Why the regime will not make the tough calls

Two things are bothering Kenyans. First and foremost, cost of living. Second, a high cost environment for business leading to many closures and layoffs.

One thing is bothering the Kenya Kwanza regime – how to effect deep constitutional changes without going for referendum. What do they want?

To entrench the constituency development fund, the national affirmative action fund, and the senate oversight fund, controlled by members of parliament, women representatives and senators respectively. They want to introduce the ward fund, controlled by members of county assembly.

They also want to entrench prime cabinet secretary position and official leader of opposition in the Constitution. They have to fix the two thirds gender rule. You will recall that the courts previously ruled for dissolution of parliament for failure to meet the constitutional deadline to fix the gender rule.

To solve all three bothers requires tough decisions by the Executive, and they are afraid to make them. 

First to high cost of living and deteriorating business environment. The crisis provides the perfect cover for money making schemes of the political elite. It is therefore in the elite’s interest for the crisis to persist. Let us consider the evidence.

Exhibit 1. Within weeks of being in office, the regime approved a scheme for tax free importation of foods and edible oils under the pretext of reducing the cost of living. As you know, the key driver in the inflation is the price of food. 

Food security

The scheme was pretext. The Kenya National Trading Corporation (KNTC), a parastatal, would be funded to import the cereals and edible oils. But they did not import directly. Instead, they contracted other entities to undertake the importation on their behalf and then sell to KNTC at a margin. The CS Treasury gave the necessary exemptions so that these imports would not be subject to duties and other taxes.

Ultimately, KNTC would end up with edible oil too expensive to sell. EACC now estimates as much as Sh30 billion and 125,000 metric tons could have been involved in the edible oils scam.

Food prices did decline. But on account of the long rains. Once the rains begun in earnest, prices of key vegetables came down, as is usually the case. The regime seniors could now point to this reduction as evidence of the success of their policy. In the meantime, the parastatal is stuck with expensive commodities it cannot sell.

Kenyans had held out hope that the regime could be persuaded through the national dialogue committee (NADCO), to take measures to relieve the pain that citizens are going through. But the regime was adamant. Resolving the cost of living crisis is government business. And it is. That is where the procurement “opportunities” are.

Exhibit 2. Food security and the fertilizer subsidy. The idea of offering subsidised fertilizer to farmers goes back at least three administrations. Development partners such as International Fund for Agricultural Development (IFAD) have regular programming with government of Kenya for subsidised agricultural inputs for small holder farmers.

Fertilizer, however, is only one of the ingredients necessary to increase food production. You require other inputs including quality seeds, and pesticides. It requires land preparation. It needs to rain, otherwise, you will have to irrigate. To claim that fertilizer alone will result increased food production is a bit of a stretch. 

So why have all three successive administrations pursued this policy? Those involved in the importation and distribution rake in lots of money.

Reduce taxes

You would think it is obvious that to succeed, the fertilizer subsidy must be accompanied by other support, such as seasonal credit to enable farmers obtain the other inputs. It would appear common sense then to fund the Agricultural Finance Corporation. But there are no immediate commercial benefits for government heavies from such a policy. As a result, AFC gets scant support. 

Exhibit 3. Refusal to reduce taxes and interest rate. To reduce taxes and interest rates requires government to rein in its spending. The Azimio coalition has repeatedly called for this. But the regime would rather take the bitter pill of an IMF program than reduce expenditure. And without the IMF program, default on foreign debt could became a real possibility in the next six months.

I should hasten to add that IMF is not to blame. The institution is similar to an intensive care unit nurse. Highly trained, professional and thorough. But you certainly cannot blame her that the patient is in ICU to begin with. Her primary job is to keep the patient from expiring. 

She has limited treatment options. If the patient cannot reduce expenditure, then they must tax more. If the patient lives on a diet of imported goods and services, you must let the shilling to devalue in order to wane the patient from this addition.

Second, the constitutional changes. The constituency development fund (CDF) and similar funds are quite popular with members of parliament and the electorate. However, they are unconstitutional because they offend the separation of powers principle, a key tenant of the presidential system of government. In this doctrine, the Legislature oversights the Executive, and these two roles are kept separate. 

Of course, the system of government can be changed, as happened with the 2010 constitution. By suggesting the positions of prime cabinet secretary, official leader of opposition, making CSs answer questions in parliament, it is clear the regime wants this change. But they are afraid of a referendum. They prefer that the changes are sneaked in through parliament.

@NdirituMuriithi is an economist