Kenya faces hard spending choices after a positive vote

Kenya’s new Constitution passed the popular vote by a clear majority, ushering in a new legal dispensation that should help the country depart from nearly 50 years of bad government and set the stage for long-term growth.

Provisional results published by the Interim Independent Electoral Commission (IIEC) showed that the new set of laws secured nearly 70 per cent of the 8.2 million votes cast.

That approval rate was more than the two thirds threshold that constitutional lawyers said was necessary for a clear mandate and general acceptance.

The passing of the new law clears the way for Kenyans to start the hard part of living with its provisions, some of which are particularly distinct in their departure from the current dispensation.

The new Constitution is particularly distinct in the way it distributes power among the various arms of government and in the establishment of an elaborate system of checks and balances to curb abuse of power by senior public officials that analysts said will come at a high cost to the taxpayer.

It also comes with rigorous provisions expected to significantly change Kenya’s social, economic and political landscape.

Key among the changes expected in the next 12 months is the big shift in the way the government budgets for and spends its money – the new law having removed much of Treasury’s say in the matter and instead vesting it in new institutions.

When the new law comes into force after President Kibaki’s assent, parliament will for instance, have a big say in the budgeting process as well as in the appointment of nearly all senior public officers.

The new constitution also lays a firm foundation for future growth in its tackling the thorny issues of land ownership, equitable distribution of economic resources, corruption, political patronage and tribalism.

Its tough stance on corruption, the single vice known to have done the most damage to Kenya’s chances of prosperity, has, for instance, renewed hope that the country will reduce theft and waste in government and use the money to advance the course of development.

It improves financial probity in government by providing for recovery from holders of public office any public funds used illegally or lost under their direction.

Business leaders say the new legal regime is critical to the desired departure from the flawed political dynamics that nearly consumed the country after the disputed 2007 presidential election, hurting the economy and tainting Kenya’s image.

It is hoped that the vote’s outcome will help lower Kenya’s political risk profile, clearing the way for it to effectively compete with its peers for investment.

“The economy should gain additional momentum as politics takes a back seat allowing the captains of industry to drive the agenda,” said Mr Paul Mwai, the chief executive of African Alliance Asset Managers.

A high risk profile — a combination of economic and political risks — harms the economy by raising the cost of external borrowing and Kenya’s attractiveness as an investment destination.

Analysts are heartened by the way the new regime of laws tackle issues such as land ownership –– for the first time in the history of Kenya –– by stating that land acquired illegally may be repossessed.

“It guarantees stability, consistency and predictability in governance that should be a big boost to the economy and productivity in key sectors,” said Mr George Waititu, the managing director at consumer market research firm Synovate.

“The less politics you have in government, the easier it is to do business with the government. With stable governance structures, we expect long-term investments as opposed to the election-to-election type of plans,” said Mr Waititu.

Under the public financial management reforms expected to come with the new Constitution, MPs will no longer have the powers to increase their own salaries and like the rest of Kenyan will pay taxes on their earnings.

When parliament reconvenes in two weeks after a month’s break, MPs will, for example, be keen to pass pending Bills meant to raise their salaries from the current Sh850,000 to at least Sh1.1 million.

But parliament, also stands among the big winners under the new dispensation having been allocated more powers in the management of public finances and in deciding how ordinary Kenyans and businesses should be taxed.

Analysts said the list of winners in the new constitutional dispensation includes professional accountants pointing to the huge premium that an impending scramble for their services will add to their remuneration as the government employs their expertise to meet its legal obligation.

The proposed new governance structures establishes the office of Controller of Budget to monitor public expenditure at all levels of government, ministries and departments and will need thousands of auditors to deliver its mandate and report to parliament within the set deadlines.

On Thursday, the shilling clawed back some of the recent losses it has made against hard currencies buoyed by the positive outcome of the vote helped.

Commercial banks quote the Kenyan currency at 79.50 to the dollar, compared with Tuesday’s close of Sh80.

A similar mood prevailed at the Nairobi Stock Exchange where the NSE 20 share Index gained 76.43 points to stand at 4667.47 points with price gains noted across the index linked stocks while NSE All Share Index (NASI) was up 1.29 points to settle at 102.16 points.

Rising optimism in a new Kenya was further cemented by the acceptance of the verdict by politicians who had campaigned against the law led by Mr William Ruto, the Higher Education minister.

“Kenyans have spoken and we respect the decision. We want to be part of the process of moving Kenya into the future,” said Mr Ruto even as he called for more consultations on the contentious issues.

The new constitution introduces a second chamber of parliament — 47 counties under a decentralised administration run by elected leaders — and a judiciary where judges are not appointed at the whims of the president.

All the judges and magistrates will, in the next 12 months, be vetted afresh in what promises to give Kenya’s judicial system––long criticised for inefficiencies–– a new look.

“The devolution of funds will certainly create job opportunities and boost social and physical infrastructure” said Ibrahim Mwathane, a former chair of Institution of Surveyors of Kenya (ISK). “It’s perhaps the best effort there ever was to unlock a prosperous future for this country as it embraces personal liberty, education, justice, a tamed executive and a checked Parliament. ”

On land, the proposed law bars non-Kenyan citizens from having freehold entitlement to land and instead caps it at 99 years.

The provision has sparked fear among foreigners with freehold titles to large tracts and who will now be required to surrender their titles in exchange for leasehold ownership.