Housing Fund: It is about governance, above all else

To paraphrase the great novel Anna Karenina by Leo Tolstoy, all great countries are more or less alike in their greatness. On the converse, every failed economy is miserable in its own way. But it doesn’t mean under-performing economies cannot rise and join the ranks of the great ones.

We have examples of countries that have risen from gloomy backwaters in the 1960s to world economic powers. The recipe for such growth is readily available; there is no need to reinvent the wheel. An ideal place to start is the savings culture.

Savings drive investments, which, in turn lead to employment creation, higher economic growth and a better standard of living for the people, is a linear progression with exponential results. At the risk of introducing cliches in this discourse, let us investigate the past, where we are and where we are going.

Many southeast Asian economies gained their re-independence in the early to mid ’60s, just like Kenya. Our economies were about at par at the time. But that’s where the comparisons end. The most oft-quoted example—Singapore—is a clear example of the disparity between it and third world countries barely two generations since independence.

Highest living standards

“For a country to rise from the threshold of subsistence to one of the highest living standards in the world is no common achievement,” said former President of France Jacques Chirac about Singapore.

Indeed, it isn’t. This tiny country with a population of slightly over six million has a per capita GDP of $72,000, higher than its former colonial master Great Britain, most other European countries and even the United States, World Bank data show. The same source puts Singapore’s gross savings rate at 45 per cent, almost three times Kenya’s 16 per cent.

For a country the size of Nairobi, these are impressive statistics.  We must find ways to encourage people to save more because only then shall we have a pool of funds to boost national investments and improve livelihoods. We have started the journey: It’s painful, but delayed gratification is better than spending your old age in dire straits.

What the doctor ordered

The Housing Fund, which has stirred up a lot of controversy, might just turn out to be what the doctor ordered. With a Sh3,000 maximum monthly contribution to the fund, this is definitely one way to build the savings needed for investments and growth in the economy. It is a win-win for all: The fund will be used to build houses for those without the wherewithal to do so. For those who can, it is a saving that will come in handy at a defined point.

The big question, however, and this is where the conversation ought to be, is: How will it be managed? What will be the governance around it? Unfortunately, successive governments have not managed NHIF, NSSF and, more recently, Kemsa, well—maybe the real cause of Kenyans’ apprehension. The government would do well to sell to Kenyans the ‘how’ even more aggressively than the ‘what’.

Growth must also be anchored on a deliberate effort to support local manufacturers, be it through tax incentives or policies geared towards promoting growth. Incentives must be put in place to avoid capital flight and invite foreign direct investment (FDI). This is one area the government must prioritise: A dollar put in manufacturing has been proven to offer the greatest positive multiplier effects, especially on employment. This is an imperative even as we debate the many other things in the Finance Bill.

The good thing is that there is a huge local and regional demand for Kenyan products. Take the East African market, which, with a population of almost 500 million, can support any industry ambitious enough to scale. The result will be creation of jobs and increased forex earnings, leading to reduced pressure on the shilling (which has received a severe battering in the recent past due to pressures on the international stage that we have no control over).

The government must incentivise businesses through appropriate consistent policies and continued investments in key utilities and infrastructure.

One of the most under-rated investments in Kenya’s recent past is the standard gauge railway (SGR). Although its eventual cost is mired in controversy, if fully utilised, it would be a game changer as the country continues its foray into the regional market. But we need to complete the final phase to the border town of Malaba for it to attain its full potential.

We may need to borrow

The urgency of that cannot be gainsaid: Tanzania, for instance, is moving fast in its infrastructure projects—including the SGR—to allow the neighbouring landlocked countries access to its port. Rwanda is building technology hubs to rival Nairobi’s. Ethiopia has one of the highest growth rates in the region.

There are more examples of what our neighbours are doing to build their competitiveness. Kenya can’t afford to lose the head start we’ve enjoyed in building internal capacity to tackle diverse markets.

Investments need capital, and we may need to borrow. There’s a general feeling that we are over-leveraged in terms of domestic and international borrowings. The reality, however, is that even the best economies borrow and engage in fiscal policies that raise taxes to finance large infrastructure projects.

Discipline and integrity in usage of the funds and eliminating leakages is crucial. Based on their earnings potential, the projects can become self-funding in the medium- to long term. Some of the measures mean we tighten our belts considerably in the short run but are beneficial to all in the long term.

We should, by now, have shown the kind of organisation that the government will create to manage this fund, how the stakeholders will be nominated into the governance body and show the extent the State is willing to go to assure its independence.

I believe the issue is not that we are being overtaxed because there are enough examples to show we are not: The issue is ensuring and convincing Kenyans about governance of the funds raised. What does it profit a country if we pay all those taxes and end up with white elephants? The focus should, therefore, be on ensuring that every penny is accounted for.

As Henry Kissinger said of Singapore, “Every great achievement is a dream before it becomes reality.” We, as a country, have big dreams. What we now have to do is make them a reality.

Mr Gitahi, a Nairobi businessman, is a former CEO of Nation Media Group. [email protected]. @linusgitahi