Irony as agriculture, the country’s economic backbone, blamed for making counties poor

Despite for long being touted as the backbone of the economy, agriculture is now being cited as a contributor to poor revenue collection in the counties over the past six years.

A report authored by the Commission on Revenue Allocation (CRA) blames the sector for poor performance in own-revenue collection in the counties since the onset of devolution. It links counties’ over-reliance on agriculture to revenue under-performance.

The report is a damning indictment on county governments which, because of poor collection of revenues, will continue depending on disbursements from the National Treasury with the attendant delays and crippling financial crises.

Titled “Taking stock of counties’ own-source revenue (OSR) performance between 2013 and 2019”, the reveals that more than half of the 47 the counties collected an average of less than Sh400 million over the period. It further observes that counties with poor revenue performance rely on agriculture by up to 90 percent.

“Agriculture is the mainstay sector for counties that collect OSR of less than Sh200 million annually. The revenue streams available for these counties to collect from agriculture are land rates, produce cess and livestock cess (cess accounts for only 3 per cent of county revenues) making the OSR collection capacity of these counties limited,” the CRA notes in its report.

Counties whose economic mainstay is agriculture include Elgeyo Marakwet (80 percent), Bomet (70 percent), Homa Bay (59 percent) and Lamu (58 percent). Tharaka Nithi, Nyamira, Tana River, Wajir, Siaya, Turkana and Kisii had over 50 percent reliance on the sector.

Counties that recorded OSR performance of between Sh200 million and Sh400 million annually also had strong reliance on agriculture as source of revenue, although CRA observes that they performed better t due to their inclusion of other revenue streams.

Report paints gloomy picture

“Agriculture contribution to the Gross County Product (GCP) of these counties ranged between 40 percent and 90 percent. Although its contribution was minimal, wholesale and retail trade, financial and insurance sectors are relative drivers of the economy of these counties. These additional sectors widen the revenue base by providing an opportunity for the county to collect business permits from the two additional sectors,” the report states.

The counties include Nyandarua (90 per cent), Nandi (58 per cent), Baringo (57 per cent), and Busia (57 per cent). Makueni, Kwale, Kericho, Trans Nzoia, Migori, Kitui, Kirinyaga and Embu counties had a reliance of between 35 and 50 per cent on agriculture.

The report paints a gloomy picture for the sector, with most Kenyans only undertaking subsistence agriculture, which does not translate to economic growth.

The CRA study calls into question Kenya’s listing as a lower middle-income country, since the performance of devolved units over the six years fell short of international best-practice thresholds even for low-income countries.

“Sub-national governments of low-income countries finance 7.8 percent of their budgets while sub-national governments of middle-income countries finance 20.9 percent of their budgets, according to an Organisation for Economic Co-operation of Development (OECD) study in 2016. However, out of the 47 counties, only three met this international best-practice threshold of 21 percent,” CRA observes.

The three are Narok, Mombasa and Nairobi, whose OSR financed between 25 and 45 percent of their budgets. Over half of the counties (25) financed less than 5 percent of their budgets over the period, while 11 financed between 5 and 10 percent.

Recorded the worst growth

Over the period, Homa Bay County recorded the worst growth in OSR, declining by 35 percent, while Busia, Wajir and Mandera also had their revenues decline. Nine counties recorded slow growth, increasing their revenues by less than 50 per cent, among them Nairobi (0.5 per cent) and Kisumu (36 per cent), which recorded slowest growth rates.

Fifteen counties had the fastest growth rates led by Embu by 274 percent, Bungoma (256 percent) and Garissa (202 percent). 

Garissa was, however, still collecting below Sh200 million.

“Bungoma grew from Sh182 million annual collection to Sh650 million in 2018-19,” the report notes. While comparing the value of resources and the revenues raised from them, the report observes that primary revenue streams make minimal contributions to the economy where counties have not been able to generate enough revenues from resources.

CRA notes that, apart from Samburu, all the other counties have failed to meet their estimated revenue potential as assessed by the National Treasury in 2018. 

It attributes the good performance of Samburu, together with Narok, to the presence of game reserves and parks.

“Management of game parks appears to advantage counties in terms of OSR collection,” the report notes. CAR is proposing to have city counties excluded from the equitable share, due to their potential to raise more revenues.

Enhance revenue collection

“Despite the gap to their estimated revenue potential, city counties have the potential to be weaned off the equitable share. This is due to their ability to finance their budgets to a significant level in comparison to other counties that have a high dependence on the national government to fund their budgets,” CRA stated.

The report also reveals serious deficiencies in county administrations to enhance revenue collection and management at a time when Kenya is already carrying a heavy public debt burden.

CRA chairperson Jane Kiringai yesterday said the commission had decided to establish standardised guidelines to train all county government staff on matters of revenue administration, as a way to enhance revenue management in counties.

“Counties need to lump up efforts to increase revenues. They should use OSR to minimise dependence on over reliance on national government’s equitable share,” Ms Kiringai said.

She also noted that many counties are still spending a lot in costs for revenue collection, urging for automation of services, while also stressing on the need for the devolved units to streamline their mechanisms for collecting property rates, which she termed “low-hanging fruit” for the counties.

Auditor General Nancy Gathungu also blamed counties for their weak revenue focus, analysis and internal controls which have limited them from collecting enough money, even as she noted that past audit reports have revealed grave errors of revenue leakages, outright theft and cases where counties collect revenues but never bank the monies.

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