Every dispassionate Kenyan who intends either to vote, abstain or to merely observe the outcomes will know by now that the presidential contest this year is effectively between two main coalitions. Of the two, the Azimio la Umoja One Kenya Coalition Party released its summary plan yesterday. The name of the published document is: “The Kenya Promise; Plenty Shall be found Within Our Borders”.
Judging by the choice of that title, this plan gives the strong impression that it is drawn with a focus on the prayer in the national anthem and thereby alludes to prosperity and abundance.
Admitting that it’s a document that’s worthy of more incisive study, we assess the plan on the basis of this very direct allusion to economic prosperity and management based upon this subliminal call to the promises of the national anthem and the aspiration towards the positive things.
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ODM leader Raila Odinga with his running mate Martha Karua at the launch of Azimio's manifesto in Nairobi on June 6, 2022.
Photo credit: Simon Maina | AFP
First, the rubric of our assessment is derived from the question: “Does the aspiring candidate understand what the functions and role of government ought to be?”
Taking a step back from the cynical idea that politicians ought to be allowed to “campaign in poetry but govern in prose”, the Institute of Economic Affairs (IEA) asserts that an indispensable requirement for every coalition should be a firm grasp of what government should do as opposed to the fancy stories it can tell.
In the language of conventional economics thinking, we make the uncontroversial claim that political coalitions should compete on how they can provide public goods as a start and pursue policies that expand the production possibilities frontier for Kenya.
Public goods are those goods and services that can only emerge from government action and which are the basis for formation of a republic. For Kenya’s case, these public goods would be security for the private and freedoms of the person and her property, prevention from invasion, environmental damage and overall adherence to rule of law. It is on the basis of the satisfactory provision of these that a government is correctly considered an effective one.
Coming to the plan by the Azimio coalition, it is a concern that it doesn’t seem to show a strong recognition about the limits and effective roles of government.
Granted, the plan contains commitments to personal safety of children, women and the health of the justice system. However, we consider a deficiency to be overly preoccupied with establishing projects, flagships, new funds and to perform distribution roles in all sectors, regardless of their consequences for the provision of public goods.
This must concern voters because this extensive role of government as a “paternal uncle” and with the President as the social worker number one and the Cabinet as the council headmen, is neither consistent with expansion of freedoms nor a pointer to a government that seeks to be effective at its most critical roles.
Every student of economics would give credit to the drafters of the plan for the surfeit of quantitative targets in this plan.
This leads to the second finding, which is the curious quest to expand the share of agricultural contribution to the overall national income to 30 per cent annually. Not only is this an arbitrary quantitative target, its is also an interesting one because it’s squarely incompatible with the other impressive target of ensuring that manufacturing contributes another 30 per cent to the Gross Domestic Product.
The reason for this is that, while agriculture’s share of the GDP today is at 23 per cent, the justified pursuit of strong growth in manufacturing as the source of new jobs would most probably have to be at the expense of agriculture. The structural change that would transform Kenya from manufacturing level of eight per cent today to 30 per cent is probably the goal to be achieved within half a generation but it can only happen with a corresponding shrinkage in the proportion of agriculture.
This historical path has been followed by many countries, including the Asian Tigers with which Kenyan planners are enamoured, but no country achieves it by expanding the share of agriculture as it implies the movement of capital and labour from small farms and into manufacturing enterprises.
Thirdly, the drafting of the plan demonstrates an awareness that the change in the structure of Kenya’s economy is inevitable. In spite of this acknowledgement, the Azimio plan demonstrates that the obsession with arbitrary target setting and a mastery of centralised planning has not been shaken off.
The first article in the 10-point agenda summary is the innocuously sounding “One County , One Product” policy. Contained in this slogan is the belief that bureaucrats know which industries are to be established in each county and, therefore, have the ability to conjure them into existence.
Again, the motives are sound because there is a desire to spread manufacturing activity in each county in order to provide employment and local government payments. However, this chapter fails to account for the fact that the spatial distribution of manufacturing firms is not designed on a drafters board and there is no chance that government can guarantee the thriving manufacturing enterprises and distribute them to each county.
What the extensive experience shows is that this policy approach is bound to waste public resources in trying to incentivise firms to form in places that they have no preference for. Instead, it shows that the Azimio planners don’t consider the simple idea that a provision of the public goods and water and safety infrastructure would be sufficient. The decision on investment should be left to the private sector.
A major predictor of poor government performance is when bureaucrats let political actors to think that political power allows them to spread resources and chase every dream on their laundry list. Azimio is in danger of going there, as if the painful and sorry experience of the Jubilee administration is not recent history.
From left: ODM leader Raila Odinga, his running mate Martha Karua and Wiper leader Kalonzo Musyoka at the launch of Azimio's manifesto in Nairobi on June 6, 2022.
Photo credit: Evans Habil | Nation Media Group
Fourthly, Azimio’s plan gets credit for recognising that tax policy is an important instrument that governments may deploy to achieve welfare objectives. That notwithstanding, the plan is replete with tax holidays and tax exemptions for nearly every enterprise that is mentioned.
Among those considered worthy of tax holidays are the enterprises owned by the youth, which are accorded seven years of tax-free status. Added to that are the small and medium-sized enterprises (SMEs) , which also receive a three-year tax holiday and permanent tax exemptions for persons with disability, all these regardless of their income levels.
An income taxation policy that is comprised only of tax exemptions for favoured demographics and special status citizens is bound to be incoherent and impossible to apply with fairness.
It’s evident that the Azimio coalition has not considered the perverse incentives inherent in this poor taxation policy design. We predict that there is likely to emerge an industry of citizens declaring themselves disadvantaged or even bearing disability in order to appropriate lifelong exemptions from paying taxes.
While there is legitimate cause to protect vulnerable Kenyans from difficulties, it’s evident that this design would be so unwieldy as to generate a backlash against people with special needs. It’s clear that more thinking should be dedicated to this chapter.
Equally troubling is the treatment of taxes on goods and services. There is a strong proposal to “review the taxation regime and its effects on essential goods and services”. This claim is immediately followed by the citation of the Value Added Tax on petroleum, suggesting to us that this would be revised downwards.
The choice of product to provide taxation relief , too, is interesting because this intended change would confer advantages to specific people and thereby violate good principles of coherent taxation, which requires taxes to be stable and low.
Petroleum products may have the highest profile among consumption taxes in Kenya but they are not necessarily the most regressive. Reducing petroleum taxes would mostly benefit urban travellers, drivers and those who consume these products, with the total benefits disproportionately affecting higher income people.
This summary of tax exemptions here and there for specific products and interest groups suggests that Azimio is unlikely to maintain its promise of tax reforms that create a stable and predictable tax regime that encourages fair business, investment and trade.
The most conspicuous part of this chapter is the failure to comment on either the Fuel Price Stabilisation Fund or the price control regime for petroleum in Kenya.
The final two points represent our assessment of what are the most impressive commitments by the Azimio coalition. The conviction of the Azimio leader to devolution has been steadfast and this plan rings strongly and clearly with their aims. In unequivocal terms, the coalition commits to transfer all outstanding functions to county governments and to increase the shareable revenue due to county governments to 35 per cent.
Reinforcing these big claims is the intention to set up a neutral mechanism for disbursement of funds to both national and county governments. The effect of the latter is that the delays that have hamstrung budget execution by county governments would be resolved.
Before the launch of the Azimio plan, its leadership have stated that there shall be a regular cash transfer of Sh6,000 to each vulnerable household. While the published document does not specify the number of households that will qualify, the public discourse has been fixated with the number of two million.
The main argument is the overall affordability of this allocation, which would come to a nominal value Sh144 billion per annum. Based on this number and the reasonable estimates of revenue collection expected for the financial year, it’s clear that this amount is, by itself, not unaffordable. What is lacking is the clarity on the mechanism for executing it.
Our estimation at the IEA is that the rationale for cash transfers as a mechanism for social protection of vulnerable Kenyans is sensible and has solid empirical evidence from studies conducted in Kenya.
Affordability would depend on the numbers and the commitment to collapse all social protection systems under one banner. And here, the coalitions gets itself entangled in a complex claim that it will continue, indeed expand, existing cash transfer schemes.
This would make the programme unaffordable and a corruption disaster-in-waiting. The expansion of social protection through cash transfers in Kenya’s public sector is not possible without substantial reform and audit. This requires enormous political courage and Kenyans should hope that like the Azimio , all other coalitions understand that.
A keen reader of the published summary by Azimio would have to give the highest marks to the chapter that addresses the problem of debt management in Kenya. It’s evident to us that this is perhaps the most competently drafted chapter with astute awareness of the problem of public debt and the dynamics that will drive it.
It is clear that the solutions that are proposed are proportionate, clear-eyed and consistent with the view that the next administration in Kenya has a very deep challenge here. For instance, it demonstrates the uncommon knowledge that Kenya’s debt problem is not about its quantum, but also about its tenor, structure and profile. There are no easy solutions, and it acknowledges that there’s also a domestic debt challenge and promises to establish a Debt Management Office with statutory backing.
In summary, our early assessment is that this coalition got the reforms on devolution and public debt completely right.
We remain less confident that this government would commit purely to the provision of public goods because some of the proposals demonstrate inability to separate pure state activity from those of other sectors. There’s enough governance to do without having to export organic beef.
Kwame Owino is the chief executive of the Institute of Economic Affairs (IEA), while Leo Kemboi is a programme officer at IEA
