Kenya’s economy is in crisis. Policy mistakes abound, but you won’t hear that from officials. Or Bretton Woods institutions bending over to fix problems, with Kenya not looking inward or comparing its notes with countries in the same predicament.
Some are now turning into anarchy, for example Sri Lanka. We could develop and implement more autonomous ideas. Yet as we head into the 2022 election, we are blinded by the crown jewels of our own ideas and mesmerized by blustering manifestos few will remember afterwards.
Take the Jubilee Manifesto, 2013, built on Vision 2030.
One of its goals was to establish “a sovereign wealth fund (SWF) in the country based on global best practices to secure income from today’s resources for future generations of Kenyans.” His dashboard achieved the opposite. Future generations face massive repayments of corruption-inflated costs from debt-financed projects that have reduced the effects on production.
The parastatal reform task force has recommended the creation of a single commodity-based sovereign wealth fund to be established by an Act of Parliament. Jubilee predicted that:
• Windfall revenues expected from mining, power and oil sectors require forward thinking to maximize benefits
• Creation of a sovereign wealth fund adapted to current political developments: the draft mining law of 2013 was in Parliament); A petroleum bill existed.
Subsequent policy errors of commission and omission gave way to a diversion to China and Eurobond borrowing. When I had the opportunity to chair the SWF Sub-Committee of the Presidential Task Force on Parastatal Reforms (November 2013) and the follow-up Implementation Committee (until December 2014), I read my mandate and applied the subject with care.
Our work revealed opportunities that I thought were to build a new Kenya and a great legacy for the presidency. The resulting Kenya National SWF (2014) was recognized globally (including by the International Forum of Sovereign Wealth Funds), which aired a global podcast from a prominent panel discussing it, including Franklin Templeton, the largest cross-border fund management group in the world.
Showcased in New York, Kenya’s SWF model won a global award, African Sovereign Fund Initiative of the Year, 2016.
It has become a norm in high-level think tanks as an example of where African countries endowed with natural resources, for example, our titanium, niobium, oil, gold, soda ash, etc. should lead their future savings. And how to release their resilience in the face of unforeseen events, such as Covid-19.
We have enshrined the sovereign wealth fund in Section 206 (1) (a) of the Constitution, as a public fund separate from the consolidated fund. The implementation work culminated in the NSWF Bill (2014) which the Constitution Implementation Commission (CIC) passed after careful consideration in May-June 2015. Then it stalled.
President Kenyatta should leave as a legacy the “sovereign wealth fund” for Kenya that we helped him design, and hand it over to the next president for our future generations. Sovereign wealth funds have played a key role in coping strategies to Covid-19 and financial crises.
A struggling Sri Lanka, where leaders flee slush and burning crowds, wouldn’t it want one as a shock absorber in the event of a financial collapse? In the meantime, the Kenyan model is attracting the interest of other countries and leading think tanks.
Last I heard, America’s premier think tank called The Woodrow Wilson Center in Washington DC is hosting experts and will discuss the SWF by invitation, in August 2022.
Kenya often produces top-notch policies and ideas that are allowed to flow out to the countries that poach them.
Why the waffle dance instead of following through with productive ideas? Our leaders have for decades remained allergic to operationalizing and implementing the county’s most transformative policies.
Some don’t care as long as they cling to power. Or they bring their acolytes to do jobs where bloodlines, incompetence or artifice take precedence over competence.
Suspiciously, a criminal angle is possible. For some leaders, no idea is big enough that the fundamental duty of government is to serve the people, until it first fills their pockets; or the pockets of stubborn gatekeepers who stoop to the point of weighing in with the “tender contractors”.
They advise against rather than help align ministries, cabinet secretaries, and principal secretaries with the president’s agenda.
As government mistakes simmered on SWF, I thought a feather fluttered in the wind for a president’s legacy. A recent media article in the Daily Nation on the Kenya Hospital Authority Trust Fund (KHATF) type SWF made me disillusioned with the idea.
Created in 1968 for medical training, it remains unimplemented. Thus, Kenya’s SWF model, designed by the task force, shares shelf company with the KHATF.
SWF has indeed reinvented the earlier genius of former officials who created the KHATF which I had never heard of until the Daily Nation article. The KHATF is full of ideas and modern tools for sovereign wealth funds: governance, financing, management rules and investment structures.
The KHATF and SWF make a compelling case for operationalization. I call on the new government to take over from President Kenyatta and run with him
At the end of the 2022 campaigns, and for the first time, a party promises Kenya that marijuana reefers and the export of snake venom can settle the debt. Another party manifesto is patently inconsistent on economic policy, but promises gifts it can never deliver.
Others, in hardcore ‘groupthink’, convey the myth of gifts to starving households. Never mind that Kenya is rife with the aforementioned debt.
By keeping silent on current internal and external economic threats, they offer no mix of macroeconomic policies for economic recovery, from which revenues can be replenished in growth, induced by short, medium and long term policies. for sustainable expenses.
Take the financial backbone to support MSMEs, a 50 billion shillings prize pool as an option to access capital. The overhaul is commendable and very overdue given that getting a bank loan is a nightmare.
For decades, banks have moved away from the financial intermediation that should, in theory, help growth to reduce poverty. They typically sweep most customer deposits into super-profitable portfolios for themselves, aided by high-yielding risk-free government securities that crowd out the private sector.
The Kenyan banking sector has one of the highest rates of return on investments and assets in the world (averaging 25% return on equity in 2016 when the caps were put in place). At worst, banks are chasing profit in dirty cash transactions (remember the pending High Court decision freezing over 6.2 billion shillings in 62 bank accounts held at major banks).
Banks are increasingly being held captive by start-ups and fraudsters just to plan fees, if not worse.
If our monetary policy has collapsed on sources of credit, in the face of a rapidly changing financial sector, and the Central Bank of Kenya (CBK) is unable to curb the crooks and chaos above, treating MSMEs as a segment of the business will hardly restore the effectiveness of monetary policy.
For our dichotomous private sector where the informal segment dominates employment (around 83%, with low productivity and marginal access to credit) while a formal segment is concentrated in a few firms, questions remain as to whether and when we will regain political control of the sector. banking and budgetary policy to sustainably manage the entire economy, all sectors combined.
Today, Kenya faces a triple whammy: the shocks of the Russian-Ukrainian war; rising foreign interest rates; and capital outflows that weaken the economy, the shilling and the stock market. Monetary and budgetary tools must be coordinated accordingly.
Better to fix our banking system (interest rate orientation) and craft structured growth-friendly fiscal consolidation (tax cuts or spending? Reimagined development spending) consistent with the right overall macroeconomic policy mix that helps to steer the economy towards recovery.
From experience, I know that the CBK has the primary capacity to help if the Treasury cooperates. Should we, for example, tighten both the monetary and fiscal tracks when demand and supply contract?
There are some county governor manifestos that I think are well thought out in terms of funding sources and implementation.
I’m sure there are others. In Kiambu, Kenya’s second largest GDP contributor after Nairobi (at around 6%), a manifesto backs remarkable tax innovations for growth, filled with an economic opportunity wheel for Kiambu’s 12 sub-counties. Devolution could not have had a better promise.
Dr. Wagacha is a former Chief Economic Advisor, Executive Office of the President and former Chairman of CBK