Why the State is reluctant to reduce cost of living

He would then urge the audience to consider the true intent of the policies they were pursuing. Alcoblow was a favorite example of his to illustrate the point. What was the purpose of Alcoblow, he would pose? Reduce deaths from traffic accidents, someone in the audience would offer.

Where do most of the traffic related deaths occur, and which vehicles cause them, he would ask? On highways, and by public transport vehicles would come the reply.

Then why deploy Alcoblow in middle income neighborhoods of Nairobi, where in fact the volume of public transport was the lowest? Why not test drivers in the bus and matatu terminus, he would ask?

A likely explanation is that the intention of the deployment was different altogether. The folks in those middle-income neighborhoods drive personal vehicles, and most importantly, are more likely to part with a bribe to avoid the embarrassment of being arrested or charged. Lo and behold, a few weeks after we first had this conversation, the police begun taking TV cameras to the points where they waylaid the middle class!

I was taken down this memory lane mid-week, when my cab driver asked me what I thought explains why regime seniors have been adamant in their refusal to discuss the cost of living in the bi-partisan talks.

The argument they have offered is that it is their responsibility to resolve it. That they should be left alone to deal with it.

No one doubts that it is the administration’s responsibility to control inflation. It is clear the citizens are frustrated and anguished. The bulk of the presentations at Bomas dealt at length with the cost of living. Yet the regime persists with the current policy choices. Why?

Here is my answer to the cab driver.

First, procurement opportunities. Reversing the sustained upward inflation trend requires dealing with the large and growing structural deficit. The deficit is large because every state department wants their budget to increase. Why? Larger budgets mean more procurement opportunities.

As I argued in this column last week, the fundamental policy choice is about expenditure. Conceptually, inflation is too much money chasing too few goods. World over, central banks reduce money supply in order to reduce aggregate demand. They do so by raising interest rates. The regime seniors obviously know this. Why then would they increase government spending, knowing all too well that it adds to the very aggregate demand that the Central Bank is trying to slow down?

They also know that deficit problem can be immediately eliminated by balanced budgets. It was successfully done by the NARC administration, who in fact run a budget surplus in 2004. A balanced budget removes the need to borrow, reduces interest rates, and releases resources back to the productive sector, spurring rapid growth. But for regime heavies who came into office with expectations of quick largesse, well, they can’t have that, as it would reduce the commissions and kickbacks.

Second, the type of procurement. Recurrent expenditure has thousands of procurement transactions. But they tend to be in small amounts. Mid ranking civil servants and political operatives pay attention to those. And there are many mouths to feed. Travel, however, can expend a tide sum in per diems. Seniors welcome travel opportunities. The more the better. Never mind the outcome of these trips.

Recurrent expenditure is growing strongly including for functions already devolved such as health, up by Sh12 billion this year. Travel has never been higher, prompting the head of public service to issue the largely ignored edict reducing the size of delegations accompanying cabinet secretaries on foreign trips.

Then there are the large projects. Both the intellectuals and politicians in the current regime were highly critical of large infrastructure projects while campaigning. A few months in, they would like to extend to Uganda, the very SGR that they criticised as a railway to nowhere. They would like to re-visit the green field JKIA terminal. They have re-procured the Rironi-Mau Summit toll road.

Large projects create opportunities for large commissions and kickbacks.

Third, the “low hanging fruits”. Exhibit 1, the now infamous fertilizer subsidy. The primary drivers of inflation are food and fuel prices. Food prices depend on rains. Going back three administrations, the overall stated policy to resolve this problem is to move to irrigated agriculture, reducing the reliance on rain.

Offering subsidized fertilizer is only one small part of increasing food production. In all three successive administrations the policy has had mixed results. Fights over who imports and distributes are about who is making money.

Obviously, farmers need other inputs for which they often need seasonal credit and Agricultural Finance Corporation, the principal source has insufficient resources to make any real difference. So why insist on the fertilizer subsidy as the silver bullet? Fertilizer procurement and distribution creates immediate “benefits” to those involved.

The irrigated agriculture program starts and stops on financing and procurement of dam construction. Engineering, procurement, construction and financing, all in one package, was a favorite route until Kimwarer and Arror dams scandal blew the lid off. The current reincarnation is pushing PPPs. Commissions and kickbacks mean the dams are overpriced three to four times.

That is my conjecture. What is yours?

@NdirituMuriithi is an economist

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