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GREED AND DELUSIONS OF GRANDEUR: A primer on dystopian economics

And so, the inevitable has happened. After five years of Jubilee’s astonishing debt-fuelled binge, Kenya is now officially in an IMF bailout programme. As the government struggles to raise Ksh 284 billion for debt repayments this year alone, the austerity knife will make deep, long cuts into jobs and budgets. With private sector investment on its knees, Jubilee’s spending jamboree has already eaten Uhuru Kenyatta’s ‘Big Four Agenda’ children. DAVID NDII gives a sobering prognosis.

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GREED AND DELUSIONS OF GRANDEUR: A primer on dystopian economics

Those of us who lived through the structural adjustment era would never have thought that we would live to see another IMF Letter of Intent. But then again, we would never have expected to see NYS buses ferrying commuters in Nairobi either.

But what is a Letter of Intent? It is an ominous missive ostensibly written to the IMF Managing Director by governments seeking an IMF bailout. It is usually co-signed by the Minister of Finance and the Central Bank Governor, outlining the austerity measures that the said government intends to take to fix its finances. In my day, it used to be addressed “Dear Mr. Camdessus”. These days, it is addressed “Dear Ms. Lagarde”. Only, it is not written by the government. It is drafted by the IMF staff and presented more or less as a fait accompli for signature. Henry Rotich and Patrick Njoroge signed one recently, dated March 6 2018. Here are some excerpts:

“The introduction of interest rate control in September 2016, which were aimed at addressing the high cost of credit, has had unintended adverse consequences on credit growth and monetary policy effectiveness.”

“In making this request, we commit to strong policies to achieve our program objectives. These include: (1) a reduction in the fiscal deficit from 8.8 percent of GDP in 2016/17 to 7.2 percent GDP by the end of this fiscal year (June 30, 2018) and a further reduction to 5.7 percent of during the next fiscal year (June 30, 2019); (2) a significant modification of interest rate controls to avoid their adverse impact on credit to the private sector, monetary policy effectiveness, and financial stability; and (3) strengthening the monetary policy framework, including the introduction of an interest rate corridor following the significant modification of interest rate controls.”

What caused credit to collapse? Interest rates did not go up suddenly. The average lending rate leading up to the sudden nosedive in bank lending was stable, fluctuating around 16 percent. The rate inched up two percentage points where it remained until the cap was imposed a year later. The cause of the credit slump lies elsewhere.

This columnist, along with other experts, argued strongly against the interest rate caps, as did the Central Bank. That said, the claim that interest rate controls had adversely affected credit is incorrect. The interest rate cap was introduced in August 2016. By then, bank lending to the private sector had been in free-fall for a year, plummeting from 20 percent growth per year to five percent per year. The interest rate caps do not appear to have made much of a difference either way.

What caused credit to collapse? Interest rates did not go up suddenly. The average lending rate leading up to the sudden nosedive in bank lending was stable, fluctuating around 16 percent. The rate inched up two percentage points where it remained until the cap was imposed a year later.

The cause of the credit slump lies elsewhere.

The Jubilee administration’s profligate ways are now the stuff of legend. Still, seeing is believing (See chart 1, below). To wit, Jubilee assumes office with the annual budget deficit running at Ksh. 200 billion, just under six percent of GDP. It surges in its first three months and then slows back down to the Ksh. 200 billion level in the first quarter of 2014, equivalent to four percent of GDP. This initial surge can be attributed to the roll-out of devolution. The respite was temporary. Over the next year, the deficit surges threefold, hitting Ksh. 670 billion, a mind-boggling 12 percent of GDP. It slows down thereafter but not by much. The next surge, from the beginning of 2016, takes it up to Ksh. 750 billion, equivalent to 10 percent of GDP at the end of the term.

Living large 1: NARC, grand coalition and Jubilee budget deficits �

Chart 1

In comparison, NARC maintained a budget deficit of 2.5 percent of GDP, rising to 5.3 percent under the grand coalition, and to 8 percent under Jubilee. It is noteworthy that Uhuru Kenyatta was the grand coalition’s finance minister. Eight percent of GDP may not sound like a whole lot, until you consider that Government revenue is in the order of 18 percent of GDP, hence an eight percent of GDP budget deficit is in fact equivalent to government spending 44 percent more than its income year after year. A 2.5 percent budget deficit is sound, five percent is alarming, eight percent is downright irresponsible.

When the government goes on a spending spree, it distorts incentives. The NYS and health ministry scandals were only the most egregious exposés of what goes on in public procurement. Opportunities such as selling mobile clinics that can be bought on Alibaba for US$ 3000 (Ksh. 300,000) to the government at Ksh. 8 million can be counted on to divert a lot of resources, human and financial, to the tenderpreneurs.

Deficit spending of this magnitude has economic consequences of many kinds, none of them good. First, the deficit has to be financed. It can be financed by borrowing externally, or domestically. Despite the Chinese loans for the SGR railway, the Eurobond and several other syndicated foreign bank loans, half the deficit has been financed by domestic borrowing. The effect is that the government crowds out private lending. The impact is immediate. As soon as the government publishes a budget with a huge domestic borrowing requirement, lenders and institutional investors know that they will be able to lend more and extract higher yields from the government. They begin to adjust their portfolios accordingly.

And that’s exactly what we see (See chart 2, below). Jubilee’s spending spree binge was announced with the budget read in June 2014. Deficit spending surges threefold from Ksh. 220 billion in the year to May 2014 to peak at Ksh. 670 billion for the year to April 2015. It takes a while for the madness to work its way through the economy. Six months later, bank lending to the private sector goes into free fall. By the time interest rates are capped a year later, private bank lending has slowed to five percent per year, down from 20 percent. Capping did not help. A year later, lending was down to 1.5 percent. By this time the deficit was running at Ksh. 750 billion, equivalent to 60 percent of government revenue.

Living Large 2: Jubilee budget deficit (Ksh.b), bank lending to the private sector (% p.a) �

Chart 2

With market interest rates, this kind of binge spending would have pushed up government borrowing rates to the mid-20s, with attendant financial and political consequences. Unwittingly, the interest rate cappers, whose stated objective was to borrow cheap, ended up shielding the government from the consequences of its recklessness, with no benefit to themselves.

Second, when the government goes on a spending spree, it distorts incentives. Governments are generally wasteful spenders, corrupted ones even more so. The NYS and health ministry scandals were only the most egregious exposés of what goes on in public procurement. Opportunities such as selling container clinics that can be bought on Alibaba for US$ 3000 (Ksh. 300,000) to the government at Ksh. 8 million can be counted on to divert a lot of resources, human and financial, to tenderpreneurship.

Third, government spending sprees inflate costs, as businesses are forced to compete with the inflated prices that service providers are able to charge the government. Even availability of some services becomes a problem as providers chase lucrative government contracts.

Now comes the conundrum. To cut the deficit, the government has to raise more revenue and cut expenditure. Both of these are contracting. The government will be seeking to extract more revenue from a private sector that it has done all it could to weaken. And economic growth is now heavily dependent on the very government spending that needs to be cut.

Fourth, governments make bad investments. If a private enterprise makes a few bad investments, it goes bust. Government that make bad investments are re-elected. This I need not belabor, but I will. The flagship standard gauge railway, apparently so desperately needed, is turning out to be the boondoggle that its critics, this columnist included, said it would be. We have a 40 percent electricity generation capacity surplus. Investors are not flocking, but consumers are up in arms. There are others: Galana-Kulalu irrigation project, the failed groundnut scheme. The said container clinics, which cost Ksh. 800 million, are rusting away in Mombasa. Makueni Governor Kivutha Kibwana’s fruit processing factory is reported to have cost Ksh. 450 million.

The morning after Jubilee’s spending jamboree is aptly summed up in the World’s Bank’s latest Kenya Economic Update report, published earlier this week (it is worth noting that the World Bank has been one of the cheerleaders of the Jubilee administration’s debt fueled infrastructure binge):

“Worryingly, the contribution to growth from private investment has been decelerating in recent years. Unlike the solid contribution to growth from the public sector, the contribution from private investment has been negative in recent years, declining from 1.3 percentage points of GDP in the four years leading to 2013 to negative 0.7 percentage points in the four years leading to 2017, a swing of 2 percentage points of GDP.”

Growth in the four years to 2013 averaged 6.1 percent, meaning that private investment contributed 20 percent of it. Growth in the four years to 2017 was 5.4 percent meaning that it would have been 6.1 percent if private sector investment had not collapsed.

Now comes the conundrum. To cut the deficit, the government has to raise more revenue and cut expenditure. Both of these are contracting. The government will be seeking to extract more revenue from a private sector that it has done all it could to weaken. And economic growth is now heavily dependent on the very government spending that needs to be cut. The two year 3.1 percentage point adjustment (from 8.8 to 5.7 percent of GDP) is in the order of Ksh. 270 billion. Given the state of the economy, revenue will contribute very little of this. Expenditure will have to do most of the adjusting – and that requires resolve and reforms the discipline for which Jubilee will struggle to muster.

The principal on market debt can be rolled over, but interest is paid out of revenue – Ksh. 284 billion this year. But the amount of debt that we now have to refinance leaves very little headroom to borrow for new projects. The prospectus for the US$ 2 billion second eurobond raised two months ago said it was for investment and “liability management.” Make that all of it. Big four agenda, anyone?

As we demonstrated a fortnight ago, most of the borrowed money has been plundered or squandered. There are no economic returns expected from the investments. But the debts have to be serviced. As noted, the IMF standby credit facility commits the government to review the interest rate cap. The choice of language reflects a recognition that repealing the law may be a tall order. But make no mistake about it: whatever manouvering they have made to have it implemented, will be to the same effect. A one percentage point interest cost increase on the Ksh. 2.3 trillion domestic debt translates to Ksh. 23 billion.

The principal on market debt (i.e. treasury bills, bonds and Eurobonds) can be rolled over but interest is paid out of revenue – Ksh. 284 billion this year. But the amount of debt that we now have to refinance leaves very little headroom to borrow for new projects. The prospectus for the US$ 2 billion second Eurobond raised two months ago said it was for investment and “liability management.” Make that all of it. Big four agenda, anyone?

It is fair to say that Uhuruto’s great leap forward has come a cropper. That though, was never in doubt.

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David Ndii

David Ndii is one of Kenya's leading economists and public intellectuals.

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KENYA BUDGET 2018/19: It’s time for a taxpayers boycott

The Kenya Budget 2018 has drastic implications on national and regional stability, on the Kenyan economy and on Kenyan workers. Its projections contradict data shared in previous Economic Surveys; it makes patently false claims, for instance, about the decline in domestic credit, to justify doling out billions to already well-provisioned sectors, notably manufacturing. But more than anything else, it is quite simply a perfect script for more waste and theft. By L. MUTHONI WANYEKI

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KENYA BUDGET 2018/19: It’s time for a taxpayers boycott

It’s time for a taxpayer’s boycott in order to evaluate what is increasingly sapped out of us through tax and against what’s disgorged out of us through the theft and waste of our money. Let’s compare the facts, according to the government’s own Economic Survey 2018 and this week’s budget speech.

This year’s budget aims are meant to align with, and support the Jubilants’ so-called ‘Big Four Agenda’ – boosting manufacturing activities, enhancing food and nutrition security, achieving universal health coverage and supporting the construction of at least 500,000 affordable houses by 2022. Bear in mind, however, that the first Jubilant administration, through its Economic Transformation Plan, also had a focus on agriculture and manufacturing.

Last year, the real added value of agriculture shrunk by 3.5 percent to 1.6 percent. This was blamed (as usual) on the lack of rainfall. True, there were shocking decreases in production of key crops – coffee’s production dipping by 11.5 percent and tea’s by 7 percent with only horticultural production going up. But there was an overall increase in the value of marketed production of Ksh.28.6 billion for the agricultural sector. So why did the real added value shrink? What happened?

There’s no doubt that Kenya’s efforts to expand social protection are worthwhile. Reforming social insurance, for instance. Or expanding social assistance to vulnerable groups. But social protection is about risk mitigation – preventing the already precarious from tipping over into even more precarious. Social protection is not about growing jobs, enabling livelihoods and improving returns from employment. It’s also not about ensuring that the intent to improve access to quality social services translates into actual access to social services.

The real added value of manufacturing shrunk by 1.9 percent to 0.2 percent. This was blamed (also as usual on the extended electoral process, high production costs and competition). Note that credit extended to manufacturing actually increased – by Ksh 36 billion, no less. Yet there were shocking decreases in the levels of key manufactured products – except for maize and soda (!). What happened?

Regardless of what happened last year, to fix these sectors now, our Treasury proposes the following:

For the agricultural sector (amongst the usual pleas to move away from rain-fed agriculture and so on), to put about 700,000 acres under large-scale production by public-private partnerships (PPPs). No mention is made of where these additional acres are to come from – when land theft, fragmentation and scarcity is the source of so much national tension already. Maybe the President’s family intends to return the immense tracts of public land the founding President appropriated for himself?

For the manufacturing sector, contradictions abound. On the one hand, Kenya’s speedy accession to the African Continental Free Trade Area is praised. On the other hand, regional (and other) competition is being dealt with by ‘re-negotiations’ and ‘reviews’ of the sub-regional trade arrangements we are already committed to. Plus the rather cavalier raising of customs duties on anything we’re deemed capable of producing – to no less than 35 percent (!) on everything from iron and steel to paper, plywood, textiles and vegetable oils. This, we are informed, should raise us an additional Ksh.27.5 billion (not to mention the ire of our neighbours in the sub-region). Free trade is only good when it’s good for us, apparently.

Moving on to the financial sector: the Treasury had much to tell us about the supposedly negative effects of the interest rate cap. It has, we were told, made banks ‘shy away’ from would-be borrowers, who have also pushed depositors towards an expanded range of non-interest earning deposit accounts. It has also, we were told, slowed growth in credit afforded to the private sector.

Yet the Economic Survey for 2017 told us otherwise. As mentioned above, credit to the manufacturing sector grew last year – by Ksh.36 billion. Credit to the construction sector also grew last year – by Ksh.5.1 billion. Overall, domestic credit increased by 7.9 percent in 2017 – including an increase of credit to the private sector by 2.4 percent. And, despite interest rates remaining fairly steady, deposit rates went up as well!

 Credit to the manufacturing sector grew last year – by Ksh.36 billion. Credit to the construction sector also grew last year – by Ksh.5.1 billion. Overall, domestic credit increased by 7.9 percent in 2017 – including an increase of credit to the private sector by 2.4 percent. And, despite interest rates remaining fairly steady, deposit rates went up as well!

But no…the Treasury has decided this experiment in making banks less usurious must end. It will be seeking to repeal the now infamous Section 33B of the Banking (Amendment) Act. For those worried about small borrowers, especially for small and medium-size enterprises, have no fear. The new, combined Biashara Fund is here (which’ll combine the three special funds for SMES owned by women and the youth).

And, just so we’re clear that Treasury isn’t, in fact, on the side of usury, it will be seeking to institute a ‘Robin Hood’ tax – charging a 0.05 percent tax on all bank transfers of Ksh.500,000 or more to go towards public health. Which we might be happy about if they came from banks and not us (as individuals and businesses). And if Treasury wasn’t also increasing the (already outrageous) tax on all mobile money transfers by two percent to 12 percent. What the good Lord gives with one hand he’ll certainly take away with the other.

Oh, and in case we missed it, instead of the progressive income tax increase on high-earners we had expected, now everybody gets a tax increase. The Employment Act is to be amended to impose a housing tax on all of us – an additional 0.5 percent will be taken from every formal sector worker, matched by an additional 0.5 percent from the employer virtuously to go towards housing.

Our spending target is to come in at just under Ksh.2.56 trillion. The aim apparently being to reduce our deficit from 7.2 percent to 5.7 percent while keeping our debt to gross domestic product ratio just below 50 percent. This spend target is slightly under our spend for 2017 – which sat, at the end of the day, at just under Ksh.2.78 trillion. Not controlled for theft and waste obviously

Our spending target is to come in at just under Ksh.2.56 trillion. The aim apparently being to reduce our deficit from 7.2 percent to 5.7 percent while keeping our debt to gross domestic product ratio just below 50 percent. This expenditure target is slightly under our spending for 2017 – which sat, at the end of the day, at just under Ksh.2.78 trillion. Not controlled for theft and waste, obviously.

With regard to theft and waste, the Treasury announced a bunch of moves to make public procurement more to scale and transparent, with significant allocations to all criminal justice institutions now involved in the ‘multi-agency’ effort against theft and waste. But it’s hard not to be cynical given the absolute lack of attention apparently paid to improving efficiencies and prudence.

There’s no doubt that Kenya’s efforts to expand social protection are worthwhile. Reforming social insurance, for instance. Or expanding social assistance to vulnerable groups. But social protection is about risk mitigation – preventing the already precarious from tipping over into even more precarity. Social protection is not about growing jobs, enabling livelihoods and improving returns from employment. It’s also not about ensuring that the intent to improve access to quality social services translates into actual access to social services.

That translation has been utterly undermined by the breadth, depth, prevalence of the theft and waste of public money that prevails. Treasury needs to convince us that it’s taking that theft and waste seriously. Sorry, the measures announced just don’t cut it.

It’s time for a taxpayers boycott. Really. There’s no taxpayer who is not absolutely and completely embittered by what we have to contribute. Because what we contribute is going to theft and waste.

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KENYATTA’S WAR ON CORRUPTION: Words won’t cut it, the budget is the corruption

Corruption in Kenya isn’t about greedy procurement officers, fiddling civil servants, crooked businessmen, shady bankers, thieving politicians. These are merely creatures of an inherently corrupt political system. The current crisis was triggered by the capture of the public finance management system by what we call ‘cartels’. Now broke and in debt from all the looting, Treasury has officially turned against the people. By JOHN GITHONGO.

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KENYATTA’S WAR ON CORRUPTION: Words won’t cut it, the budget is the corruption

The three key issues Kenyans are talking about today when they survey the political scene are corruption; ‘the handshake’ between Raila Odinga and Uhuru Kenyatta; and, the fate of Deputy President William Ruto as he prepares for a run at the presidency in 2022. For his part, Mr. Kenyatta came out of the handshake in March with a renewed push against the theft and plunder that has characterised his regime thus far. He has issued strong statements against corruption; announced that procurement officers would be asked to step aside and vetted before resuming their positions. Previously he’d even announced that lie detector machines would be introduced into the public service to promote integrity. Most recently, he pronounced public officials (starting with himself) would be subjected to lifestyle audits and that all major public procurements would see their details published in the media including the names of the companies winning the tenders complete with their beneficial owners. All strong stuff especially coming on the back of a series of breathless exposés in the mainstream press of the looting of a range of government bodies, the National Youth Service (NYS) merely being the most egregious and colourful. The scandals have exasperated Kenyans.

Oddly though, all the bold pronouncements are yet to capture the public imagination. Indeed, Kenyans seem sceptical about the President’s anti-corruption crusade. This is partly because he has historically been big on talk and small on action where this particular vice is concerned. Secondly, there is suspicion regarding its timing. Why do now what you were unwilling to do between 2013 and 2017? Thirdly, there is the rather scattershot character of the anti-corruption initiatives announced. This has led some to observe that a series of tactical moves are being employed without a coherent strategy. For example, it is self-defeating to attempt a serious anti-corruption campaign in a society as open as Kenya’s while alienating the media and civil society at the same time. Public opinion is mobilised by civil society, civic society (the churches, professions etc) and the media – not by politicians no matter how well-meaning.

This is partly because Kenyatta has historically been big on talk and small on action where this particular vice is concerned…There is suspicion regarding the timing of the latest war on corruption. Why do now what you were unwilling to do between 2013 and 2017?

The broad scepticism that has greeted Kenyatta’s efforts thus far was best articulated by one of the country’s most experienced progressive politicians, Senator Jim Orengo of Ugenya, speaking before the Senate on May 31st. He warned that the real corruption in Kenya was happening at the highest levels but we Kenyans were afraid to call it out. He essentially asked the president and other top leaders to look around themselves and they would find that the real rot sits in cabinet with them: “In the inner sanctum of power there are people sitting there who should not be sitting there.”

The truth of the matter is that 50 percent of the fight against corruption is related to perceptions. Despite extraordinary efforts to manage the media, the current campaign is yet to capture the public imagination. Until it does Mr. Kenyatta is rolling a stone uphill watched by a disbelieving population. As I said, part of the problem is that it’s clear he doesn’t have a coherent strategy, which makes even simple efforts all the more difficult. Secondly, Kenyatta and his colleagues are victims of an even more serious strategic misinterpretation.

Corruption in Kenya isn’t about greedy procurement officers, fiddling civil servants, crooked businessmen, shady bankers, thieving politicians. These are creatures found in all societies. The issue at hand in the Kenyan context is that these players are born of a system of politics and governance that is itself inherently corrupt; one in which the thieves and those who facilitate them thrive. Indeed, if one were looking at where the next scandals will come from one doesn’t need an army of technicians with polygraph machines. This week the Cabinet Secretary for Finance presented to parliament a Ksh.2.5 Trillion (US$25 billion) budget. The thieving in Kenya starts right here. It is built into the budget. When the budget of the NYS shot up from US$50 million to US$250 million in Jubilee’s last term it was clear that this wasn’t a measure of the NYS’s absorptive capacity or a vast upgrading of this programme but the creation of what was literally a slush fund created to be stolen. This ‘theft-ready’ budget is a product of our politics. Last week the Auditor General, Edward Ouko, told Reuters that corruption across all levels of government threatens the integrity and basic functioning of the state. He said that the corruption was ‘coordinated at a high level’.

This week the Cabinet Secretary for Finance presented to parliament a Ksh.2.5 Trillion (US$25 billion) budget. The thieving in Kenya starts right here. It is built into the budget. When the budget of the NYS shot up from US$50 million to US$250 million in Jubilee’s last term it was clear that this wasn’t a measure of the NYS’s absorptive capacity or a vast upgrading of this programme, but the creation of what was literally a slush fund created to be stolen. This ‘theft-ready’ budget is a product of our politics.

It is time to accept that Kenya’s corruption crisis may in part be caused by the deliberate collapsing of our public finance management system – chunks of it are owned by what have come to be known as ‘cartels’. When this happens the challenge you face is not chasing bribe-soliciting cops on the beat but fixing a situation where the budget itself is the corruption. There are generally three types of corruption: petty corruption that is often extortion by public officials for small considerations to overlook minor infractions or expedite the delivery of services already paid for in your taxes. Grand corruption that typically involves senior officials conspiring with private sector players to skim off public works projects of one kind or the other. There is a third type of ‘corruption’ that I call looting or economic delinquency on the part of the elite. In this type of thieving the pretence of a project to skim off is set aside as elites raid public coffers with impunity and pocket billions. This causes the kind of macroeconomic effects we are seeing in Kenya as our foreign debt soars on account of the looting of a small elite.

It is time to accept that Kenya’s corruption crisis may in part be caused by the deliberate collapsing of our public finance management system – chunks of it are owned by what have come to be known as ‘cartels’. When this happens the challenge you face is not chasing bribe-soliciting cops on the beat but fixing a situation where the budget itself is the corruption.

*******

In 1998 the fight against corruption, which had been a global advocacy campaign since the early 1990s by organisations like Transparency International, entered the mainstream of the global development agenda. There was no development programme in any developing country that didn’t have an anti-corruption aspect; that didn’t say something about transparency, accountability, basic freedoms etc. Even the World Bank whose legal department had previously blocked its officials from mentioning ‘corruption’ broke with tradition and joined the bandwagon. Previously corruption was described as project ‘leakages’ and ‘slippages’.

What had actually happened is that with the fall of the Berlin wall the opening up of political space meant that corruption, bribery and other forms of skulduggery that had been essential to governance during the Cold War found themselves being reported in newly free media, by a public free to associate and speak their minds. Between 1998 and 2008 a series of corruption scandals shook governments across the world. From Kenya to Germany, Peru, South Korea etc. In Latin America alone between 1998 and 2008, 11 governments fell due to corruption scandals that morphed into political crises of one sort or the other. By the start of this century anti-corruption researchers such as the respected Chilean economist Dani Kauffmann (now of the Natural Resource Governance Institute), argued to Moises Naim in Foreign Policy that with regard to the fight against corruption “Much was done, but not much was accomplished. What we are doing is not working.”

Indeed, corruption was increasingly blamed for all societal ills. More recently we’ve seen corruption scandals cause political shakeups in India, Mexico, Brazil, Bulgaria, Thailand, Guatemala, South Koreas etc. In Kenya we face a crisis in the health and education sectors; we are unable to create jobs for a majority of our youth. Unsurprisingly, corruption is the easiest to blame for what are sometimes failures caused by incompetence, a lack of capacity and the inability of the ruling elite to define the national interest separate from their own commercial interests.

Between 1998 and 2008 a series of corruption scandals shook governments across the world. From Kenya to Germany, Peru, South Korea etc. In Latin America alone between 1998 and 2008, 11 governments fell due to corruption scandals that morphed into political crises of one sort of the other. By the start of this century anti-corruption researchers…argued…that with regard to the fight against corruption: “Much was done, but not much was accomplished. What we are doing is not working”.

In Kenya, a serious effort to delineate personal interests from national ones would go a long way to dealing with our corruption problem. Conflict of interest was entrenched in our public service by the infamous Ndegwa Commission report of 1972 and we’ve been paying for it ever since. Most recently it is the poor who are paying most for it. The budget this week saw a cash-strapped regime under the gun of the IMF increase taxes on basic commodities in part to pay for the cynical profligacy of the elite since 2013. Ironically, Kenya’s constitution has created a legal infrastructure that should make the kind of economic delinquency and looting that’s in evidence impossible. But breathing life into a constitution requires political will that still seems to be lacking. In the meantime anti-corruption campaigns will be embarked on full of drama, gimmicks, speeches and technical fixes to problems that have much to do with the fact that our elites refuse to let governance institutions work, as they should. As a result, they are struggling to engineer the public sympathy and support essential to make the changes that need to happen.

Research by Juliet A. Attelah

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KENYA’S LOOMING RESOURCE CURSE: Dancing to Machiavelli’s drum

Fed a daily news diet of scandal and sensation, and the choreographed drama of minions arrested and driven off in sleek SUVs, the Kenyan public’s attention is daily diverted from the far more serious resource scams, planned and conducted by the men in the shadows. In Lamu and Turkana, the theft of billions of dollars is already underway. By MIRIAM ABRAHAM.

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KENYA’S LOOMING RESOURCE CURSE: Dancing to Machiavelli’s drum

The large hall was decorated with African art from the 54 Member States of the African Union. Singers and dancers from several African countries were entertaining dignitaries as they filled their plates with delicacies from the motherland. It was after all, Africa Day. The 25th day of May when we celebrate the formation of the Organization of African Unity (now African Union). And on the four screens around the large hall was the theme for this year: ‘Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation.’

What a thematic choice by the African Union, I thought to myself. I was struck by the choice of words especially beginning with the positive: ’winning’. But my optimism was short-lived as the representative of Nigeria was called up to the podium to give remarks as the “champion” of the anti-corruption theme. I quickly looked up the latest Transparency International Corruption Perception Index to see the success of President Buhari’s fight against corruption, only to find that Nigeria had slipped from its 2016 ranking by 12 places to rank No. 148 out of 180 countries surveyed in 2017. Why, I wondered, didn’t the organisers select champions from countries that have seen significant improvement in their index score such as Côte d’Ivoire and Senegal or Botswana that has continuously ranked top in Africa. But then again: This Is Africa.

At this rate, I was expecting the Kenyan representative to be the next in line as the co-champion, standing at 143rd ranking on the Index! We were, fortunately, spared that particular embarrassment. As I listened to each speaker glorify African unity and deliberately evading the theme of the day, I could not stop thinking of the contradictions of our continent. We often have big aspirations that we parade but never implement – “winning the fight against corruption” being very high up on the list.

These empty aspirations were eloquently mimed by President Uhuru Kenyatta during his address to the nation on Madaraka Day.  Like most Kenyans, I remained unmoved by his speech. Have we not seen this circus before? Did we not vet officials in the Judiciary and the Police before? Any lessons? Is this not just another game in elite self-preservation?

To be fair though, as a country, we have not outdone Saudi Arabia’s anti-corruption charade. Yet. We recall how late last year under the supervision of Crown Prince Mohammed bin Salman, hundreds of billionaires including over 50 from his own royal family were detained at the luxurious Ritz Carlton hotel, a gilded prison if ever there was one. There were claims of torture and abuse. The detainees reportedly signed off their wealth to the tune of billions in exchange for their release. In the meantime, the same Crown Prince allegedly splurged $500m to buy a yacht and a chateau outside Paris for $300m. It has been billed as the world’s most expensive home.

The charade by the Saudis has the feel of Kenya, albeit on a different scale. On 28 May, we watched as tens of high ranking officials were rounded up and escorted to court in top-of-the-range vehicles on charges of stealing money from the National Youth Service programme. It was a well- choreographed show; we have seen it before. Like the Saudis, we are fighting corruption for Machiavellian reasons. We all know too well the politics of our country. We hold “elections”; the coalition that “loses” cries foul. In order to govern in a polarized environment, the winning faction of the elite agrees to share the loot and, in the process, ditch a few people to give room to the new entrants. Statecraft. It is what “the men from the shadows” as John Githongo calls them in his article, One Week in March: Was the Handshake Triggered by the IMF?, engineer with the nod of the international community, so called, to maintain the status quo. To paraphrase from one of Niccolò Machiavelli’s works, one should not attempt to win by force what can be won by deception.

On 28 May, we watched as tens of high ranking officials were rounded up and escorted to court in top-of-the-range vehicles on charges of stealing money from the National Youth Service programme. It was a well- choreographed show…We are fighting corruption for Machiavellian reasons. We know all too well the politics of our country. We hold “elections”; the coalition that “loses” cries foul. In order to govern in a polarized environment, the winning faction agrees to share the loot and, in the process, ditch a few people to give room to the new entrants. Statecraft. It is what “the men from the shadows”…engineer with the nod of the international community.

One can see this art of deception playing out with the white elephants of Lamu county.  Amu Power Company, a consortium that includes the Chris Kirubi-affiliated Centum Investments, has been awarded the tender to build the Lamu Coal Power Plant. In addition to the grave environmental concerns raised by community activists in Lamu, the approved Ksh 200 billion (US$ 2 billion) project does not make financial sense.

In a detailed analysis by Tony Watima in the Business Daily, the project’s high fixed cost of Ksh 36.2 billion per year is raised by its capital-intensive nature. While this would have made sense if the project was meeting real demand, it turns out that the additional demand is fictitious, a product of the Jubilee government’s fantastical ambitions. While real demand will stand at 2,500 Mw by 2022, Jubilee set itself a target of securing installed capacity at 5,000 Mw. Between reality and fantasy lies the opportunity for mischief. Thus, in the case of the Amu project, Kenyans will be paying almost solely for idle capacity. It will mean that each consumer will see an increase in their bill by Ksh 600 every month that would go directly to the Amu investors.

Amu Power Company, a consortium that includes the Chris Kirubi-affiliated Centum Investments, has been awarded the tender to build the Lamu Coal Power Plant. In addition to the grave environmental concerns raised by community activists in Lamu, the approved Ksh 200 billion (US$ 2 billion) project does not make financial sense…Kenyans will be paying almost solely for idle capacity. It will mean that each consumer will see an increase in their bill by Ksh 600 every month that would go directly to the Amu investors.

Amu is billed as the most expensive fixed cost project among the power generators. An additional 1,000 Mw of power that is excess of demand – and therefore idle capacity. In other words, we are incurring US$ 2 billion in debt to finance a white elephant. These costs do not include the potential loss of income from the fishing activities of the local community, and tourism. They also do not include the known health impacts from coal burning, the most toxic and dangerous pollutant of all fossil fuels.

If the government is serious about “winning the fight against corruption” as this year’s African Union theme pledges, then it must begin by being transparent about the Lamu Coal Power Plant. It must also be transparent about how it handles the export of crude oil from Turkana, lest we quickly join the millions of Africans for whom oil and minerals only yield the proverbial resource curse.

It must also address the systemic manifestations of corruption that begin from the budget preparation process. As a former senior official in a state institution, I witnessed first-hand how numbers are padded to inflate the actual requirements for any project. Requisitions of products that were in abundance in warehouses were made. Goods not needed at all were included in the budget. Consultancy fees, costs for transportation of goods and official travel were common lines that were padded with excess fat that would be “chopped” by officials, as my Nigerian friends would say.

The best lie detectors – probably also procured through corrupt means – cannot replace the dramatic shift in culture that is required in the genuine fight against corruption. Respect for professionalism, integrity, transparency and the rule of law are the fundamental cornerstones of a “corrupt free” Kenya. These are the same principles that this government, at its highest level, has frequently and gleefully violated. Targeting mid-level officials without touching the top-ranking thieves will only be scratching the surface. It will be classic Machiavellism. Or what Muthoni Wanyeki in her recent article eloquently called a ‘game of smoke and mirrors’.

The best lie detectors – probably also procured through corrupt means – cannot replace the dramatic shift in culture that is required in the genuine fight against corruption. Respect for professionalism, integrity, transparency and the rule of law are the fundamental cornerstones of a “corrupt free” Kenya. These are the same principles that this government, at its highest level, has frequently and gleefully violated.

If we as the tax payers fall for the deception, we will be cheering the smokescreen magicians. We will find ourselves questioning the #STOPTheseTHIEVES protesters, wonder why they are disrupting the supplications made at the recent Prayer Breakfast. And in a few weeks, just like we have done with the theft and electoral injustice at the IEBC, we will forget these scandals. Well, until the proceeds from the crude oil imports and the siphoning of money through the Lamu coal plant reach peak levels and “the men from the shadows”, the real rulers of the country, deliver baits on another NYS scandal that the media will gullibly headline, as the looting continues elsewhere and the elite entrench their political and financial positions.

As our African-American brethren say: Stay Woke!

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