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Jubinomics and Kenya’s debt crisis: A private sector view

Five years ago, the Jubilee administration embarked on a dangerous economic course of deficit financing, profligate spending and punitive taxation. Legitimate government suppliers in the private sector were crowded out in favour of tenderpreneurs and briefcase companies. Mysteriously, government agencies with expanded budgets were unable to pay suppliers. The result today: banks are staring at ballooning non-performing loans, tax revenues have fallen steeply and the private sector is dying a slow, painful death. By P. GITAU GITHONGO.

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Jubinomics and Kenya’s debt crisis: A private sector view
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The March 9, 2018 handshake between Uhuru Kenyatta and Raila Odinga, silenced many of the critical voices accusing the Jubilee coalition of divisive politics, ethnic bigotry and the disenfranchisement of at least half of Kenya’s population.  In fact, for a brief moment it seemed that the bitter grievances of the disputed August 2017 election, the acrimonious exchanges between political rivals, the threats to the judiciary, the unsolved murder of IEBC’s Chris Msando, and the police killings in the post-election crisis, had been forgotten following the very-closed-door meetings between Uhuru and Raila. As a writer with the Daily Nation gushingly wrote a week later: ‘In the name of that handshake, the shilling has stabilised overnight with the outlook by players in tourism already promising what some experts have christened as the ‘peace dividend’ after an inordinately protracted electioneering period. The stock market is also recovering’. Despite the ceasefire of the handshake, its promised benefits have not cleared the dark clouds hanging over the Kenyan economy, which is now headed into serious difficulties. In fact, at a practical level there appears to be no change in the way the national government runs its day-to-day affairs.

Since coming to power in 2013, the Jubilee administration has been dogged by accusations of profligacy and patronage – most notably in the award of tenders. Policy-making, with senior public officials apparently motivated more by personal interests than by public service, and even outright nepotism and tribalism, spurious contracting in the implementation of policy initiatives in the key sectors of health, agriculture and infrastructure.

Perhaps it is no coincidence that the Jubilee administration has also presided over a massive debt-fuelled increase in annual public spending – KSh 1.2 Trillion to over KSh 2.5 Trillion in 6 years, complemented by a budget deficit approaching Ksh 750 billion (see Table 1). Notably, this growth in spending is at a rate beyond the GDP growth rate and, as far as many critics are concerned, has been partly motivated by the need to accommodate corrupt patronage practices. Spending on infrastructure programmes in particular, seamlessly lends itself to patronage and has been a dominant feature of Jubilee’s tenure, with a range of big-ticket projects in the transport, energy and health sectors. Recurring elements of these projects include secretive feasibility studies, procurement and financing arrangements, as well as questionable labour deployment and land acquisitions – all of which embody the controversial SGR Railway project which has taken up the lion’s share of this spending binge.

Spending on infrastructure programmes in particular, seamlessly lends itself to patronage and has been a dominant feature of Jubilee’s tenure, with a range of big-ticket projects in the transport, energy and health sectors. Recurring elements of these projects include secretive feasibility studies, procurement and financing arrangements, as well as questionable labour deployment and land acquisitions.

Table 1.

Jubilee’s Treasury team however, has maintained that the increase in public spending was and remains necessary to spur economic growth. Treasury has systematically played down the risks from the widening budget deficit in the process. This surge in spending – financed mostly with (Chinese) debt – has also taken centre stage in the cooling relations between the government and development partners, notably the IMF and World Bank. Critical to debate on this spending surge and the risks from a widening budget deficit is its impact on the performance of the Kenyan economy.

In particular, why have key sectors of the economy registered such diminished performance over the past half-decade in the face of this increased spending? Why does so much anecdotal evidence point to growing job-layoffs (an estimated 7,000 formal sector jobs have been lost in the past three years alone)? Even the normally bullish real estate market has shown signs of glut and slowdown over the past three years. The Nairobi Securities Exchange has seen its NSE 20 index climb from slightly over 4,000 in 2013 to a high of 5,400 in 2015, before falling to about 3,400 today. The Stock Exchange, without a single IPO listing since 2014, has seen more than half of all listed companies declare reduced earnings or losses in each of the past two years.

Why have key sectors of the economy registered such diminished performance over the past half-decade in the face of this increased spending? Why does so much anecdotal evidence point to growing job-layoffs (an estimated 7,000 formal sector jobs have been lost in the past three years alone)?

Table 2 below shows Average GDP Growth rates (RHS Scale) over the past 8 years and actual GDP (Using Constant 2009 Prices LHS Scale).

Whereas average GDP growth rates have averaged 5.8 percent over the period shown, the downward trend since 2010 has persisted despite the huge increase in spending – and this is despite GDP-rebasing in 2013 which enhanced the growth rate that year by at least 1%. Both 2013 and 2017 were election years and unsurprisingly, registered the lowest growth rates; but the increased government spending – albeit on long-term projects – appears to have actually had a dampening impact on GDP growth over the period. There are several reasons for this, but three key issues are highlighted here.

1. An unremunerated Private Sector.

Accusations of partisanship and gravy-train policy-making in the award of public tenders and contracts, are not just the grumblings of out-of-favour business-people that lost out on lucrative government business to well-connected or favourably-related individuals. There is a constituency of ordinary hard-working entrepreneurs, professionals and manufacturers increasingly unable to compete against the empowered cartels of tenderpreneurs, influence peddlers and brief-case businessmen. These rogue players currently dominate government contracting – not to mention annual auditor-general reports – making a mockery of procurement guidelines. In some instances they even approach qualified bidders, offering to be embedded in bidding teams (despite the lack of relevant competencies) with a promise of tender success at inflated bids. This patronage-based ‘crowding out’ doesn’t end there. This well-connected class of tenderpreneurs also has perfected the dark art of jumping bureaucratic payment queues, often receiving payments before delivery of goods and services – or even before contracts are signed.

Not by coincidence, legitimate suppliers, service providers, and even farmers, have been experiencing debilitating delays in the settlement of payments and have accumulated massive debts on their credit arrangements and tax obligations. The paradox is that while government department budgets were being ramped up, delays in contract awards and settlement of payments to legitimate suppliers were worsening. This has created a unique set of economic challenges that seems to have been lost in all the discussions on political handshakes.

According to the Central Bank of Kenya, Non-Performing Loans (NPLs) as a proportion of total lending by commercial banks doubled from 6.1 percent in 2015 to 12.4 percent (or about KSh 265 billion) by April 2018 (see Table 3 below). The Table shows Gross Lending by Commercial Banks as well as the stock of Non-Performing Loans, as well as the stock of Non-Performing Loans expressed as a percentage of Gross Lending by Commercial Banks. Even this 12.4 percent figure could be an under-statement if banks have not been adequately disclosing and providing for non-performing loans – as suggested by the sagas of the collapsed Imperial and Chase Banks.

Table 3

CBK Governor Patrick Njoroge attributes a significant factor in this growth in bad loans to delayed payments owed to the private sector by the national government, government departments and devolved units. CBK data suggests that up to KSh 200 Billion was owed to SME businesses by the national government by the end of the 2017/2018 Financial Year, with as much as KSh 25 Billion worth of those pending bills directly contributing to non-performing loans.

Following an increase in imported grains last year (amid accusations of pre-election giveaways), the National Cereals and Produce Board (NCPB) owed farmers as much as KSh 3.5 Billion by the end 2017 for produce already delivered. In a hard-hitting editorial on 7th August 2018, the Daily Nation averred, ‘The Jubilee government is wallowing, not just in foreign debt, but also in the money it owes local businesses, which it has either crippled or is in the process of ruining’.

According to the Central Bank of Kenya, Non-Performing Loans (NPLs) as a proportion of total lending by commercial banks doubled from 6.1 percent in 2015 to 12.4 percent (or about KSh 265 billion) by April 2018. The Table shows Gross Lending by Commercial Banks as well as the stock of Non-Performing Loans, as well as the stock of Non-Performing Loans expressed as a percentage of Gross Lending by Commercial Banks. Even this 12.4 percent figure could be an under-statement if banks have not been adequately disclosing and providing for non-performing loans.

The Daily Nation’s particular beef was that the Government Advertising Agency (GAA), owed media houses close to KSh 3 billion by the end of FY 2017/2018. About half of the KSh 404 Million paid out by GAA during the year, went to the big publishing houses – Nation Media Group, Standard Newspapers, Royal Media Services, The Star and Media Max Network. Against the KSh 3 billion owed, the distribution of payments to media houses was sufficiently skewed to warrant an investigation by the Office of the Public Prosecutor.

Worryingly as well, the increase in bad loans in the banking sector has come despite the implementation of August 2016 of lending rates ‘caps’, which limit the cost of existing loans to 4 percent of the Central Bank’s Recommended Rate. (See Table 4)

2. A Stifled Private Sector

This environment of pending government bills is also linked to worsening Kenya Revenue Authority (KRA) tax collection performance. This creates a vicious cycle in which the private sector is defaulting on its obligations on account of money owed by the same government. The government has long complained about KRA’s inability to meet its collection targets, complaining instead about ‘revenue leakages’ facilitated by corrupt tax officials. But it fails to acknowledge that its pursuit of tax defaulters is a consequence of the fact that they themselves are owed millions by national and county governments.

The reality is that National Government revenue shortfalls have averaged KSh 90 Billion annually over the past 4 years, despite improved tax collection efficiencies at the KRA. (See Tables 5 & 6 below.) The World Bank estimated that in the 2016/2017 financial year, tax revenue as a proportion of GDP fell to under 17%, the lowest in a decade – with the growth in nominal Tax Revenues outpaced by nominal GDP growth.

Table 5

This reduced growth rate of revenue collection by KRA is at first glance paradoxical considering that over the past 5 years, an unprecedented number of Kenyans have been brought into the tax bracket. A similarly unprecedented range of products and services have been subjected to various new direct and indirect taxes. Over the past five years, several tax measures have been introduced including: 12 percent Rental Income tax for landlords from 2015; successive excise duty and fuel levy increases in 2015, 2016 and 2018; VAT on bottled water and juices; VAT on food served by restaurants as well as piped water; successive increases in excise duties on spirts, cigarettes and mobile telephony; and 50 percent Gaming tax on lotteries and book makers in 2017, among  a host of others. The 16 percent VAT on fuels and fuel oils first awarded in 2013 but deferred over the subsequent years with the exemption set to expire on 1st September 2018, adds a controversial element to this expanded tax net aimed at bringing the growth in VAT collections closer to that of direct taxes such as PAYE and Income Taxes (see Table 6).

Table 6

In his June 2018 Budget statement, Finance CS, Henry Rotich, laid out several new and controversial ‘Robin Hood Tax’ proposals which he declared necessary to fund programmes that are part of Jubilee’s ‘Big 4’ agenda. Prominent among the proposals purportedly designed to protect low-income earners, is a monthly contribution to a nebulous National Housing Development Fund by every employee and employer of 0.5% (capped at KSh 5,000) of the employee’s gross pay. This contribution would be funnelled to the Housing Fund whose mandate will be to build low-cost housing units. Another ‘Robin Hood Tax’ proposal was the levying of 0.05% excise duty on all remittances of KSh 500,000 or more, transferred through banks and other financial institutions; as well as an increase in the excise duty charged on money transfer services by mobile phone providers from 10 percent to 12 percent, all geared to financing Universal Health Care – another Big 4 pillar.

Several of these proposals have been rightly criticised as being unjust and inordinately detrimental to low-income earners. With more than a third of all Kenyans living on less than Ksh 100 per day, a projected VAT-inclusive paraffin price of KSh 105 per litre is simply unreasonable. The curb on logging has already raised the cost of the popular-sized sack of Charcoal to more than Ksh 3,000 in parts of Nairobi, with the 4-kg tin costing more than KSh 150. With electricity prices also being ramped up as the monopoly power distributor Kenya Power struggles to maintain solvency following years of mismanagement, low and middle income earners are clearly big losers. The situation is no better for businesses, notably manufacturers and other high energy consumers. Early this month, the Kenya Association of Manufacturers registered strong objections to the revised energy tariffs which entailed a 36 percent increase in the energy base-cost – before the envisaged 16 percent VAT increase – which KAM argued would have a detrimental effect on the cost of doing business in the country.

With more than a third of all Kenyans living on less than Ksh 100 per day, a projected VAT-inclusive paraffin price of KSh 105 per litre is simply unreasonable. The curb on logging has already raised the cost of the popular-sized sack of Charcoal to more than Ksh 3,000 in parts of Nairobi, with the 4-kg tin costing more than KSh 150. With electricity prices also being ramped up as the monopoly power distributor Kenya Power struggles to maintain solvency following years of mismanagement, low and middle income earners are clearly big losers.

A recurring complaint from the private sector over the past half-decade has consistently been that consumer purchasing power has contracted considerably and that this is being exacerbated by recent and proposed tax measures. The decline in tax revenues despite the increases in tax rates, tax measures and collection efficiencies by KRA (notably year-on-year growth in taxpayers registered on KRA’s I-Tax platform), all but confirms a sharp drop in formal economic activity over the period.

Arthur Laffer who was an adviser to the Nixon/Ford Administration in the mid-1970’s mainstreamed the simple mathematical tautology that there is a point beyond which any increases in tax rates will always result in declining tax revenues. Laffer’s analysis of the US economy at the time recommended a decrease in federal tax rates to boost tax revenues. Rotich’s proposed tax measures risk the same results by further dampening of economic activity as well as greater tax evasion.

3. A Crowded-out Private Sector

The aforementioned slump in tax revenue growth was also partially influenced by the slowdown in bank profitability – which in turn was due to the twin influences of growing bad loans and reduced access to credit by the private sector. These factors are inexorably linked to diminished private sector performance. However, reduced access to credit by the private sector in Kenya is not a new phenomenon; nor are its fundamental causes. Its disruptive influences however, are significant.   Commercial credit to the private sector has contracted from about 24 percent in 2013 to 18 percent by end of December 2015, to about 2.5 percent in June 2018. This is despite the implementation of interest caps in August 2016, disabusing the suggestion that enhanced credit to the private sector was the intended beneficiary of the interest rate caps. In contrast, during the same period annual growth in lending to government averaged 14%.

Table 7

The Banking Amendment Act 2016 proposed by MP Jude Njomo was signed into law by President Uhuru Kenyatta with the same hollow promise of cheaper and more private sector lending by banks that a similar bill by then MP Joe Donde had made in the year 2000. The backgrounds shared notable similarities however – most notably heavy government borrowing. Domestic borrowing was indeed high in the late 1990s – evidenced by the 91-day Treasury Bill on offer with a 21% return in June 1999. By 2000, domestic borrowing was attracting Ksh 22 Billion in annual interest payments.  The stock of domestic debt by June 2000 stood at KSh 164 Billion with new issues representing 17.5 percent of government revenue. By June 2007, with short term Treasury Bill rates down to less than 8 percent, the stock of domestic debt had only risen modestly to KSh 405 Billion representing 22.1 percent of GDP, and attracting interest payments of KSh 37 Billion in FY 2006/2007. By March 2016 however, the stock of domestic debt had jumped to KSh 1.65 Trillion representing close to 27 percent of GDP and was attracting a massive 30 percent of total government revenue in debt service. And that’s not even taking into account external debt which had grown at a similar rate. The stock of domestic debt in March 2018 had reached KSh 2.3 Trillion, attracting more than KSh 350 Billion in annual debt payments.

Arthur Laffer who was an adviser to the Nixon/Ford Administration in the mid-1970’s mainstreamed the simple mathematical tautology that there is a point beyond which any increases in tax rates will always result in declining tax revenues…Rotich’s proposed tax measures risk the same results by further dampening of economic activity as well as greater tax evasion.

In August 2000, Commercial bank lending rates averaged close to 21 percent and deposit rates about 7 percent, providing obvious justification for the Njomo Bill’s popular support. The stock of non-performing loans (NPLs) at the time, was an eye-popping KSh 122 Billion in April 2001, (40 percent of total lending). In June 2018 and despite interest rate caps in place, NPLs represent 12.4 percent of commercial lending with an estimated Ksh 303 Billion in this category.

Table 8

The Parlous state of Kenya’s national accounts – most notably the KSh 5 Trillion stock of public debt and ballooning budget deficit – but also poor performance of the real economy with stagnant exports and tax revenues, suggests that the government cannot afford to be adding to the burden borne by the private sector. It also suggests that the slew of tax measures proposed in Budget 2018 was purely about desperately seeking to finance reckless government spending and not about providing incentives for private sector economic growth. Critically, it also confirms that the interest caps were always really about government access to cheaper domestic borrowing and not about promoting private sector economic activity, which the government appears to be doing its best to stifle.

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Gitau Githongo is a financial consultant based in Nairobi.

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India Election 2019: Modi’s Victory Signals Growing Far Right Intolerance in India and Around the World

Narendra Modi epitomises the kind of neo-fascist right-wing leadership that is sweeping across some parts of Europe, the United States, South America, Asia, and even Africa, where the likes of Donald Trump, Victor Orban, Benjamin Netanyahu, Rodrigo Duterte and Jair Bolsonaro are imposing intolerant, highly regressive policies that polarise populations and create false “them-versus-us” narratives.

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India Election 2019: Modi’s Victory Signals Growing Far Right Intolerance in India and Around the World
Photo: Flickr/Narendra Modi
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The re-election of Narendra Modi as India’s Prime Minister (his second term) is hardly surprising but does signify a worrying global trend of increasing intolerance and xenophobia. India’s weakened opposition – personified by the lacklustre and lightweight Congress leader, Rahul Gandhi – had no chance in a country riding on a wave of nationalism that equates Hinduism with patriotism. Rahul Gandhi’s lineage (he is the son of former Prime Minister Rahul Gandhi, the grandson of India’s “Iron Lady”, Indira Gandhi, and the great grandson of India’s founding father, Jawaharlal Nehru) failed to attract sufficient voters, perhaps because the Gandhi family is associated with the kind of dynastic politics that Modi says he is eschewing. (Modi never fails to remind Indians that he is the son of a tea seller who rose through the ranks without the support of any political godfather or dynastic family.)

Modi and his Bharatiya Janata Party (BJP) have been selling the narrative that the Hindu religion and way of life have been undermined by centuries of subjugation of the Indian people, first by Muslim Mughal conquerors/emperors, then by British colonialists, and finally by the secularist (read Congress) politicians who led India to independence and thereafter imposed a socialist mindset on the country’s governance. This narrative also feeds off the decades-old rivalry between India and Pakistan that began when India split into two countries at independence in 1947.

The re-election of Narendra Modi as India’s Prime Minister (his second term) is hardly surprising but does signify a worrying global trend of increasing intolerance and xenophobia

As the activist and author Arundhati Roy quipped, being a Muslim in Modi’s India is now considered unpatriotic. “Of late, the criterion for being considered anti-national has been made pretty simple: If you don’t vote for Narendra Modi, you’re a Pakistani. I don’t know how Pakistan feels about its growing population.” (The number of Muslims in India is almost the same as the number of Muslims in Pakistan, around 180 million.)

Despite not keeping many of his promises (like improving the lot of India’s struggling farmers), Modi managed to rally his countrymen and women behind him. The reasons for this are many, among them a compliant and conservative Indian media, which did not challenge his divisive politics. As one Indian commentator put it, “A major section of the media has been a willing accomplice in the marketing of the Modi cult and the over-selling of the government’s performance in various ‘schemes’.”

Modi and his Bharatiya Janata Party (BJP) have been selling the narrative that the Hindu religion and way of life have been undermined by centuries of subjugation of the Indian people, first by Muslim Mughal conquerors/emperors, then by British colonialists, and finally by the secularist (read Congress) politicians who led India to independence and thereafter imposed a socialist mindset on the country’s governance

Indeed, the mainstream media and journalists have been under increasing attack in recent years by the BJP government. Journalists have also been targeted for assassination by Hindu fundamentalist groups, among the most recent case being that of Gauri Lankesh, an outspoken left-wing journalist who was killed outside her house in Bangalore in 2017.

Elitist politics

Modi’s victory perhaps reflects an Indian electorate that is fed up with the elitist kind of politics associated with the Congress Party, which, despite (or perhaps because of) its secular credentials, failed to inspire a majority of the country’s people who have lost faith in the institutions that Nehru and his successors in the Congress party set up. As Ramesh Thakur commented in an op-ed piece in the Times of India, “Inevitably this [Congress Party culture] morphed into the VIP culture that Indians by and large detest with a depth of contempt, anger and resentment” – a situation that Modi fully exploited.

Aatish Taseer explained some of the reasons for Modi’s victory in a recent TIME magazine article:

“The nation’s most basic norms, such as the character of the Indian state, its founding fathers, the place of minorities and its institutions, from universities to corporate houses to the media, were shown to be severely distrusted. The cherished achievement of independent India – secularism, liberalism, a free press – came to be seen in the eyes of many as part of a grand conspiracy in which a deracinated Hindu elite, in cahoots with minorities from the monotheistic faiths, such as Christianity and Islam, maintained its dominion over India’s Hindu majority. Modi’s victory was an expression of that distrust.”

Modi’s and his party’s supporters claim that he has brought India into the 21st century, and rather than being a traditionalist, he is actually a modernising reformer. (However, as he himself has pointed out, he does not equate Westernisation with modernisation; rather, he sees all the trappings of modernity in India, such as being fluent in English, drinking alcohol or eating meat, as contrary to the Hindu ethos of vegetarianism and spiritual purity. (Alcohol and meat are no longer on the menu at state banquets and several states in India have banned the eating of beef.)

As the activist and author Arundhati Roy quipped, being a Muslim in Modi’s India is now considered unpatriotic. “Of late, the criterion for being considered anti-national has been made pretty simple: If you don’t vote for Narendra Modi, you’re a Pakistani. I don’t know how Pakistan feels about its growing population

But Modi’s claim that he is taking India into modernity are not entirely accurate. India under the leadership of the Congress Party’s Oxford-educated Manmohan Singh, first as Finance Minister, then as Prime Minister, ushered in the first wave of liberalisation in the early 1990s, which opened up the economy to foreign investment and led to the deregulation and privatisation of various sectors. Modi is simply riding on the back of that first wave, which, fortunately, also coincided with rising economic growth, which catapulted millions of Indians into the middle classes.

Modi’s main appeal lies in his ability to convince a majority of India’s people that he is a reformist that can uproot India’s entrenched corruption and make government bureaucracy less cumbersome by ushering in a business- and private sector-friendly environment that can compete with the likes of China and the United States.

He also appeals to the aspirational instincts of India’s rising middle classes, who are eager for a cleaner, more efficient India. They say that the BJP has increased the country’s economic potential by building new roads, highways and airports. This is evident in cities such as Mumbai and New Delhi, where the infrastructure has been markedly improved in some areas. The Prime Minister’s campaign to clean up India and improve access to sanitation has also been welcomed by a population used to seeing filth on the streets of Indian cities and villages. He even managed to mesmerise some leading Bollywood stars, who not only campaigned for him, but even stood as candidates on a BJP ticket.

Hindutva and fascism

Modi is no doubt a charismatic and disciplined leader, but his brand of politics can also be dangerous for a nation, especially a nation as vast, diverse and complex as India. He represents a particular kind of nationalism-cum-populism that has the potential to fragment a country irreversibly and take it back to place where rights and freedoms are arbitrarily – not universally – applied.

Modi’s main appeal lies in his ability to convince a majority of India’s people that he is a reformist that can uproot India’s entrenched corruption and make government bureaucracy less cumbersome by ushering in a business- and private sector-friendly environment that can compete with the likes of China and the United States.

While paying lip service to secularism, Modi has entrenched an insidious form of Hindu nationalism (Hindutva) that has allowed anti-Muslim, anti-Christian and anti-Dalit (lower caste) sentiments to flourish. Physical attacks and violence against non-Hindu groups and individuals have risen in recent years and the image of India as a country that accepts all religions is being severely eroded. India, a land of immense diversity and where virtually every religion in the world has found a safe home, is now being touted as land for and of only Hindus.

The BJP has also embarked on propagating a revisionist history of India that fails to recognise that the subcontinent has never been a purely Hindu entity; it has been an amalgam of different religions for centuries, and Hinduism itself has undergone various transformations since its birth some four thousand years ago. In fact, one could say that India has never been a purely Hindu country, and that Hinduism is not so much a religion as it is a way of life that is interpreted differently by every Hindu, depending on her God, what region she hails from, and what caste group she belongs to.

Unfortunately, Modi epitomises the kind of neo-fascist right-wing leadership that is sweeping across some parts of Europe, the United States, South America, Asia, and even Africa, where the likes of Donald Trump, Victor Orban, Benjamin Netanyahu, Rodrigo Duterte and Jair Bolsonaro are imposing intolerant, highly regressive policies that polarise populations and create false “them-versus-us” narratives. Brexit and growing neo-Nazi and racist groups in Europe and the United States have further fuelled the idea that outsiders are to blame for a nation’s woes. In India, Modi’s Hindutva has emboldened Hindu chauvinists who no longer feel they need to hide their hatred for other races and religions. In all these places, democratic institutions are being weakened and the media and intellectuals are being vilified. Fascism – the feverish exaltation of ethnicity, race, nation or religion above the rights of the individual – has become the new normal.

Modi’s victory perhaps reflects an Indian electorate that is fed up with the elitist kind of politics associated with the Congress Party, which, despite (or perhaps because of) its secular credentials, failed to inspire a majority of the country’s people who have lost faith in the institutions that Nehru and his successors in the Congress party set up

There is also an inherent anti-intellectualism in these leaders’ statements and a propensity to install pliant and mediocre people whose only qualifications are sycophancy and blind loyalty to the leadership. In the Indian state of Uttar Pradesh, for instance, the BJP appointed a hate-mongering Hindu priest as chief minister, and did not suffer any consequences for this grave mistake. These trends, not just in India, but in many parts of the world, should worry all those committed to promoting human rights and democratic values.

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Out of the Box Thinking or Garbage Can Policy: Is Jubilee’s Government Protectionism and Economic Controls Good for the Country?

Uhuru Kenyatta’s grand scheme, the Big Four manufacturing agenda, is predicated on the restoration of protectionism and economic controls. But as DAVID NDII argues import licensing and exchange controls – the old tools of the trade – are no longer available, hence the “out of the box” solutions of the Jubilee government.

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Out of the Box Thinking or Garbage Can Policy: Is Jubilee’s Government Protectionism and Economic Controls Good for the Country
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In October last year, Uhuru Kenyatta fired a broadside at imports of fish from China: “The Finance bill has passed but we can think outside the box. We might as well say the fish imported is bad then we lock it. There are many ways the government can work if we really intend on serving our people.”

The trick backfired. The ban was imposed in November and lifted two months later following what was reported as a “biting shortage”. Had he taken a quick peek into the Economic Survey – the government’s annual statistics report that should be on his desk – he would have noted a steady decline in domestic fish production over the last five years – from 160,000 tonnes to 98,000 tonnes, a difference of 35,000 tonnes. Imports in 2018 were 22,000 tonnes, not enough to plug the deficit. On several occasions prior to the ban, senior government officials had been widely reported explaining that Kenya has a large and growing fish deficit. That they went ahead to implement a harebrained roadside declaration tells us everything we need to know about the state of sycophancy in the Jubilee government.

The latest from the Uhuru Kenyatta out-of-the-box policy institute is a proposed ban on used motor vehicle parts. Initially reported as a blanket ban, the Government has since clarified that it is limited to particular parts that endanger safety, such as brake pads. Sensible, isn’t it? Roads full of overloaded matatus and Proboxes with faulty brakes is a scary thought.

Road safety is not the business of trade policy. The person most at risk from a defective vehicle is the driver so, a safe, roadworthy car is in their interest. That said, drivers do kill and maim themselves and others far too often, not just because of defective vehicles but also by dangerous driving, notably speeding and drink driving. I can say without fear of contradiction that defective drivers, and not defective vehicles, are the single largest cause of road accidents. Moreover, there is no law that compels owners to service their vehicles. In many countries, vehicles over a certain age are required to undergo regular roadworthiness inspections. In the absence of a law requiring vehicle owners to replace worn parts, banning the import of used parts is an exercise in futility. What, then, is the ban in aid of?

The latest from the Uhuru Kenyatta out-of-the-box policy institute is a proposed ban on used motor vehicle parts. Initially reported as a blanket ban, the Government has since clarified that it is limited to particular parts that endanger safety, such as brake pads. Sensible, isn’t it? Roads full of overloaded matatus and Proboxes with faulty brakes is a scary thought.

Some economic history background is helpful and this is the history of the import control regime that was in place from the early 70s to the early 90s. The regime was a two-stage process, the first of which was the acquisition of an import licence. Import licences were issued by a committee of the Ministry of Commerce and Industry known as the Import Management Committee (IMC). Having acquired an import licence, one proceeded to apply for a Foreign Exchange Allocation Licence (FEAL) at the Central Bank. The role of the IMC was to implement quantitative restrictions. It would review the imports to be authorised based on the domestic production capacity and adjust the amount of imports that would be allowed in accordingly. Obviously, it is impossible to do this for hundreds of products when both the production capacity and the size of the market are constantly changing. Moreover, for some strategic products, importers were required to obtain a “no objection” from the domestic monopoly.

While import substitution industrialisation became the accepted justification, this was actually not how the control regime came about; import substitution industrialisation had been proceeding satisfactorily using tariff protection without import and foreign exchange controls. The regime was put in place in response to the effects of the 1973 oil price shock on foreign exchange and the controls were supposed to be temporary, to be lifted once the effects of the shock subsided. The effects subsided and were, in fact, followed by a coffee boom that more than offset the oil price shock, but the control regime remained.

I can say without fear of contradiction that defective drivers, and not defective vehicles, are the single largest cause of road accidents

Once it was in place, people discovered that it was useful in other ways. Everything about the regime was subject to bureaucratic discretion that could be abused – and was abused – in two ways. First, the determination of import tariffs was completely discretionary, and was determined to a considerable extent by political influence as opposed to economic logic. Second, influential incumbents were able to buy protection not just from imports but also from potential domestic competitors. Suppose an established incumbent noticed a competing product from a new local manufacturer on the shelf. With sufficient influence, the incumbent would get the bureaucrats to frustrate the competitor by denial or long delays in obtaining import licences or foreign exchange allocations. The surest way of buying influence was to have a business relationship with powerful people in government, either as sleeping partners or as distributors or suppliers. The overall effect was a corrupt, distorted, unpredictable policy regime that stifled competition and rewarded inefficiency, effectively undermining investment and entrepreneurship.

It should not come as a surprise then that by the early 80s, import substitution industrialisation had stalled. In Sessional Paper No.1 of 1986 on Economic Management for Renewed Growth, the government owned up to the failure of import substitution industrialisation and ushered in the era of market liberalisation and economic policy reforms known as structural adjustment programmes (SAPs). The paper argued that the state-centric protectionist economic model had reached a dead end. In particular, it highlighted the system’s failure to create jobs and warned that, unless it was reformed, we would be “overwhelmed” by population growth.

The trade regime was one of the first targets for reform. The first task of the reform agenda was an exercise known as tariff harmonisation, which culminated in three tariff bands: 0 per cent for raw materials and capital goods, a 10 per cent band for intermediate products and a 25 per cent band for finished goods. Also included was a list of items prohibited for health and safety reasons. The second task was the removal of import licences and foreign exchange controls, which was completed in 1993. The same regime was subsequently adopted by the East African Community. The effect of these reforms was to level the playing field and to tie the government’s hands, and the policy regime itself became stable and predictable. It is this policy straightjacket that the out-of-the-box solutions are meant to circumvent.

In Sessional Paper No.1 of 1986 on Economic Management for Renewed Growth, the government owned up to the failure of import substitution industrialisation and ushered in the era of market liberalisation and economic policy reforms known as structural adjustment programmes (SAPs)

Up until 1993, the reforms had been proceeding in fits and starts, with several reversals in between due to resistance from vested interests. But in the aftermath of the 1992 general elections, the Goldenberg chickens came home to roost. Staring an economic meltdown in the face, Moi accepted to open up the economy in exchange for a financial bailout. The impact was immediate; trade boomed and within a year, Nairobi’s city centre was transformed into one big bazaar. People spruced up. On the streets, you could no longer tell people’s socio-economic status by their appearance – everyone was well dressed. In the rural areas, patched up clothes disappeared. Everyone wore shoes. Motor vehicle ownership boomed. Vehicle registrations, which had been in decline, rebounded immediately, growing 22 per cent per year over the next five years, and 12 per cent per year over the decade (see chart). Owning a decent car ceased to be a status symbol for the upper echelons of society, and they resented it – some still do.

The rationale for foreign exchange controls – that liberalisation would cause scarcity – was blown out of the water; foreign exchange availability actually improved. But most importantly, the prognosis of the 1968 Sessional Paper on employment was vindicated; employment growth doubled from 4.8 per cent in the previous decade, to 9.4 per cent in the decade following liberalisation. This labour absorption was driven by an explosion in micro and small enterprises, particularly in trade, but also in jua kali manufacturing and in other sectors as well. Supermarket shelves featured a wide variety of colourful, affordable local brands of consumer goods – toiletries, shoe polish, vegetable oils – where previously choice was limited to two or three staid multinational brands that had remained unchanged for twenty years or more.

Staring an economic meltdown in the face, Moi accepted to open up the economy in exchange for a financial bailout. The impact was immediate; trade boomed and within a year, Nairobi’s city centre was transformed into one big bazaar. People spruced up.

Uhuru Kenyatta’s grand scheme, the Big Four manufacturing agenda, is predicated on the restoration of protectionism. But import licensing and exchange controls – the old tools of the trade – are no longer available, hence the “out of the box” solutions.

The used spare parts ban opens a window for bureaucrats to rummage through every consignment of used car parts looking for prohibited parts. Bribes, demurrage and other transaction costs will go up. Many businesses, particularly small ones, will be driven out of business. Maintaining the diverse models of imported used cars will become a challenge and the used-car import trade will be strangled to death by regulation and bureaucracy.

Uhuru Kenyatta’s grand scheme, the Big Four manufacturing agenda, is predicated on the restoration of protectionism. But import licensing and exchange controls – the old tools of the trade – are no longer available, hence the “out of the box” solutions.

The Draft National Automotive Industry Policy featured in this column a month ago has precisely this situation as one of its objectives. This ban complements the plan to initially lower the maximum age of used-car imports to five years from the current seven, and then to three years, effectively putting cars out of reach for many people.

But the Government has a plan – model rationalisation and homologation. Model rationalisation means reducing the number of models sold in the market while homologation simply means state certification. The policy is “geared towards an entry model for the local market based on acceptability and affordability”. In short, the state will choose one model of car that will be mass-produced for the local market.

The logic of this is as follows: because we are a small market, having too many models makes it difficult for the local assemblers to have economies of scale. This of course means that the chosen model will be frozen in time technology-wise, and will probably be available in just a couple of colours. But of course, in other markets, design and technology will be moving on and therefore, this will only work if “the people’s car” is protected from the imported used cars that consumers would prefer.

This has been done before; India had the Ambassador, the Soviet Union had the Lada, and East Germany the Trabant. We had the Peugeot 504, which we kept assembling for at least a decade after it had gone out of production. I had the good fortune of visiting Berlin in my youth, just a year before German reunification, and I still recall the surreal images of Trabants sputtering along on one side of the Wall while BMWs, Audis and Mercedes Benzes whizzed by on the other. I find it difficult to contemplate that, thirty years on, and on the cusp of the fourth industrial revolution, we have apparatchiks formulating communist industrial policy.

In the decade after the 1993 “big bang” as we called it, the economy created four million jobs – 400,000 a year, compared to 80,000 a year in the preceding decade. In the absence of these reforms, Kenya would have preceded Zimbabwe on the route to land invasions and economic meltdown. We may not have led then, but we are certainly doing our best to follow now.

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In Whose Interest? Reflecting on the High Court Ruling Against John Githongo

The core issue in the Murungaru v Githongo case remains whether the revelations of the Anglo Leasing scandal – which was not just exposed in the Nation newspaper that published the Githongo Dossier in 2006, but was also extensively documented by the British journalist Michela Wrong in her book, It’s Our Turn to Eat were in the public interest.

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In Whose Interest? Reflecting on the High Court Ruling Against John Githongo
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The awarding of a hefty Sh27 million ($270,000) in damages to the former minister Christopher Ndarathi Murungaru by the High Court judge Joseph Sergon has sent a chilling message to all those who might be inclined to report corruption or wrongdoing within government: do so at your own peril.

Murungaru’s libel case against anti-corruption activist and former Governance and Ethics Permanent Secretary, John Githongo, has raised serious questions about whether court decisions are being made without due reference to constitutionally-protected rights and freedoms and whether Kenya’s judiciary has been “captured” by the state.

These questions were recently discussed and debated at a public forum in Nairobi organised by various civil society organisations, and attended by prominent legal minds, including the former justice minister and NARC leader, Martha Karua, who described the Sh27 million award by the judge as “outrageous”. Karua, who has been accused by her critics of not doing enough to protect Githongo when she served in Mwai Kibaki’s administration (when the so-called Anglo Leasing scandal that implicated Murungaru and others in government was exposed), stated that the case will make people afraid of coming out and reporting corruption within government. She further claimed that when she realised that many of the Anglo Leasing contracts that Githongo had exposed in what is known as the “Githongo Dossier” were fraudulent, she made several attempts to have the government not honour them, but was thwarted in her attempts by none other than the then Attorney General, Amos Wako.

As George Kegoro, the Executive Director of the Kenya Human Rights Commission, pointed out, “This case was about isolating John and exposing him financially. It was to embarrass and ruin him and to silence him.”

Wachira Maina, a constitutional lawyer and governance consultant, believes that this case illustrates how “state institutions have been repurposed for private gain”. He wondered why Murungaru had not sued the Nation newspaper, which published the dossier, suggesting that the case was a personal vendetta against a soft target who could be financially crippled by the case. As George Kegoro, the Executive Director of the Kenya Human Rights Commission, pointed out, “This case was about isolating John and exposing him financially. It was to embarrass and ruin him and to silence him.”

The amount awarded to the plaintiff also seemed unusually large. As Jill Ghai noted, “If you lose a leg in an accident in Kenya, the most you get awarded is 2 million shillings, so 27 million for damages is outrageous.”

“The court did not consider that Anglo Leasing happened under Murungaru’s watch,” said Maina. He further pointed out that every ruling in the courts must “pass the constitutional test”, which this ruling clearly did not. “There is no single reference in the judgement to the constitution. Judges are not only expected to apply the constitution, but are also expected to interpret law to reflect the constitution.”

Did the public have the right to know the people and events that constituted the Anglo Leasing scandal? Definitely, because billions of Kenyan taxpayers’ shillings were involved, and the contracts signed had to do with national security

Several countries are reconsidering their libel laws and amending them so that they do not impinge on freedom of speech and the right to access to information, which are constitutional rights in many countries, including Kenya. These rights and freedoms become even more salient when the publication of certain information is in the public interest. The UK’s Defamation Act of 2013, for instance, curtailed what is known as “libel tourism” (libel cases brought by people who go to court in countries where they are most likely to be awarded large amounts of money in damages) and extended to the mass media the “qualified privilege” defence, which provides protection from a defamation lawsuit for journalists who publish information that is in the public interest.

Perceived injury to an individual versus public interest

The core issue in the Murungaru v Githongo case remains whether the revelation of the Anglo Leasing scandal – which was not just exposed in the Nation newspaper that published the Githongo Dossier in 2006, but was also extensively documented by the British journalist Michela Wrong in her book, It’s Our Turn to Eat: The Story of a Kenyan Whistleblower, published in 2009 – was in the public interest. Did the public have the right to know the people and events that constituted the Anglo Leasing scandal? Definitely, because billions of Kenyan taxpayers’ shillings were involved, and the contracts signed had to do with national security. (The Anglo Leasing scandal, as the corruption scam that Githongo exposed has come to be known, was a series of fictitious security contracts signed with shell companies by the Moi and Kibaki governments that cost the Kenyan taxpayer millions of dollars. According to reliable estimates, the contracts were worth more than $700 million, of which an estimated $250 million was paid out). Some of those implicated are currently facing trial in the Kenyan courts.

Kimeu said that the role of the judiciary is to interpret the law, and to do so in line with the aspirations of the people. “This case was about Kenyans and their money,” he stated. “The case made an example of John – it is basically telling us to lie low. If you speak out, it is to your personal detriment.”

Moreover, the court must determine that there was “actual malice” on the part of Githongo when he claimed that Murungaru and four other high-level government officials orchestrated the Anglo Leasing scam. So, for instance, there needed to be evidence that Githongo deliberately tried to malign Murungaru in order to cause harm to him or to damage his personal or professional reputation. (Murungaru claimed that he lost his parliamentary seat as a result of Githongo’s allegations, which is neither here nor there.) As Samuel Kimeu, the Executive Director of Transparency International-Kenya, rightly asked, “How is it that a perceived injury to one person trumps the public interest?”

Kimeu said that the role of the judiciary is to interpret the law, and to do so in line with the aspirations of the people. “This case was about Kenyans and their money,” he stated. “The case made an example of John – it is basically telling us to lie low. If you speak out, it is to your personal detriment.”

Kimeu highlighted that there is currently no law in Kenya that protects whistleblowers, which makes exposing wrongdoing a daunting task, and that this particular libel case has had a “disorienting” effect on those who protect the public interest.

Integrity issues

Prof. Kibe Mungai, an advocate of the High Court, admitted that many judges and public officers in Kenya disregard the constitution, especially on issues to do with integrity and values. However, as I have noted in previous articles, the precedent was set by none other than the current presidency, Uhuru Kenyatta and William Ruto, who stood for the highest political office in the land despite being indicted by the International Criminal Court (ICC) for crimes against humanity. By doing so, they contravened Article 73 of the constitution that states that “authority assigned to a State officer is a public trust to be exercised in a manner that … promotes public confidence in the integrity of the office”.

In my opinion, Kenyatta and Ruto should have disqualified themselves as candidates in the 2013 election (but could have stood for political office when or if they were acquitted). While I believe that the ICC process has proved to be flawed and perhaps even discriminatory, and that Mwai Kibaki and Raila Odinga – respectively the head of state and the leader of the opposition during the post-election violence in 2007/8 – should have borne ultimate responsibility for the deaths and destruction during that time, I think that by putting themselves up as candidates, Kenyatta and Ruto rubbished both the ICC and the Kenyan constitution – an unfortunate development that severely eroded Kenya’s reputation as a country that upholds the rule of law and which had a detrimental effect on the country’s political landscape.

The constitution, in particular Chapter 6 on Leadership and Integrity, was further ignored by a large segment of the Kenyan electorate, which went ahead and voted for Kenyatta and Ruto, not despite the fact that they were indicted, but because they were. The country has been on a downward spiral constitutionally since then, and we the Kenyan voters, have only ourselves to blame.

Justice Sergon also failed to recognise that the role of a whistleblower is not to bring forth evidence, but simply to raise suspicion about possible wrongdoing that will, hopefully, result in a full investigation by the relevant authorities

George Kegoro believes that the case, which took 13 years to conclude, was flawed from the start. First, in March 2015, the previous judge, Justice David Onyancha, disqualified himself from the case on the grounds that there had been attempts to compromise him, while providing no details about who the compromisers were. This raised the question about whether his successor, Justice Sergon, was considered to be a more pliable judge by those who tried to compromise his predecessor.

Moreover, Justice Sergon proceeded as if Anglo Leasing never happened. As Kegoro argued in an opinion piece published in the Standard:

“Besides underrepresenting issues of process in the final judgement, Justice Sergon totally ignored questions of context. The suit against Githongo arose from the Anglo Leasing scandal that gripped the country in 2006, giving rise to a tumultuous political situation that almost toppled the young Kibaki government. The fallout from the scandal included the resignation of Githongo from government before he went into exile in the United Kingdom. Also, a number of high officials, including Murungaru and [former finance minister David] Mwiraria, eventually lost office or were charged in court in relation to the scandal over which there was significant public outrage… Allowing Murungaru’s claim against Githongo has given judicial approval to a blinkered and contrived self-view by the former minister, which is at variance with how the general public has come to view him…”

Yet, in his ruling, Sergon stated: “There were no iota of evidence presented by the defendant and his witness linking the plaintiff to the corrupt practices. Therefore the contents of the dossier in the absence of evidence to establish their truthfulness means that the publication is and was defamatory of the plaintiff.”

Justice Sergon also failed to recognise that the role of a whistleblower is not to bring forth evidence, but simply to raise suspicion about possible wrongdoing that will, hopefully, result in a full investigation by the relevant authorities.

Kenya’s legal history is littered with bad judgements and excessive punishments, not just for those who raise their voices against injustices and human rights violations but also for those ordinary citizens who cannot afford savvy lawyers or who lack access to political influence

Githongo has said that he will appeal the High Court decision, and a crowd-funding mechanism to raise Sh27 million has already been put in place in case he loses the appeal.

Kenya’s legal history is littered with bad judgements and excessive punishments, not just for those who raise their voices against injustices and human rights violations but also for those ordinary citizens who cannot afford savvy lawyers or who lack access to political influence (like chicken thieves who end up eight years behind bars because a judge deemed that a hungry man who steals a chicken is more criminal than a man who robs an entire country).

We must also not forget that Kamlesh Pattni, the mastermind of the Goldenberg scandal in the early 1990s, which almost brought Kenya to its knees economically, is still enjoying fresh air and living large. The Murungaru v Githongo case might just outrage Kenyans enough for them to demand more accountability from governments that steal and from courts that continuously thwart or ignore the will and aspirations of a fatigued citizenry yearning for a more just and humane society.

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