Give the economy a break


The World Bank has projected Kenya’s economy to hit 6.02% in 2019 from 5.48% in 2018. This positive outlook could however be affected by the high-octane politics that is gaining momentum specifically on a referendum and the succession politics of 2022 that could hamper the country’s economic growth.

The Kenya National Chambers of Commerce and Industry (KNCCI) is cognizant of the fact that economic growth and political stability are deeply interconnected. Unstable political environment may reduce investment and the pace of economic development while poor economic performance may lead to government collapse and political unrest. There are no doubts that the situation in the country today indicates that there is much more work to do in the process of reforming the political economy and improving the quality of life of the people and communities.

KNCCI urges that as the country recovers from the prolonged electioneering period there is need to focus on the reforms that will increase the economic growth and stay away from the politics in 2022. As Chamber, when we talk about political stability, we mean a specific kind of stability; upholding the rule of law, strong institutions rather than powerful individuals, an efficient bureaucracy, low corruption and an investment enabling business environment. Stable governance is crucial for economic growth as governance goes well beyond just politics.

As per Ha-Joon Chang, 23 Things They Don’t Tell You about Capitalism, “The best way to boost the economy is to redistribute wealth downward, as poorer people tend to spend a higher proportion of their income.” KNCCI is committed to engage both the national and the county governments to foster an enabling business environment for SMEs in the counties. This will go a long way in ensuring that every county realizes its economic growth potential. 

KNCCI urges the government to reconsider its position on capping the bank interest rates as this has among other policies greatly affected access to credit by the SMEs. Secondly, the government needs to put in place mechanisms to ensure that inter county trade among counties is not disrupted due to increased levies and licenses as county governments strive to increase their sources of revenue. Thirdly, the Government should also put mechanisms to ensure that all procurements done on its behalf are paid on time as per agreed terms and conditions.

With the second election under the 2010 Constitution complete, the transition period is over and Kenyans now anticipate the full force of reforms that aim to redress grievances against centralized governance and uneven economic development. Through devolved government, the 47 newly created counties, with their own elected governors and assemblies, should seek to tackle socio-economic inequalities. County governments need legislations that will enable them to implement the County Integrated development Plan.

Article 212 of the Constitution of Kenya 2010 empowers the legislature to exercise control over sub-national governments. The Government should, therefore, consider setting up sub-national borrowing framework that allows some flexibility and at the same time checks possible fiscal indiscipline. The legislature could set different fiscal rules for different categories of counties. The fiscal rule should be less restrictive to allow policy space to help counties wade out of the effects of an economic shock or depression, but tight enough to discourage creative accounting and fiscal indiscipline. Some flexibility in the sub-national borrowing regulations could help a county government wriggle out of some rough economic times. Even though flexibility could open up the sub-national borrowing regulations to manipulation by politicians, it is important to have some escape clauses that counties could use when faced with economic shocks or depression.

A system of rewarding fiscal target achievers and punishing non-achievers could enhance effectiveness of the fiscal rules. Those counties that demonstrate ability to maintain fiscal discipline should be allowed more flexibility in managing their debt portfolio. This would require an objective system of measuring performance across county governments. Parliament could consider engaging services of an independent evaluator to review budget actions and highlight actual or potential violation.

Despite the World Bank positive outlook on our economy, there is little doubt that businesses are struggling to recover from the prolonged election cycle of 2017. This is manifested by the profit warnings by listed companies and the bear run in the Nairobi Securities Exchange (NSE), the low circulation of cash and mounting internal public and private debt, slow payments by government agencies and limited access to credit. There are several worrying signs about our economy that requires the leadership class to work with a singleness of purpose to avert further decline and to live up to the World Bank forecast.

The KNCCI therefore wishes to urge our political class to desist from the early campaigns that we are witnessing; it is far too season for succession politics to dominate our national discourse. Let’s use 2019 and 2020 to rebuild our economy and unite our country through various initiatives such as the handshake.

As bob Menendez aptly stated, “We need a strong economy that can create employment opportunities and that can also produce the revenue that we need to defend our country at home and abroad.’ That’s my wish for Kenya. 

Writer is chair, Kenya National Chambers of Commerce and Industry

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