Impasse on cash-sharing formula points to rising ethno-populism

Some of the senators opposed to the third generation basis for revenue sharing formula outside Parliament Buildings in Nairobi on August 4, 2020. File | Nation Media Group


What you need to know:

  • In July, CRA put forward a new proposed formula on the third basis for sharing of revenue among Kenya’s 47 county governments for financial years 2019/20 to 2023/24
  • Kenya’s supreme law also established the Commission on Revenue Allocation to make recommendations on the equitable sharing of resources among the devolved units.

Populism is on the rise globally. Countries in the Horn have experienced a surge of ethno-populism – a form of political mobilisation where leaders rally support from a specific ethnic group (or groups) along communal lines. If unchecked, ethno-populism risks pushing post-conflict societies back to the brink of instability and violence.

In Kenya, the impasse over the sharing of revenue among counties signals a rising tide of ethno-populism. The facts around the impasse are patently clear.

In July, the Commission on Revenue Allocation (CRA) put forward a new proposed formula on the third basis for sharing of revenue among Kenya’s 47 county governments for financial years 2019/20 to 2023/24.

The proposed formula revises the current one where counties share revenue based on five parameters: population (45 per cent), equal share (25 per cent), poverty (20 per cent), land area (eight per cent) and fiscal responsibility (two per cent). It reduces the weight of poverty from 20 to 18 per cent.

Calibrated to encourage counties to collect more revenue and to rely less on Nairobi, the new formula raises the allocations to the devolved units that increase their own internal revenue collection during the preceding financial year. But some elite cannot hear of it.

Conflict resolution

Conceptually, scholars of conflict resolution consider wealth-sharing arrangements as critical to the consolidation of post-conflict transitions. Besides ending inequalities, resource sharing is the best antidote for populism. But Kenya’s impasse over the formula reveals the uncertainty of wealth-sharing models.

In the Horn of Africa, Sudan’s 2005 Comprehensive Peace Agreement (CPA), also known as ‘the Naivasha Agreement’, popularised the concept of wealth-sharing as a pathway to peace. The Sudan peace pact rested on two planks: sharing power and oil revenues between the Government of Sudan and the Sudan People’s Liberation Movement (SPLM).

It was during the Sudan peace process that sections of Kenya’s power elite first encountered the concept of wealth sharing in practice. In the wake of the 2007-2008 post-election violence, the warring elite resorted to power-sharing to end restore peace. The National Accord and Reconciliation Act, signed on February 28, 2008, introduced a horizontal power-sharing arrangement involving a President and a Prime Minister.

However, it was the ‘Naivasha Consensus’, which gave birth to the new republican constitution adopted in the August 4, 2010 referendum, that ushered in the concept of wealth-sharing as a pathway to sustainable peace in Kenya after the 2008 crisis.

The ‘Naivasha Consensus’ abolished the office of Prime Minster in favour of a pure presidential system. But it entrenched into the constitution a power-sharing model among the legislature, the executive and the judiciary.

Vertical sharing

Significantly, it adopted vertical sharing of power and wealth between the national government and the 47 county governments. Kenya’s devolved system has since evolved into the country’s equivalent of a “Marshall Plan” for grassroots financing and regeneration based on Amartya Sen’s idea of ‘development as freedom.’

The new constitution created a revenue fund for each of the 47 counties and allowed them to collect revenue by imposing rates, charges for services and entertainment taxes or any other taxes allowed by Parliament.

Kenya’s supreme law also established the Commission on Revenue Allocation to make recommendations on the equitable sharing of resources among the devolved units.

To that end, the Constitution allocated 15 per cent of the revenue raised by the national government to county governments and created an Equalisation Fund to address historical injustices in marginalised areas. This comprised of 0.5 per cent of the revenue every fiscal year to be used in providing water, roads, health and electricity in historically neglected areas.

The government retained a series of other funds, including the the Constituency Development Fund, the Local Authority Transfer Fund, and Free Primary and Secondary funds, to provide more resources to the counties.

Imperial presidency

The new architecture of wealth-sharing effectively ended the monopoly of imperial presidency over the distribution of resources. This notwithstanding, the ‘Naivasha Consensus’ has come under immense challenge.

The double-elections in 2017, which exposed the vulnerability of Kenya’s democracy to charges of ethnic exclusion, gave rise to the March 2018 ‘Handshake’ and the Building Bridges Initiative (BBI). Both seek to reintroduce the principle of horizontal power-sharing through a broad-based and inclusive executive.

But rising ethno-populism stoked by revenue-sharing poses a major challenge to the post-2008 architecture of wealth sharing. Ahead of the 2022 elections, the Naivasha consensus is facing its worst test from resurgent ethno-populism from across the isle.

On the one extreme are ethno-populists crusading for equal representation and wealth-sharing based on the ‘one-shilling, one man, one vote’ tenet as the basis of an equitable society where populous counties are not punished.

On the other extreme are ethno-populists clamouring for sharing based more on the parameter of land and less on population. They posit that by reducing the weight of the parameter of land alone, the proposed revenue sharing formula will see counties like Turkana lose Sh1.4 billion!

On August 4, 2020, Senate adjourned debate on the formula for the seventh time to give room for further consultation. As Senate consults, it is worth recalling the sagely words of James Otis: “Taxation without representation is tyranny.”

Beyond populism, the moral legitimacy and future of our democracy depends on according equal representation to all citizens and fair share of revenue to all taxpayers.

Professor Peter Kagwanja is former Government adviser and CEO at the Africa Policy Institute