Economy

Jubilee faces tough choices in effecting manifesto

uhuru githae

President-elect Uhuru Kenyatta (left) presents the Jubilee manifesto to Finance minister Njeru Githae in the minister’s office in Nairobi on March 12, 2013. Photo/PPS

A drastic cut in the number of civil servants is one of the hard decisions facing the new government if it is to fulfil the ambitious pledges it made on the campaign trail, according to analysts.

Alternatively it could slash spending on hospitality, vehicles, travelling, sitting and workshop allowances while freezing furniture purchases, leasing or building of new premises.

Of critical importance is clamping down on procurement of goods to central government offices, parastatals, county governments at prices way above the market rates.

“The government ought to cut the number of workers by up to a third to 30 per cent to save at least Sh200 billion. More can be done by fewer people and save resources to go into other areas,” said Old Mutual Securities research analyst Eric Munywoki.

The government needs to raise money for free solar laptop computers at Sh14 billion annually for the 1.6 million pupils entering Class One in January 2014. This assumes each unit would cost Sh8,500 ($100), the price of the cheapest laptop being promoted in India.

It also has to find Sh12 billion annually to give 10 million pupils a half litre packet of free milk per week during the school calendar.

Agricultural input subsidies (Sh12 billion), free maternal healthcare (Sh4 billion and free access to dispensaries and public hospitals (Sh450 million) are among the popular promises that the Jubilee Coalition made to win the election.

The five promises would cost Sh42.5 billion annually before costing the free secondary education which the team led by President-elect Uhuru Kenyatta promised.

(Read: Treasury reviews budget to include Jubilee promises)

The public wage burden stands at 12 per cent of the gross domestic product (GDP) against an optimal level of seven per cent. In the current financial year civil servants will earn Sh458 billion, an amount that should be reduced to Sh267 billion going by the global best practice.

However, cutting jobs is a political hot potato.

“I don’t see Uhuru prioritising such a thing given the politics around it. Freezing further recruitment and cutting on waste in other areas can be a good start from a political perspective,” said a policy expert who did not wish to be named because of his links with the Treasury.

He said the establishment could be progressively reduced through a voluntary retirement backed by a generous severance package or through phased retrenchment where only essential personnel are retained.

Reducing the wage bill would release resources for development expenditure which in turn would create jobs for millions of educated youths. For this to happen 40 per cent of the budget, up from 30 per cent now, would need to be for the development vote.

“The resources that are freed can then be used in agricultural activities, for example, where more jobs can be created,” said Mr Munywoki.

“The State is sitting on a lot of potential which is not being realised because money goes into paying people for work that may not really exist.” He said allowances needed to be waived because they are paid to senior officials who attend meetings which should be part of their jobs compensated through the monthly salary.

The government is also expected to create an enabling environment in view of the latest World Bank’s Ease Doing Business 2013 report, which showed that Kenya has slipping further while its neighbours were improving.

“With the coming government we expect a lot in real estate, big investments, manufacturers supplying for the infrastructure developments,” said Kenya Private Sector Alliance chairman Patrick Obath.

Simplified taxation

He said cheaper energy and flexible employment policies would help substantially reduce the cost of production. Mr Obath also said that tackling bottlenecks in licensing, registering properties, clearing goods at the port and other border points and a simplified taxation regime would attract investors.

Sealing leakages in the bureaucracy where billions are lost through corruption would also leave more for allocation to priority areas. During President Kibaki’s administration, there have been several reported cases of graft, some of which remain unresolved.

“Corruption has distorted the economy and advanced the interest of a few people,” said Mwalimu Mati, who heads Nairobi-based governance watchdog Mars Group.

He said President Kibaki seemed to drop the anti-corruption policy as part of his central economic reforms programme by not taking concrete action even in cases where investigations exposed the perpetrators.

“This record of not taking action should now change. Uhuru needs to deal with bogus debts relating to past suspect procurement. If we borrow from China, the government needs to negotiate better deals rather than just take money because it is being offered,” said Mr Mati.

Mr Kenyatta’s presidency also faces challenges from devolution, the International Criminal Court (ICC) trials and land reform.

“The president and the central government will have to persuade governors to retain fidelity to the broader national plans such as LAPSSET (Lamu-South Sudan-Ethiopia Transport corridor),” said Mr Mati.

Rose Wanjiru, director at the Centre for Economic Governance, said land reforms are important especially in view of the tension in such places as the Coast region.

During the election campaigns, Mr Kenyatta promised to deal with the particular case of the 1000-acre Waitiki Farm where thousands of squatters live.

On the policy front analysts said the Vision 2030 was a well crafted strategy which required infrastructure expansion and reforms in education and health to be sustained.

Funding, especially the attraction of foreign direct investments will be the key challenge because domestic savings and taxes are inadequate with more than half of the revenues being consumed by the wage bill.

Domestic savings

“(In 2012), about two-thirds of investments in Kenya were financed through gross savings while external borrowing and capital transfers from abroad provided the rest of capital financing,” says Economic Survey 2012.

Domestic savings need to grow two fold from 15 per cent to 30 per cent of GDP for them to have an impact on the economy. Private Equity is another option for funding infrastructure, especially following the enactment of the Public Private Partnerships Act.

Mr Kenyatta is also expected to engage the West candidly, especially given their concerns over the trials him, his deputy William Ruto and journalist Joshua arap Sang are facing in the Hague over crimes against humanity charges arising from the post-election violence.

With economic growth expected to be between five and six per cent in the short-term, the government will be hard pressed to create the one million jobs it promised without tasking diplomats to aggressively look for jobs in their stations.

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