County-run business ventures: Boosting trade or graft avenue? 

Kitui County sells sanitisers, textiles, construction blocks among other products. Machakos sells paving blocks.

Makueni County runs a fruit processing plant and last month applied to register an e-commerce platform. Kakamega is constructing a milk processing plant. Meru County once ran a hotel and Bungoma briefly ran a chicken processing plant.

Everywhere you look, a county government is running or starting a business venture. As they play the roles assigned to them in the Constitution, among them developing and regulating trade, some county administrations have gone the extra mile to be traders themselves.

But questions abound: What happens when a new governor takes over who may not be as enthusiastic about a certain venture? Should counties compete with the private sector in trading? Because counties are also trade regulators, does it create a regulation cul-de-sac? 

“I see a contradiction,” says Mr Kwame Owino, the CEO of the Institute of Economic Affairs, who says counties should fulfil their main responsibilities in the Constitution before opening business ventures. 

“Counties that are not even able to provide people with good hospital care, for instance, or have not provided water to people but they are selling mangoes, textiles, and such,” he argues.

But Mr Kinuthia Wamwangi, the former chairman of the Transition Authority that steered Kenya into a devolved system of government, says there is nothing wrong with counties starting businesses.

More funds to the county

“However, you need a municipal law that would establish the said businesses or industry just like we have in the national government where we have parastatals that are run by boards and the like,” he said.

An example of what can go wrong was provided by Meru County. When its first governor Peter Munya came to office shortly after the 2013 elections, he decided that the county would go on running a hotel that had been a project of the defunct local government.

The hotel was put under the Meru County Investment and Development Corporation. Mr Munya’s vision at the time was that the enterprise would not only generate more funds to the county, but also open up the area and attract more visitors and opportunities for the county.

But almost seven years later, that dream by Mr Munya — currently the Agriculture Cabinet Secretary — remains unfulfilled. His successor Kiraitu Murungi closed the business and converted it into offices.

“After consultation with the investment corporation, we thought it is a better idea to convert the hotel into offices. The government should not compete with the private sector in running hotels. Meru now has fairly good hotels,” Mr Murungi said.

Another example was provided by Bungoma County. Under its first governor Kenneth Lusaka, now the Senate Speaker, a chicken rearing and slaughter business was started but it collapsed soon after his successor Wycliffe Wangamati took office in 2017.

The Sh40 million project, which was to include a slaughterhouse for chickens in Chwele — run and maintained by the county government — was  supposed to include cold rooms, dust rooms and standby generators among other equipment to meet international market standards of chicken processing.

Loss-making venture

“I projected to generate additional revenue after investing heavily in hutching chicks in preparation for supply to the slaughterhouse immediately it starts operating but it has all turned into a pipe dream,” Ms Beatrice Nafula, a trader at Chwele market, told Nation. 

Besides the collapse of the business, the county government was also on the spot over the expenditure of about Sh1 million which is said to have been used to purchase “non-carcinogenic” wheelbarrows for the slaughterhouse.

Mr Wamwangi says the absence of a law to anchor the said businesses has resulted in the collapse of a majority of initiatives started by some pioneer governors.

It is this lack of structures that some critics have also linked to the woes facing some of the enterprises started by governors, like in Makueni County, where the Sh30 million fruit processing plant in Kalamba was termed a liability by the Auditor-General in 2018.

The auditor said the enterprise, which was touted by governor Kivutha Kibwana as a game changer in the county’s agro-processing supply chain, was flagged as a loss-making venture draining millions of shillings.

“The factory has significantly high overhead and is not making any profits. Unless the management strategises on the operations of the factory, its continued funding may not be an effective use of public resources,” the report read.

Auditor-General Nancy Gathungu concluded the sustainability and commercial viability of the factory may not be guaranteed. That was in 2018-19. The factory is one of Governor Kibwana’s flagship projects.

Trade development

Mr Wamwangi argues that the profitability of a business started by a county, or even its sustainability, is a matter of economics — which he says should involve proper and strategic planning.

“For me, the sustainability of such projects and businesses is a matter of pure economics. This is because before a county starts a business, there ought to be a feasibility study, stating the short- and even the long-term viability of such a project. The idea that a business will fail because a new regime has come to office is to me a result of myopic planning,” Mr Wamwangi said. 

However, Mr Owino has issues with the law behind the county engagements.

“When we read the chapter on devolution in the Constitution, it is clear that the law does not exactly forbid it. However, if you look at the schedule in the appendices of the Constitution which talks about the responsibilities of county governments, those would not be priorities,” says the economist.

The fourth schedule of the Constitution says that one of the roles of a county government is “trade development and regulation”.

Mr Owino argues that the emphasis should be on “trade development” and not merely “trade”.

He also wants counties to prioritise their main responsibilities.

“I suggest that they are losing focus from what the Constitution intended,” he says. “But we know why. It’s an opportunity for contracts, procurement, creating jobs and also for patronage. So, it’s upon us as citizens to call this out and not be too excited when somebody wants to establish a jam factory, for instance.” 

Reporting by Silas Apollo, Elvis Ondieki, Onyango k’Onyango and David Muchui