- Recently, the Senate of Kenya voted to allow the government to break its current 9 trillion shillings ($87.29 billion) debt ceiling.
- With so much borrowing targeted at infrastructure development in Kenya, one would expect remarkable growth in this area but it is stemmed by corruption.
- Kenya’s remarkable economic growth is enviable to the rest of Africa, and it will be sad to see the government allow its recklessness to derail the country from its impressive trajectory.
On Wednesday, Reuters reported that the Senate of Kenya voted to allow the government to break its current 9 trillion shillings ($87.29 billion) debt ceiling; In Kenya, government borrowing is pegged to the GDP due to a worsening debt burden. Kenya’s GDP is $87.9 billion and the new decision may see the country’s borrowing reach the same level. From 2013, the country has more than tripled its debt and it is now among the most indebted countries in Africa without commensurate growth in the economy. The Kenyan government defends its decision claiming it would increase infrastructure development.
But Kenya is a developing country due to its low human development index as well as its poorly developed industrial base. Inflation and devaluation of the currency which will further worsen the country’s capability to pay back its debts pave the rabbit hole that only leads to worse standards of living.
A 2010 World Bank study titled ‘Finding The Tipping Point—When Sovereign Debt Turns Bad,’ reported that a high debt-to-GDP ratio will slow down a country’s economic growth. It highlighted that when the debt-to-GDP ratio exceeds 64 percent, the country loses 2 percent in economic growth, in emerging economies. Yet, Kenya continues to accumulate debt in what has been described by Daily Nation’s investigative reporter, Paul Wafula, as the fastest accumulation of debt in the country’s history.
With so much borrowing targeted at infrastructure development in Kenya, one would expect remarkable growth in this area. However, it’s infrastructural growth—one of the major reasons it continues to borrow—is stemmed by corruption. Kenya is one of the most corrupt countries in the world; it currently ranks 144 out of 175 countries. Its lack of accountability and transparency in government has decimated the economic and infrastructure growth.
In July, Reuters reported that the finance minister, Henry Rotich, who set borrowing targets for the financial years, was charged with corruption over the disappearance of billions of shillings in two dam construction tenders. This is just an example of the widespread corruption in Kenya. It also has a weak judicial system, a pervasive bribery culture in the police.
Among all, the public procurement deficiencies stand in the way of infrastructure development on the country for which Kenya continues to dig its own grave. According to PwC in 2016, one in three companies reported experiencing fraud in procurement with contracts awarded to incompetent firms. Former finance ministers, senior government officials, and permanent secretaries have—according to the Kenyan Corruption Report by GAN—all been accused of extensive bribery schemes involving inflated state contracts of over $700 million awarded to ghost vendors. This, expectedly, led to infrastructure projects not being delivered.
In contrast to the inefficient public sector, though, Kenya’s private sector is enjoying significant growth. Due to the different directions that the private and public sectors are towing, however, Kenya’s growth, which perhaps may have been exemplary to the rest of the world, is suffering the myriad of private sector-driven growth and public sector debt rabbit hole. The unfortunate thing, though, is that if the government continues with its reckless approach to governance, especially with the prevalent corruption in the system, most of the growth recorded will simply crumble.
Kenya’s economy is one of the fastest-growing in Sub-Saharan Africa at 5.7 percent in 2019. The World Bank attributes this to the stable macroeconomic environment, positive investor confidence and a resilient services sector; often, because of the way private companies are set up, they are big on resource optimization, accountability and measurable progress. These, except in peculiar cases, ensure results are achieved. Kenya could benefit from empowering its private sector to undertake several of its social duties while it ensures regulations are favorable for business activities.
Several companies have even, on their own, started to provide solutions to social amenities deficit. These companies either label themselves social enterprises or tug their social projects under their corporate social responsibility. This is in addition to the individual excellence that has been shown by Kenyans at the world stage. One would also find companies that are taking up responsibilities traditionally conceived to be primarily those of the government. If private enterprises become tasked with providing key services in Kenya, while the government takes several steps back to enable and accommodate the ensuing growth, many insurmountable problems of Kenya will begin to see resolutions.
One trusted way to do this is to boost investment in the private sector, rather than raise the debt profile for an inefficient government. The country may also enter into private partnerships to manage some of the government's key services and parastatal. In order to support private investment, infrastructure needs to improve and the private sector needs to be enabled to take a much greater role in its actualization.
Taking long term-long grace period loans would also loosen the noose of Kenya’s foreign debt and put the economy at fewer risks. The government's bid to reduce budget deficits to not more than 3 percent is commendable, although this is in line with the East African Community’s goals. The final behemoth is the corruption that pervades the public sector. If this is not curbed, corrupt officials will stand in the way of Kenya’s prosperity. Thus, the government must become stricter in the implementation of its anti-corruption policies.
Kenya’s remarkable economic growth is enviable to the rest of Africa, and it will be sad to see the government allow its recklessness to derail the country from its impressive trajectory.
Contributor by Olumayowa Okediran. Olumayowa is the author of ‘Navigate: A prospection of Nigeria’s Future till 2030,’ and Managing Director of African Liberty.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the organisation.