Will merging of government financial agencies deliver desired results?



Over the years the Kenyan government has been working on merging some of its state corporations but time and time again this has hit a wall. In 2008 the Cabinet had approved the merging of struggling state influenced banks; Consolidated Bank, National Bank (NBK), and Development Bank. However, this move ended up being dragged on for so long that the government has now moved from the idea of merging to restructuring the banks by using experts.

In 2013 the idea resurfaced after the report of The Presidential Taskforce on Parastatal Reforms, which was presented to the President, suggested that some parastatals should be merged as they were all fragmented, sector-specific, ineffective DFI’s with overlapping mandates. The parastatals involved included Kenya Industrial Estates (KIE), IDB Capital, Industrial and Commercial Development Corporation (ICDC), and the Agricultural Finance Corporation (AFC). The parastatals were meant to merge to form the Kenya Development Bank (KDB). Even though the move seemed to be on track, it dragged on just as before and with time it became just another book on a dusty shelf.

Now into 2018, the government has revisited the reforms that were recommended by the President’s taskforce on parastatal in 2013 to merge some of the agencies, which sometimes perform duplicating, overlapping or parallel roles. However, unlike in 2013 the targeted institutions meant to merge to form the mega development bank have changed slightly as they now include the Kenya Industrial Estates, Uwezo Fund, Youth Enterprise Development Fund, Women Enterprise Development Fund, Development Bank of Kenya and Industrial Development Bank of Kenya.

Other than fixing the issue of these institutions running overlapping roles, the government aims to increase efficiency and utilize its resources in order to achieve positive results. Ronald Osumba, Youth Enterprise Development Fund Board chairman says that the merger of the six government financial institutions is a well thought out government programme. As a result, he says, this would assist the government to win back some of the trust of the public. The public has gradually been losing their confidence in some of these state corporations as they do not always accomplish what they were established to do.

For instance, some of the state corporations such as the Youth Enterprise Development Fund, Uwezo Fund and Women Enterprise Development Fund have been accused by the public of delaying the disbursement of funds to the targeted stakeholders – the youth, people with disabilities and women. Some argue that some of the state corporations were established only for political reasons and were only meant to appeal to the targeted group rather than help them to improve their living standards. As a result, too many state corporations came up and they have been failing in delivering services to the public.

According to the Cabinet Secretary for the National Treasury, Mr Henry Rotich, the country has about 262 state corporations, which to him are too many.

“We have created too many institutions which lead to failure in service delivery. It is not necessary for an authority to deliver government services; they can be delivered through ministries. Some ministries have become shells and only deal with policy,” he added.

Apart from failing to deliver services to the people, the state corporations have been involved in corruption. Ever since they were established, some of the state corporations have been taken to court almost on a daily basis for mishandling of public funds. An example would be the Youth Enterprise Development Fund, which paid a total of Sh180 million to Quorandum Ltd for a non-existent consultancy.

As a result, some of the public has decided to back the merging of the state corporations and unlike the previous time the government has moved ahead with its plan to merge the six agencies by forming an inter-agency taskforce. The taskforce is to ensure that the merger goes on smoothly by reviewing the legal, regulatory and institutional framework involved in the whole process.

Cabinet Secretary for the National Treasury, Henry Rotich.

In addition, the government is showing its commitment to finally merge the affected agencies as it has already communicated with each one of them to prepare for the merger. The affected agencies have been directed to put a hold on to some of their activities such as recruiting of new employees and restructuring.

The government plans for the one stop shop policy do not only end with the six corporations, as according to the parastatal reforms, the plan is to reduce the number of parastatals down to less than 200. Even though this is being cheered on by a number of the population, others are criticizing the idea as they have fears that this will affect them negatively.

For example, a number of the public who had benefited through funds from these corporations feel that the merge will make it even more difficult now to be able to get loans. This can be accredited to the fact that after merging, the one mega bank will now be handling all the different groups which will see the number of people acquiring loans reduce. With the current level of disbursement of funds already low, things might get worse once the institutions are merged as only one institution will be handling all the different cases that were in the hands of the six separate agencies.

Additionally, the merging of the six agencies will see many people end up losing their jobs. This is because all the corporations deal with financing thus not all the employees will be able to make the cut to be a part of the merged mega institution. Despite the fact that the recommendations of the 2013 report by the parastatal reforms taskforce advised that all the staff of the six agencies should remain as staff of the new government entity. The new institution, however, may not have enough roles to accommodate all the staff.

The merging of the six agencies to form a mega development finance institution is the right direction according to a number of Kenyans. For example, Anne Muso, an administrator at local NGO said, “Too many parastatals mean too much wastage of taxpayer’s money. Once they are streamlined they will be able to be held accountable and this will definitely tame corruption, restore integrity and do away with economic sabotage.”

As the government goes ahead with the merging of some of the parastatals, there is a need for thorough supervision. This is to ensure that the mega financial institution that is established from the merger is not there for political interests but for the interest of the public. There is a need to ensure that the old problems of corruption and siphoning of money does not go on after the merger.

The government also has to take care of the employees that will be left stranded after the merger by redeploying them to different posts or giving them all they need to acquire new jobs. The mega financial institution has to be an example, excellent delivery of services, free of corruption and theft by top officials, thus creating a pathway to more mergers that will eventually help to ensure that the taxpayer’s money is not wasted.