Home / ECONOMY / Has Jubilee’s Sh5 trillion expenditure helped economy? :: Kenya

Has Jubilee’s Sh5 trillion expenditure helped economy? :: Kenya

A view of the outer ring road overpass highway that links Thika road and Mombasa Road under construction on December 20, 2016 (Photo: David Gichuru/Standard)

SUMMARY

  • Numerous roads were constructed across the country to open up Kenya, with the country forking out about Sh290 billion between 2013 and 2016 on construction and civil works
  • A good chunk of the projects have been done by Chinese contractors – the funds having been borrowed from the Chinese Government

Private sector’s largest customer, the Government, spent a staggering Sh5 trillion in the last five years, in what should have been a boon for Kenya’s households and businesses.

About Sh2 trillion was spent on development projects. A modern railway that would speed up movement of cargo and passengers from the port city of Mombasa to Nairobi was completed at a cost of Sh327 billion.

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Numerous roads were constructed across the country to open up Kenya, with the country forking out about Sh290 billion between 2013 and 2016 on construction and civil works.

The once deserted North Eastern region got its first international airport in Isiolo County with a capacity of 125,000 passengers annually.

And although the programme is largely unfinished, the Government also pumped some cash into a number of irrigation projects including the Sh400 billion Galana-Kulalu project in Tana River County aimed at turning more than 400,000 acres of land into a plantation of maize and other staple.

But as President Uhuru Kenyatta prepares for yet another electoral bout with his fiercest challenger Raila Odinga, he will need to convince voters that all this expenditure has left Kenyans better than they were. 

Economists are divided on the real impact of this colossal expenditure.

While some claim a few well-connected individuals, commonly referred to as ‘tenderpreneurs, have benefited from most of the investments, others say the benefits of increased electricity connectivity, modern railway and advanced medical equipment at the counties outweigh the negative effects of graft and mismanagement.

However, nearly all economists we spoke to agree that it is going to be a while before Kenyans begin enjoying fruits of most of the projects.

Dr Samuel Nyandemo, an Economics lecturer at the University of Nairobi, says while the many infrastructural projects will certainly be good to the economy in the long-run they might, unfortunately, have also been used by some individuals to quickly enrich themselves through kickbacks.

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In the last five years, the Government has forked out more than Sh500 billion in construction projects, a lifeline for local businesses who have supplied construction materials including steel and cement.

“There have been a lot of roads constructed,” says Dr Scolastica Odhiambo, an Economics lecturer at Maseno University, and a number of investments have cropped up along the roads, creating a lot of employment.

Moreover, there has been an immediate increase in traffic on roads resulting into increased consumption of fuel and movement of goods and people.

A good chunk of the projects have been done by Chinese contractors – the funds having been borrowed from the Chinese Government.

Some analysts feel that the Chinese have carted away most of the cash back to their country, leaving the locals with crumbs. This is by sourcing for materials from their own countries, according to Dr Nyandemo.

Available locally

The contractor of the standard gauge railway (SGR), China Road and Bridge Corporation (CRBC), has come under immense attack for sourcing for materials outside the country and not employing locals.

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CRBC, however, has defended itself against the accusation saying they only import what is not available locally.

Such material includes steel rails and wires that have to be imported.

But even before it started, the SGR was marred by other controversies. There were allegations of exaggerated costing of the project, with the World Bank noting in a report that Kenya will pay dearly for the railway.

Dr Nyandemo says the high cost of the country’s SGR compared to similar projects in other countries is a smoking gun that the cost might have been inflated to line the pockets of a few.

The Government have denied this claim, noting that there were extra costs in the Kenyan case such as costly land acquisitions and steep terrain.

Nonetheless, critics point to the unraveling corruption scandals as indicators that not all the money that has been poured by Jubilee Government in the last five years has trickled down to the mwananchi.

There was the National Youth Service (NYS) in which the taxpayer lost about Sh1 billion in shadowy deals; the Sh5 billion Afya House scandal in which well-connected individuals registered shell companies and allegedly pocketed billions of shillings for fictitious medical supplies.

“Corruption increased both development and recurrent expenditure,” says Dr Odhiambo, noting that there has been an increase in “economic rent,” which basically is the extra cost embedded in the projects.

But Gerishon Ikiara, also a lecturer at the University of Nairobi, thinks the effect of corruption, though real, has been exaggerated.

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“We know that quite a bit of this expenditure goes into corruption, but that happens in many other societies,” says the Economics lecturer.

Economists measure a country’s well-being using gross domestic product (GDP)  – the total value of goods and services consumed in the country in a year.

Kenya’s GDP growth improved from 4.5 per cent in 2012 to 5.8 per cent in 2016, according to the Kenya National Bureau of Statistics (KNBS).

This, says Dr Ikiara, is enough evidence that the Government’s massive public expenditure has paid off.

“When I hear people say they are not feeling the growth, I actually find it amusing. How do you measure the ‘feeling’?” he wonders.

“You look at Government performance by looking at the kilometres of roads that have been built, people that have been connected to electricity. How much has gone into tangible achievements,” he says.

Any Government expenditure, explains Dr Ikiara, should automatically have an effect in what happens in the private sector.

“When the Government releases the cash, it seeps into different sectors of the economy and so many people get to benefit,” he adds.

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CRBC said at some point last year that about 102,200 cubic metres of diesel, over four million tonnes of cement, 339 vehicles and over 36,000 tonnes of steel, among other items, had been purchased locally.

Dr Ikiara says that the Government’s projected growth of 5.5 per cent is above Africa’s average of three per cent.

“More than 800,000 people are employed and although people are saying they are jua kali, they are sustaining lives,” he says.

Cost of living

On whether public expenditure has not resulted into reduced cost of living –  thus informing the feeling that economic growth is not percolating to the common man – Dr Ikiara says people to look at inflation rate, released on a monthly basis by KNBS.

Inflation – the general rise in prices of goods and services in an economy over a given period time – has for a long time hovered between six and eight per cent.

“It has rarely gone beyond 10 per cent,” says Dr Ikiara, noting that it is only during the recent spate of drought that the rate went into double-digit due to depressed harvests.

“An inflation rate of seven per cent is not a crisis,” he says.

Unfortunately, there have been glaring instances of divergence between public expenditure and the performance of the private sector.

While the Government has upped its public expenditure with attendant GDP growth, the private sector has been haemorrhaging jobs as profits fizzled.

For example, credit uptake by businesses and households has for the last three years has been slowing down owing to an unimpressive economic performance.

In May, credit extension to the private sector grew by 2.1 per cent, the slowest in years.

Moreover, for Government expenditure to be felt, it has to be applied efficiently in sectors with the largest impact on the population. In Kenya, agriculture contributes about a third of the country’s GDP and employs more than half of the workforce.

Agriculture expanded by four per cent in 2016 down from a revised growth of 5.5 per cent in 2015 due to the drought. About four million Kenyans were plunged into starvation as food got scarce and costlier.

But this was an indictment of both the national and county governments for failing to invest in projects that would help to liberate the country from its slavish dependence on rain-fed agriculture.

Scale down

In the 2015/16 financial year, for example, Government spent a paltry 3.8 per cent of its development funds (about Sh17.2 billion of ShSh451 billion) on agriculture, livestock and fisheries, according to figures from the Office of Controller of Budget.

This was a significant scale-down from the period before when 7.3 per cent of the national Government’s development expenditure – Sh23.2 billion out of a total development expenditure of Sh318.7 billion – went into such things as building of dams, revamping irrigation schemes, constructing water pumps and building a new fertiliser plant.

Dr Nyandemo says agriculture has been greatly underplayed. “Allocation to agriculture is so minimal, they cannot have an impact on rural poverty,” he says.

Initiatives such as the fertiliser subsidy programme, according to the World Bank and agricultural think tank, Tegemeo Institute, have distorted the market, with large farmers rather than the intended small-scale farmers benefiting from the reduced prices.

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