What you need to know:
- With all the indicators that the world is increasingly becoming dangerous, what mechanism have a we put in place to handle some of the challenges?
- The emerging global dynamics and heightened nationalism, coupled with a global crisis, are now driving wedges among people and this may disenfranchise developing nations.
The year 2020 was like no other in our lifetime. It started with news of a mysterious virus in Asia then fear that the bug would spread and soon reality struck with the crippling of transportation throughout the world.
In many parts of the world including Kenya, factories closed, learning was paused, people lost their jobs, salaries were expurgated and death ensued. As a result of lockdowns, mental health spiraled and this made violence creep into many households. There is now a crisis that has led to economic and social disruption.
Unfortunately, many developing countries never anticipated post-crisis challenges. They tend to wait and react when at times it is too late.
With all the indicators that the world is increasingly becoming dangerous, what mechanism have a we put in place to handle some of the challenges?
The year 2020 and its occurrences have shown us that we do not have to always react to situations when we can predict the course of global pandemics based on past experiences. Our focus now should be on how to rescue a large population that is quietly suffering. And we do have a chance to restore normalcy, but this will require extraordinary leadership. By this I mean a collaborative effort between political leadership, academia and industry to craft a rescue plan.
We were well known for thinking that desperate populations can be pacified with handouts and matters put to rest. Those who have ears can hear parents yearning for help and scrunching pennies to get their children back to school. Those who have eyes can see children rummaging through garbage in rich neighborhoods to find something to eat. Time has come to co-create our solutions with everyone playing a role.
President Uhuru Kenyatta’s economic stimulus that many low-income earners latched onto came to an end in December, even before the arrival of vaccines to mitigate against stringent rules to curb the spread of the virus. So far there isn’t a structured response to rescue those suffering as a result of the pandemic.
On the other hand, the proposal by Treasury Cabinet Secretary Ukur Yatani Kanacho to revise the debt ceiling to Sh12 trillion can been seen as a lazy response to the crisis that we are in. In my view, the CS’s optimism about an economic turnaround seems misplaced as no one can predict post pandemic recovery even before we are through with mitigation measures.
But according to him, the exports will rebound, as if our exports are of absolute necessity at the moment. And Europe that has traditionary been one of our export destinations is under lockdown even as the vaccine becomes more widely available.
I must say that there are more reasons to be cautious than reckless as inequalities widening. Indeed, it is said that, “If you find yourself in a hole, stop digging.”
If at Sh9 trillion we were seeking to restructure the debt, at Sh12 trillion we are likely to be worse off. Some of interventions the CS should have proposed at this time include instituting spending cuts, improving tax collection efficiency and changing public investment priorities.
The first thing that countries which have found themselves in a debt trap need to do is cut spending especially from large projects. For example, instead of spending Sh56 billion to build an elevated expressway from Mlolongo to Kangemi, we should cut that to Sh5 billion to build interchanges at every roundabout between the airport and James Gichuru road in Westland.
This will solve both the problems of traffic jams and the appetite for borrowing, which will eventually undermine economic expansion as it happened in Latin America in the 1990’s.
Some countries have used tax increases to deal with budget deficits (the cause for borrowing) but that should not be a knight in shining armor for Kenya’s economic recovery. In my view, there is room for the Kenya Revenue Authority (KRA) to enhance their efficiency and perhaps collect more money than it is raising the taxes.
Kenya’s tax-to-GDP ratio was 17.4 per cent, a decline by 1.1 percentage points from 18.5 per cent in 2017. Although Kenya does better than 26 other African countries, they recorded an average increase of .1 per cent. The country’s performance was lower than the average (22.8 per cent).
For Latin American countries, higher taxes always provide an incentive to evade tax and often undermine their competitiveness. It is prudent therefore, to lower taxes and use technology to improve efficiency as well as ensure powerful people also pay their taxes.
It is often said that “extraordinary times call for extraordinary measures,” and in such a crisis, we must find all ways for the State to raise sufficient resources to rescue the people from the impending post pandemic challenges.
The National Bureau of Economic Research estimates that approximately Sh6 trillion of Kenya’s money is illegally hidden abroad. Some of the owners of the money are known from the detailed leaks of those who have stashed money in tax heavens such as Gibraltar, Luxembourg, Panama and Mauritius.
Why shouldn’t the government give another pardon to bring back home the money on condition they pay tax on it? In 2019, Sh118 billion was returned under similar circumstances.
Unless the anti-money laundering (AML) requirement is adopted by all nations, it is an unfair obligation that benefits only a few nations at the expense of poorer countries.
The emerging global dynamics and heightened nationalism, coupled with a global crisis, are now driving wedges among people and this may disenfranchise developing nations.
Although some economists may argue that debt is good for economic expansion, in my view it will become an instrument for neo-colonialism in a world that is increasingly becoming not only unfair but also more dangerous.
We therefore, must think beyond the rescue of our people and delve into Africa's future.