primarily by the needs of those who actually use budgets. A good budget should answer important questions the citizens care about most: 1. On what basis has the government estimated its costs and its revenues?

2. How is the government’s spending priorities in one year similar to or different from another year’s? Why? 3. How much of the budget is dedicated to investment for future growth and why?

4. Is government spending fairly distributed, favoring those who need it most?

that a government spends money in terms of past commitments that are not yet paid off (debt), present commitments that will be realized in the current year and then have to be realized again next year (recurrent), and investments for the future that may involve high upfront costs but yield additional benefits later without further major payments (capital).

Since these types of spending achieve very different things and since every government has to make choices about how much to spend on each, it is important that the budget present choices among them in a clear way.

Most budgets do present information on government debt and interest payments, as well as attempting a division between recurrent and capital expenditure. They however fall short in explaining the links between the three types of spending and the reasons for the choices being made. For example, it is common for people to lament the amount that the government spends on debt payments, but to celebrate investment spending. Yet these are two sides of the same coin. Investment spending is often financed through debt, meaning that every investment proposal must be justified in terms of the return it will yield to the economy

in spite of the increase in debt. All current debt should also be explained (for what was it contracted?).

At the same time, since most capital spending requires additional recurrent funding, this must be clearly explained. Generally, the link is either through maintenance (infrastructure) or through wages, where, for example, buildings are constructed for social programmes (like education or health). The budget should be presented in a way that makes it easy to see these links and the total implied cost of projects (not only the capital costs). This should include future year commitments, since most development projects cannot be completed in a single year.

4. Is government spending fairly distributed, favoring those who need it most?

Fairness in spending is about both the social groups and the geographical regions that benefit from spending. It is not always easy to isolate the exact beneficiaries of public spending. For example, who benefits when a road is constructed between two regions?

Probably the residents of those two regions, but quite possibly, residents of other areas as well, and some social classes (those with access to cars) may benefit more than others (those without cars).

In spite of these difficulties, good budget presentation should include information about the geography of investments, the characteristics of the beneficiaries of social programmes, and narrative information explaining who is expected to benefit from particular spending. This information may be imperfect, but it allows the public to ask questions and critique the assumptions of government. Generally, a good budget presents as much disaggregated information as possible, allowing the reader to see where, when and how spending is happening, and for whom.

Jason Lakin, Ph.D is a Senior Program Officer and Research Fellow at International Budget Partnership.

January - March 2014 The Policy Magazine 27

Doing business

VAT Act: The good, the bad and the ugly

The VAT Act 2013 represents a break from the past and a solid attempt to bring VAT into the 21st century, essentially by making it a more elegant and “neutral” law — one that does not attempt to influence social taxpayer behaviour through selective taxation. It also promises to yield more tax revenue, mainly through the plugging of leaks, to the tune of KSh10 billion. Will it succeed? asks JOSEPH GICHUKI

28 The Policy Magazine January - March 2014

Doing business

V

alue Added Tax (VAT) was once described as the “tax of the future” when the late Prof George Saitoti, who was the Finance minister, introduced it in the early 1990s. This tax has a number of positive attributes affecting the behaviour of people who collect it.

Because it is collected from traders rather than consumers, it involves a relatively small number of collectors in comparison with, say, income tax.

Also, because traders can offset the

VAT they pay on purchase of goods or services from the amount they charge, they have an incentive to demand proper VAT invoices from their suppliers — what Musgrave and Musgrave in their ever popular Public Finance in Theory and Practice call “self-enforcement.” They also point out that that consumption taxes like VAT tend to encourage saving for various reasons. Unlike income taxes, consumption taxes do not reduce the rate of return on savings. Not a bad idea for an economy in which the saving rate remains well below the threshold for proper growth.

However, more than 20 years after VAT was introduced, the authorities concluded that a radical overhaul was necessary. The reason was that VAT was becoming increasingly harder to collect. This is how the collection mechanism is supposed to work in theory: A trader is charged VAT on his purchases, then he charges VAT on his own sales. But, before sending the VAT that he has collected on his own sales to the Kenya Revenue Authority, he deducts the VAT he was charged on his purchases. So, all he sends to KRA is the difference. Where his purchases exceed his sales, he can wait to see if the situation reverses in the subsequent month or ask for a refund.

If all sales of goods or services were taxed at the same rate, this would be straightforward. In practice, however, some supplies are exempted or taxed in such a way that the tax effect is nil.

These include exports — so-called “essential commodities” — and agricultural inputs, leading to complications that must be resolved separately. It is possible to levy a “zero rate” of VAT. (Or, as in the case of electric power and hotel services, a different rate from the standard one altogether). This would mean that a seller would charge VAT (at 0 per cent) but still deduct the “input VAT” that he had been charged on his purchases, which would include not

just his stock of, say, computers but other things such as stationery and professional services. If he sold only zero-rated items as happens with flower exporters, he would constantly be owed a refund from KRA on his input tax. Nonetheless, because he is able to recover the tax via a refund, he does not pass the tax over to his customer.

This is important because, if Kenyan exporters attempted to levy a 16 percent tax on the products they were sending abroad, they would simply become uncompetitive.

Simply, zero-rated items do have VAT on them; it is just at zero per cent, so the actual VAT is nil.

VAT-exempt items do not have VAT on them — not even at zero per cent.

However, this opens up an avenue for tax fraud, which KRA has attempted to seal with varying degrees of success over the past years.

KRA has imposed requirements for mandatory audits of refund claims by auditors, surprise inspections and compliance audits and various double-checks to ascertain whether these claims are genuine.

However there has been allegations of massive fraud and corruption.

Furthermore, the Treasury frequently finds itself unable to refund cash because of the government’s competing need for it. To ease the pressure, attempts have been made to allow taxpayers to offset refunds against other taxes they were due to pay, such as corporation tax and pay as you earn (Paye). However, because of the fraud fears, KRA insists on verifying and approving every claim (despite the presence of an audit certificate) before such offsets can be permitted.

This has often resulted in standoffs, particularly with the larger companies that are willing to go to court. And recent court rulings in favour of VAT payers have emphasised the new constitutional stipulation about citizens’ right to fair administrative

January - March 2014 The Policy Magazine 29

Doing business action, where KRA has been accused of excessive delays in either making refunds or giving offset approvals.

This has been worsened by the fact that the list of items eligible for zero-rating had grown over the years to a long and unwieldy one based on ad hoc changes. In contrast, many other countries with modern VAT systems, such as New Zealand, have few or no zero-rate items.

An alternative to the refund would be to exempt such “socially desirable” goods from VAT rather than zero-rate them. There would, thus, be no VAT charged on the sale of goods or services and no claims for refund.

However, this would not necessarily be good news to the consumer. A trader who had to pay input tax on various costs but was unable to recover any of them from his VAT return (because he was not dealing with VAT), would be forced to add his VAT to the price of his goods and, thus, pass it on to the customer along with other costs. In this way, “exempting” goods such as bread and milk from VAT would still make them more expensive than if they were zero-rated.

In summary, then, goods are cheapest for consumers if they are zero-rated, more expensive if subject to VAT and potentially most expensive if “exempt.”

But why would there be a need to have an exempt category if it does not benefit the consumer?

The only cogent argument for an exempt category would be a political one. It could be argued that a zero-rating is too cumbersome and a VAT charge not politically acceptable.

An exempt category would simply mean that the tax authorities had

avoided dealing with the item altogether. In the early years of the implementation of VAT, the government also experimented with a collection system called withholding VAT. In effect, certain large companies and government parastatals would deduct the VAT they were charged by suppliers before making payment for goods and services and pass it on to

KRA directly. Suppliers would then receive a certificate to that effect and include such “withheld VAT” in their returns as paid. This often resulted in overpayments in the supplier’s VAT records, on which refunds would be duly demanded.

Although the system was abandoned, it also contributed to clogging the system with refund claims that were often fraudulent. It was then inevitable that a simplified VAT regime would mean a drastically reduced list of zero-rated items.

Indeed, under the new Act, there are no zero-rated items as such. Items

30 The Policy Magazine January - March 2014

only qualify for zero-rating depending on whom they are supplied to.

Revoked status

So thorough have the reforms been that the special status of favoured institutions that were zero-rated has been revoked.

These include the President, the armed forces, the British Council, the East African Development Bank and Amref. In addition, all VAT remissions have now been scrapped. Specific remissions had previously been stipulated in respect of capital goods of at least KSh1 million per investment, taxable goods and services used in construction of low-cost housing and private universities, and capital goods for use in constructing manufacturing under bond facilities.

On the detailed lists provided in the new Act, it is clear that the principal focus was on simplification. All the goods and services that were previously zero-rated are now either standard-rated (charged at 16 per cent) or exempt.

The goods that now attract VAT include exercise books, journals and similar printed materials, disposable diapers, nappies and baby feeding bottles, all information and communications technology (ICT) equipment (including hardware and software), wind engines and windmills, ambulances and hearses, tractors, mosquito nets and animal feeds. All these are “socially desirable” inputs that would normally have been obvious candidates for some kind of preferential treatment.

Doing business The services that stand out as most affected by this transition are foreign travel and tourism promotion services supplied by hotels and electricity to domestic consumers, where the first 200 units of consumption were previously zero-rated.

Zero-rated goods that moved into the exempt category were the politically sensitive, resulting in advertisements in the newspapers to the effect that these were “exempt,” but without explaining that, in fact, they were likely to cost more because of the way VAT is collected. The criticism could, thus, be transferred to “unscrupulous traders” who were, of course, not to blame at all!

And the list is telling. It includes milk, medicaments, fertilisers, sanitary pads and tampons, maize flour, wheat flour and bread.

Following the logic of VAT theory, one would expect that goods that moved from an exempt category to a standard rate category would become cheaper, since the traders would recover their input VAT. Curiously, though, this has not been the case. The items in this group include newspapers, journals and periodicals, aircraft, wood charcoal, mobile phones, transportation of tourists, the services of tour operators, postal services and performances by Kenyan artistes. The price of newspapers notably went up by 20 per cent.

The new Act also instituted a cleanup of various administrative arrangements that had previously been subject to ad hoc interpretation, clarification circulars and even court decisions. These have now largely been incorporated in the Act. Now, the requirement for independent VAT refund audits has been removed. This is not just because the number of refund claims is expected to drop significantly but also because it was a burden on the taxpayer, which provided little practical benefit since

KRA has not been willing to approve claims without carrying out independent verification.

Another example relates to the transfer of a business as a going concern by a registered person to another registered person. This is now zero-rated under the Act. Previously, registered persons had to involve the KRA Commissioner beforehand in order to have the transaction classified as zero-rated.

The Act introduces many other such amendments, all designed to improve efficiency. A significant category of changes involves a drastic upward increase in the penalties for fraud by KRA. The fines range from KSh1.5 million, with jail terms of up to three years.

Finally, the Act introduced a

poor would typically consume are taxed under the new regime and are not even in the politically safe exempt category. School books would be one example. On the other hand, it could be argued that the lack of sophistication in our financial system makes it difficult to collect taxes fairly across the population and that many lower-income people, who would normally be eligible to pay income tax, do not because of the informality of their income sources. Seen in this light, VAT actually increases equity in taxation rather than decreasing it, by reaching taxpayers whom the income tax regime could not reach.

Furthermore, zero-rating goods and services consumed by the poor does not mean that the wealthy will not consume them as well and thereby

category of goods, principally petroleum and gas products, that would be moved from the exempt category to the taxed category after three years. It could be argued that, given the possible “advantage” of taxing them, they should move immediately, but the newspaper experience may well be a good reason to act with caution.

enjoy a benefit that was intended for low-income earners. Zero-rating VAT is thus a blunt and unsophisticated instrument of reaching the poor. It is more appropriate, for the poorest of the poor, to provide targeted direct subsidies (such as cash transfers for the elderly, orphans and vulnerable children) and a better range of direct services such as security and infrastructure in the places where they live and work.

As far as ameliorating the refund situation is concerned, practical experience on the ground will be the final decider. However, it is clear that the majority of refund situations no longer exist. This will be a source of great relief.

The lack of sophistication in our financial system makes it difficult to collect taxes fairly across the population and many lowerincome people, who would normally be eligible to pay income tax, do not because of the informality of their income sources.

VAT is regressive

An inevitable criticism of VAT is that it is regressive, which is to say it is applied at the same percentage for both the wealthy and the poor. But because the poor spend all of their money on basic goods, VAT costs them more as a percentage of their total income. In other words, VAT ends up being higher for the poor than the rich. Many items that the

Joe Gichuki is a Financial and Audit consultant

January - March 2014 The Policy Magazine 31

New knowledge

Nairobi in 2040

Have you ever asked yourself how Nairobi will look like in 2040? There are measures that have to be put in place and four scenarios may be experienced depending on the direction Nairobi takes, writes ABRAHAM RUGO MURIU.

G

overnment competence and caring citizens are the key to Nairobi’s future. Lacking one or both of them, the city will struggle to prosper. This was the conclusion by 28 people the Institute of Economic Affairs (IEA) brought together to sketch future scenarios for the city of 3.1 million.

The workshop organised with the support of the Rockefeller Foundation drew people from across the social and economic sectors of the city, from informal settlers and street vendors to urban planners and government officials.

In the best-case scenario, a competent county inclusively governs caring residents, leading to a future in which quality health care, land tenure and energy resources are secure. An incompetent county, however, suppresses even the best efforts of caring residents, who do their best to create informal solutions but are hampered by failing systems.

Conversely, a competent county can only do so much with a populace that is uncaring and exclusive. In this scenario, the informal realm is stifled, apathy is high and innovation is low.

The worst-case scenario is an incompetent county with uncaring,

An artist’s impression of the elevated Uhuru Highway Photo: Karuga Koinange,courtesy of BuilDesign

exclusive residents, creating a future in which life is a constant struggle, where only the strong survive.

Exploring these scenarios helps us to shape our future, because they point to the areas where innovation and planning are mostly needed — in informal spaces. About 75 per cent of Nairobi residents live or work in informal spaces and if the city is to realise equity in service delivery and inclusivity of all persons in decisionmaking, we must understand what innovations are required in these informal spaces.

This article looks at these scenarios and what the IEA is doing to help promote the kind of innovation the

32 The Policy Magazine January - March 2014

city needs for a prosperous, peaceful and equitable future. The four scenario cities are: Najivunia City, Bonoko City, Vulture City and Big Brother City.

Najivunia City

The “Najivunia” scenario comes from a Kiswahili verb meaning “I am proud of or I take pride in.” It envisions a city where many are proud to be part of, and work inclusively to ensure all people enjoy their life. This is a city with a highly competent government and caring and inclusive residents. There is freedom of speech and quality and affordable health care, where the

New knowledge

people cost-share to keep it running.

The middle class is active and keeps fighting for its rights and other people’s. The people have a sense of civic duty and the government actively engages residents and all stakeholders in policy-making and implementation. When public services cannot meet the demand, the people come together to fill that gap. The infrastructure is extensive and sufficient for development. The cost of living is high. There is increased focus on the climate, as evidenced by the numerous studies on climate change, adaptations and responses funded by the business community.

The result is abundant knowledge and capacity in handling climate change, including the development of smart buildings that generate their own energy. Service provision is efficient. Population settlement is denser but well organised.

Land ownership is less of an issue because of increased trust in the government to properly plan and use land for the common good. There is good policy on land tenure that has seen most of the slums upgraded into low-income housing estates, and land

is owned by the people who live on it.

Laws to regulate how much land one owns are enforced and government has bought back the extra land.

Though inequality still exists, there are controls that ensure the gap between the rich and the poor narrows and there are a lot of self-employment opportunities. Small and medium enterprises (SMEs) support the economy and are protected by the government. This creates an atmosphere for creativity, innovation and competition. There are instances of protectionism, but this is to the extent that local businesses do not suffer at the expense of foreign ones. The East African Community still exists, but there is tension with regards to membership and level of engagement — purely economic or political. The city has renewable energy sources, with investments in solar and geothermal energy. Fossil fuel is used as an alternative source for volume demands with efficient

Heightened citizen action means that communities help each other. The city’s competitive edge is sharpened through application of a multiplicity of skills. This is supported by a 24-hour economy.

Cheap capital is available for investors, and this is supported by an investment-friendly environment.

Increased development in technology makes the city a technological hub.

Collaborations make some informal systems more powerful, such as those in SME and technology. The city has equal opportunities and, as a result, a female governor is in power. The creative industry is more formalised, thus better organised, with designated places for business and easy licensing procedures. The formal has opened up to the informal. For instance, street vendors are allowed to sell their wares in the city but with clear regulations.

Life is generally optimistic but not utopian.

75% of Nairobi residents live or work in informal spaces. So, if the city is to realise equity in service delivery and inclusivity of all persons in decision-making, we must understand what innovations are required in these informal spaces. manufacturing systems.

Water is obtained from strategic reservoirs and sinking of boreholes ceases. The city also recycles most of its water. The Nairobi National Park still exists and the animal migratory corridors and the forests are well protected. The Nairobi River is rehabilitated and protected, providing a conducive environment for fishing and water sports. The city pays other counties to ensure they keep the river clean from source.

Security is assured in the city, with proper lighting and effective use of surveillance cameras. There is less crime due to decreasing inequality.

Bonoko City

The city’s name is derived from a man nicknamed Bonoko, who witnessed an incident where security agents executed an innocent trader and planted a gun (bonoko in street slang) on him. Bonoko symbolises a caring citizenry that stands in the gap for ineffective leadership and systems.

This city is for the organised cartels, investors and corporate firms who hold the government hostage to advance their own interests. The government cannot cope with the high demand for services due to the high population. It also lacks the will and capacity to expand its resource

January - March 2014 The Policy Magazine 33

New knowledge base. As a result, the residents turn survivalist. Informality is the way of life in this city. Residents live a fairly comfortable life within their means and self-organise to provide the services needed.

The residents are diverse, but certain traits — like the appetite for unique yet affordable products and services, efficiency and value for money — cut across. The youth are innovative and want instant gratification. They prefer flexible working hours and the majority hold at least two jobs. The informal sector is no longer seen as temporary employment for new entrants awaiting formal jobs or a transitory stop for the retrenched or retirees. It is now a preferred choice, as it offers flexibility and high returns. Goods and services provided offer value for money, diversity, quality and better profit margins, especially for the self-employed. The number of people living below a dollar a day is at its lowest since Independence. The number of millionaires is on the increase.

Excessive regulation of the market makes business formalisation difficult and expensive. Businesses operate

efficiently, and most of them remain small in terms of staffing, thanks to technology. There is a symbiotic relationship between the formal and the informal sectors, where the informal sees the formal as a market for creative products while the formal sees the informal as a distribution channel.

Communication between the government and the citizens is continuously frustrated by a cabal comprising elite corporations and individuals. Government plans are weak or non-existent in some sectors.

The systems are so rigid and do not allow for adequate stakeholder involvement. As a result, there is a disconnect between the citizenry and the leadership of the city. Ad hoc contracting leads to ghost or incomplete projects. Public services are privatised on the premise of increased efficiency, but those contracted do not deliver. Corruption is growing by the day. The informal sector has grown tremendously, but there are huge losses in revenue, attributed to the high levels of informality. The informal sector is seen as the enemy of development and is “fought” with regulations and restrictions, but its growth continues.

More people fail to pay taxes because they do not receive commensurate services. The leadership engages in beautification projects that see the demolition of informal structures housing businesses in the central business district (CBD) and its environs,

forcing entrepreneurs to relocate.

Hide-and-seek games between the askaris and the traders are common in the CBD. The government ignores the markets put up by informal traders, leading to congestion and pollution.

Despite these challenges, the residents flock to these areas in search of goods and services.

The residents of Bonoko City know their rights and flock to the courts to seek justice. The courts get overwhelmed. Life in the city becomes difficult by the day. Public protests are the norm.

There is a failed transport system and a plan to invest in mass transport is predicated on regulations that favour investors with a large capital base. The poor turn to matatus, a few form co-operatives and invest in buses; others opt to carpool while some prefer to buy personal cars, which are old though affordable.

Land ownership is a nightmare.

Community members join to buy land and build affordable housing. Formal systems are disregarded, as they are expensive. One can survive in Bonoko City, but it is a big hustle. The residents live in dignity, thanks to their prowess in self-organisation.

There is access to good (but not high quality) services and products, but illegal power connections are still a menace. Fuel and energy costs are ever on the rise. Green energy is too

Greening the city: Nairobi River + Kibera Photo: http://kenarch.wordpress.com, courtesy Austin-Smith Lord Vision for Nairobi 2030

34 The Policy Magazine January - March 2014

New knowledge expensive. The water and sewer systems are defective. The old pipes keep bursting and contaminating the water sources and the county may have a cholera outbreak.

The government does not prioritise on security, so the residents either contract private firms, employ multilevel security systems in their gated communities or the youth in informal settlements provide security at a fee.

There is a semblance of order in public places such as markets and bus termini. Former vigilantes oversee these at a fee. The strongest voices in this scenario are cartels, contractors, large corporations, foreign investors and the informal sector.

Vulture City

Vulture City results from failed county and indifferent residents. The residents are disengaged in the affairs of the city and only care about their individual or nuclear lives. In 2040, the Vulture City is characterised by gangs and vigilantes who seek to control different parts, especially the informal ones. They control movement in their strongholds, provide security, water and illegal connections of electricity. There are many vulture investments that take advantage of the failure of the county government regulation and hence exploit the public. The rule of law is non-existent and corruption and impunity thrive.

Economic growth is at negative, as there is both capital and labour flight to other cities that provide better investment opportunities.

Due to lack of a collective vision and leadership, people recline to their tribal and religious groupings in search of security. However, this is largely among the poor. The middle class and upper class establish high-walled gated communities. They seek many services such as shopping malls, borehole water, solar power and medical services provided within their walls. The high cost of living

A model of the expanded Jomo Kenyatta International Airport, which shows the new Terminal 4 on the left Photo:http://www.airportsinternational.com/Lord Vision for Nairobi 2030

makes life difficult and it is survival for the fittest.

Circulation of small arms in the city is open, as individuals seek to protect themselves. The levels of inequality are high and there is abuse of the social contract, resulting in diminished trust in the leadership and systems. Private firms no longer observe the minimum wage requirement and other established workplace standards. The informal sector, especially small and medium enterprises, collapse, as they are unable to withstand the high cost of doing business. The large firms that remain dictate prices with blatant disregard to any regulations.

Poor sanitation in informal settlements continues under deplorable conditions, leading to regular outbreaks of communicable diseases. The failure by the county government to respond to these concerns makes way for the entry of the national government with non-state actors to provide health services.

In a bid to gain control, the county government seeks the help of the

police to stop the emerging gangs.

Use of force leads to deaths, but does not stop the gangs, who have public support. Capital and labour flight means that the county government cannot raise sufficient resources and this affects any attempts at improving service delivery. The county government turns to borrowing, raising the debt burden. The cost of credit is high and few can afford it, hence entrepreneurship is curtailed.

People in the Vulture City are innovative, but only to the extent that they solve their daily problems (innovation for survival). Street protests and civil disorder by the poor are common, as people can no longer bear the harsh life in the city.

Politicians take advantage of this to offer lip service and gain political mileage. However, come the general election, the voter turnout is very low due to apathy. The losers in the election frustrate the elected officials.

The opposition almost brings to a halt the implementation of county policies and budgets.

It is a city of pain. Those who have the money make it while the rest live

January - March 2014 The Policy Magazine 35

New knowledge “one day at a time”.

The key actors in Vulture City are gang leaders, vigilante groups, apathetic citizens, inefficient and compromised county government officials, unscrupulous investors and humanitarian agencies that try to fill the gap of failed systems.

Big Brother City

This city characterised by highly competent governance, but with uncaring and indifferent residents, who exclude others in their day-today life. Big Brother City has functional infrastructure — roads, rail, water, sewerage and effective waste management services.

The government has the final voice and an upper hand in all decisions.

Social services such as health care, education and sports are efficient and with universal coverage of the city dwellers. Employment is available and the quality of political leadership is good.

There is, however, open intolerance towards outsiders. People are individualistic. Competitiveness is low, as the government controls every aspect of the economy. High taxes are levied on individuals and firms to ensure that government operates accordingly.

The population is complacent; there is little public participation and debate on policy alternatives. Low levels of innovation are due to the fact that the county government is the largest employer and hence no pressure for individuals to be creative. Low levels of corruption make the running of the city efficient, as citizens can rely on government services. Population growth is controlled and the majority of the people are old.

There is high cost of living, compared with cities in the rest of the country.

Big Brother City has low levels of inequality due to low wage disparities. The media is controlled

Summary of Nairobi 2030 Metropolitan Spatial Plan. Photo: http://kevinogutu.wordpress.com

and is careful to remain loyal to the ruling elite. The informal sector does not thrive and is considered ruinous to the image of the city.

There is a static culture. People fear to destabilise the government due to its good delivery record. The city is highly mechanised and largely secure.

Multinational corporations find it investor-friendly and set up a myriad of the regional businesses. Political leadership is dominated by middleaged and older males.

This is, however, inclusive at other levels of governance. Religion has a low profile, with a “Don’t Ask, Don’t Tell” policy practised in public life.

The Big Brother City has constant conflict with the national government, as it demands its own space to operate in. It also sees broad constitutional rights as an unnecessary interference in its autonomy.

The key actors in Big Brother City are the county government, business associations and professional bodies.

The innovations

Having considered the need to well prepare for any or a mix of the above

36 The Policy Magazine January - March 2014

scenarios, the team met for another two-day workshop and explored different requisite innovations. A creative idea dubbed the Ubuni (Innovation) Studio was chosen among four proposals.

The IEA in partnership with the University of Nairobi will roll out the studio, later named UseFulLab. It will be mounted in a low-income, informal settlement, where it will target three categories of people: Artisans who will use the studio to design and produce high quality products; out-ofschool youth who will use it to learn new skills and can make a living out of those skills; and in-school youth who will have opportunities to try out their ideas.

The studio combines technology and creativity in an economically depressed area. It is a test to the transferability of technology, as such concepts have only been tried in high-income areas and universities.

The studio is unique in that persons can walk in with an idea and walk out with a finished product.

It is a one-stop workshop using simple, yet creative technology.

Science & technology

Exploiting Turkana water resources

There are four major technological options that will manage Turkana’s water crisis. However, national and county governments must invest in ICT infrastructure to implement the plan, writes JOHN NYAKAWA

T

he recent discovery of a massive underground water reserve in Turkana was very good news for the people of the county, who spend most of their days searching for water. Turkana men travel as far as southern Ethiopia in search of water and pasture for their livestock, a situation that often causes conflict between them and the Merille of Ethiopia.

Many African countries are facing a serious water shortage. By 2025, it is estimated that nearly 230 million Africans will be facing water scarcity, and 460 million will live in water-stressed countries.

A study by Japan International Cooperation Agency (JICA) indicates that the amount of water per capita has been on the decline. In Turkana, the poorest county in Kenya, water scarcity continues to undermine food security and basic hygiene. The people are still vulnerable to malnutrition and diseases.

Last year, 10 billion cubic metres of water was discovered in Turkana South and another 207 billion cubic metres in the Lotikipi basin near Lokichoggio in Turkana West, all estimated to last 70 years. The reserves were discovered by Unesco using the Watex technology.

Innovative technologies will be required for Turkana to effectively exploit the water

resources. However, these technologies are dependent on good information and communications technology (ICT) infrastructure, which is very poor in the county.

Are there sufficient incentives to attract the private sector to invest in ICT in Turkana? Is the policy environment conducive for water sector technological innovations?

I believe the answer to these questions is no.

January - March 2014 The Policy Magazine 37

Science & technology This article outlines four major technological options that could help manage Turkana’s water crisis and how the application of technology can offer effective water resource management.

1

Water resources exploration

The introduction of a cost-effective groundwater exploration is expected to help in water management in Turkana. Many technological options have been tried, including the Westbay System covered in a California case study. Using 57 specially designed monitoring wells, the technology generated data equivalent to that which would be produced by at least 550 traditional monitoring wells. This lowered total monitoring costs by up to 65 per cent.

The Watex system is a unique proprietary technology that prospects and explores

Technology is the key to unlock this potential, as it will provide innovative and cost-effective solutions that will benefit all. But huge investments in ICT infrastructure will be required. sub-surface water, soils and geology to enable and support effective hydrogeological investigations. The technology provides a regional view of water resources, identifies shallow and deep aquifers and increases drilling success rate to 75-95 per cent.

A study by P.A. Harvey UK on borehole sustainability in rural Africa placed the probability of drilling a dry borehole at 38 per cent. A recent water-point mapping in Turkana gave a figure of 40 per cent. To provide sufficient water to all people in Turkana by 2030, it would have required an additional 2,800 boreholes. At a drilling failure rate of 30 per cent, the Watex technology has the potential of saving Turkana county at least KSh1.05 billion in drilling costs alone.

2

Clean water abstraction technologies

Clean renewable energy sources are being developed in Turkana, taking advantage of the sunny and windy weather conditions, and this is expected to power groundwater 38 The Policy Magazine January - March 2014

abstraction. Although the initial installation costs are high, the use of wind turbines will provide energy for abstraction, at minimal operational costs. This will be very cost-effective.

The Lake Turkana Wind Project (LTWP), expected to add 300MW to the national grid, can be used to provide sustainable power for pumping water in Turkana. Although the feasibility is yet to be determined, the project’s positioning in the west of Marsabit county next to Lake Turkana is strategic for Turkana.

The government’s Least Cost Development Power Plan shows that LTWP will be the cheapest option available in Kenya — along with geothermal power — at a lower cost than the feed in tariff for other wind projects, set at US12 cents/kWh. Another option is solar-powered pumping systems. Although most of the pumping will take place during the day and the initial set-up costs are high, this clean technology is easy to install. It has a life expectancy of more than 20 years. It will deliver one of the cheapest sources of energy to power water extraction and distribution equipment.

Combining solar and wind energy can significantly lower energy costs, especially if the water will be for domestic use, livestock and small-scale irrigation.

3

Water supply management technologies

Sustainable supply of water for domestic and commercial use will require a combination of many technological options.

Water delivery systems over long distances will not only require routine maintenance, but also monitoring, particularly for leakages.

Unlike the traditional systems, where organisations employ a large number of people to carry out line patrolling, technology can be employed to detect and report leakages. For many years, leakage engineers and technicians would carry out regular house-to-house surveys looking for the evidence of leaks from buried pipes or customer connections. From the 1850s, when manual sounding was used, to the 1970s when engineers used leak noise connector, technology in this area has evolved. By 2003, the advanced ground microphones were in use. With a deep financial market brought

Science & technology about by high penetration of mobile technology, mobile money transfers and cost management should be embraced to improve payment for service, reduce the risk of carrying cash and minimise interactions between utility revenue collectors and customers. Rechargeable pre-payment smart tokens are another technology that would save customers’ money and utilities transactional costs.

4

Water supply monitoring and reporting

With the support of Netherlands Development Organisation (SNV), Turkana county has just completed mapping water supply points. When we visited Turkana in November 2013, 40 per cent of the surveyed points were non-functional. Such information is often lacking and the authorities are often not in touch with the communities because of the distances separating them. Investment planning is therefore a challenge. Consumers are often unable to hold those responsible for management of such facilities accountable.

In order to maximise the potential use of technology via mobile and Internet applications and platforms through interactions with the citizens, some software has been developed. This includes MajiVoice, M-Maji, SODIS, Ufahamu, Huduma, MWater, Water Flow and Banki ya Maji.

5

Use of inappropriate technology

The Kenya Water Sector Strategic Plan, 2010-2015 cites the use of inappropriate technology and poor management of facilities as some of the factors contributing to environmental pollution and the high number of abandoned facilities.

The plan recommends technological interventions such as water metering and meter management, efficient methods of paying water bills, energy-saving technologies, monitoring equipment linked to communications technologies, water-saving irrigation technologies, and water harvesting technologies.

The use of integrated technological options is likely to increase water coverage from the current 37 percent to 100 percent by 2030 and ultimately lead to sustainable management of water resources in Turkana.

Photos:kwekudeetripdownmemorylane. blogspot.com blog.ob.org

The question is whether Turkana is ready to embrace technology to make better use of the discovered groundwater. Unlike other parts of the country, mobile telephony and Internet connectivity is limited to a few urban centres, with usage estimated at 7.7 percent for mobile telephony and 1.6 percent for Internet connection.

The discovery of the groundwater in Kenya is indeed good news. How stakeholders manage this resource will be vital in determining its sustainable and equitable use both for the residents of Turkana county and the nation as a whole.

Technology is the key to unlock this potential, as it will provide innovative and cost-effective solutions that will benefit all.

But huge investments in ICT infrastructure will be required. The county’s budget allocation in this area will certainly require urgent review. The national government will also need to develop policies that will reposition the county as far as ICT infrastructure is concerned.

John Nyakawa is an economist and a WASH advisor at SNV Netherlands January - March 2014 The Policy Magazine 39

Debate-Konza City

Making Konza City dream come true

It is more than five years since the idea of Konza Technology City was born. DR BITANGE NDEMO looks at the objective of an initiative that is meant to make Kenya a competitive and prosperous nation with a high quality of life by 2030.

K

onza was designed to be Africa’s first digital ecosystem. The term digital ecosystem is commonly used by the World Economic Forum as well as the ICT industry to describe an open socio-technical system with properties of self-organisation, scalability and sustainability inspired from natural systems.

Digital ecosystem models are informed by knowledge of natural ecosystems, especially for aspects related to competition and collaboration among diverse entities such as universities (research institutions), government and industry.

The European Union first proposed the metaphor, digital business ecosystem, to describe a self-organising business community that relies on information technology to achieve the following objectives: Higher growth, more and higher skilled jobs and greater social inclusion. The government felt that such an environment was missing in Kenya, where information and communications technologies (ICTs) were beginning to take root.

Supporting start-ups

It was becoming evident that start-ups in Kenya needed help to grow. Most countries provide incubation facilities to help start-ups with research, financing and marketing.

Without any support from the government, most start-ups in Kenya die before the fifth 40 The Policy Magazine January - March 2014

year. And our universities have never quite embraced the kind of applied research that can help. Konza was to become the first environment to bring researchers, policy makers and the private sector together for a common purpose – to nurture local start-ups and increase the country’s competitiveness.

People have been wondering if Konza’s future will be affected by the development of Machakos city. I see Machakos as complementary to Konza. Any additional economic growth will make the area more attractive to researchers by providing better education and other services. Konza can serve as an exemplar for new and emerging urban areas. At present, Kenya’s urbanisation stands at 34 per cent and it is expected to reach 50 percent by 2030. The march towards urbanisation is unstoppable. As more cities expand, they can borrow a lesson or two from these planned centres to create better development within their locality.

Economic benefits

Two years ago, the World Bank conducted a study to assess the impact of ICTs on the

Debate-Konza City sector. In developed countries, incubating good ideas is what makes the difference.

New cities such as Konza bring new opportunities, especially now when the country is in dire need to create new jobs.

During the recession of the 1930s, President Herbert Hoover of the United States thought that the problem of unemployment would be addressed if the government monitored the economy and encouraged counter-cyclical spending to ease downturns, without directly intervening. He lost the election to the more pragmatic leader, Franklin D. Roosevelt, who created a programme to build large public works and another to build hydroelectric dams that transformed the national infrastructure, made clothing for the poor, and created landmark programmes in art, music, theatre and writing.

Pragmatic solutions

economy. They established that ICTs alone contribute as much as two per cent growth rate annually. ICTs are enablers and have helped improve productivity in several sectors of the economy. In 2010, the government automated the banking hall of the Lands ministry and revenues increased from KSh800 million to more than KSh9 billion.

M-Pesa has been moving money across the country equivalent to 25 percent of the GDP. Research by Accenture on digital payments shows that the country would almost double the current tax collection if all payments were automated. These areas that have been impacted by ICTs require new applications, hence the need to have an ecosystem that will help create the necessary capacity to support the sector.

Kenya is one of the few developing countries that have significantly contributed to new ICT applications and created a culture of innovation. In several competitions around the world, Kenya has emerged tops in new apps development. It is in our interest to support capacity development that will propel the country to higher grounds in the ICT

Economists must not hide behind theory but look into more pragmatic solutions that can ease the problems afflicting the poor.

As Roosevelt said, “There is nothing to fear but fear itself� economists must not hide behind theory, but look into more pragmatic solutions that can ease the problems afflicting the poor. Konza will be a self-financing project after the government builds the common infrastructure and business incubators. The construction of a dual carriageway from Konza to Nairobi will encourage developers to build low-income housing units for the poor since land will still be affordable around Machakos. It will open up new economic opportunities.

More than half of the 300 applicants for land are foreign firms hoping to bring in new foreign direct investment (FDI). New local enterprises will arise, creating new jobs in the emerging markets. Konza presents a great opportunity to not only develop innovative capacity, but also to help create new opportunities as we open up development in the eastern region.

Konza will create a climate that is conducive to investments, innovations and entrepreneurship — all aspects of economic progress. And Kenya will be a more competitive nation once we build the necessary capacity and contribute to the global knowledge bank.

Dr. Bitange Ndemo is the former Permanent Secretary in the Ministry of Information and Communications.

January - March 2014 The Policy Magazine 41

Debate-Konza City

Tech city could be a mirage

KWAME OWINO says Konza is a grand project but advises caution in its implementation

P

omp and glamour marked the launch of the ambitious Konza Technology City by President Mwai Kibaki a year ago. To many, this was the beginning of the quest to establish the equivalent of Silicon Valley, hence the name Africa’s Silicon Savannah.

It is not clear that this is sound as a policy matter that involves a substantial public investment and foregone taxes, but this article is not about pouring cold water on the efforts of a large number of professionals and neither is it a takedown on the Vision 2030. Instead, it questions whether this project and the assumptions on its benefits are altogether defensible based on basic principles of economics and a history of similar projects throughout the world.

First, the project is grand but still calls for caution, because the available studies on the geography of clusters and economic space suggest that the odds of public sector leading the creation of an economic cluster and new industrial city from scratch are long. Recalling

42 The Policy Magazine January - March 2014

that Konza Technology City is a mixture of industrial, financial and technology industries, gives more reason to doubt that this convergence is possible through deliberate creation. Each of these industries is difficult to cultivate on its own, so the quest to pool together a cluster of finance, manufacturing and technology is more difficult. In short, this is a huge bet being taken by the Government of Kenya together with the private sector partners.

Second, the summary documents on the project’s website dated April 2011 state that it will cost up to US$8.5 billion to complete the four phases in 20 years. Later statements have suggested that the cost could be higher.

The culmination of this investment of public and private funds is the creation of 200,000 jobs over the 20-year lifetime of the project. Even allowing for the fact that up to three additional jobs may be created indirectly from each of these high-calibre jobs, it is questionable whether this is an appropriate cost relative to the alternatives that exist.

Debate-Konza City

In our rudimentary calculation, the net present value of the total private and public investment is about US $32,000 for each job directly created by the project. This cost is more than 20 times higher than the average annual income per year and is not a cost-effective mechanism of creating employment in a country with income still below US $1,500 per year. Putting together the cost of the foregone taxes and the subsidy on land makes the economic case even less attractive.

Third, the project’s website shows that most of the public funding for the project will be confined to the creation of infrastructure, with the expectation that private sector firms will construct premises for high technology business, financial services and high value manufacturing. Successful clusters of technology are not only few and far between but have also tended to be situated around universities and other centres of higher learning.

Successful technology clusters are in Silicon Valley, Boston’s Route 1028 and India’s Bangalore city. It is noteworthy that Bangalore is the real exception here, because it rose organically from a country with a comparatively low income. However, India is peculiar due to the fact that it has had a long tradition of higher education, with the proportion of students registered in universities among the highest in Asia and notably higher than China’s. These universities and technology institutes formed

Bagmane Tech Park. It is a software technological park equipped with all modern facilities and is surrounded by a lake.

a sound foundation for technology corporations due to a large proportion of professionals with an engineering skills set.

Other nations on the continent have attempted to create clusters with very modest results.

The explicit lesson here is that few nations with individual incomes of less than US $6,000 per annum have created globally competitive, successful cities and clusters in the three industries that Kenya has chosen. It is sensible to ask the question whether there are advantages in location, skills, economic structure and timing that cause us to be certain that this massive investment would be another exception. The successful creations of technology centres hardly come from a convergence of three competitive industries.

Under the best-case scenario, the quantum of jobs created by the Konza Technology City is likely to create high-end employment. Now that this investment is going ahead, it is necessary to discuss the need for labour market reforms, which create jobs that Kenyans can take up in hundreds of thousands. India, which has one of the most successful high technology business clusters, has not resolved its massive unemployment through technology cities. Amartya K. Sen, in The Argumentative Indian, said: “Yet even a hundred Bangalores and Hyderabads will not, on their own, solve India’s tenacious poverty and deep seated inequality.”

The quote is equally apt for Kenya and all we have to change are the nouns to apply to the technology city and the country. This is because a successful city is much more than buildings and so far, that is what I see of the declared plans for Konza Technology City, which, though a very grand idea, is the portion of the Vision 2030 that is most difficult to pull off.

Kwame Owino is the CEO of the Institute of Economic Affairs (IEA-Kenya).

A successful city is much more than buildings and so far, that is what I see of the declared plans for Konza Technology City, which, though a very grand idea, is the portion of the Vision 2030 that is most difficult to pull off.

January - March 2014 The Policy Magazine 43

Trade matters

Thousands of protesters flock to Cairo's Tahrir Square, on, Nov 22, 2011.Photo: Shutterstock.com

44 The Policy Magazine January - March 2014

Trade matters

Kenya Vs Egypt: Common vision, challenges

Despite the opportunities that financial services, ICT and trade positioning have provided Kenya and Egypt, the threat of social unrest looms, unless everyone benefits from a private sector-led economic boom, warns MUSTANSIR BARMA

W

hen considering national economic and business policy options, Kenya is compared with the neighbours in East Africa and other countries in sub-Saharan Africa. But these markets may not yield good comparisons for analysis, because of different market sizes, resource bases and consumer and trade profiles.

A compelling comparison is a country farther north: Egypt.

Eyebrows may be raised at the suggestion that Kenya be compared with a country with twice its population and more than triple its per capita GDP, not to mention the on-going political and economic uncertainty. However, the two countries share economic success stories challenges in doing business. The countries even have an uncannily similar vision for the future.

Kenya may draw lessons from Egypt on what works and what does not.

Banking, ICT and growth paths

Unlike their oil-rich neighbours, Kenya and Egypt have developed a non-resource-driven growth model.

They have focused on sectors such as finance, information and communications technology (ICT), tourism, construction and infrastructure, particularly ports. In both cases, the government has played a pivotal role in creating an enabling environment

for these sectors to thrive, but it was the private sector that took over under a favourable regulatory framework and drove the economic successes. Both countries are capitalising on their geographic advantages and membership in various trade groups.

Kenya and Egypt launched significant economic reforms around the same time. In 2003, Kenya launched the Economic Recovery Strategy for Wealth and Employment Creation.

From negative economic growth rates, the economy grew at six to seven per cent between 2005 and 2007.

In Egypt, there were several reforms undertaken by the then Prime Minister Ahmed Nazif that resulted in growth rates of up to seven per cent in 2007 and 2008. Egypt was named by the World Bank as a top economic reformer for several years in the 2000s.

In 2004, structural reform programmes overhauled Egypt’s banking sector through privatisation, divestiture of state-owned banks, and improvement in regulatory oversight.

The strength of a reformed banking sector supported the country’s economic resilience through the 2007-08 global financial crisis. A second phase of reforms started in 2009 helped buffer the banking sector in the tumultuous three years after.

Kenya’s banking system is the most advanced and stable in the East African region, according to the World Bank. Amendments to the Banking Act in 1995 and reforms in the following years addressed capital adequacy ratios, liquidity and competition, among other factors. The 2013 Prosperity Index published by the Legatum Institute found that 72 per cent of Kenyans have faith in the banking system.

In the ICT sector, Egypt and Kenya have a well-developed fibre optic infrastructure and liberalised international bandwidth markets. The sector is highly competitive in both countries and their broadband prices are among the lowest on the continent. The ICT ministries of Kenya and Egypt report mobile phone penetration rates of 77 percent and 116 percent respectively.

Banking and ICT formed the backbone of a thriving private sector in both countries in the past decade.

Capitalising on these strengths, Kenya was a pioneer in mobile money services (M-Pesa) through Safaricom.

By November, the three mobile service operators in Egypt offered mobile money services. These are limited to deposits, transfers and withdrawals within the network, but there are plans to roll out the services across networks and borders, and to include others services such as

January - March 2014 The Policy Magazine 45

Trade matters payment of bills and microinsurance.

In terms of trade potential, Kenya and Egypt enjoy significant advantages from their geostrategic positions and trade agreements. Kenya’s access to the Indian Ocean, coupled with its road and rail infrastructure that connects it to neighbouring countries, makes it an attractive trading hub.

Egypt has around 1,000 kilometres of coastline on both the Red Sea and Mediterranean, together with the Suez Canal connecting both.

Complementing geography are the trade agreements to which Kenya and Egypt are party. Kenya’s main regional trade agreements are with the five-member East African Community, with more than 100 million people, and the 19-member Common Market for Eastern and Southern Africa (Comesa), with more than 500 million people. Besides being a member of Comesa, Egypt is also part of the 17-member Greater Arab Free Trade Area – with more than 300 million consumers – and other smaller trade blocs. The benefits from these blocs include preferential tariff rates and rules of origin.

Kenya and Egypt have preferential trade agreements with the European Union and the United States, allowing certain duty-free access and freedom from some quota restrictions. The two countries are also party to many bilateral trade and investment treaties, and both have been members of the World Trade Organisation since 1995.

Cost of doing business

While the services and access to markets have facilitated private sector-led growth, the cost of doing business remains high in both countries. According to the Doing Business 2014 report by the International Finance Corporation, Egypt and Kenya rank 127th and 128th respectively, out of 189 economies. Their rankings have not changed significantly in recent years.

Looking at the components behind

Container at the Port of Mombasa:Photo:www.carshipuk.co.uk

the rankings, it is interesting to see where each country fares better or worse. In Egypt, starting a business takes only eight days, but after that getting permits and the basic functions up and running is timeconsuming. On average, it takes two months to register property and get electricity, and six months to get construction permits.

Egypt is particularly poor in investor protection and contract enforcement, two areas that are critical to investor confidence. It takes 33 months to resolve a claim, twice the Organisation for Economic Co-operation and Development (OECD) average and significantly worse than the Middle East and North Africa average. The cost represents one quarter of the claim on average. Even worse is winding down a business in a country where bankruptcy is an offence, it takes 4.2 years to resolve insolvency because of arbitrary and bureaucratic impediments.

As for Kenya, starting a business is

46 The Policy Magazine January - March 2014

Kenya has always looked up to Egypt as an economic powerhouse, but the Arab Spring left Kenyans wondering what went wrong with their peer up north. a slower process that takes a month, but getting electricity and construction permits take less time (four months) than in Egypt (five months).

While contract enforcement is quicker than in Egypt (at 15 months it even beats the OECD average), the cost goes up to almost half of the claim.

Resolving insolvency takes 4.5 years.

Perhaps the worst statistic for Kenya relates to trading across borders, as it take 26 days to export and import goods, with container costs exceeding US $2,000. This puts

Trade matters similar goals: To hit average annual growth rates of 10 per cent and to make the countries business hubs based on logistics, transportation, infrastructure, renewable energy and service economy. To reach these goals, policies directed at eliminating the challenges in doing business will allow investors to reap the benefits from the countries’ strong ICT connectivity, sound banking systems and geographical positioning.

Share growth to maintain stability

Kenya near the bottom of the table.

Ambitious visions

To address some of the problems faced by businesses, one-stop-shop services need to be instituted, or improved where they exist, as they currently do not efficiently facilitate approvals of licences and permits.

Approvals need not go through several ministries and red tape if staff at the one-stop-shop are trained on business, legal and regulatory skills. The private sector in both Kenya and Egypt will help with economic stability.

On top of new constitutions – Kenya’s in 2010 and Egypt’s in the works – both countries have launched Vision 2030. After Kenya’s five-year Economic Recovery Strategy expired in 2008, Vision 2030 was launched as a longer-term strategic plan for the country.

While Kenya’s blueprint was government-led, Egypt’s came out of the private sector in the wake of the 2011 Arab Spring. The visions share

Kenya has always looked up to Egypt as an economic powerhouse, but the Arab Spring left Kenyans wondering what went wrong with their peer up north. The causes of Egypt’s revolution were economic, as the fruits of growth did not trickle down across sectors.

It is important to realise that the issues raised at Egypt’s Tahrir Square are alive in Kenya as well. “Bread, freedom and social justice” was the slogan chanted to remind Egypt’s ruling elite of the promises they failed to deliver on. These demands translate into food security, economic rights and dignity. Egypt has been grappling with poor wheat supply uncertain and inflation has edged towards double digits. A survey conducted last year by the Information and Decision Support Centre showed that the number of people who did not have enough income to make ends meet went up by 45 per cent year-on-year.

In Kenya, this year has seen sharp increases in the prices of basic goods such as bread, milk and sugar, causing inflation to rise to eight per cent in September.

Turning to labour, Egypt’s unemployment rate is at 13.4 per cent according to government data, and this is almost twice as high for youth and women.

In Kenya, many sources report the unemployment rate at around 40 per cent. The results of a new study by the

Kenya National Bureau of Statistics and the Society for International Development indicating that 76.3 percent of the labour force is not paid a wage.

The parallels

The parallels between Egypt and Kenya are startling, and authorities should implement economic policies that benefit the population, by reducing food insecurity, inflationary pressures and joblessness. Despite all the opportunities that the enabling factors of financial services, ICT, and trade positioning have provided both countries, the threat of unrest looms unless everyone benefits from a private sector-led economic boom.

Kenya is no stranger to unrest, and the last decade alone has shown how tied political problems are to the economy. The 2003 economic recovery strategy took Kenya’s GDP growth from 0.5 per cent in 2002 to seven per cent in 2007. But the post-election violence of that year, coupled with drought caused by adverse weather conditions and high international commodity prices, saw tourism crash and growth plummet to 1.5 percent in 2008. Growth has since picked up and has hovered just above four per cent in the past couple of years, although the rising prices of basic goods should set off the alarm bells.

Rather than engage in inefficient redistribution policies, the challenge for Kenyan authorities will be coming up with market-based mechanisms to motivate the private sector to promote inclusive growth. By nature, the private sector is motivated by profits. Interventions to steer it towards projects in sectors such as construction, infrastructure, logistics and agribusiness will stimulate both job creation and address economic disparities.

Since Kenya’s devolution experiment is at a crossroads, it would serve governors well to entice the private sector to partner in development.

January - March 2014 The Policy Magazine 47

Book review

Ethnicity, nationhood and pluralism in Kenya Edited by: Yash Pal Ghai & Jill Cottrell Ghai Published by: The Global Centre for Pluralism (Ottawa) and the Katiba Institute (Nairobi) 2013 Reviewed by: Conrad M. Bosire

T

he promulgation of the Constitution of Kenya in 2010 was part of the longer-term measures to consolidate political stability and national unity in the aftermath of the ethnic and political conflict that followed the disputed presidential elections in 2007.

An important question, thus, is how inclusiveness, for purposes of national unity, is structured and pursued in and within the Constitution.

The book Ethnicity, Nationhood and Pluralism: Kenya Perspectives, edited by Yash Pal Ghai and Jill Cottrell Ghai interrogates “the constitutional commitment to diversity and pursuit of national unity as the twin pillars of nation building” under the Constitution.

The letter and spirit of the Constitution forms the basis of the analysis in the book. Accordingly, a part of it is dedicated to analysis of the Constitution and how it structures and pursues diversity for national unity. Effectiveness of the Constitution is, however, dependent on how its implementation is carried out. The book, thus, uses two events or processes, the March 2013 general election and the relevant post-2010 court jurisprudence, to gauge the effectiveness of the Constitution in the pursuit and achievement (if at all) of diversity and national unity.

The key questions and concerns regarding diversity and national unity

in Kenya are found within a particular historic, political and socioeconomic context; two chapters discuss the broad context within which diversity and national unity are pursued (or are to be pursued) in the Constitution.

While Chapter 1 provides the background, context, focus and the structure and chapter arrangement, it also makes theoretical clarifications on concepts and terms relevant to diversity and national unity. It discusses the meaning and application of the terms “pluralism,” “multiculturalism” and “liberalism.”

The editors urge a careful look into the context before these terms are applied. But the authors present “pluralism” as more suited to the

48 The Policy Magazine January - March 2014

Kenyan context.

Chapters 2 and 3 examine the historical, political and socioeconomic contexts within which ethnic and political identity has developed in Kenya. Chapter 3, titled Memory, Identity and Pluralism in Kenya’s Constitution Building Process, which is written by Zein Abubakar, locates the discussion on ethnic and political identity within a deep (and often unacknowledged) history that challenges the popular understanding of Kenya’s contemporary history of ethnicity. The main argument is that ethnic identity is a product of narratives constructed to sustain the colonial and post-colonial state.

Important historical events relevant to regions such as the Coast and the

Book review former Northern Frontier Districts (NFD) have either been ignored or distorted to sustain the dominant narrative. In the process, important historical events that could have been relevant to construing identities have been forgotten or deliberately distorted.

An important question the author raises in Chapter 2 is how far back Kenya can and should retrace the history and reconstruct ethnic and other identities that are relevant to nation building. While the Constitution offers an opportunity to deconstruct the dominant narrative on ethnicity and fundamentally change the approach, the author sees no explicit structure or process that is in place to pursue such deconstruction or reconstruction.

While institutional arrangements such as the devolved system of government may offer an opportunity to pursue that fundamental change, the author is in doubts whether the current mechanisms are adequate.

Chapter 3 by Karuti Kanyinga titled Pluralism, Ethnicity and Governance in Kenya analyses the political and socioeconomic context in which constructed ethnicity and ethnic identity has manifested itself politically, socially and economically.

The main argument is that ethnic identity in Kenya was developed and sustained by the colonial project, which continued in the post-colonial period. The colonial policy of using constructed ethnic identities led to solidification of group differences along ethnic lines. Furthermore, the colonial policy of racially segregated development led to regional and interpersonal inequalities that were never dismantled at Independence or in the post-Independence period.

Instead, the colonial state was inherited and used by politicians in the post-colonial period to access power and resources. This not only enhanced the inequalities that were present at the end of colonialism but

also laid a basis for ethno-political competition to capture the presidency, which was seen as an avenue for ethnic control of state power and resources. The continued manipulation of ethnic identities for political ends continues to endanger national unity and the ethnic violence witnessed in 2007/ 2008 is evident.

The Constitution of Kenya 2010 contains provisions to facilitate recognition of diversity and pursuit of national unity. However, the March 2013 general election demonstrated that there is no political will to breathe life into those structures.

Prof Kanyinga provides a systematic analysis of how the statefacilitated narratives on ethnic

approach emphasises a communitarian or “group rights” to enhance inclusiveness in divided societies as a way of consolidating national unity.

The Constitution offers a robust system of protection of individual rights as well as group rights. There are special rights and affirmative action measures to protect marginalised groups that are defined in the Constitution. There are general provisions that require regional and ethnic inclusivity in appointed and elected government and public structures. National unity is also sought beyond ethnic or cultural lines to social groups (such as women, youth and persons with disabilities)

The book demonstrates that ‘diversity and national unity’ is indeed a wide and complex subject. Recognition of diversity and national unity cuts across all spheres of constitutional governance. identity have been appropriated for selfish political ends at a great cost to diversity and national unity. The question then is whether the Constitution can facilitate fundamental change.

Chapter 4, titled Ethnicity, Nationhood and Pluralism: 2010 Constitution, discusses the constitutional framework for recognition of diversity and pursuit of national unity. The chapter starts by highlighting the two main and seemingly competing approaches to “ordering” constitutional governance.

The first is premised on the liberalist approach with an emphasis on individual rights and equal citizenship while complementing group rights. However, the multiethnic nature of some societies and the deliberate past policies of exclusion may necessitate emphasis on protection of group rights and identities. Accordingly, the second

that have been previously excluded.

Political parties are also required to have a “national character” and promote national unity and diversity.

The devolved system of government also seeks to address resource and development inequalities and thus contribute to nation building.

However, the dilemma in Kenya is how to explicitly recognise and protect sub-state groups (especially marginalised groups) and avoid a potential backlash from the dominant communities, which may endanger the national unity being pursued through affirmative action measures.

Chapter 5, titled Ethnicity, Pluralism and 2013 Elections analyses the voter patterns and the implications in terms of diversity and national unity. Ghai and Ghai note that while the Constitution provided for regional proportionality of votes for the presidency, it encouraged the formation of pre-election ethnic-based

January - March 2014 The Policy Magazine 49

Book review coalitions. The actual voting in the presidential election largely reflected the major coalitions that were formed in the pre-election pacts. The authors, however, note that the fact that almost all political parties in Kenya are not led by ideology or principle also means that voters had little or no choice than to vote the way they did.

While the presidential election results reflected the ethnic-based voting along the pre-election pacts, there was a slight difference in the parliamentary and county elections. In many cases, voters elected candidates from parties other than those dominant within their regions. There were also cases where candidates entered into “communal powersharing deals” and sharing of seats although it is not clear whether the voters adhered to these deals. This pattern indicates that at the parliamentary and county levels, voters made choices between individuals and never voted blindly for political parties. While the Constitution has made an effort to disperse and share powers, the authors maintain that the retention of the presidential system of elections and the “first-past-the-post” system has ensured that the general voting patterns (along the general ethnic lines) are sustained into the new constitutional dispensation.

In Chapter 6 — the last one — titled Interpreting the Constitution: Balancing the General and the Particular,” Ghai analyses post-2010 court jurisprudence that is relevant to the recognition of diversity and national unity. In the first case, the court held that it was unconstitutional for the government to require that a section of Kenyans (Asians, Arabs and Muslims) to provide a “religious certificate” as a condition to receive a national identity card as religious beliefs are a personal issue. The court also noted that this requirement was discriminatory insofar as it applied to a section of the society only. A similar

People vote in a general election. Photo:The star.com

approach was applied by the courts in a related case where a Somali was denied ID documents.

In the second case, the court upheld the decision of a high school to ban the use of the hijab, a cloth used by Muslim women to cover part of the face, by Muslim students in the school. In the case, the court reasoned that there was no violation of equality.

The court held that while individuals had rights and freedoms to practise and manifest religion, it may be necessary to restrict such manifestations in a society where in “multi-religious” societies for mutual co-existence. The court agreed with the school on the importance of school uniform, which was argued to be important for discipline and learning. The court further noted that allowing Muslim students to wear hijabs would make other religious groups feel that they (Muslims) were being accorded preferential treatment, or make the other students demand to wear their own religious attire.

Furthermore, the school had notified Muslim students about this rule on admission . The court thus held that the limitation of the rights of Muslim to wear hijab was justified.

In the third case, the court terminated a murder case on the basis that the accused had negotiated and

50 The Policy Magazine January - March 2014

made a settlement according to Islamic religious traditions. The significance of this case is that the court made a decision that the jurisdiction of courts to determine the criminal liability for a serious offence such as murder could be transferred to traditional and religious systems.

The book demonstrates that “diversity and national unity” is indeed a wide and complex subject.

Recognition of diversity and national unity cuts across all spheres of constitutional governance, which include the Bill of Rights, structures and functioning of government, adjudication of disputes by courts, management of public finances, and relations between the national and county governments.

The complexity and vastness of a topic means that a book with a general focus may not exhaustively cover all the topics. For instance, the devolved system of government is an important avenue for the recognition of diversity and national unity.

However, there is no dedicated chapter to examine how the structures and systems of the devolved government are meant to or actually pursue diversity and national unity.

Conrad M. Bosire PhD is a Post-Doctoral Research Fellow at University of the Western Cape

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